Case Law Details
Asian Granito India Ltd Vs DCIT (ITAT Ahmedabad)
Conclusion: Penalty levied under Section 271AAA on addition made towards undisclosed investments was not justified as different estimates having been adopted at different stages and consequently the income determined purely on estimate basis in such cases penalty could not be leviable for filing concealment of income or furnishing inaccurate particulars of income by assessee.
Held: Assessee filed an appeal concerning the penalty of ₹20,29,394 levied under Section 271AAA for AY 2008-09. It had initially declared a total income of ₹23,62,74,550 in its Return of Income (ROI). Following a regular assessment under Section 143(3), the total income was determined at ₹42,55,74,550, which included an addition of ₹18,93,00,000 for alleged undisclosed investments. On appeal, CIT (Appeals) reduced the addition by adopting a net profit rate of 13.04% on the alleged suppressed sales. However, ITAT further scaled down the addition to 1% of the turnover as reported in the audited accounts. Following these adjustments, AO initiated penalty proceedings under Section 271AAA, asserting that a penalty was warranted due to the alleged concealed income. Assessee argued against the imposition of the penalty, emphasizing that the basis for the income addition had undergone significant changes during the appellate process. They contended that, in the absence of specific identification of assets related to any undisclosed income, the imposition of a penalty was unwarranted. However, AO levied a penalty of ₹20,29,394 under Section 271AAA. On appeal. It was held that different estimates had been adopted by different authorities while determining the income of assessee company which ranges from GP/NP as recorded in the books of accounts on the alleged suppressed turnover on the basis of SCN issued by Central Excise Authority and finally adoption of 1% net profit of the sales recorded in the regular books of accounts. Thereby the addition made towards undisclosed investments had been deleted. This order of the Tribunal was confirmed by Hon’ble Gujarat High Court in Revenue’s appeal. Thus there was no change not only in the profit estimated but also the alleged turnover from the fact that the addition on account of investments had been deleted. In view of different estimates having been adopted at different stages and consequently the income determined purely on estimate basis in such cases penalty could not be leviable for filing concealment of income or furnishing inaccurate particulars of income by assessee.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
These two appeals are filed by the Assessee as against separate appellate orders dated 28.06.2023 and 11.07.2023 passed by the Commissioner of Income Tax (Appeals)-11, Ahmedabad arising out of the Penalty levied under section 271(1)(c) and 271AAA of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years 2007-08 and 2008-09.
2. ITA Nos. 619/Ahd/2023 for A.Y. 2007-08. The brief facts of the case is that the assessee engaged in the manufacture and sale of Vitrified Tiles. There was a search action under section 132 was carried out in the Asian Group of cases on 07.02.2008. Consequently notices u/s.153A were issued and in response, the assessee filed its Returns of Income on 29.06.2009 declaring total income of Rs.14,84,23,270/-. Assessment came to be completed by passing u/s.153A r.w.s.143(3) of the Act vide order dated 31.12.2009 determining the total income as Rs.24,84,23,270/- by making addition of Rs.10 crores on account of alleged undisclosed investment made by the assessee. The Ld AO while completing the assessment as referred to Excise duty evasion as worked out by Director General of Customs, Excise and Intelligence (DGCEI). Subsequent to the search proceedings, Excise Authorities had conducted search and investigation on various Ceramic Industries in general. The primary allegation was that in order to evade excise duty, there was suppression in the MRP of the sales conducted by the assessee company. Further AO observed that from the cash generated by suppressing the MRP, various expenses including the purchase of raw material, transportation, labour expenses, etc. were incurred. The inquiries conducted by DGCEI were referred in Para 5 and Page 8 to 58 of the assessment order. The A.O. has also referred various undisclosed investment made by the assessee group, the details were referred in Para 11.9 of the assessment order. Thereafter applying the Gross Profit as per the regular books of account maintained at 31.18%, as alleged suppressed sales as per SCN issued by DGCEI of Rs.16,31,59,124/- and determined the undisclosed income of the assessee was estimated at Rs.5,08,73,015/-. Comparing the same with the alleged undisclosed investment of Rs. 10 crores, the higher amount of undisclosed investments have been added to the total income of the assessee and demanded tax thereon.
3. On appeal against the quantum additions, Ld. CIT(A) deleted the addition of alleged unexplained investment of Rs.10 crores and scaled down the addition by adopting net profit as per the books of accounts @ 12.85% on the suppressed sales.
4. On appeal against the Ld. CIT(A), the Co-ordinate Bench of this Tribunal vide its order dated 05.05.2017 in ITA No. 512, 520/ Ahd/2010, further scaled down the addition by estimating the net profit @ 1% of the turnover declared in the audited accounts by the assessee. Thereby the addition made towards undisclosed investments have been deleted. This order of the Tribunal was confirmed by Hon’ble Gujarat High Court in Revenue’s appeal. It is thereafter, the Ld AO issued show cause notice as to why Penalty u/s.271(1)(c) should not be imposed for concealment of income. The assessee filed detailed reply that the Ld. CIT(A) accepted the fact that there is no undisclosed investment as alleged by the A.O. and deleted the addition. However the Ld. CIT(A) has reduced the profit estimated based on the net profit instead of Gross Profit applied by the A.O. However the Hon’ble ITAT upheld the order of Ld.CIT(A) but has further scaled down the profit at 1% of the recorded turnover of the books of the assessee. Thus the addition with regard to the undisclosed investment has not been confirmed by the Tribunal. Thus the assessee pleaded that there is no concealment of income or furnishing inaccurate particulars of income by the assessee company and relied upon various case laws.
4.1. The above reply was rejected the Assessing Officer and thereby levied a penalty of Rs.55,14,076/- u/s. 271(1)(c) of the Act.
5. On appeal before Ld. CIT(A) who confirmed the levy of penalty u/s. 271(1)(c) of the Act.
6. Aggrieved against the appellate order, assessee is in appeal before us raising the solitary ground that the Ld. CIT(A) erred in confirming the penalty of Rs.55,14,076/- levied u/s.271(1)(c) of the Act which is illegal and bad in law and liable to be cancelled.
7. Ld. Counsel Mr. Aseem Thakker appearing for the assessee submitted from the facts of the case, it would be noted that the entire basis of addition have been changed from assessment stage to two different appellate stages. The Assessing Officer made addition by way of unexplained investments on Gross profit basis, whereas Ld.CIT(A) adopted Net Profit as per the books of accounts on alleged suppressed turnover as per the show cause notice issued by DGCEI. Whereas the Hon’ble ITAT restricted the addition to 1% of the turnover as per the audited accounts. Thus the entire basis of addition has undergone a sea change. Therefore, profit and turnover has also been altered while adjudicating by the appellate authorities. In the above circumstances, penalty for concealment of income cannot be levied.
7.1. Further Ld.Counsel submitted on identical issue for the Asst. Years 2005-06 and 2006-07, Ld. CIT(A) allowed the appeal of the assessee company and the copies are placed in the Paper Book at Page Nos. 6 to 12. Further in the case of Group concerns namely Asian Tiles Ltd. on similar grounds for the Asst. Years 2004-05 to 2008-09, the Ld. CIT(A) decided in favour of the assessee, which are placed at Page Nos. 13 to 18 of the Paper Book. In both the cases, the Revenue has not preferred further appeal before the Hon’ble Tribunal and thus the appellate orders have attained finality.
