Case Law Details
Argument on behalf of Revenue that the CIT(A) has committed error in modifying the GP rate at 03.56% as against 07.29% applied by the AO on suppressed sales. In this regard, we note that the AO issued notice under s.142(1) of the Income Tax Act, 1961 asking the assessee to show-cause as to why the GP or unaccounted sales should not be estimated at par with the GP on accounted sales.
The AO noted that the assessee did not furnish any record in response to such notice and merely stated that the ITAT has estimated the GP on the lower side in the subsequent assessment years. The CIT(A) has merrily accepted the aforesaid contention of the assessee.
We note that GP rate on the accounted sales estimated by the assessee himself stands at 07.29%. We thus fail to understand as to how the GP for the unaccounted sale should be so lower at 03.56% which is less than half of the GP rate declared by the assessee himself on accounted sales.
We appreciate the contention of the AO that the GP on accounted sales are likely to be on higher side as various fixed costs have already been fully claimed. The GP arrived at in the subsequent assessment year can probably give rise to some basis only when the GP of the current year is not available on records. The GP on accounted sales is available in the present case which forms sound basis for applying the same towards unaccounted sales. Therefore, the order of the CIT(A) granting concession to the assessee on estimation of GP on suppressed sales found as a result of search based on some other assessment year cannot be approved.
Full Text of the Judgment
The captioned appeals relate to Assessment Year (AY) 1999-2000 wherein Revenue seeks to assail the order of CIT(A) arising in quantum assessment and Assessee, on the other hand, is aggrieved by the penalty order passed by the Assessing Officer (AO). Therefore, the facts being broadly common, both the appeals are being disposed of by way of a consolidated order.
ITA No.258/Rjt/2012 for AY 1999-2000 – Revenue’s appeal
2. The AO seeks to assail the relief granted by the Commissioner of Income Tax(Appeals)-IV, Ahmedabad [‘CIT(A)’ in short] in its order dated 01/04/2011 in quantum assessment.
3. Briefly stated, the assessment of the assessee was reopened on receipt of certain information during the search proceedings of Balaji Group of cases. The assessee is a proprietor of M/s.Kataria Enterprises and is a sole distributor of M/s.Balaji Wafers Pvt.Ltd. The assessment in this case was reopened and reassessment order was passed by making addition of Rs.50,83,250/- on account of suppressed profits. The undisclosed sales were allegedly detected and accordingly the Gross Profit (GP) was estimated thereon. The CIT(A) in the first round of proceedings revised the total undisclosed sales of the assessee at Rs.3,06,76,075/- as against suppressed sale of Rs.6,97,29,075/- determined by the AO. The sales accounted in the books by the assessee stands at Rs.2,79,32,087/-. The issue was revisited by the AO and the CIT(A) pursuant to directions by the Co-ordinate Bench of Tribunal in the second appeal of the assessee. In the second round of proceedings, the AO observed that GP on the accounted sales of the assessee stands at 7.29%. He accordingly applied similar GP for unaccounted sales at par with the accounted sales and accordingly determined the unaccounted profit on suppressed sales at Rs.50,83,250/- as noted aforesaid and added the same to the total income of the assessee.
4.The CIT(A) in the second round of proceedings adopted the suppressed sales at Rs.3,06,76,075/- in sync with first round of proceedings before it and applied the GP rate of 3.75% having regarding to the similar rate as considered reasonable for the subsequent AYs 2000-0 1 to 2005-06 by the Co-ordinate Bench of ITAT. The CIT(A) granted further allowance of 0.19% thereon towards probability of relatively more expenses in the first year of business. The GP rate of 3.56% was thus considered reasonable and appropriate by the CIT(A). Consequently, addition made by the AO at Rs.50,83,250/- was revised to Rs.10,92,068/-. He thus granted relief of Rs.39,91,182/- in GP estimations on unaccounted sales.
5. The Revenue is aggrieved by the aforesaid relief in the present
6. The grounds of appeal raised by the Revenue read as under:-
1. The Ld.CIT(A)-I, Rajkot has erred in law and on fact of the case in restricting the addition made by the A. O. in giving relief of Rs. 39,91,182/- to the assessee.
2. On the facts of the case, Ld. CIT(A) ought to have upheld the
assessment order of the A. O, dated 07/05/2010.
7. The Ld.DR for the Revenue Mr.Lalit P.Jain contended that the revision of suppressed sales by the CIT(A) is not proper. The Ld.DR further submitted that the GP estimations on unaccounted sales at 03 .75% following the decision of the Tribunal in the subsequent assessment years is not justified. The GP estimations in the subsequent assessment year by the ITAT naturally have been rendered in the facts of those years. Such estimations in the subsequent year cannot taken as a precedent for applying GP in the other assessment years. This is more so because the assessee himself has declared GP at 07.29% towards accounted sale. Therefore, there is no reason to adopt GP of the subsequent assessment year qua unaccounted sales. The Ld.DR relied upon the order of the AO and sought reversal of the relief granted by the CIT(A).
8. The Ld.AR for the assessee Mr.D.M. Rindani, on the other hand, relied upon the order of the CIT(A) and submitted that the GP rate was worked out by the CIT(A) on rational basis having regard to the estimations approved by the Tribunal as reasonable for the AYs 2000-01 to 2005-06. The Ld.AR further submitted that the expenses incurred in the unaccounted sales are ordinarily high. The Ld.AR finally submitted that in view of the decision of the ITAT in the subsequent assessment year, the basis of estimation adopted by the CIT(A) cannot be viewed favourably.
9. We have carefully considered the rival submissions. The short controversy revolve around estimation of GP on suppressed sales found as a result of search proceedings. It was contended on behalf of the Revenue that the CIT(A) has misdirected itself on revising the suppressed sales at lower figure as noted in the preceding para. In this regard, we note that the unaccounted sales were modified by the CIT(A) in the earlier proceeding which has not been disputed by the AO. Further, no such dispute has arisen in the grounds of appeal also. Therefore, there is no occasion for us to examine the aforesaid issue raised orally by the ld.AR in the course of hearing. Thus, this point in issue cannot be entertained.
9.1. We now advert to the second limb of argument on behalf of Revenue that the CIT(A) has committed error in modifying the GP rate at 03.56% as against 07.29% applied by the AO on suppressed sales. In this regard, we note that the AO issued notice under s.142(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) asking the assessee to show-cause as to why the GP or unaccounted sales should not be estimated at par with the GP on accounted sales. The AO noted that the assessee did not furnish any record in response to such notice and merely stated that the ITAT has estimated the GP on the lower side in the subsequent assessment years. The CIT(A) has merrily accepted the aforesaid contention of the assessee. We note that GP rate on the accounted sales estimated by the assessee himself stands at 07.29%. We thus fail to understand as to how the GP for the unaccounted sale should be so lower at 03.56% which is less than half of the GP rate declared by the assessee himself on accounted sales. We appreciate the contention of the AO that the GP on accounted sales are likely to be on higher side as various fixed costs have already been fully claimed. The GP arrived at in the subsequent assessment year can probably give rise to some basis only when the GP of the current year is not available on records. The GP on accounted sales is available in the present case which forms sound basis for applying the same towards unaccounted sales. Therefore, the order of the CIT(A) granting concession to the assessee on estimation of GP on suppressed sales found as a result of search based on some other assessment year cannot be approved. The relief granted by the CIT(A) is therefore reversed.
10. In the result, appeal of the Revenue in ITA No.258/RJT/201 1 for AY 1999-2000 is allowed.
ITA No.542/Rjt/2012 for AY 1999-2000 – Assessee’s appeal
11. The ground of appeal raised by the by the Assessee reads as under:-
1. The learned Commissioner of Income Tax (Appeals)-I, Rajkot has erred in dismissing the appeal whereby upholding the penalty or passed u/s.271(1)(c) of the I. T.Act by the Assessing Officer levying penalty of Rs.3,27,670/- is unwarranted, unjustified and bad in law.
12. The AO while making the quantum addition towards estimation of GP on suppressed sales also invoked penalty proceedings under 27 1(1)(c) and imposed penalty of Rs.3,27,670/- on various additions made to the total income of the assessee.
13. The CIT(A) dismissed the appeal of the assessee against the penalty order.
14. The ld.AR in the second appeal before us submitted at the outset that the penalty notice has been issued without giving reference to the nature of default alleged against the assessee. He referred to the notice dated 07/05/20 10 and 30/06/2011 and submitted that charge as to whether it is a case of concealment of particulars of income or a case of furnishing inaccurate particulars of income is not specified in the notice. The AO finally imposed penalty alleging concealment of particulars of income. The assessee noted that in view of the recent decision of the Hon’ble Bombay High Court in the case of Samson Perinchery in Tax Appeal No.1154 of 2014 and Others (Bom.) following the decision of the Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory reported at (2013) 359 ITR 565 (Kar.), the penalty cannot be imposed without specific notice to the assessee towards the nature of default. On merits, the Ld.AR pointed out that it is a case of mere estimation of profit and therefore the penalty on such estimations is onerous and ought not to have been imposed.
15. The Ld.DR, on the other hand, relied upon the order of the AO and submitted that the legal ground of specification towards charge was not taken before the CIT(A). It was further contended that no immunity is available to the assessee as the suppressed sales have been detected in the course of search.
16. We have carefully considered rival submissions. At the outset, we take note of the legal arguments raised on behalf of the assessee that appropriate charge has not been specified in the show-cause notice issued to the assessee. A perusal of notice issued under s.274 read with 27 1(1)(c) shows that the relevant part of the notice has not been struck off. Thus, it can be inferred that there is lack of application of mind by the AO. The vagueness and ambiguity is claimed to have prevented the Assessee of reasonable opportunity to defend its case. Thus, definite prejudice has caused to the Assessee. It is the requisite of law that the notice to the assessee should be specific. The Revenue has not been able to point out that the so-called ambiguous notice has not impaired or prejudiced the right of the assessee to reasonable opportunity of being heard. It therefore must follow that the notices issued proposing penalty were illusory and the assessee was incapacitated to defend its case. The decisions quoted on behalf of the assessee in the case of Samson Perinchery (Bombay) & Manjunatha Cotton (Karnataka) [supra] are applicable to the facts of the case. The penalty notices, thus, issued are rendered invalid and cannot be sustained.
17. In the result, appeal of the Assessee in ITA No.542/Rjt/2012 for AY 1999-200 is allowed.
18. In the combined result, respective appeal(s) of Revenue and Assessee are allowed.
Order pronounced in the Court on 20/02/2017 at Ahmedabad.
