Borda Brothers, Surat vs Department Of Income Tax

The ACIT, Circle-9, Vs M/s. Borda Brothers, Surat. 8/9, Saurashtra Diamond, B/h Gitanjali, Cinema, Varachha Road, Surat.

PAN: AAEFB 0769Q (Appellant) (Respondent)

Revenue by : Shri B.L. Yadav, Sr.D.R.. Assessee(s) by : None

सुनवाई क तार ख/ Date of Hea ring : 17/03/2015 घोषणा क तार ख /Date of P ronouncement: 20/03/2015

आदेश /O R D E R

PER: MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER

This is an Appeal filed by the Revenue arising from the order of learned CIT(A)-I, Surat dated 17.01.2011 against the penalty levied u/s.271(1)(c) of Rs.3,49,720/-

2. Facts in brief as emerged from the corresponding assessment order passed u/s.144(3) dated 28.12.2007 and the penalty order u/s.271(1)(c) dated 30th of October, 2009 were that the Assessee firm was in the business of export of diamonds. It was observed by the AO that during the year there was fall in the gross profit; hence by applying the difference of 4% on estimate basis he has made the addition as follows:

"7. As per the records the G.P of assessee during the year is Rs.76,24,091 @13.38% on total turn over of Rs.5,69,78,419/- in comparison to earlier year there was a G.P fall of 3.55% , apart from this the other details of assessee ITA No.1470/Ahd/2011 M/s. Baroda Brothers For A.Y.2005-06 -2- were not verifiable due to non attendance of assessee. In view of this addition on account of G.P is made @ 4% on estimation basis on total turn over of the assessee which comes to Rs.22,79,136/- is added back to the total income of the assessee. (Disallowance of Rs.22,79,136/-)"

3. There was no relief in the quantum addition by learned CIT(A). The matter was carried further to the Tribunal and ITAT Ahmedabad 'D' Bench in ITA No.3920/Ahd/2008 order dated 19.02.2009 has reduced the said addition to Rs.11,15,000/- as under:

"7. The Assessee is a manufacturer, importer, trader and exporter of diamonds. The Assessee has shown gross profit rate of 13.51% in the year under appeal on the total turnover of Rs.5,71,51,007/- as per the details given at page 12 of the paper book filed by the Assessee. The Assessing Officer has enhanced the gross profit rate by 4% on the ground that the gross profit rate declared by the assessee was higher, i.e, 16.93% in the assessment year 2004-

05. The assessee has filed a comparative chart of gross profit rate, which indicates that the gross profit rate shown by the assessee was 17.22%, 12.42% and 16.93% in the assessment year 2002-03, 2003-04 and 2004-05 respectively as against 13.51% shown by the assessee in the year under appeal. The gross profit rate shown by the assessee in the year under appeal is admittedly on lower side. Since the present assessment has been completed u/s.144 of the Act, the income has to be estimated to the best of the judgment of the AO. The average rate of gross profit in the last 3 assessment years works out to 15.52% as against 13.51% shown by the assessee in the year under appeal. We, therefore, consider it appropriate to sustain the addition to the extent of Rs.11,15,000/- as against Rs.22,79,136/- made by the Assessing Officer and confirmed by the learned CIT(A). We order accordingly. Ground No.2 and 3 are partly allowed to the aforesaid extent."

4. On the date of hearing, no one has appeared from the side of the Assessee. On the other hand, from the side of the Revenue-Department, learned Sr.D.R., Mr. B.L. Yadav appeared and vehemently argued that this is a case where the Assessee had not co-operated with the Revenue Department, due to which an ex-parte order u/s.144 was passed. Even during the penalty proceedings, the Assessee has not come forward with a proper explanation although number of notices were issued. He has therefore pleaded that in a situation when Assessee has not co-operated with the Revenue Department hence should be penalized in not offering ITA No.1470/Ahd/2011 M/s. Baroda Brothers For A.Y.2005-06 -3-

an explanation. Rather in the absence of any explanation it was not possible for the Revenue Department to exactly know whether it was false or not.

5. In the light of the above background, discussed in brief, we are of the view that this is a case where a return of income was accompanied by an audit report u/s.44AB of IT Act. The AO has discussed that the Assessee had imported rough diamonds in lots. The prices of those lots varied from lots depending upon the quality of the rough diamonds. Those rough diamonds were polished by the Assessee. The quality of the rough diamonds as well as the polished diamonds was having a very wide range depending upon the cut of the diamond, colour of the diamond, clarity of the diamond and finally the carat of the diamond. After discussing all those facts, the AO has finally held that there was a fall in the gross profit by 3.55%. It was noted by the AO that earlier the gross profit rate was 16.36% but this year it was only 13.51%. Even after the discussion of those facts, the AO has simply estimated the GP addition by adding the difference at 4% that too on estimate basis. Even when the matter reached upto the stage of second appeal again estimation was adopted by the Respected Co-ordinate Bench on which the impugned penalty was imposed by the Assessee. After examining those facts learned CIT(A) has finally concluded as under:

"In my opinion the confirmation of an addition to income by any higher authority or court does not give liberty to the A.O. to levy the penalty automatically unless the basis of addition is such that it conclusively proves that the assessee has either concealed his income or has furnished inaccurate particulars of income. The A.O. has to prove by way of further evidences during the penalty proceedings that the assessee has either concealed his income or has furnished inaccurate particulars of income. Many Hon'ble Courts have held that the penalty being harsher in nature should not be levied in a mechanical manner. Here what has happened is that the penalty ITA No.1470/Ahd/2011 M/s. Baroda Brothers For A.Y.2005-06 -4- was levied by the A.O. only because the amount of addition has been confirmed bv the Hon'ble Tribunal.

In my opinion, the estimated addition does not necessarily indicate that either the assessee has concealed his income or furnished inaccurate particulars of income. Further estimation is always estimation howsoever; it may be scientific or logical. Hence, on the addition made on account of estimation, penalty proceedings cannot be invoked. This opinion/observation has been held by many Hon'ble Courts of the Country. Accordingly, the penalty levied on the estimated addition is hereby deleted and the appeal is allowed."

6. We are also of the view that the addition finally sustained was based upon an estimation; therefore, it was not a very fit case for levy of concealment penalty. Side by side, although we also comment that non co-operation on the part of the tax payer must not be encouraged but for such default the IT Act subscribe a different penalty, i.e., penalty on non attendance, but not the concealment penalty. We are, therefore, not inclined to disturb the finding of learned CIT(A), the same is hereby confirmed and this ground of the Revenue is dismissed.

7. In the result, the Appeal of the Revenue is dismissed.

(ANIL CHATURVEDI) (MUKUL Kr. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 20/03/2015 Prabhat Kr. Kesarwani, Sr. P.S. आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आयु त / Concerned CIT

4. आयकर आयु त(अपील) / The CIT(A)-III, Ahmedabad

5. वभागीय त न ध, आयकर अपील य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

आदेशानुस ार / BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad