Rohit Creation Pvt.Ltd.,, Surat v. The Income tax Officer,Ward-4(1),, Surat

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T K SHARMA JM & SHRI A N PAHUJA AM ITA NO.2475/AHD/2010 (ASSESSMENT YEAR:-2003-04) M/S ROHIT CREATIONS PVT. LTD. 3044 ADARSH MARKET RING ROAD SURAT V/S THE INCOME-TAX OFFICER WARD-4(1) SURAT PAN: AABCR 9676 H [APPELLANT] [RESPONDENT] ASSESSEE BY :- NONE REVENUE BY:- SHRI R K DHANESTA DR O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATE D 25-03-2010 OF THE LD. CIT(APPEALS)-IV SURAT FOR T HE ASSESSMENT YEAR (AY) 2003-04 RAISES THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN S USTAINING THE PENALTY LEVIED U/S 271(1)(C) BY THE LOWER AUTHORITY PARTICULARLY WHEN NO CONSCIOUS CONCEALMENT WAS MADE OR INACCURATE PARTIC ULARS WERE FURNISHED BY THE APPELLANT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN S USTAINING THE PENALTY LEVIED U/S 271(1)(C) BY THE LOWER AUTHORITY MERELY ON THE BASIS OF ADDITIONS MADE IN THE ASSESSMENT ORDER T PURELY ON THE BASIS OF PRESUMPTION AND SURMISES. 3. THE APPELLANT CRAVES LEAVE TO ADD ALTER VARY OR D ELETE ANY OF THE GROUND(S) EITHER BEFORE OR IN THE COURSE OF HEARING OF THE APPEAL . 2 AT THE OUTSET IT MAY BE MENTIONED THAT NONE APPE ARED ON BEHALF OF THE ASSESSEE BEFORE US AT THE TIME OF HEA RING OF THIS APPEAL NOR ANY REQUEST FOR ADJOURNMENT HAS BEEN FIL ED. WE THEREFORE DECIDED TO DISPOSE OF THE APPEAL AFTER H EARING THE LEARNED DEPARTMENTAL REPRESENTATIVE. ITA N O.2475/AHD/2010 2 3. FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.4 04 530/- FILED ON 01-12-2003 BY THE ASSESSEE ENGAGED IN THE BUSINESS OF DRESS MATERIALS WAS PRO CESSED U/S 143(1) OF THE INCOME-TAX ACT 1961[HEREINAFTER REFER RED TO AS THE ACT]. SUBSEQUENTLY THE ASSESSMENT WAS REOPENED U /S 147 OF THE ACT AFTER RECORDING REASONS IN WRITING WITH THE SE RVICE OF A NOTICE U/S 148 OF THE ACT ON 23.2.2005. IN RESPONSE THE A SSESSEE INFORMED VIDE LETTER DATED 1.7.2005 THAT RETURN FLED ON 1.12 .2003 MAY BE TREATED AS RETURN IN RESPONSE TO THE NOTICE U/S 148 OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED ON VERIFICATION OF THE CASH BOOK PRO DUCED BY THE ASSESSEE THAT THERE WERE NEGATIVE CASH BALANCES ON THE FOLLOWING DATES: DATE AMOUNT (RS.) 11-9-2002 (-) 998/- 27-9-2002 (-) 5 549/- 14-10-2002 (-) 5 661/- AS REGARDS THE AMOUNT OF RS.5 661/- THE ASSESSEE S UBMITTED THAT NEGATIVE BALANCE WAS DUE TO A BONAFIDE CLERICAL MI STAKE BY THE ACCOUNTANT. HOWEVER THE AO DID NOT ACCEPT THE CONT ENTION OF THE ASSESSEE AND ADDED THE SAME TO THE INCOME OF THE AS SESSEE ON ACCOUNT OF EXPLAINED EXPENDITURE U/S 69C OF THE ACT . 3.1 THE AO FURTHER NOTICED THAT THE ASSESSEE HAD S HOWN PURCHASES FROM M/S JAYCO SYNTHETICS FOR AN AMOUNT O F RS.6 98 721/- WHILE WHOLE AMOUNT REMAINED PAYABLE AT THE YEAR END . AS PER THE CONTRA ACCOUNT OF PARTY FURNISHED BY THE ASSESSEE THE AMOUNT OF PURCHASES AND THE AMOUNT REMAINED OUTSTANDING AT TH E YEAR END WAS SHOWN AT RS.6 91 734/-. SINCE THE CONTRA ACCOUN T OF THE PARTY WAS FURNISHED BY THE ASSESSEE ONLY AND NO CLARIFICA TION FOR THE DIFFERENCE WAS FURNISHED THE DIFFERENCE OF RS.6 98 7/- WAS TREATED ITA N O.2475/AHD/2010 3 AS EXCESS PURCHASE SHOWN BY THE ASSESSEE AND ACCORD INGLY ADDED TO THE INCOME. 3.2 THE AO FURTHER NOTICED THAT THE ASSESSEE PURCH ASED 2 00 105 MTRS. OF FINISHED CLOTH WORTH RS.77 46 458/- AT THE AVERAGE RATE OF RS.38.71 PER MTR. AS DETAILED HEREUNDER:- MONTH QTY. (MTR.) AMOUNT (RS.) OCTOBER 02 66322.75 2463839 NOVEMBER 02 67600.00 2712760 DECEMBER 02 45500.00 1767000 JANUARY 03 3619.50 120468 FEBRUARY 03 17062.75 662401 NET FINISHED PURCHASE 200105.00 7746458 THE AVERAGE SALE PRICE PER METER WAS APPROXIMATELY RS.37/- THROUGH OUT THE YEAR WHILE FINISHED CLOTH WAS PURCHASED FRO M OCTOBER 02 TO FEBRUARY 03 AT AN AVERAGE RATE OF RS.38.71 PER MET ER. SINCE NO STOCK OUT OF THE AFORESAID FINISHED CLOTH WAS SHOW N IN THE CLOSING INVENTORY AS ON 31/3/2003 VIDE ORDER SHEET ENTRY D ATED 8/12/2005 THE AR OF THE ASSESSEE WAS ASKED TO IDENTIFY THE SA LE OF FINISHED CLOTH WITH THE BILLS. THE AR OF THE ASSESSEE EXPRES SED DIFFICULTIES IN IDENTIFYING SUCH SALE. SINCE THERE WAS STEEP FALL I N GP TO 3.61% FROM 9.56% WHILE NEGATIVE BALANCE OF CASH WAS NOTICED IN THE CASH BOOK THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN WHY BOOKS O F ACCOUNTS SHOULD NOT BE REJECTED U/S. 145(3) OF THE ACT AND W HY GROSS PROFIT SHOULD NOT BE ESTIMATED @ 5% WHICH WORKED OUT TO R S.25 78 542/- ON THE TOTAL SALES OF RS.5 15 70 842/-. IT WAS FURT HER POINTED OUT TO THE ASSESSEE THAT ON AVERAGE COST OF FINISHED CLOTH PURCHASED @ 38.71 PER METER IF AVERAGE GP OF 5% IS TAKEN THE AVERAGE SALE PRICE OF 200105 MTR. OF FINISHED CLOTH PURCHASED DU RING THE YEAR WORKED OUT TO RS.40.64 PER MTR. AS AGAINST AVERAGE SALE PRICE OF RS.37/- PER METER SHOWN BY THE ASSESSEE . THE DIFFE RENCE OF RS.3.64 PER METER ON 200105 MTR. WORKED OUT TO RS.7 28 382 /- WHICH APPROXIMATED TO THE DIFFERENCE OF ESTIMATED G.P. @ 5% AND THE GP OF 3.61% SHOWN BY THE ASSESSEE ON TOTAL SALES OF 5 15 70 842/-.AFTER ITA N O.2475/AHD/2010 4 CONSIDERING THE REPLY OF THE ASSESSEE THE AO REJEC TED THE BOOK RESULTS HAVING RECOURSE TO PROVISIONS OF SEC.145(3) OF THE ACT AND ACCORDINGLY ADDED AN AMOUNT OF RS. 7 16 747/- BY A PPLYING THE GP @ 5% ON SALES OF RS.5 15 70 842/-. SINCE AN AMOUN T OF RS.6987/- HAD ALREADY BEEN ADDED TO THE INCOME OF THE ASSESSE E ON ACCOUNT OF EXCESS PURCHASE SHOWN BY THE ASSESSEE THE DIFFEREN CE OF RS.7 09 760/- WAS ADDED TO THE INCOME. INTER ALIA PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT WERE ALSO INIT IATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME. ON APP EAL THE LEARNED CIT(A) CONFIRMED ALL THE ADDITIONS. 4. ON RECEIPT OF ORDER OF THE LD. CIT(A) I N RESPONSE TO A SHOWCAUSE NOTICE DATED 19.6.2008 ISSUED BEFORE THE LEVY OF PENALTY THE ASSESSEE REPLIED THAT SINCE THEY HAVE FILED APP EAL BEFORE THE ITAT PENALTY SHOULD NOT BE LEVIED. HOWEVER THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND LEVIED A PENAL TY OF RS.2 63 305/- @100% OF THE TAX SOUGHT TO BE EVADED ON THE INCOME OF RS.7 16 477 ON THE GROUND THAT THE ASSESSEE WILLFULLY FURNISHED INACCURATE PARTICULARS OF INCOME. 5. ON APPEAL THE LEARNED CIT(A) UPHELD THE LEVY OF PENALTY IN THE FOLLOWING TERMS:- I HAVE CONSIDERED RIVAL SUBMISSIONS. IT IS SEEN T HAT THE APPELLANT PREFERRED AN APPEAL BEFORE THE APPELLATE TRIBUNAL A GAINST THE QUANTUM ADDITION MADE IN THE ASSESSMENT ORDER ON WHICH THIS PENALTY HAS BEEN LEVIED. BUT UNDER THE CIRCUMSTANCES WHEN THE QUANT UM ADDITION WAS CONFIRMED BY THE CIT(A) AND THE MATTER IS SUBJUDICE D BEFORE ITAT ALSO I UPHOLD THE JUSTIFIABLE ACTION OF THE A.O. 6. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A).THE LEARNED DR MEREL Y SUPPORTED THE ORDER OF THE LEARNED CIT(A). 7. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH TH E FACTS OF THE CASE. THE PENALTY U/S 271(1)(C) OF THE ACT IS LEVIABLE IF THE AO IS ITA N O.2475/AHD/2010 5 SATISFIED IN THE COURSE OF ANY PROCEEDINGS UNDER TH IS ACT THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS THEREOF. IT IS WELL SETTLED THAT ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE SEPARATE AND DISTINCT A ND AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF ANANTHRAMAN VEERASINGHAIAH & C O. VS. CIT 123 ITR 457 THE FINDINGS IN THE ASSESSMENT PROCEEDINGS CANNOT BE RE GARDED AS CONCLUSIVE FOR THE PURPOSES OF THE PENALTY PROCEEDINGS. IT IS ALSO WEL L SETTLED THAT THE CRITERION AND YARDSTICKS FOR THE PURPOSE OF IMPOSING PENALTY U/S 271(1)(C) OF THE ACT ARE DIFFERENT THAN THOSE APPLIED FOR MAKING OR CONFIRMING THE ADD ITIONS. IT IS THEREFORE NECESSARY TO REAPPRECIATE AND RECONSIDER THE MATTER SO AS TO FIN D OUT AS TO WHETHER THE ADDITION MADE IN THE QUANTUM PROCEEDINGS ACTUALLY REPRESENTS THE CONCEALMENT ON THE PART OF THE ASSESSEE AS ENVISAGED IN SEC. 271(1 )(C) OF THE ACT AND WHETHER IT IS A FIT CASE TO IMPOSE THE PENALTY BY INVOKING THE SAID PROVISIONS. THE PROVISIONS OF SECTION 271(1)( C ) OF THE ACT STIPULATE THAT IF THE ASSESSING OFFICER OR THE CIT(APPEALS) OR THE COMMISSIONER IN THE COURSE OF PROCEEDINGS UNDER TH IS ACT IS SATISFIED THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURN ISHED INACCURATE PARTICULARS THEREOF HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN BUT WHICH SHALL NOT EXCEED THREE TIMES T HE AMOUNT OF TAX SOUGHT TO BE EVADED BY A REASON OF THE CONCEALMENT OF PARTICULAR S OF HIS INCOME. EXPLANATION 1 TO SECTION 271(1)( C ) OF THE ACT MENTIONS THAT WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THE ACT SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FO UND BY THE AO OR THE CIT (APPEALS) OR THE COMMISSIONER TO BE FALSE OR SUCH PERSON OFF ERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM THEN THE AMOUNT ADDED OR DIS ALLOWED IN COMPUTING THE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL FOR THE PURPOSE OF CLAUSE ( C ) OF SECTION 271(1) BE DEEMED TO REPRESENT THE INCOME IN RESPEC T OF WHICH PARTICULARS HAVE BEEN CONCEALED. IN OTHER WORDS THE NECESSARY INGREDIEN TS FOR ATTRACTING EXPLANATION 1 TO SECTION 271(1)( C ) ARE THAT ( I ) THE PERSON FAILS TO OFFER THE EXPLANATION OR ITA N O.2475/AHD/2010 6 ( II ) HE OFFERS THE EXPLANATION WHICH IS FOUND BY THE A O OR THE CIT (APPEALS) OR THE COMMISSIONER TO BE FALSE OR ( III ) THE PERSON OFFERS EXPLANATION WHICH HE IS NOT ABL E TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME HAVE BEEN DISCLOSED BY HIM. 7.1 IF THE CASE OF ANY ASSESSEE FALLS IN ANY OF THESE T HREE CATEGORIES THEN THE DEEMING PROVISION STIPULATED IN EXPLANATION 1 TO SECTION 271(1)( C ) COMES INTO PLAY AND THE AMOUNT ADDED OR DISALLOWED IN COMPUTI NG THE TOTAL INCOME SHALL BE CONSIDERED AS THE INCOME IN RESPECT OF WHICH PARTIC ULARS HAVE BEEN CONCEALED FOR THE PURPOSES OF CLAUSE ( C ) OF SECTION 271(1) AND THE PENALTY FOLLOWS. ON TH E OTHER HAND IF THE ASSESSEE IS ABLE TO OFFER AN EX PLANATION WHICH IS NOT FOUND BY THE AUTHORITIES TO BE FALSE AND ASSESSEE HAS BEEN ABLE TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS REL ATING TO THE SAME HAVE BEEN DISCLOSED BY HIM THE ASSESSEE SHALL BE OUT OF THE CLUTCHES OF EXPLANATION 1 TO SECTION 271(1)( C ) OF THE ACT AND IN THAT CASE THE PENALTY SHALL N OT BE IMPOSED. AS IS APPARENT FROM THE IMPUGNED ORDER IN THE INS TANT CASE THE LD. CIT(A) WHILE UPHOLDING LEVY OF PENALTY DID NOT ANALYSE TH E ISSUES RAISED BY THE ASSESSEE IN THEIR EXPLANATION NOR EVEN BROUGHT OUT AS TO WHETHER THE PENALTY IS LEVIABLE FOR CONCEALMENT OF PARTICU LARS OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS THEREOF AND W HICH SPECIFIC PARTICULARS WERE CONCEALED OR FURNISHED INACCURATE. THE LD. CIT(A) UPHELD THE LEVY OF PENALTY MERELY ON THE GROUND THA T QUANTUM ADDITION HAS BEEN CONFIRMED BY THE LD. CIT(A). HOWE VER WE FIND THAT GP ADDITION OF RS.7 09 760/- HAS BEEN REDUCED BY T HE ITAT TO RS. 2 50 000/- ONLY VIDE THEIR ORDER DATED 30.9.2010 IN ITA NO.1649/AHD./2008 . THE ASSESSEE DID NOT PRESS GROU NDS RELATING TO THE ADDITIONS OF RS.5 661/- & RS.6 987/- BEFORE THE ITAT. A MERE GLANCE AT THE IMPUGNED ORDER REVEALS THAT THE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE NAMELY THAT EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUTHORITY MUST PASS REASONED ORDER WHICH SHOULD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHORITY TO THE ISSUES/POINTS RAISED BEFORE IT. TH E APPLICATION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST IT SELF IN THE ORDER. SECTION ITA N O.2475/AHD/2010 7 250(6) OF THE ACT MANDATES THAT THE ORDER OF THE CIT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WRITING AND SHALL STATE THE POIN TS FOR DETERMINATION THE DECISION THEREON AND THE REASON FOR THE DECISION. THE REQUI REMENT OF RECORDING OF REASONS AND COMMUNICATION THEREOF HAS BEEN READ AS AN INTEG RAL PART OF THE CONCEPT OF FAIR PROCEDURE. THE REQUIREMENT OF RECORDING OF REA SONS BY THE QUASI-JUDICIAL AUTHORITIES IS AN IMPORTANT SAFEGUARD TO ENSURE OBS ERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARITY CHECKS THE INTRODUCTION OF EXTR ANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZES ARBITRARINESS IN THE D ECISION-MAKING PROCESS. WE MAY REITERATE THAT A DECISION DOES NOT MERELY MEA N THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE C ONCLUSION.[MUKHTIAR SINGH VS. STATE OF PUNJAB (1995)1SCC 760(SC)]. AS IS APPARENT THE IMPUGNED ORDER SUFFERS FROM LACK OF REASONING AND IS NOT A SPEAKI NG ORDER. IN VIEW OF THE FOREGOING ESPECIALLY WHEN THE LD. CIT(A) HAS NOT P ASSED A SPEAKING ORDER ON THE ISSUES RAISED IN THIS APPEAL WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO H IS FILE FOR DECIDING THE VARIOUS ISSUES IN RELATION TO LEVY OF PENALTY AFRESH IN A CCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES KEEPING IN VIEW THE FINDINGS OF THE ITAT IN THEIR ORDER DATED 30.9.2010 . NEEDLESS TO SAY TH AT WHILE REDECIDING THE APPEAL THE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER KEE PING IN MIND INTER ALIA THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT. WI TH THESE OBSERVATIONS GROUND NOS. 1 &2 IN THE APPEAL ARE DISPOSED OF. 8. NO ADDITIONAL GROUND HAVING BEEN RAISED B EFORE US IN TERMS OF THE RESIDUARY GROUND IN THE APPEAL ACCORDINGLY THIS GROUND IS DISMISSED. 9.. IN THE RESULT APPEAL IS ALLOWED BUT FOR STAT ISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 22 -02-2011 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 22 -02-2011 ITA N O.2475/AHD/2010 8 COPY OF THE ORDER FORWARDED TO: 1. M/S ROHIT CREATION PVT. LTD. 3044 ADARSH MARKE T RING ROAD SURAT 2. THE ITO WARD-4(1) SURAT 3. CIT CONCERNED 4. CIT(A)-IV SURAT 5. DR ITAT AHMEDABAD BENCH-A AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD