Case Law Details
Gujarat Smelting & Refining Co. Ltd. Vs ITO (ITAT Ahmedabad)
The assessee cannot be absolved from the penalty merely on the reasoning that it has agreed for the addition/disallowance during the quantum proceedings. The Hon’ble Supreme Court in the case of MAK Data Private Ltd versus CIT reported 38 com 448 has held as under:
“9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary.”
In the case on hand, the ld. AR appearing on behalf of the assessee has not brought any material/reliable information suggesting that the assessee has made voluntary disclosure during the assessment proceedings before the detection of bogus loss shown by it by the income tax Department. Accordingly, we are of the view that the assessee cannot escape from the penalty in the given facts and circumstances.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This is assessee’s appeal against the order of ld.CIT(A)-2, Ahmedabad dated 3.12.2018 vide which the ld.CIT(A) has confirmed imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 (“the Act” for short) for the Asst.Year 2014-15.
2. Sole Ground raised by the assessee reads as under:
1. In his order u/s 143 3 , the books of accounts of the business of the assessee has been rejected by Ld. AO u/s 145(3) and business loss claimed of Rs. 72,63,457 has been disallowed. Infact in the letter of the assessee dated 15/12/2016, the assessee has not raised any objection for rejection of such books and disallowance of claim of loss, which means the assessee has accepted the mistake during assessment proceedings and surrendered before the AO. Still the loss has been rejected and penalty u/s 2711 c has been levied without proving that the assessee has intention of concealing income or furnishing inaccurate particulars of income. The Id. CIT [A] has erred in law by confirming the penalty u/s 271(1)© of Rs 22,44,408/-
3. The necessary facts are that the assessee in the present case is a limited company and claimed to be engaged in the activity of manufacturing of aluminum alloys casting. The assessee has filed return of income declaring total income at Rs.5,12,968.00 only. The assessee in the year under consideration has claimed business loss of Rs. 72,63,457.00 which was set off against the short-term capital gain declared under section 50 of the Act. However the assessee failed to justify the business loss shown by it based on the documentary and other tangible materials. As such the AO during the assessment proceedings found that the assessee has shown nil turnover in the returns filed under the provisions of VAT and excise whereas the assessee has declared turnover in the return filed under the income tax Act at Rs. 7,94,90,851.00 only against which the loss of Rs.72,63,457 was shown in the income tax return. In the absence of supporting evidences, the AO rejected the books of accounts of the assessee under the provisions of section 145(3) of the Act and denied the business loss of Rs.72,63,457.00 to be set off against the short-term capital gain. The AO further initiated the penalty proceedings against the business loss claimed by the assessee on the charge that the assessee has furnished inaccurate particulars of income by claiming the bogus loss in order to set off against the short-term capital gain under the provisions of section 271(1)(c) of the Act which came to be confirmed for an amount of Rs. 22,44,408 being hundred percent of the amount of tax sought to be evaded.
4. On appeal before the learned CIT-A, the assessee contended that there cannot be any penalty in the event books are rejected and the profits is estimated. It was also submitted that the assessee itself has surrendered the income before the AO and therefore there cannot be any penalty on such income. However, the learned CIT-A did not concur with the arguments advanced by the assessee. According to the learned CIT-A, the assessee has furnished inaccurate particulars of income by claiming bogus loss in order to avoid the payment of tax. Thus the learned CIT-A confirmed the order of the AO.
5. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.
6. The learned AR before us filed a paper book running from pages 1 to 29 and contended that there cannot be any penalty in the event books of accounts are rejected under the provisions of section 145(3) of the Act and the profit is determined on estimated basis. It was also contended that the assessee has voluntarily admitted for the disallowance of business loss shown by it. On this count as well, there cannot be any penalty under the provisions of section 271(1)(c) of the Act. On the other hand, the learned DR vehemently supported the order of the authorities below.
7. We have heard the rival contentions of both the parties and perused the materials available on record. On perusal of the profit and loss account filed by the assessee, placed on page 4 of the paper book, we note that the assessee has shown gross business income by way of operations and other income against which it has also claimed several expenses such as direct expenses, purchases, finance cost, depreciation and other expenses. The net result of the business activity was a loss of Rs.72,63,457.00as shown in the computation of income. Such loss was indeed set off against the short-term capital gain declared by the assessee under the provisions of section 50 of the Act which has resulted less taxable income in the hands of the assessee by the amount of such loss. Such loss was alleged to be bogus by the revenue and the same was also accepted by the assessee which eventually resulted in the higher amount of taxable income under the head short-term capital gain.
8. The controversy arises whether the assessee has furnished inaccurate particulars of income by adjusting the bogus business loss against the taxable short-term capital gain. In this regard, we note that the revenue authorities concurrently have reached the conclusion that there was no business activity carried out by the assessee in the year under consideration. The conclusion arrived by the authorities below wad based on the finding that the assessee in the income tax return has shown sales, purchases and other transaction in the income tax return whereas the assessee in the returns filed under VAT and excise has declared nil turnover. The learned AR at the time of hearing has not controverted the finding of the authorities below. In such a situation there remains no ambiguity to the fact that the assessee has shown bogus transactions of the business by generating the loss therein in order to set offs such loss against the taxable income. Thus we hold that, the assessee has furnished inaccurate particulars of income by claiming bogus business loss.
9. It is not the case that the profit under the head business and profession was estimated by the revenue authorities as contended by the learned AR for the assessee. In fact the entire business loss claimed by the assessee was treated as bogus in the absence of any documentary evidence. The primary onus lies upon the assessee to furnish the basic documentary evidence in support of the particulars shown by it in the income tax return. But we note that the assessee has failed to do so. Accordingly the provisions of section 145(3) of the Act was invoked after rejecting the loss shown by the assessee in entirety. As such, there was no element of estimating the income as contended by the learned AR for the assessee. Thus we disagree with the argument advanced by the learned AR for the assessee that profit from the business was estimated.
10. The assessee cannot be absolved from the penalty merely on the reasoning that it has agreed for the addition/disallowance during the quantum proceedings. The Hon’ble Supreme Court in the case of MAK Data Private Ltd versus CIT reported 38 com 448 has held as under:
“9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary.”
11. In the case on hand, the ld. AR appearing on behalf of the assessee has not brought any material/reliable information suggesting that the assessee has made voluntary disclosure during the assessment proceedings before the detection of bogus loss shown by it by the income tax Department. Accordingly, we are of the view that the assessee cannot escape from the penalty in the given facts and circumstances. Accordingly, we do not find any infirmity in the order of the learned CIT-A and therefore we decline to interfere in his order. Hence, the ground of appeal of the assessee is hereby dismissed.
In the result, the appeal filed by the assessee is dismissed. Order pronounced in the Court on 8th June, 2022 at Ahmedabad.
