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Ravi Haldia Proprietor M/s R.H. Exports, Shri Dinesh Haldia Proprietor M/s D.H. Exports, Smt. Mamta Haldia Proprietor M/s Vidhi Gems Versus The ACIT, Circle- 1, Jaipur And Shri Dinesh Haldia Proprietor M/s D.H. Exports Versus The DCIT, Circle- 3, Jaipur

2017 (9) TMI 574 - ITAT JAIPUR

Levy of penalty u/s 271(1)(c) - trading additions applying G.P rate of 15% - proof of mensrea - Held that:- The Coordinate Bench in the quantum proceedings has upheld the rejection of books of accounts on account of certain discrepancies and the trading additions have been sustained by applying G.P rate of 15%, as against G.P rate of 30% applied by the AO and G.P rate of 11.60% offered by the assessee in its return of income, holding that the same will meet the ends of justice. - It is a si .....

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s of ₹ 15,903/- made by the AO on this account has also been deleted by the Coordinate Bench in the quantum proceedings. Even looking at the quantum of bogus purchases of ₹ 15,703 vis-à-vis trading addition of ₹ 6,96,990 so sustained, there is a fundamental fallacy in the very basis for levy of penalty by the AO where he says that penalty has been levied on account of unverifiable purchases whereby the assessee has failed to prove the genuineness thereof. It is thus a case for .....

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appeals filed by the respective assesses against the order of ld. CIT(A), Jaipur challenging the confirmation of levy of penalty imposed by the Assessing officer u/s 271(1)(c) of the Act. 2. In respect of Ravi Haldia, the appeal relates to A.Y 2005-06 against the order of the ld CIT(A) dated 28.04.2015. In case of Dinesh Haldia, the appeal relates to A.Y. 2004-05, 2005-06, 2007-08 against the order of the ld CIT(A) of even date ie, dated 28.04.2015 & for AY 2008-09 against the order of ld C .....

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of both the parties, for the purpose of discussion, the facts in case of Ravi Haldia as the lead case have been considered and the respective ground of appeal taken and contentions advanced by both the parties are considered. ITA No. 211/JP/2017 4. Briefly the facts of the case are that survey and search operations were carried at the residential and business premises of the assessee. Thereafter assessment proceedings were completed u/s 153A read with section 153B/143(3) determining total income .....

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es were found unverifiable and bogus. In the assessment order, addition of ₹ 15,903/- was also made on protective basis by disallowing the unverifiable purchases but the same was not added to the total income of the assessee as trading addition of ₹ 35,66,906/- was more than the disallowance of unverifiable purchases of ₹ 15,903. Simultaneously, the penalty proceedings u/s 271(1)(c) were initiated for concealing and furnishing incurred particulars of income. 5. Being aggrieved, .....

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vant findings of the Coordinate Bench in ITA No. 14/JP/2011 and others dated 19.12.2011 reads as under:- 74 Ground No. 3 is against upholding application of provisions of section 145(3). 75. We have already upheld the action of the CIT(A) while disposing the appeal for assessment year 2008-2009 and 2007-08. Therefore, for the same reasoning, this ground of the assessee is also rejected. 76. Ground No. 4 is against sustaining trading addition of ₹ 35,66,906/- by applying a higher GP rate of .....

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e accounts were audited. However, there are certain discrepancies and we have already upheld the application of provisions of section 145(3). 77.1 Therefore, we are of the view that for the year under consideration if GP rate at 15% is applied against GP rate shown by assessee at 11.60% and against GP rate of 30% applied by the AO and ld. CIT(A), then it will meet the ends of justice. We order accordingly. 78. Ground No. 5 and 6 are against applying 25% of cash and URD purchases and enhancement .....

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G.P rate of 15% was sustained as against G.P rate of 13.60% offered by the assessee in its return of income, the AO imposed a penalty of ₹ 2,34,607 u/s 271(1)(c) of the Act. The reasoning adopted by the AO while levying the penalty as apparent from the reading of the penalty order is as under: 5. (a) The assessee earned unexplained income during the course of carrying on the business is established from the orders of the CIT(A)/ITAT and assessee s own admission during search. Has here bee .....

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ealed the particulars of his income or furnished inaccurate particulars of [such income, or] It is clear that by making purchase from unregistered dealers and failing to prove the genuineness of transaction the assessee has both concealed his true income and has furnished inaccurate particulars of income. 7. On appeal, the ld. CIT(A) upheld the levy of penalty and relevant findings are contained at para 3.3.4, 3.3.5 and 3.3.6 of his order which are reproduced as under:- 3.3.4 Therefore, the issu .....

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st part of clause (A) of explanation 1 is attracted. In quantum appeal, both CIT(A) and ITAT, Jaipur have both dealt in details with the items of excess stock and additions made thereof and they had recorded their findings. It was a concurrent finding which in fact endorsed the AO s action with respect to quantum addition. Therefore, on facts, concealment of income came to be established as there was gross or full negligence on part of the assessee in failing to return correct income, accordingl .....

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ench in case of M/s Antiquariat Vs DCIT (ITA No. 13&14/JP/2013 dated 27/03/2015 has followed the decision of Mak Data Pvt Ltd and Kalindi Rail Norman Engg. Ltd and confirmed the imposition of penalty on estimate. In view of these facts, AO s action for levying penalty u/s 271(1)(c) of the Act, is hereby sustained. Assessee,s appeal stands dismissed. 8. During the course of hearing, ld. AR submitted that the assessee has maintained regular books of accounts consisting of cash book, ledger, st .....

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nherent defects in the system of accounting. Not a single item of suppression of sales nor inflation of purchases has been pinpointed by learned A.O. Moreover it is a fact that neither during the course of survey/search nor otherwise there are any evidence of any unaccounted purchase/sale by the appellant. Quantitative details in the form of stock register have been kept and maintained by assessee. The quantitative details including opening and closing stock inventory stood already filed before .....

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ne of business multiple business are started every year which gives a tough competition in the market and effects GP rate. Otherwise also the additions made are of routine nature and there is no conscious nor positive concealment of income. The assessee s explanation is based on supporting documents. The consensus of judicial opinion is that for routine additions like trading additions and disallowance of deductions and expenses, no penalty for concealment of income or furnishing of inaccurate p .....

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f the I.T. Act is that the parameters of judging the justification for addition made in the assessment case of the assessee is different from the penalty imposed on account of concealment of income or filing of inaccurate particulars of income and that certain disallowance/addition could legally be made in the assessment proceeding on the preponderance of probabilities, but no penalty could be imposed u/s 271(1)(c) on the preponderance of probabilities and revenue has to prove the guilty mind of .....

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see s case. In Antiquariat case additions were made and confirmed on the basis of bogus purchase detected by the department in search/investigation made by the various authorities including assessing officer. But the present appeal is simply a case of additions made by the application of higher GP rate which too was reduced from 30% to 15% by the Hon ble Tribunal in quantum appeal. 9. That as against the reliance placed by the learned CIT(A) on the above mentioned cases, the appellant craves lea .....

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of any gross or wilful negligence on the part of the assessee, no penalty is leviable. The Hon ble Jurisdictional High Court has further observed in this very case that the statute has clearly drawn a distinction between a deliberate false explanation furnished by the assessee and an explanation, which may not be false but is not accepted because the assessee was not able to substantiate it. 12. The Hon ble Kolkata High Court in the case of Durga Kamal Rice Mills (265 ITR 25) has held that quant .....

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e Supreme Court in the case of CIT Vs. Anwar Ali (1970) 76 ITR 696 (SC). In this judgment the Hon ble Court held that in penalty proceedings, the onus is on the department to establish that the assessee is guilty of violation. The penalty proceedings are not criminal proceedings rather they are quasi criminal in nature. 15. It is held in very many cases that the findings given in assessment proceedings would be relevant and admissible materials in penalty proceedings; but those findings cannot o .....

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he Hon ble Supreme Court held that the law laid down in Dilip N Shroff s case as to the meanings of the words conceal and inaccurate continues to be good law. 17. In the cases of HB Leasing & Finance Co Ltd 334 ITR 367 (Del); and Raj Overseas 336 ITR 261 (P&H) it was held that no penalty leviable where addition/disallowance is in regard to debatable issue. In this regard it is respectfully submitted that in the case of present assessee, the AO applied GP rate of 30% but the Hon ble Tribu .....

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oncealment of income and accordingly penalty imposed by the AO was deleted. 19. The appellant also places reliance on the case of CIT Vs. Aero Traders P Ltd (2010) 322 ITR 316 (Del). In this case the AO rejected books of accounts and accordingly estimated income of the assessee at ₹ 61,00,000. He also initiated penalty proceedings separately. The CIT(A) estimated the total income of the assessee at ₹ 1,02,980. The Tribunal confirmed this order. The AO observed that the profit was est .....

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ived at by the tribunal did not warrant interference as it was purely a finding of fact. 20. The assessee craves leave to refer to and rely on the judgment of Hon ble Jurisdictional High Court in the case of CIT vs. Mahendra Singh Khedla reported in 252 CTR 453 and judgement in the case of CIT vs. Krishi Tyre Retreading & Rubber Industries reported in (2014) 360 ITR 580 (Raj.). The latter judgment is given by the Hon ble Jurisdictional High Court taking into consideration judgment of Hon ble .....

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t the parameters of judging the justification for addition made in the assessment case of the assessee is different from the penalty imposed on account of concealment of income or filing of inaccurate particulars of income and that certain disallowance/addition could legally be made in the assessment proceeding on the preponderance of probabilities, but no penalty could be imposed u/s 271 (1)(c) on the preponderance of probabilities and revenue has to prove the guilty mind of the assessee. But i .....

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hough justified in making some addition, however, it observed that even the Assessing Officer had made an estimated addition for he was not sure as to exact amount of addition, to be made and considering the peculiar facts of the case, the Tribunal modified the order by observing that "we find justification in the order of the lower authorities who have rightly made the addition on estimate basis. But the same is looking on higher side due to the peculiar facts and circumstances of the case .....

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rding to us, a pure guess work and, in our view, on such guess work or estimation, no penalty under section 271(1)(c) of the Act can be said to be leviable. For imposing penalty under section 271(1)(c) of the Act, the Assessing Officer has to clearly prove the conduct of the assessee, which in this case, has not been proved. Merely because the books of account of the assessee were rejected or estimated addition was made, in our view, no penalty is leviable. The assessee offered an explanation, w .....

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453 has held as under: 7. The appellate authority as well as the appellate Tribunal both considered the matter in detail and by speaking order set aside the penalty levied by Assessing Officer, in the facts and circumstances of the present case. The relevant portion of Para 7 of order of the Tribunal is reproduced as under:- "Para 7. .....The enquiry conducted by the AO may lead to arrive at the findings as to whether the particulars disclosed are truthful or false or not proved to be sati .....

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ade on the basis of estimation because the results shown by the assessee was not found satisfactory by the AO. Where an estimated addition was concealment of particulars of income or furnishing inaccurate particulars thereof on the part of the assessee to the extent of amount in difference shown by the assessee and estimated by the department depends upon the facts and circumstances of the case. ………….. Under these circumstances when in the present case there was no po .....

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, no head-wise details of claimed purchases were furnished, no separate head of expenses was maintained, work in progress was not declared, some wages were shown outstanding without complete details of creditors, stock register was not maintained and misc. expenses on water transportation etc. were not verifiable and purchase vouchers of sand, steel, bajri etc. were self made etc. Assessee explained reasons for the above defects which were not accepted by the AO as not found satisfactory. The AO .....

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keeping in mind the fact and circumstances of the present case, we are of the view that the ld. CIT (A) was justified in deleting the penalty in absence of positive evidence with the department that there was concealment of particulars of income or furnishing inaccurate particulars thereof on the part of the assessee towards the addition in question. The first appellate order on the issue is thus upheld." 8. The above finding of the Tribunal makes it clear that additions made by the Assessi .....

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, the Coordinate Bench in the quantum proceedings has upheld the rejection of books of accounts on account of certain discrepancies and the trading additions have been sustained by applying G.P rate of 15%, as against G.P rate of 30% applied by the AO and G.P rate of 11.60% offered by the assessee in its return of income, holding that the same will meet the ends of justice. It is therefore a situation where one estimate is replaced by another estimate. The same can form the basis for addition in .....

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he quantum proceedings. Even looking at the quantum of bogus purchases of ₹ 15,703 vis-à-vis trading addition of ₹ 6,96,990 so sustained, there is a fundamental fallacy in the very basis for levy of penalty by the AO where he says that penalty has been levied on account of unverifiable purchases whereby the assessee has failed to prove the genuineness thereof. It is thus a case for levy of penalty purely on trading addition on an estimate basis which cannot be sustained. 26. A .....

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correct in holding that excess stock found during the course of search has been sustained and the same has formed the basis for levy of penalty. Infact, the issue of excess stock was in AY 2008-09 wherein also the Coordinate Bench has deleted the said additions and the relevant findings contained in the consolidated order in ITA No. ITA No. 14/JP/2011 and others dated 19.12.2011 reads as under: 30. In view of the above facts and circumstances and in view of the consistent approach of the tribun .....

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aining entire addition is deleted. 27. In light of above discussions and in the entirety of facts and circumstances of the case and respectfully following the decisions of the Hon ble Rajasthan High Court referred supra, we hereby delete the levy of penalty u/s 271(1)(c) on estimated trading additions to the extent so sustained in the quantum proceedings. In the result, ground taken by assessee is allowed. 28. In the result, the appeal of the assessee is allowed. ITA No. 210/JP/2017 29. In its a .....

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e assessee filed return of income u/s 139(1) of the I.T. Act on 31.10.2004 along with a copy of audit report u/s 44AB declaring total income of ₹ 1,06,86,409/-. The assessment was completed u/s 143(3) for the above assessment year on 24.11.2006 at a total income of ₹ 1,27,98,787/- by applying a GP rate of 35% as against declared GP rate of 28.70%. The Tribunal reduced the GP rate from 35% to 30% and thereby sustained trading addition of ₹ 6,25,112/- on which penalty of ₹ .....

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the provisions of S. 145(3) of the Act and had estimated the income by applying a G.P. rate of 35% on the declared sales against 28% shown by the assessee resulting into trading addition of ₹ 30,17,684/-. In the present case, during the A.Y. 2002-03 the assessee has shown G.P. rate of 62.86%. The reason for declining in G.P. rate this year was explained that there was stiff competition and turnover at almost 2.5 times more than the turnover in the A.Y. 2003-04 was achieved by the assessee .....

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on of G.P. rate at 30%. The grounds as well as appeal is thus partly allowed. 32. Undisputedly, both the parties agreed that the facts and circumstances of the case are identical to case of Ravi Haldia in ITA No. 211/JP/2017 where the trading additions have been sustained on estimate basis and penalty has been levied thereon. Similar arguments have been canvassed by both the parties and for the purposes of brevity, we are not reproducing the same. Our findings and directions contained in ITA No. .....

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law and in the alternative excessive w.r.t. facts and circumstances of the case. 34. Briefly the facts of the case that assessment u/s 143(3) r/w sec. 153A/153B was completed on 30.11.2009 wherein trading addition of ₹ 2,03,2002/- by way of applying 30% GP rate against the declared loss of ₹ 1,84,972/- was made. In first appeal the learned CIT(A) sustained trading addition of ₹ 2,03,202/- made by the AO by way of applying 30% GP rate against the declared loss. In second appeal .....

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which sustaining of levy of penalty of ₹ 29,434/- u/s 271(1)(c) of the I.T. Act is most arbitrary, unjust and untenable in fact and in law and in the alternative excessive w.r.t. facts and circumstances of the case. 36. Briefly the facts of the case are that the assessment u/s 143(3) r/w sec. 153A/153B was completed on 30.11.2009 wherein addition of ₹ 13,00,000/- was made by the AO for unverifiable purchases and a trading addition of ₹ 1,95,137/- on protective basis by way of a .....

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rned CIT(A) in regard to 25% of unverifiable purchases of ₹ 13,00,000/-. However the Tribunal sustained on substantive basis the trading addition of ₹ 87,447/-. On the trading additions sustained by the Tribunal, the penalty of ₹ 29,434 was levied by the AO u/s 271(1)(c) of the Act. ITA No. 648/JP/2016 37. In its appeal for AY 2008-09, Dinesh Haldia, the assessee has taken the following ground of appeal: That the learned CIT(Appeals) erred in sustaining penalty of ₹ 55,78 .....

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77; 1,91,16,000/-, trading addition of ₹ 1,75,393/- by way of applying 30% G.P. rate against the declared G.P. rate of 12.27%, disallowance of some of the expenses @ 20% at ₹ 1,38,269/-. In first appeal before the learned CIT(A) the addition on account of unexplained stock was deleted to the extent of ₹ 89,86,534/- out of total addition of ₹ 1,91,16,000/- and addition of ₹ 1,01,29,466/- was sustained by the learned CIT(A). In appeal before the Tribunal, the addition .....

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some of the expenses @ 10% against disallowance of 20% made by the A.O. On the trading additions and disallowance of expenses, the AO levied the penalty of ₹ 55,781 u/s 271(1)(C) of the Act. Our findings in ITA No. 217&218/JP/17 and 648/JP/16 39. Undisputedly, both the parties agreed that the facts and circumstances of the case are identical to case of Ravi Haldia in ITA No. 211/JP/2017 and Dinesh Haldia in ITA No. 210/JP/17 where the trading additions have been sustained on estimate b .....

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e has taken the following ground of appeal: That the learned CIT(Appeals) erred in sustaining penalty of ₹ 13,757/- levied by the AO u/s 271(1)(c) of the I.T. Act, which sustaining of levy of penalty of ₹ 13,757/- u/s 271(1)(c) of the I.T. Act is most arbitrary, unjust and untenable in fact and in law and in the alternative excessive w.r.t. facts and circumstances of the case. 41. Briefly the facts of the case are that the assessment u/s 143(3) r/w sec. 153A/153B was completed on 30. .....

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8/- on protective basis made by the AO. In appeal before the Tribunal, the Tribunal deleted the addition of ₹ 2,96,016/- sustained by learned CIT(A) in regard to 25% of unverifiable purchases of ₹ 11,84,063/-. However the Tribunal sustained on substantive basis the trading addition of ₹ 43,674/- by applying GP rate of 17% as against GP rate of 30% applied by the AO. On the trading additions so sustained, the AO levied the penalty of ₹ 13,757 u/s 271(1)(C) of the Act. ITA .....

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are that the assessment u/s 143(3) r/w sec. 153A/153B was completed on 30.11.2009 wherein trading additions of ₹ 9,11,038/- was made by applying GP rate of 30% which was upheld by the ld CIT(A). The Tribunal reduced the GP rate to 15% and consequently reduced trading addition from ₹ 9,11,038/- to ₹ 2,16,221/-. On the trading additions so sustained, the AO levied the penalty of ₹ 64,866 u/s 271(1)(C) of the Act. ITA No. 221/JP/2017 44. In its appeal for AY 2005-06, Mamta .....

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as completed on 30.11.2009 wherein trading additions of ₹ 4,50,545/- was made by applying G.P. rate of 30% against the declared G.P. rate of 10.11% which was upheld by the learned CIT(A). The Tribunal reduced the GP rate to 15% and consequently reduced trading addition from ₹ 4,50,545/- to ₹ 1,10,785/-. On the trading additions so sustained, the AO levied the penalty of ₹ 37,291 u/s 271(1)(C) of the Act. ITA No. 222/JP/2017 46. In its appeal for AY 2007-08, Mamta Haldia, .....

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