Glory Silk Mills Pvt.Ltd.,, Surat v. The Income tax Officer,Ward-1(2),, Surat

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL VP BHAVNESH SAINI JM ) ITA NOS.4036/AHD/2007AND 2808/AHD/2009 A. Y: 2003-04 GLORY SILK MILLS PVT. LTD. 7 TH FLOOR MERIDIAN TOWER NEAR RAJKUMAR CINEMA UDHNA DARWAJA SURAT PA NO. AAACG 8622 R VS THE INCOME TAX OFFICER WARD 1(2) AAYAKAR BHAVAN OPP. NEW CIVIL HOSPITAL MAJURAGATE SURAT (APPELLANT) (RESPONDENT) ITA NO.3187/AHD/2009 A. Y: 2003-04 THE INCOME TAX OFFICER WARD 1(2) AAYAKAR BHAVAN OPP. NEW CIVIL HOSPITAL MAJURAGATE SURAT VS GLORY SILK MILLS PVT. LTD. 7 TH FLOOR MERIDIAN TOWER NEAR RAJKUMAR CINEMA UDHNA DARWAJA SURAT PA NO. AAACG 8622 R (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI J. P. SHAH AR DEPARRMENT BY SHRI C. K. MISHRA DR O R D E R PER BHAVNESH SAINI: THIS ORDER SHALL DISPOSE OF ALL THE ABOVE CROSS APPEALS. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD. 3. THE APPEALS ARE DECIDED AS UNDER. ITA NO.4036/AHD/2007 (ASSESSEES APPEAL -2003-04 ) ITA NO.4036/AHD/2007 AND ITA NOS.2808 AND 3187/AHD/2009 GLORY SILK MILLS LTD. 2 4. BRIEFLY THE FACTS OF THE CASE ARE THAT THE RETU RN DECLARING INCOME OF RS.85 820/- WAS FILED ACCOMPANIED BY AUDITED ACCOUN T AND AUDIT REPORT. IN THIS CASE SURVEY U/S 133A OF THE ACT WAS CARRIED OUT AT THE BUSINESS PREMISES ON 07-01-2003. IN COURSE OF THE SURVEY AM ONGST OTHERS DEFICIENCY IN RESPECT OF STOCK AND CASH WERE NOTED. IN THE STATEMENT RECORDED DURING THE COURSE OF SURVEY THE GROUP HAS ADMITTED RS.40 LAKHS AS UNACCOUNTED INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL. IN RESPECT OF VARIOUS INFIRMITIES FOUND DURING THE COU RSE OF SURVEY PROCEEDINGS THE AUTHORIZED PERSON OF THE GROUP COM PANY ALSO ADMITTED THAT BREAK UP OF THE UNDISCLOSED INCOME IN DIFFEREN T GROUP CONCERN SHALL BE FURNISHED WITHIN 2 TO 3 DAYS. LATER ON THE ASSE SSEE INSTEAD OF FURNISHING THE BREAK UP OF ADMITTED UNDISCLOSED INC OME TRIED TO RECONCILE THE DEFICIENCIES BY FURNISHING ADJUSTMENT ENTRIES I N RESPECT OF PURCHASES STOCK TRANSFER VOUCHERS OF EXPENDITURE ETC. ULTIMA TELY EVEN AS PER THE EXPLANATION OF THE ASSESSEE THERE WERE DEFICIENCIES FOUND IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE CASH BALANCES ETC. IN ORDER TO ASCERTAIN THE CORRECTNESS AND COMPLETENESS OF THE TRADING RES ULTS THE AO MADE A REFERENCE TO THE COMMISSIONER HIGHLIGHTING VARIOUS DEFECTS IN THE ACCOUNT OF THE ASSESSEE FOR THE PURPOSE OF REFERRIN G THE CASE FOR SPECIAL AUDIT U/S 142(2A) OF THE IT ACT. THE SPECIAL AUDITO R SUBMITTED THE REPORT IN THE MATTER. THE AO ON THE BASIS OF THE MATERIAL ON RECORD INCLUDING THE SPECIAL AUDIT REPORT AND THE DEFICIENCY FOUND I N THE BOOKS OF ACCOUNT OF THE ASSESSEE CONSIDERED VARIOUS ISSUES AND MADE SEVERAL ADDITIONS. THE AO REJECTED THE BOOKS RESULTS OF THE ASSESSEE U /S 145 OF THE IT ACT AND APPLIED HIGHER GROSS PROFIT RATE FOR THE PURPOS E OF MAKING THE ADDITION AND FURTHER MADE ADDITIONS ON ACCOUNT OF D ISCREPANCIES IN THE CASH BOOK DISALLOWANCE OF BROKERAGE TRAVELING EXP ENSES UNACCOUNTED CASH PAYMENT DISALLOWANCE OF HRA AND ADDITION ON A CCOUNT OF GROSS PROFIT. ALL THE ADDITIONS WERE CHALLENGED BEFORE TH E LEARNED CIT(A) HOWEVER THE LEARNED CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE. ITA NO.4036/AHD/2007 AND ITA NOS.2808 AND 3187/AHD/2009 GLORY SILK MILLS LTD. 3 5. THE LEARNED COUNSEL OF THE ASSESSEE DID NOT PRES S GROUND NOS. (I) AND (II). THESE GROUNDS ARE ACCORDINGLY DISMISSED. 6. ON THE REMAINING GROUNDS THE ASSESSEE CHALLENGE D THE ADDITION OF RS.3 74 687/- ON ACCOUNT OF DISCREPANCY IN CASH BOO K DISALLOWANCE OF RS.13 98 985/- U/S 40A(2) OF THE IT ACT BEING BROKE RAGE PAID TO HI- LIBAAS PVT. LTD. TRAVELING EXPENSES OF RS.30 000/- UNACCOUNTED CASH PAYMENT OF RS.80 000/- DISALLOWANCE OF HRA RS.9 00 0/- AND ADDITION ON ACCOUNT OF GROSS PROFIT RS.29 70 580/-. THE LEA RNED COUNSEL BRIEFLY ARGUED ON GROUND NO. III THAT IT WAS A NEGATIVE BAL ANCE OF CASH BECAUSE AT THE TIME OF SURVEY TOTAL CASH OF RS.33 090/- WAS FOUND BUT ON THE DATE OF SURVEY AS PER THE BOOKS OF ACCOUNT CASH BALANCE WAS RS.9 65 559/-. THE LEARNED COUNSEL FOR THE ASSESSEE EXPLAINED THAT IF CASH IS CONSIDERED ON ALL THE DIVISIONS OF THE ASSESSEE THERE MAY NOT BE MUCH DIFFERENCE IN THE CASH NOTED BY THE AUTHORITIES BELOW. AFTER BRIE F ARGUMENTS THE LEARNED COUNSEL FOR THE ASSESSEE VERY FAIRLY CONCED ED THAT THERE IS A CASE MADE OUT AGAINST THE ASSESSEE FOR REJECTION OF THE BOOK RESULTS U/S 145 OF THE IT ACT. HE HAS HOWEVER SUBMITTED THAT THE A UTHORITIES BELOW WERE NOT JUSTIFIED IN APPLYING THE GROSS PROFIT OF 9.64% ON THE TOTAL TURNOVER OF THE ASSESSEE AT RS.964.59 LAKHS. HE HAS REFERRED TO PB -32 WHICH IS COMPARATIVE STATEMENT OF THE TOTAL TURNOVER OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER APPEAL AND THE PRECEDING TWO ASSESSMENT YEARS AND SUBMITTED THAT THERE IS A HIGH INCREASE IN THE TURNOVER OF THE ASSESSEE AS COMPARED WITH THE EARLIER YEARS AND THE ASSESSEE DECLARED GROSS PROFIT RATE OF 6.87% IN THE ASSESSMENT YEAR U NDER APPEAL. THEREFORE THE HIGHER GROSS PROFIT RATE APPLIED BY THE AUTHORITIES BELOW AT 9.64% IS EXCESSIVE UNREASONABLE AND EXORBITANT. HE HAS SUBMITTED THAT CONSIDERING THE HISTORY OF THE ASSESSEE THE GROSS P ROFIT RATE MAY BE MODIFIED SUITABLY. THE LEARNED COUNSEL FOR THE ASSE SSEE FURTHER SUBMITTED THAT IN CASE THE GROSS PROFIT RATE IS APP LIED IN THE CASE OF THE ASSESSEE NO FURTHER ADDITION ON ACCOUNT OF DISALLOW ANCE OF THE ITA NO.4036/AHD/2007 AND ITA NOS.2808 AND 3187/AHD/2009 GLORY SILK MILLS LTD. 4 EXPENDITURE ARE REQUIRED TO BE MADE. THE LEARNED CO UNSEL FOR THE ASSESSEE THEREFORE DID NOT ARGUE ON REMAINING GRO UNDS OF APPEAL. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DE CISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS BANWARI LAL BANSHIDHAR 229 ITR 229 (ALL). ON THE OTHER HAND THE LEARNED DR RE LIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THERE W ERE SEVERAL DISCREPANCIES FOUND IN THE BOOKS OF ACCOUNT AT THE TIME OF SURVEY IN PREMISES OF THE ASSESSEE. SPECIAL AUDITOR HAS ALSO POINTED OUT SEVERAL DEFECTS IN THE CORRECTNESS AND COMPLETENESS OF THE BOOK RESULTS OF THE ASSESSEE. THEREFORE BOOK RESULTS HAVE BEEN RIGHTLY REJECTED BY THE AUTHORITIES BELOW. THE LEARNED DR SUBMITTED THAT TH E GROSS PROFIT OF THE EARLIER YEAR HAS BEEN RIGHTLY APPLIED IN THE CASE O F THE ASSESSEE. THEREFORE NO FURTHER REDUCTION IS REQUIRED IN THE MATTER. THE LEARNED DR HOWEVER STATED THAT IN CASE GROSS PROFIT ADDITION IS MAINTAINED THE DISALLOWANCE OF EXPENDITURE WOULD NOT SURVIVE AND N O SEPARATE ADDITION IS REQUIRED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. THE LEARNED COUNSEL FOR THE AS SESSEE DID NOT DISPUTE THAT BOOK RESULTS OF THE ASSESSEE HAVE BEEN RIGHTLY REJECTED BY THE AUTHORITIES BELOW. IT IS AN ADMITTED FACT THAT DURI NG THE COURSE OF SURVEY CASH WAS FOUND LESSER AS COMPARED TO BOOK RESULTS A ND THE ACTUAL CASH FOUND DURING THE COURSE OF SURVEY. SAME IS THE POSI TION AS REGARDS STOCK. SEVERAL DISCREPANCIES WERE ALSO NOTICED AT THE TIME OF SURVEY AND THE RESPONSIBLE PERSON OF THE ASSESSEE COMPANY ALSO ADM ITTED UNACCOUNTED INCOME IN THE GROUP CASES AND ALSO AGREED TO SURREN DER UNDISCLOSED INCOME. SPECIAL AUDITOR ALSO POINTED OUT SPECIFIC D EFECTS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. CONSIDERING THE DISCREPAN CIES NOTED BY THE AUTHORITIES BELOW AND THE SPECIAL AUDITOR AND THAT THE ASSESSEE AT THE TIME OF SURVEY ALSO ADMITTED UNACCOUNTED INCOME WOU LD SHOW THAT BOOK RESULTS OF THE ASSESSEE HAVE BEEN RIGHTLY REJECTED BY THE AUTHORITIES BELOW ITA NO.4036/AHD/2007 AND ITA NOS.2808 AND 3187/AHD/2009 GLORY SILK MILLS LTD. 5 U/S 145 OF THE IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT DISPUTE REJECTION OF BOOK RESULTS DURING THE COURSE OF ARGUMENTS. NOW WE HAVE TO CONSIDER WHETHER THE GROSS PROFIT RATE A PPLIED BY THE AUTHORITIES BELOW @ 9.64% IS JUSTIFIED OR NOT. IT I S ADMITTED FACT THAT THE TOTAL TURNOVER OF THE ASSESSEE IN THE ASSESSMENT YE AR UNDER APPEAL IS RS.964.59 LAKHS. THE SALES TURNOVER OF THE ASSESSEE HAS NOT BEEN DISPUTED BY THE AUTHORITIES BELOW. THE ASSESSEE HAS SHOWN GROSS PROFIT OF 6.87% IN THE ASSESSMENT YEAR UNDER APPEAL WHICH WAS AS AGAINST 6.56% REPORTED IN THE TAX AUDIT REPORT. THE ASSESSEE IN I TS LETTER DATED 08-03-2006 AGAIN REVISED THE GROSS PROFIT RATE TO 7 .23%. THE AO APPLIED GROSS PROFIT RATE AT 9.64% ACCORDING TO PRECEDING A SSESSMENT YEAR 2002-03. HOWEVER IT MAY BE NOTED THAT IN THE PRECE DING ASSESSMENT YEAR 2002-03 THE TURNOVER OF THE ASSESSEE WAS RS.26 7.84 LAKHS. THEREFORE THE TURNOVER OF THE ASSESSEE IN THE ASSE SSMENT YEAR UNDER APPEAL IS VERY HIGH AS COMPARED TO THE TURNOVER OF THE PRECEDING ASSESSMENT YEAR. IT MAY FURTHER BE NOTED THAT IN TH E ASSESSMENT YEAR 2001-02 THE TURNOVER OF THE ASSESSEE WAS RS.36.50 L AKHS ON WHICH THE ASSESSEE HAS SHOWN GROSS PROFIT OF 14.91%. THE AO A LSO NOTED THIS FACT IN THE ASSESSMENT ORDER AND DID NOT APPLY GROSS PRO FIT RATE OF ASSESSMENT YEAR 2001-02 BECAUSE IT WAS A MEAGER TURNOVER AS CO MPARED TO THE ASSESSMENT YEAR UNDER APPEAL. THE AO HAS THUS FAILE D TO NOTE THAT THE TURNOVER OF THE PRECEDING ASSESSMENT YEAR 2002-03 W AS ALSO VERY LESS AS COMPARED TO THE TURNOVER IN THE ASSESSMENT YEAR UND ER APPEAL. HONBLE PRIVY COUNCIL IN THE CASE OF CIT CENTRAL AND UNITE D PROVINCES VS LAXMINARAIN BADRIDAS 5 ITR 170 HELD THAT ESTIMATE OF INCOME SHOULD BE FAIR. AO SHOULD NOT ACT DISHONESTLY OR VINDICTIV ELY. ALL KNOWLEDGE PREVIOUS HISTORY LOCAL KNOWLEDGE AND CI RCUMSTANCES OF THE ASSESSEE TO BE CONSIDERED TO ARRIVE AT FAIR AND PROPER ESTIMATION OF INCOME. ITA NO.4036/AHD/2007 AND ITA NOS.2808 AND 3187/AHD/2009 GLORY SILK MILLS LTD. 6 8. CONSIDERING THE ABOVE FACTS AND THE DECISIONS AB OVE WE ARE OF THE VIEW THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN APPLYING GP RATE OF 9.64%. CONSIDERING THE PREVIOUS HISTORY OF THE ASSE SSEE AND THAT TREND OF THE TURNOVER OF THE ASSESSEE WHEN THE SALES ARE INC REASING THERE IS A FALL IN THE GROSS PROFIT RATE WE ARE OF THE VIEW IT WOU LD BE REASONABLE AND PROPER TO DIRECT THE AUTHORITIES BELOW TO APPLY GRO SS PROFIT RATE OF 8.50% IN THIS CASE AGAINST THE TURNOVER OF THE ASSESSEE A GAINST GROSS PROFIT RATE OF 9.64% APPLIED BY THE AUTHORITIES BELOW. WE ACCOR DINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND MODIFY THE SAME TO THAT EXTENT AND DIRECT THE AO TO APPLY GROSS PROFIT RATE OF 8.50% O N THE TOTAL TURNOVER DECLARED BY THE ASSESSEE FOR THE PURPOSE OF COMPUTI NG THE INCOME OF THE ASSESSEE. AS A RESULT THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 9. AS REGARDS THE DISCREPANCY IN THE CASH BOOK OF R S.3 74 687/- WE MAY NOTE THAT IT WAS NOT EXCESSIVE CASH FOUND DURIN G THE COURSE OF SURVEY. IT WAS A NEGATIVE BALANCE FOR WHICH NO SUBS TANTIVE ADDITION SHOULD HAVE BEEN MADE AGAINST THE ASSESSEE. REGARDI NG DISALLOWANCE OF BROKERAGE TRAVELING EXPENSES AND DISALLOWANCE OF H RA WE ARE OF THE VIEW THAT THESE ARE PART OF THE BOOK RESULTS OF THE ASSESSEE AND WHEN BOOK RESULTS HAVE BEEN REJECTED AND GROSS PROFIT RA TE IS APPLIED NO FURTHER ADDITION FOR DISALLOWANCE OF THE EXPENDITUR E SHOULD HAVE BEEN MADE SEPARATELY. THE HONBLE ALLAHABAD HIGH COURT I N THE CASE OF CIT CIT VS BANWARI LAL BANSHIDHAR (SUPRA) HELD THAT WHEN GROSS PROFIT RATE IS APPLIED THAT WOULD TAKE CARE OF EVERYTHING AND THERE WAS NO NEED FOR THE AO TO MAKE SCRUTINY OF THE AMOUNT INCURRED ON THE PURCHASE MADE BY THE ASSESSEE. SINCE IN THIS CASE WE HAVE CONFIRMED REJECTION OF THE BOOK RESULTS AND ALSO CONFIRMED AP PLICATION OF THE GROSS PROFIT RATE FOR THE PURPOSE OF COMPUTING BOOK RESUL TS OF THE ASSESSEE THEREFORE THERE IS NO NEED TO MAKE FURTHER ADDITIO N ON ACCOUNT OF DISALLOWANCE OF THE EXPENDITURE. SIMILARLY AS REGA RDS UNACCOUNTED ITA NO.4036/AHD/2007 AND ITA NOS.2808 AND 3187/AHD/2009 GLORY SILK MILLS LTD. 7 PAYMENT OF RS.80 000/- THE AO NOTED THAT THE AFORE SAID SUM WAS NOT ENTERED INTO THE BOOKS OF ACCOUNT AND ACCORDINGLY T REATED AS UNACCOUNTED PAYMENT AND ADDITION WAS ACCORDINGLY MA DE. ONCE SEPARATE ADDITION IS MADE ON ACCOUNT OF HIGHER GROS S PROFIT THE UNDISCLOSED PAYMENT MADE BY THE ASSESSEE OUTSIDE TH E BOOKS OF ACCOUNT SHOULD BE TELESCOPED AGAINST THE UNACCOUNTED INCOME EARNED ON ACCOUNT OF HIGHER GROSS PROFIT RATE AND THE SAME WOULD BE AVAILABLE TO THE ASSESSEE TO MAKE PAYMENT OF RS.80 000/- FOR WHICH N O SEPARATE ADDITION IS REQUIRED. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW IN MAKING FURTHER DISALLOWANCE OF THE EXPENDITURE N OTED ABOVE FOR WHICH THE ASSESSEE IS IN APPEAL BECAUSE NO SEPARATE ADDIT ION IS REQUIRED TO BE MADE. THESE GROUNDS OF APPEAL OF THE ASSESSEE ARE A CCORDINGLY ALLOWED. 10. CHARGING OF INTEREST IS CONSEQUENTIAL AND IS AC CORDINGLY REJECTED. 11. AS A RESULT THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ITA NO.2808/AHD/2009 (ASSESSEES APPEAL) ITA NO.3187/AHD/2009 (DEPARTMENTS APPEAL) 12. BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-I SURAT DATED 23-09-2009 FOR ASSESSMENT YEA R 2003-04 WHEREBY SUSTAINING OF PART PENALTY AND DELETION OF PART PEN ALTY U/S 271 (1) ( C ) OF THE IT ACT HAVE BEEN CHALLENGED. 13. THE FACTS ARE SAME AS NOTED ABOVE IN ITA NO.403 6/AHD/2007. THE AO LEVIED PENALTY ON THE FOLLOWING ITEMS: 1) DISCREPANCIES FOUND IN CASH BOOK: RS. 3 74 687 /- 2) DISALLOWANCE OF BROKERAGE EXPENSES: RS.13 98 9 85/- 3) DISALLOWANCE OF TRAVELING EXPENSES: RS. 30 000/- 4) UNACCOUNTED CASH PAYMENTS: RS. 80 000/- 5) DISALLOWANCE OF EXPENSES OF CAPITAL NATURE: RS. 12 415/- ITA NO.4036/AHD/2007 AND ITA NOS.2808 AND 3187/AHD/2009 GLORY SILK MILLS LTD. 8 6) EXCESS STOCK OF CHEMICALS: RS. 620/ - 7) ON ACCOUNT OF LOW GROSS PROFIT: RS.29 70 580/ - 14. THE LEARNED CIT(A) VIDE IMPUGNED ORDER DELETED THE PENALTY ON ACCOUNT OF EXPENSES OF CAPITAL NATURE RS.12 415/- A ND GROSS PROFIT ADDITION OF RS.29 70 580/-. HOWEVER ON THE REMAINI NG ITEMS PENALTY WAS CONFIRMED. THE ASSESSEE IS IN APPEAL CHALLENGING TH E SUSTAINING OF THE PART PENALTY. THE REVENUE IS IN APPEAL CHALLENGING THE DELETION OF THE PART PENALTY. 15. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ONCE GROSS PROFIT RATE IS APPLIED IN THE CASE OF THE ASSESSEE IT IS NOT A CASE OF FURNISHING INACCURATE PARTICULARS OR CONCEALMENT OF INCOME. HE HAS SUBMITTED THAT THE LEARNED CIT(A) DELETED THE PENAL TY ON ACCOUNT OF ESTIMATION OF INCOME BY APPLYING HIGHER GROSS PROFI T RATE. THE LEARNED COUNSEL FOR THE ASSESSEE THEREFORE SUBMITTED THAT THE PENALTY ON THE REMAINING ITEMS SHOULD HAVE ALSO BEEN DELETED. IN S UPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THE H ONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS SUBHASH TRADING COMPANY 221 ITR 110 (GUJ) AND ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 (SC). 16. ON THE OTHER HAND THE LEARNED DR RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT PENALTY WAS WR ONGLY CANCELLED BY THE LEARNED CIT(A) ON PART OF THE ADDITION. HE HAS SUBMITTED THAT PENALTY WAS CORRECTLY IMPOSED BY THE AO. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIAL AVAILABLE ON RECORD. THE AO REJECTED THE BOOK RESUL TS AS NOTED ABOVE AND APPLIED GROSS PROFIT RATE ON THE BASIS OF PRECEDING ASSESSMENT YEAR. WE HAVE MODIFIED THE ORDERS OF THE AUTHORITIES BELOW A ND REDUCED THE APPLICATION OF GROSS PROFIT RATE. THEREFORE IT IS CLEAR THAT ADDITION IS ITA NO.4036/AHD/2007 AND ITA NOS.2808 AND 3187/AHD/2009 GLORY SILK MILLS LTD. 9 ULTIMATELY MADE ON ACCOUNT OF GROSS PROFIT ADDITION . THE LEARNED CIT(A) RELIED UPON SEVERAL DECISIONS IN SUPPORT OF HIS FIN DINGS THAT IF ADDITIONS ARE CONFIRMED BY THE TRIBUNAL ON ACCOUNT OF FALL IN THE GROSS PROFIT RATE IT CANNOT BE SAID THAT THE ASSESSEE CONCEALED PARTICUL ARS OF INCOME OR FURNISHED INACCURATE PARTICULARS AND THEREFORE NO PENALTY SHOULD BE IMPOSED. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS SUBHASH TRADING COMPANY 221 ITR 110 (GUJ) HELD HELD THAT A BEST JUDGMENT ASSESSMENT HAD BEEN MADE. WHILE THE ASSESSEE IN ITS BOOKS OF ACCOUNT DISCLOSED THE TOTAL SALES TO BE. RS.7 75 00 0 THE INCOME-TAX OFFICER ON REJECTION OF THE BOOKS OF ACCOUNT ESTIMA TED THE SALES TO BE RS.8 75 000 WHICH ON APPEAL THE TRIBUNAL REDUCE D TO RS.8 00 000. SO ALSO WHILE THE GROSS PROFIT DISCLO SED BY THE BOOKS OF ACCOUNT OF THE ASSESSEE WAS 5 PER CENT THE INCO ME-TAX OFFICER ESTIMATED THE GROSS PROFIT RATE AT 15 PER CENT WHI CH AGAIN WAS REDUCED BY THE TRIBUNAL TO 12 PER CENT. IN THIS CIR CUMSTANCE IN THE ABSENCE OF ANY OTHER MATERIAL WHICH MIGHT REFLECT O N THE CONDUCT OF THE ASSESSEE ABOUT A DELIBERATE ATTEMPT TO MAINT AIN FALSE BOOKS OF ACCOUNT ON A PREPONDERANCE OF PROBABILITIES NO OTHER CONCLUSION COULD BE REACHED THAN THAT THE FAILURE T O RETURN THE CORRECT INCOME WAS NOT ON ACCOUNT OF ANY FRAUD OR G ROSS OR WILLFUL NEGLECT ON THE PART OF THE ASSESSEE. THE TRIBUNAL W AS RIGHT IN HOLDING THAT PENALTY OF RS.92 894 IMPOSED BY THE IN SPECTING ASSISTANT COMMISSIONER UNDER SECTION 271 (1) ( C ) OF THE ACT WAS NOT JUSTIFIED. 18. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 (SC) HELD THAT A GLANCE AT THE PROVISIONS OF SECTION 271(1) (C ) OF THE INCOME-TAX ACT 1961 SUGGEST THAT IN ORDER TO BE COVERED BY IT THERE HAS TO BE CONCEALMENT OF PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS I NCOME. THE ITA NO.4036/AHD/2007 AND ITA NOS.2808 AND 3187/AHD/2009 GLORY SILK MILLS LTD. 10 MEANING OF THE WORD PARTICULARS USED IN SECTION 2 71(1) ( C ) WOULD EMBRACE THE DETAILS OF THE CLAIM MADE. WHERE NO INF ORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURAT E THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PART ICULARS. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION THE PENALTY PROVISION CAN NOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORREC T CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. TH ERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETUR N FILED BY THE ASSESSEE BECAUSE THAT IS THE ONLY DOCUMENT WHERE T HE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUC H PARTICULARS ARE FOUND TO BE INACCURATE THE LIABILITY WOULD ARI SE. TO ATTRACT PENALTY THE DETAILS SUPPLIED IN THE RETURN MUST NO T BE ACCURATE NOT EXACT OR CORRECT NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY TH E ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FA LSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271( 1) ( C ). A MERE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REG ARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RE TURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS. DECISI ON OF THE GUJARAT HIGH COURT AFFIRMED. 19. THE HONBLE PUNJAB AND HARYANA HIGH COURT IN TH E CASES OF CIT VS DHILLON RICE MILLS [2002] 256 ITR 447 (P. & H.) AND IN THE CASE OF HARIGOPAL SINGH VS CIT [2002] 258 ITR 85 (PH) HELD THAT NO PENALTY FOR CONCEALMENT LEVIABLE WHERE INCOME ASSESSED IS A MAT ER OF ESTIMATE. HONBLE SUPREME COURT IN THE CASE OF M/S. RAJASTHA N SPINNING & WEAVING MILLS 2009 PIOL 63 SC HELD THAT ON EVERY DEMAND PENALTY IS NOT AUTOMATIC. CONSIDERING THE FACTS OF THE CASE AS NOTED ABOVE IN THE LIGHT OF THE ABOVE DECISIONS AND IN THE LIGHT OF ITA NO.4036/AHD/2007 AND ITA NOS.2808 AND 3187/AHD/2009 GLORY SILK MILLS LTD. 11 ULTIMATE FINDING ON MERIT ON QUANTUM APPEAL IT IS CLEAR THAT ADDITION IS NOW SUSTAINED ON ACCOUNT OF GROSS PROFIT RATE FOR E STIMATION OF THE INCOME AND THE REMAINING ADDITIONS ON ACCOUNT OF DI SALLOWANCES OF THE EXPENDITURE HAVE BEEN DELETED. THEREFORE IT IS NOT A FIT CASE FOR IMPOSITION OF PENALTY. THE AO HAS NOT BROUGHT ANY M ATERIAL ON RECORD TO PROVE THAT THE ASSESSEE HAS FURNISHED INACCURATE PA RTICULARS OF INCOME OR CONCEALED PARTICULARS OF INCOME. WE ACCORDINGLY DO NOT FIND ANY JUSTIFICATION TO SUSTAIN EVEN PART OF THE PENALTY I MPOSED U/S 271 (1) ( C ) OF THE IT ACT. AS A RESULT WE SET ASIDE THE ORDER S OF THE AUTHORITIES BELOW AND CANCEL THE PENALTY U/S 271 (1) ( C ) OF THE IT ACT. 20. AS A RESULT APPEAL OF THE ASSESSEE IS ALLOWED AND THE DEPARTMENTAL APPEAL IS DISMISSED. 21. IN THE RESULT APPEAL OF THE ASSESSEE IN ITA NO .4036/AHD/2007 IS PARTLY ALLOWED. THE APPEAL OF THE ASSESSEE IN ITA N O.2808/AHD/2009 IS ALLOWED AND THE DEPARTMENTAL APPEAL IN ITA NO.3187/ AHD/2009 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09-04-2010. SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 09- 04-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD