Ashok Nagrath, New Delhi vs Department Of Income Tax

ITA No. 2839/Del/2013 Assessment Year: 2009-10 Deputy CIT, vs. Ashok Nagrath, Central Circle-12, 206, A & B. The Aralias, New Delhi. DLF Gold Links, DLF City, Gurgaon. (PAN: AACPN7882C) (Appellant) (Respondent)

Revenue by: ShriA. Misra, CIT(DR) Respondent by: Smt. Ruchi Khurana, Adv.

ORDER

PER I.C. SUDHIR: JUDICIAL MEMBER The Revenue has questioned first appellate order on the ground that

the Learned CIT(Appeals) has erred in deleting the penalty imposed by the

Assessing Officer amounting to Rs.40,23,870 under sec. 271AAA of the

Income-tax Act, 1961.

2. Heard and considered the arguments advanced by the parties and have

gone through the orders of the authorities below and the related provisions

of the law. The facts in brief are that penalty in question was levied in

respect of additional income representing excess stock in trade declared

during the action under sec. 133A conducted at the business premises of the

assessee's proprietary concern simultaneously with the action under sec. 132 2

of the Act taken at his residence. The Assessing Officer held that the

assessee has satisfied only two of the three conditions mentioned in sub-

clause (2) of section 271AAA of the Income-tax Act, 1961. He accordingly

held that the assessee has failed to specified as well as substantiate the

manner in which the undisclosed income was derived. The Learned

CIT(Appeals) has, however, deleted the penalty being satisfied with the

explanation of the assessee.

3. In support of the ground, the Learned DR has basically placed reliance

on the penalty order. The learned AR on the other hand has tried to justify

the first appellate order. He reiterated the submissions made before the

authorities below. She submitted further that even the penalty in question

levied by the Assessing Officer was not maintainable since it is not imposed

in a case of survey conducted under sec.133A of the Act. It was submitted

further that the penalty is not leviable in case the assessee disclosed income

during search and paid taxes thereupon and accepted by the Assessing

Officer. In this regard, she has placed reliance on the decisions of Nagpur

Bench of the ITAT reported in (2013) 34 Taxman.com 62 holding that

where assessee had disclosed certain amount during the course of search and

had paid taxes thereon filed return showing said income as business income 3

and same had been accepted by the Assessing Officer under the head

"business income" penalty under sec. 271AAA of the Income-tax Act, 1961

was not leviable.

4. We find from the orders of the authorities below that the assessee's

proprietary concern was engaged in the business of export of handicrafts

items. It was submitted that they deal with hundreds of articles (raw-

material) such as varieties of stones, shells, beads, charms, metal pieces,

threads, metal strings etc. It was submitted that these items are of very small

size, shape and value and come in different colour, design and makes. The

finished goods are produced using different combination of these diverse

inputs. The assessee thus has dealt with both raw material and finished

goods of thousands of variety which cannot be given any specific

nomenclature for record keeping purposes. It was further explained that due

to their tiny size and varying numbers, the exercise of counting and keeping

track of each and every item is very cumbersome and time consuming. In

this back ground, the assessee was not maintaining any stock register as a

matter of record for all the years. It was explained that closing stock

inventory has been prepared every year on estimated basis without taking the

actual physical inventory. These facts were stated by the assessee before the 4

survey party while they recorded the statement on 24.12.2008 (question Nos.

28 & 29 ). It was submitted that past record also shows that the assessee has

been subjected to scrutiny assessments for the years 2001-02 to 2009-10

(both during pre-search and post search assessments) and for all the years,

no stock records have been maintained. In view of these facts, at the time of

survey operation, the assessee had agreed for a declaration of

Rs.4,02,38,700.

5. Having gone through the provisions laid down under sec. 271-AAA of

the Act, we find that penalty there under is levied where search has been

initiated under sec. 132 on or after 01.06.2007 but before 01.07.2012 @ 10%

of the undisclosed income of the specified previous year. As per sub-

section(2) to section 271AAA the penalty is not leviable under the following

situation:

(i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived.

(ii) substantiates the manner in which the undisclosed income was derived; and

(iii) pays the tax, together with interest, if any, in respect of the undisclosed income.

5 6. In the present case, we find that the assessee had agreed to the

addition and clearly stated in reply to question Nos. 28 and 29 that stock

records are not maintained and stock is considered on estimate basis. None-

maintenance of stock records with stock being valued on estimate basis is a

fact accepted by the department. The assessee has also paid the tax together

with interest in respect of undisclosed income. We thus find that all the

above three ingredients have been fulfilled by the assessee in the present

case. The assessee has not only admitted the undisclosed income and

specified the manner in which such income has been derived in its statement

recorded during the course of search but has also substantiated the manner in

which the undisclosed income was derived. It is an undisputed fact that the

assessee has paid the tax together with interest, if any, in respect of the

undisclosed income. Under these circumstances, we are of the view that the

Learned CIT(Appeals) has rightly deleted the penalty in question levied by

the Assessing Officer. The same is upheld. The ground is accordingly

rejected.

7. In result, the appeal is dismissed.

Decision pronounced in the open court on 24 .02.2015

Sd/- ( T. S. KAPOOR ) sd/- ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 24 /02/2015 Mohan Lal 6

Copy forwarded to:

1) Appellant

2) Respondent

3) CIT

4) CIT(Appeals)

5) DR:ITAT

ASSISTANT REGISTRAR

Date Draft dictated on 20.02.2015 Draft placed before author 23.02.2015 Draft proposed & placed before the second member

Draft discussed/approved by Second Member. 26.02.2015 Approved Draft comes to the Sr.PS/PS Kept for pronouncement on File sent to the Bench Clerk 26.02.2015 Date on which file goes to the AR Date on which file goes to the Head Clerk.

Date of dispatch of Order.