Deep Jyoti Dyeing & Printing Mills ... vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL " D " BENCH, AHMEDABAD (BEFORE SHRI SHAILENDRA Kr. YADAV, J.M. & SHRI ANIL CHATURVEDI, A.M.)

I.T. A. No. 2068/AHD/2011 (Assessment Year: 2005-06) Deep Jyoti Dyeing & V/S The I.T.O., Ward-1(2), Surat Printing Mills Pvt. Ltd. Block NO. 63/C, Post Vareli, Tal. Palsana, Surat

(Appellant) (Respondent)

PAN: AAACF7989C

Appellant by : Smt. Urvashi Sodhan, A.R. Respondent by : Smt. Sonia Kumar, Sr. D.R.

(आदे श)/ORDER

Date of hearing : 21-04-2015 Date of Pronouncement : 07 -05-2015

PER SHRI ANIL CHATURVEDI,A.M.

1. This appeal filed by the Assessee is against the order of CIT(A)-I, Surat dated 13.06.2011 for A.Y. 2005-06.

2. The relevant facts as culled out from the material on record are as under.

3. Assessee is a company stated to be engaged in the business of dyeing & printing of fabric on job work basis. Assessee filed its return of income for A.Y. 2005-06 on 18.10.2005 declaring total income at Rs. Nil. The case was selected for scrutiny and thereafter the assessment was framed under section 2 ITA No 2068/AHD/2011 . A.Y. 2005-06 143(3) vide order dated 24.12.2005 by making additions/disallowances aggregating to Rs. 33,70,580/- which included addition of Rs. 32,98,880/- on account of suppression of gross profit. On the addition on account of gross profit, penalty of Rs. 11,54,610/- was levied on account of concealment of income u/s. 271(1)(c) vide order dated 25.03.2010. Aggrieved by the aforesaid penalty order of A.O, the matter was carried before ld. CIT(A) who vide order dated 13.06.2011 dismissed the appeal of the Assessee and upheld the penalty levied by A.O. Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now in appeal before us and has raised the following ground;-

1. Learned CIT (A) has erred in law and on facts in confirming penalty levied by AO of Rs. 11,54,610/- on estimated additions without any cogent evidence brought on record u/s 271(1)(c) of the Act. Both the lower authorities have failed to appreciate the fact that the Appellant cannot be charged with any guilt of having furnished inaccurate particulars of income or having concealed particulars of income as enumerated within mischief of section 271(1)(c) of the Act. The penalty levied being without any merits and justification deserves to be quashed.

4. Before us, ld. A.R. submitted that the books of accounts were rejected u/s. 145(3) by the A.O and thereafter the gross profit was estimated @ 16%. Against the order of estimation of gross profit @ 16% made by A.O, the matter was carried in appeal by the Assessee before Hon'ble Tribunal. Hon'ble Tribunal vide order dated 8th July, 2011 in ITA No. 39/AHD/2009 estimated the gross profit rate at 15% as against 16% adopted by A.O. The ld. A.R. therefore submitted that the penalty has been levied on the estimation of gross profit. It was further submitted that Assessee had given explanation for the fall in gross profit but the explanation was not accepted by the A.O but at the same time, the submissions and the explanations given 3 ITA No 2068/AHD/2011 . A.Y. 2005-06 by the Assessee were also not found to be false. It was further submitted that when addition has been made on estimated basis, it is not necessary that penalty should be levied on such addition as the penalty and quantum proceedings are distinct and separate. Reliance was also placed on the decision in the case of CIT vs. Whitelene Chemicals 360 ITR 385 and in the case of CIT vs. Subhash Trading Company (1996) 221 ITR 110 (Guj). She therefore submitted that the penalty be deleted. Ld. D.R. on the other hand supported the order of A.O and ld. CIT(A).

5. We have heard the rival submissions and perused the material on record. We find that in the present case the addition on account of gross profit was estimated by the A.O at 16% and on the aforesaid addition, penalty u/s. 271(1)(c) has been levied by the A.O. It is also a fact that the addition on account of gross profit was reduced to 15% by the Tribunal but the addition has been finally made on estimated basis. It is also a fact that the Assessee had furnished the explanation with respect to the fall in gross profit but however the explanation of the Assessee was not accepted. It is not a case where the explanation furnished by the Assessee has been found to be false or incorrect. It is a settled law that when the addition is made on the estimate basis, no penalty on account of concealment of income u/s.271(1)(c) is sustainable. Further, it is an admitted proposition in law that the finding in the quantum proceeding is not a factor for determining the question for the purpose of imposing penalty. Question of penalty has to be decided independent of such finding. It is well settled that the parameters of judging the justification for addition made in the assessment case of the assessee is different from the penalty imposed on account of concealment of income or filing inaccurate particulars of income and that certain 4 ITA No 2068/AHD/2011 . A.Y. 2005-06 disallowance/addition could legally be made in the assessment proceeding on the preponderance of probabilities, but no penalty could be imposed u/s 271(l)(c) of the Act on the preponderance of probabilities. We further find that Hon'ble Gujarat High Court in the case of CIT vs. Subhash Trading Company (1996) 221 ITR 110 (Guj) had concluded that where income is assessed on estimate basis after rejecting book results, penalty u/s. 271(1)(c) cannot be imposed by mere application of Explanation thereof in the absence of any evidence to conclude a positive finding that there was concealment of income. In view of the aforesaid facts we are of the view that no penalty is leviable in the present case and therefore direct its deletion. In the result this ground of Assessee is allowed.

6. In the result, the appeal of Assessee is allowed.

Order pronounced in Open Court on 07 - 05 - 2015.

Sd/- Sd/- (SHAILENDRA Kr. YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad. TRUE COPY Rajesh

Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) - 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File.

By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad