F.A. Chasmawala Pvt.Ltd., Baroda vs Assessee

This is the assessee's appeal against the order of Ld. CIT(A)-I, Baroda dated 18-05-2011.

2. Facts as culled out from the material on record are as under:

I.T.A No. 1795/Ahd/2011 A.Y. 1996-97 Page No 2 FA Chasmawala Ltd vs. ACIT

3. Assessee is a company stated to be engaged in the business of manufacturing and sales of ophthalmic goods. Assessee filed its return of income for AY 96-97 on 30-11-96 declaring total income of Rs 23,87,640/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) vide order dated 29.1.1999 and the total income was determined at the Rs 77,45,941/- by making various additions against which Assessee preferred appeal before CIT(A) where Assessee was granted partial relief. On the additions sustained by CIT(A) (namely addition on account of sales return to Raja Opticals -Rs 2,15,856/- and disallowance of deduction of Rs. 2,30,352/- u/s 80HHC) AO vide order dated 26-3-2009 levied penalty of Rs 2,05,000/- u/s 271(1)(c) of the Act. Against the penalty order passed by the AO, Assessee preferred appeal before CIT(A) who vide order dated 18.5.2011 deleted penalty on deduction u/s 8OHHC but upheld the penalty on addition on account of sales return. Aggrieved by the order of CIT(A), Assessee is now in appeal before us and has raised the following grounds:

"1. The Ld. CIT(A) erred in holding that penalty was leviable in respect of additions sustained amounting to Rs. 2,13,856/-, out of alleged sale outside the books being purchase returns to Raja Opticals.

2. The Ld. CIT(A) erred in holding that the company had failed to substantiate its claim of Returned goods to Raja Opticals and hence the penalty was leviable on such addition of Rs. 2,13,856/- being Estimated Profit on alleged sale outside the books."

4. Before us, the Ld AR apart from reiterating the submissions made before AO and CIT(A) further submitted that in AY 1995-96 the purchases from Raja Opticals were not found to be genuine and therefore addition was made. The sales return made during the year to Raja Opticals was not accepted by the AO and therefore the addition of Rs 10,60,465/- was made by AO. CIT(A) however for different reasoning directed the AO to I.T.A No. 1795/Ahd/2011 A.Y. 1996-97 Page No 3 FA Chasmawala Ltd vs. ACIT

work our the addition on the basis of average gross profits of 3 years and thus the addition was upheld for only Rs 5,48,350/- as against the addition of Rs. 10,60,465/- made by AO. She pointed to the relevant para of the ClT(A) order which is placed at page 19 of the paper book. She therefore submitted that firstly the basis of addition has been changed by CIT(A) and secondly the addition has been made on estimated basis and therefore no penalty u/s 271(!)(c) is leviable and for which she placed reliance on the following decisions.

CIT vs Aero Traders Pvt Ltd 322 ITR 316 (Del) CIT vs. SANGRUR VANASPATI MILLS LTD (2008) 303 ITR 53 (P & H)

5. Ld DR on the other hand relied on the order of AO and CIT(A) and supported their orders.

6. We have heard the rival submissions and perused the material on record. In the present case we find that AO had made the addition of Rs 10,60,465/- considering the sales return to be bogus for the reason that the purchases in immediate preceding year was considered to be bogus. We find that CIT(A) has however confirmed the quantum addition of Rs 5,48,350/- on the basis of average gross profits of earlier 3 years meaning thereby that the basis of addition was changed and the addition was confirmed on the basis of estimate of gross profits of three years. It is well settled that the penalty for concealment of income or filing of inaccurate particulars of income could not be levied merely on the basis of the addition made on estimation of certain Income. 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 I.T.A No. 1795/Ahd/2011 A.Y. 1996-97 Page No 4 FA Chasmawala Ltd vs. ACIT

concealment of income or filing inaccurate particulars of income and that certain disallowance/addition could legally be made in the assessment proceeding on the preponderance of probabilities, but no penalty could be imposed u/s 271(1)(c) of the Act on the preponderance of probabilities and Revenue has to prove that the claim by the assesses was not genuine or was inflated to reduce its tax liability. Considering the totality of the aforesaid facts, and relying on the decisions cited by the Ld AR, we are of the view that in the present case no penalty u/s 27l(1)(c) of the Act is leviable and therefore we direct its deletion. Thus this ground of Assessee is allowed.

8. In the result the appeal of the Assessee is allowed.

Order pronounced in open court on the date mentioned hereinabove at caption page

Sd/- Sd/-

(MUKUL KR. SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 13/03/2015 ak

आदे श क ूितिल प अमे षत / Copy of Order Forwarded to:-

1. Assessee

2. Revenue

3. Concerned CIT

4. CIT (A)

5. DR, ITAT, Ahmedabad

6. Guard file.

By order/आदे श से,

उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद