ACIT 8(3), MUMBAI v. RAMANI HOTELT LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI BEFORE SHRI R.S. SYAL A.M. AND SHRI R.S. PADVEKAR J.M. I.T.A. NO.: 2200/MUM/2010 ASSESSMENT YEAR : 2004-05 ACIT 8(3) R.NO.217 AAYAKAR BHAVAN M.K. ROAD MUMBAI M/S. RAMANI HOTELS LTD. R.NO.217 AAYKAR BHAVAN M.K. MARG MUMBAI-400 020 PAN NO: AAACR5513J (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI P. PEERYA RESPONDENT BY : SHRI SUBHASH S. SHETTY ORDER PER R. S. PADVEKAR (J.M.) : THIS APPEAL IS FILED BY THE REVENUE CHALLENGING T HE IMPUGNED ORDER OF THE LD. CIT(A)-18 MUMBAI DATED 23.12.2009 FOR T HE ASSESSMENT YEAR 2004-05. THE REVENUE HAS TAKEN THE FOLLOWING GROUND S :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING T HE PENALTY LEVIED BY THE A.O. IN RESPECT OF ADDITION O F ` 3 67 200/- ON ACCOUNT OF DISALLOWANCE OF INTEREST O N PRO-RATA BASIS SINCE IT WAS NOT CHARGED ON THE LOAN S GIVEN TO SISTER CONCERNS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE PE NALTY LEVIED BY THE A.O. IN RESPECT OF ADDITION OF ` .21 32 600/- ON ACCOUNT OF GROSS PROFIT @ 10% SINCE THE ASSESSEE HAS FAILED TO PRODUCE THE SALE BILLS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE PE NALTY IN RESPECT OF ADDITIONS MADE BY THE A.O. ON ACCOUNT OF INTEREST AND GROSS PROFIT WITHOUT APPRECIATING THE FACTS OF THE CASE. 2 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE PE NALTY LEVIED U/S.271(1)(C) ON ACCOUNT OF REDUCTION IN THE RETURNED LOSS WITHOUT APPRECIATING THE FACTS OF THE CASE. 3. THIS APPEAL IS ARISING OUT OF THE PENALTY LEVIE D BY THE AO U/S.271(1)(C) OF THE I.T. ACT 1961 VIDE ORDER DATED 25.03.2009. THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF RUNNING THE HOTEL AND CA TERING SERVICES. THE ASSESSMENT WAS COMPLETED U/S.143(3) VIDE ORDER DATE D 29.12.2006. THE ASSESSEE HAS FILED THE RETURN OF INCOME DECLARING T OTAL INCOME AT RS.NIL BUT AS PER THE COMPUTATION OF INCOME THE ASSESSEE HAS SHOWN THE LOSS OF ` . 3 00 85 170/- THE ASSESSMENT WAS FINALLY COMPLETED DETERMINING THE TOTAL LOSS AT ` . 2 21 21 440/-. THE AO MADE CERTAIN DISALLOWANCES WH ICH ARE AS UNDER :- SR. NO. PARTICULARS AMOUNT 1. DEPRECIATION OF HOTEL BUILDING ` . 20 72 371/- 2. INTEREST EXPENSES ` . 3 67 200/- 3. G.P ADDITIONS ` ` . 21 32 600/- 4. DISALLOWANCES OF COMMISSION TO TRAVEL AGENTS ` 1 10 000/- 5. DISALLOWANCE OF CONTRIBUTION OF PF AND ESIC ` ` 6 51 957/- 6. DISALLOWANCE OF CONTRIBUTION TO ESIC ` RS.45 094/- TOTAL ` ` . 53 79 222/- 4. THE AO INITIATED THE PENALTY PROCEEDINGS U/S.27 1(1) (C) OF THE ACT BY ISSUING SHOW CAUSE NOTICE AS TO WHY A PENALTY SHOUL D NOT BE LEVIED FOR FILING THE INACCURATE PARTICULARS OF INCOME AS WELL AS FOR EVASION OF TAX ON THE ABOVE ADDITIONS. THE ASSESSEE RESISTED THE ACTION O F THE AO BY FILING DETAILED REPLY DATED 17.03.2009 WHICH IS REPRODUCED BY THE A O IN THE PENALTY ORDER ON PAGE NOS. 4 & 5. THE AO REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS. DHARMENDRA TEXTILE PROCESS ORS (306 ITR 277) IN WHICH IT IS HELD THAT A PENALTY IS A CIVIL LIABILIT Y AND WILFUL CONCEALMENT IS NOT ESSENTIAL INGREDIENT FOR LEVY OF THE SAME. THE A. O. ALSO REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN CASE OF DLILIP N. SHROFF VS. JCIT & ANR (291 ITR 519) BUT DISTINGUISHED THE SAID JUDGEMENT BY OBSERVING THAT IN 3 THE SAID JUDGEMENT HONBLE SUPREME COURT HAS NOT CO NSIDERED THE EFFECT AND RELEVANCE OF SECTION 276C OF THE I.T. ACT. THE A.O. FINALLY LEVIED THE PENALTY OF ` . 25 12 450/-. THE ASSESSEE CHALLENGED THE LEVY OF TH E PENALTY BEFORE THE LD.CIT(A) BY TAKING THE DIFFERENT CONTEN TIONS. THE LD.CIT(A) ACCEPTED THE CONTENTIONS OF THE ASSESSEE BY GIVING THE FOLLOWING REASONS AND FINDINGS :- 6.3 I HAVE CAREFULLY CONSIDERED THE INFORMATION ON RECORD. AS MENTIONED IN THE EARLIER PARAS THE APPEL LANT IS ENGAGED IN THE BUSINESS OF RUNNING A HOTEL AND CATERING SERVICES. HIS BOOKS OF ACCOUNTS ARE AUDITE D AS PER THE PROVISIONS OF COMPANY ACT. IT WAS SUBMITTED BY THE APPELLANT DURING ASSESSMENT PROCEEDINGS SOME SALE BILLS COULD NOT BE SUBMITTED AS THE SAME WERE LOST IN FLOODS IN 2007. FURTHER THE AO IN ASSESSMENT OR DER NOTED THAT FOR A.Y. 2007-08 THERE IS GROSS PROFIT O F MORE THAN 80% IN SALE OF LIQUOR. WHILE ARRIVING AT SUCH CONCLUSION HE JUST TOOK THE DIFFERENCE BETWEEN COST PRICE AND SALE PRICE WITHOUT TAKING INTO OTHER EXPENSES L IKE WAGES ELECTRICITY SALARIES AND OTHER OPERATIONAL COST WHICH ARE MANDATORY FOR RUNNING THE HOTEL. SUCH ESTIMATE CAN NOT FORM THE BASIS FOR ESTIMATING THE PROFIT. THE APPELLANT RELIED ON THE CASE LAWS WHICH ARE LIS TED AS UNDER IN SUPPORT OF HIS CONTENTION THAT PENALTY CAN NOT BE LEVIED IN CASE OF GP ADDITION. CIT VS. SANKERSONS & CO. (1972) 85 ITR 627 CIT VS. S.P. BHATT (1974) 97 ITR 440 CIT VS. CHHAGANLAL SHANKERLAL (1975) 100 ITR 464 CIT VS. NADIR ALI & CO. (1977) 106 ITR 151 CIT VS. HARNAM SINGH & CO. (1977) 106 ITR 532 ADDL CIT VS. HORILAL KUNJ BEHARI LAL (1977) 106 ITR 720 ADDL. CIT VS. CHATUR SINGH TARAGI (1978) 111 ITR 849 CIT VS. DEVANDAS PERUMAL & CO. (1983) 140 ITR 943 6.4 IN THIS CASE THE AO ESTIMATED THE GP OF A.Y. 2004-05 TAKING THE BASIS OF GP ON LIQUOR SALES FOR A.Y. 2007-08. GENERALLY THE ESTIMATION IS MADE WITH REFERENCE TO PAST YEAR NOT WITH REFERENCE TO FUTURE YEAR. 4 FURTHER THE GROSS PROFIT IN LIQUOR IS ALWAYS HIGH COMPARED TO GROSS PROFIT ON FOOD AND OTHER ITEMS. T HE AO HAS NOT BROUGHT ANY THING ON RECORD TO SHOW THAT THE ACTUAL SALES WAS MORE THAN WHAT IS RECORDED IN BOOKS OF ACCOUNTS. EXCEPT STATING THAT CERTAIN SALE S BILLS WERE NOT PRODUCED THERE IS NO OTHER EVIDENCE TO PR OVE THAT THERE IS CONCEALMENT OR FURNISHING OF INACCURA TE PARTICULARS. IT WAS A FACT THAT CERTAIN PLACES IN M UMBAI WERE AFFECTED BY FLOOD IN 2007 AND THIS WAS BROUGHT TO NOTICE OF AO DURING ASSESSMENT PROCEEDINGS ITSELF. SOME OF SALE BILLS COULD NOT BE PRODUCED AS SAME WE RE LOST IN FLOOD. NOBODY IS EXPECTED TO DO THE IMPOSSI BLE THINGS. IT IS PERTINENT TO MENTION THAT IN THE CASE OF CIT VS. ARJUN PRASAD AJITKUMAR (2008) 1 DTR 272 (ALL.) WHEREIN IT WAS HELD THAT THERE IS NOTHING ON RECORD TO SHOW THAT THE EXPLANATION SUBMITTED BY THE ASSESSEE LACKS BONAFIDE. HENCE NO PENALTY ON THE BASIS OF ESTIMATING THE SALES AND NET PROFIT CAN BE LEVIED. THE AO LEVIED PENALTY MERELY ON THE GROUND THAT CERTAIN SALE BILLS COULD NOT BE PRODUCED. THE APPELLANT HAD SUBMITTED THE INFORMATION THAT SOME OF THE SALE BIL LS COULD NOT BE PRODUCED AS THE SAME WERE LOST IN FLOO DS. IN SUCH CIRCUMSTANCES CONSIDER THERE IS NO CASE FOR LEVY OF PENALTY U/S.271(1) EITHER FOR CONCEALMENT OR FO R FURNISHING OF INACCURATE PARTICULARS. FURTHER IN T HE CASE OF KANBAY SOFTWARE (INDIA) PVT. LTD. VS. DCIT (2009 ) 31 SOT 153 PUNE THE HONBLE ITAT HELD THAT LEVYING OF PENALTY IS NOT AUTOMATIC TO THE ADDITION MADE BY TH E AO. THE CONDITIONS LAID DOWN IN EXP.1 TO SEC.271(1) ARE TO BE EXAMINED. THE THREE CONDITIONS LAID DOWN IN EXP.1 TO SEC 271(1)(C) ARE AS UNDER :- 1. THAT THE ASSESSEE FAILED TO OFFER AN EXPLANATION. 2. THAT THE EXPLANATION OFFERED BY THE ASSESSEE IS PROVED TO BE FALSE. 3. THAT THE ASSESSEE FAILED TO SUBSTANTIATE THE EXPLANATION WITH MATERIAL EVIDENCE. 6.4 IN THIS CASE NONE OF THE THREE CONDITIONS MENTI ONED IN EXP.1 TO SEC. 271(1)(C) ARE SATISFIED. THE APPEL LANT SUBMITTED THE REASONS THAT SOME OF THE SALES BILLS WERE LOST IN FLOOD. SUCH EXPLANATION SUBMITTED BY THE ASSESSEE WAS NOT PROVED TO BE FALSE BY THE AO IN T HE CIRCUMSTANCES THE PENALTY LEVIED BY AO IS DELETED. 5 7. IT IS ALSO PERTINENT TO MENTION THAT THE AO LEVI ED PENALTY ON THE FOLLOWING AMOUNTS: COMMISSION TO TRAVELLING AGENTS ` ` .1 10 000/- EMPLOYEES CONTRIBUTION TO PF ` ` .51 957/- ESIC CONTRIBUTION ` .45 094/- 7.1 IT IS PERTINENT TO MENTION THAT THE AO HAS NOT INITIATED ANY PENALTY PROCEEDINGS IN ASSESSMENT ORD ER DATED 29.12.2006 ON THE ABOVE THREE ADDITIONS HENC E THE QUESTION TO LEVY OF PENALTY DOES NOT ARISE. IT IS FAIRLY SETTLED THAT NO PENALTY CAN BE LEVIED IN CASES WHER E PENALTY IS NOT INITIATED AND SATISFACTION FOR INITI ATING THE PENALTY IS NOT RECORDED IN ASSESSMENT ORDER (CIT VS . PREETI AGARWAL (2009) 309 ITR 140 (DEL.) AND D.M .MANSI VS. CIT (1972) 86 ITR 557 (SC). HENCE THE PENALTY LEVIED ON THE ABOVE THREE AMOUNTS IS DELETE D AS THE SAME WAS NOT INITIATED AT ALL. 5. NOW THE REVENUE IS IN APPEAL BEFORE US. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND ALSO PERUSED THE REC ORD BEFORE US. IN THE PRESENT CASE THE ASSESSMENT OF THE ASSESSEE IS COM PLETED U/S.143(3) OF THE ACT. THE ASSESSEES MAJOR ADDITIONS ARE IN RESPECT OF DEPRECIATION AS WELL AS ALLEGE LOW G.P. THE LD. COUNSEL SUBMITTED THAT SO FAR AS THE QUANTUM ADDITIONS ARE CONCERNED THE SAME HAS REACHED THE F INALITY THOSE WERE NOT CHALLENGED BY THE ASSESSEE. THE LD. COUNSEL SUPPOR TED THE ORDER OF THE LD.CIT(A) DELETING THE PENALTY. PER CONTRA THE LD. DR VEHEMENTLY ASSAILED THE REASONS GIVEN BY THE LD. CIT(A) FOR DELETING THE PE NALTY. 6. SO FAR AS THE DEPRECIATION IS CONCERNED THE ADDI TION WAS MADE AS THE RATE OF DEPRECIATION WAS CHANGED. IN THE ASSESSMENT YEAR 2003-04 THE ASSESSEE HAS ACCEPTED THAT THE DEPRECIATION IS TO B E CLAIMED AT 10% BUT THE EFFECT IS NOT GIVEN TO THE WDV AND THE WDV AS ON 01 .04.2003 WAS SHOWN AFTER REDUCING THE DEPRECIATION @ 20% AND THAT WAS THE REASON FOR DIFFERENCE IN DEPRECIATION. SO FAR AS THE G.P; ADDI TION IS CONCERNED IT IS SEEN THAT GP IS ESTIMATED AT 10% OF THE SALE VALUE AS TH E ASSESSEE COULD NOT PROVE TO THE SATISFACTION OF THE A.O. WITH CONVINCI NG EVIDENCE THAT THE GP SHOWN BY IT WAS CORRECT. THE AO ALSO OBSERVED THAT AS THE ASSESSEE INVOLVED 6 IN THE CATERING BUSINESS THE CASH SALE FACTOR CANN OT BE RULED OUT. IT APPEARS THAT THE ASSESSEE COULD NOT PRODUCE ALL SALES BILL S. APART FROM THE DEPRECIATION AND GP ADDITION THE OTHER ADDITIONS A RE ON ACCOUNT OF DISALLOWANCES OF ESIC CONTRIBUTION COMMISSION FOR TRAVELLING AGENT ETC. THE LD.CIT(A) HAS DEALT WITH EACH ADDITION AND THE LD.C IT(A) HAS ALSO TAKEN THE COGNISANCE OF THE FACT THAT IN RESPECT OF THE GP A DDITION THE SAME WAS MERELY BASED ON ESTIMATION AND THERE WAS NO ANY SUP PORTING MATERIAL OR EVIDENCE BEFORE THE AO. SO FAR AS THE ALL OTHER ADD ITIONS ARE CONCERNED THE FACTS WERE ON RECORD. HENCE IT CANNOT BE SAID THAT ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME. WE THEREFORE GIVI NG OUR ANXIOUS CONSIDERATION TO TOTALITY OF THE FACTS BEFORE US I N OUR CONSIDERED OPINION THE LD.CIT(A) HAS RIGHTLY DELETED THE PENALTY WHICH IS BASED ON THE ADDITIONS MADE EITHER ON THE ESTIMATIONS OR FOR CLAIMING THE DEPRECIATION AT WRONG RATE. WE ARE THEREFORE OF THE OPINION THAT NO INFER ENCE IS CALLED FOR IN THE ORDER OF LD. CIT(A). ACCORDINGLY AND ACCORDINGLY TH E SAME IS CONFIRMED. 7. IN THE RESULT THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED ON THIS 25 TH DAY OF FEBRUARY 2011. SD/- SD/- ( R.S. SYAL ) (R.S. PADVEK AR ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DT: 25 TH FEBRUARY 2011 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T. 4. CIT (A) 5. THE DR D - BENCH ITAT MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ROSHANI