7.2. The Ld. Counsel in support of his arguments relied upon various case laws:
i. CIT v. Valimkbhai H. Patel (2006) 280 ITR 487 (Guj.)
ii. CIT v. Prem Dass (No. 2) (2001) 248 ITR 237 (P&H)
iii. CIT v. Manjunath Cotton Genning 359 ITR 562 (Kar.)
iv. CIT v. Aerotraders Pvt. Ltd. (2010) 322 ITR 316 (Del.)
v. CIT v. Subhash Trading Company 221 ITR 110 (Guj.)
vi. ACIT v. Shivam Projects 97 com 88 (Surat)
8. Per contra, the Ld. D.R. appearing for the Revenue supported the order passed by the Lower Authorities and requested to uphold the levy of penalty u/s. 271(1)(c) of the Act for concealment of income and filing inaccurate particulars of income by the assessee.
9. We have given our thoughtful consideration and perused the materials available on record. It is undisputed fact that the entire basis of addition made by the Assessing Officer have been modified from Gross Profit basis to Net Profit as per the books of accounts by the Ld. CIT(A) on the alleged suppressed turnover. Whereas the Hon’ble ITAT restricted the addition to 1% of the turnover as per the audited books of accounts. Every appellate authority has justified the reasons for modifying the income with clear reasons. It is further seen from Paper Book 6 to 12 in assessee’s own case, the Ld. CIT(A) allowed the quantum addition in favour of the assessee, which was not challenged by the Revenue before this Tribunal and thus the order attained finality. Therefore different estimates have been adopted by different authorities while determining the income of the assessee company which ranges from GP/NP as recorded in the books of accounts on the alleged suppressed turnover on the basis of SCN issued by Central Excise Authority and finally adoption of 1% net profit of the sales recorded in the regular books of accounts. Thereby the addition made towards undisclosed investments have been deleted. This order of the Tribunal was confirmed by Hon’ble Gujarat High Court in Revenue’s appeal. Thus there is no change not only in the profit estimated but also the alleged turnover from the fact that the addition on account of investments have been deleted. In view of different estimates having been adopted at different stages and consequently the income determined purely on estimate basis in such cases penalty could not be leviable for filing concealment of income or furnishing inaccurate particulars of income by the assessee.
9.1. The above view of ours are supported by the Jurisdictional High Court Judgment in the case of CIT Vs. Valimkbhai H. Patel (cited supra) wherein it was held that penalty cannot be levied on an estimation of addition which was substituted by another estimation by observing as follows:
“It was an admitted position that the assessee was carrying on business manufacturing salt and salt is stored in the open in heaps. Therefore, loss on account of cyclone and rain would be on an estimated basis, in fact that was what the Commissioner (Appeals) had found as a matter of fact that one estimate was substituted by another estimate. According to the Commissioner (Appeals) in the Circumstances, the assessee could not he visited with penalty merely because the assessee was not in a position to substantiate the claim in quantity. In the light of the said factual position, it was not possible to interfere with the final conclusion of the Tribunal Both the Commissioner (Appeals) and Tribunal had found and come to the conclusion that the penalty was not leviable in the instant case, though for different reasons.
In the light of the peculiar facts of the case, the Tribunal’s order required no interference in the light of the findings of fact recorded by the Commissioner (Appeals).”
9.2. Similarly Jurisdictional High Court in the case of CIT Vs. Subhash Trading Co. (cited supra) deleted the penalty levied by observing as follows:
“Section 271(1)(c) of the Income-tax Act, 1961-Penalty – For concealment of income- Assessment year 1973-74 After rejecting assessee’s accounts, Assessing Officer assessed income by applying estimated gross profit rate at 15 per cent on estimated sales, and also imposed penalty by invoking Explanation to section 271(1)(c) Tribunal, while reducing gross profit rate to 12 per cent held that there was no evidence to conclude a positive finding about concealment and deleted penalty Whether, in absence of any other material which might reflect on conduct of assessee about deliberate attempt to maintain false books of account, on a preponderance of probabilities, no other conclusion could be reached but that failure to return total assessed income was not on account of any fraud or gross or wilful neglect on part of assessee.”
9.3. Further Punjab and Haryana High Court in the case of CIT Vs Prem Dass (cited supra) held that when penalty was deleted on the ground that difference between returned and assessed income was due to difference of opinion about the estimate rates of income and expenditure by observing as follows:
“Section 271(1)(c) of the Income-tax Act. 1961-Penalty -For concealment of income In response to notice under section 148, assessee, engaged in transport business, filed a return, but Assessing Officer assessed his income at a higher income than returned- Commissioner (Appeals)’s order, reducing income assessed, was upheld by Tribunal also cancelled penalty levied under section 271(1) (c) on ground that difference between returned and assessed income was due to difference of opinion about estimated rates of income and expenditure – Whether, where with regard to same assessee for an earlier assessment year, it had been decided on similar facts that there was no concealment of income, there was no valid ground to take a different view and since all points sought to be raised were inter-related in view of decision of main issue against revenue, other points did not need further elucidation- Held, yes- Whether, therefore, no substantial question of law arose from Tribunal’s Tribunal’s order-Held, yes”
9.4. Further Delhi High Court in the case of CIT Vs. Acro Traders Pvt. Ltd. deleted the penalty levied purely on estimate basis by observing as follows:
“Where profit was estimated after rejection of books and in quantum appeal substantial relief was given by Commissioner (Appeals) and Tribunal, imposition of penalty for furnishing inaccurate particulars of income was not justified [In favour of assessee)
Even in the case of the appellant company substantial relief has been granted by the Hon. ITAT and which has come to be accepted by the Hon. High Court also. Furthermore, the addition sustained is purely on estimate basis.”
10. Respectfully following the above judicial precedents, we hereby delete the penalty levied u/s 271(1)(c) of the Act of Rs.55,14,076/-.
11. In the result, the appeal filed by the Assessee is allowed.
12. ITA No. 620/Ahd/2023 for A.Y. 2008-09: Brief facts is for the Asst. Year 2008-09, assessee filed its Return of Income on 10.10.2008 declaring total income of Rs.23,62,74,550/-. Regular assessment u/s.143(3) was completed on 31.12.2009 determining the total income at Rs.42,55,74,550/- by making an addition of Rs.18,93,00,000/- on account of alleged undisclosed investments made by the assessee.
13. On appeal, Ld. CIT(A) scaled down the addition by adopting Net Profit as per the books of accounts @ 13.04% on the alleged suppressed sales. Whereas the Hon’ble ITAT scaled down the addition by estimating the Net Profit @ 1% of the turnover declared in the audited accounts. It is thereafter, the Ld. AO initiated penalty proceedings by issuing a notice u/s. 271AAA r.w.s. 274 of the Act. The assessee claimed that no penalty be imposed on the alleged addition which has undergone changes at various appellate stages. Therefore the addition which remains is 1% Net Profit on the declared turnover as against GP/NP of the turnover as alleged in the show cause notice issued by DGCEI. In the absence of any such identification of assets, which represent any income or expense, the question of undisclosed income on which penalty can be levied does not arise. However, the Ld AO levied penalty of Rs.20,29,394/- u/s. 271AAA of the Act as concealed income chargeable to tax.
14. On appeal against the appellate order, the Ld. CIT(A) confirmed the levy of penalty. Aggrieved against the same, assesse is in appeal before us raising the solitary ground that the Ld. CIT(A) erred in confirming the penalty of Rs.20,29,394/- levied u/s. 271AAA of the Act which is illegal, bad in law and liable to be cancelled.
15. We have gone through the facts and materials on record, our decisions rendered in Paragraph 8 to 12 of this order in ITA No. 619/Ahd/2023 will be squarely applicable to the facts of the present case. Thus the penalty levied u/s. 271AAA of the Act of Rs.20,29,394/- is hereby deleted and the assessee appeal is allowed.
16. In the combined result, the appeals filed by the Assessee in ITA Nos. 619 & 620/Ahd/2023 are fully allowed.
Order pronounced in the open court on 09 -10-2024
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