Paladiya Brothers, Surat vs Department Of Income Tax

The Dy. Commissioner of M/s. Paladiya Brothers, Income-tax, Circle-9, 25-26, Sarthi Indl. Estate, Surat Vs Nandu Doshi W adi, Vasta (Appellant) Devdi Road, Surat PAN: AADFP1969N (Respondent)

Revenue by: Shri Nimesh Yadav, Sr. DR Assessee by: Written submission

Date of heari ng : 18-05-2015 Date of pronouncement : 24-06-2015

आदेश /ORDER

PER : RAJPAL YADAV, JUDICIAL MEMBER:-

The revenue is in appeal before us against the order of ld. Commissioner of Income Tax (Appeals) dated 24th May, 2011. I.T.A No.2199/Ahd/2011 A.Y. 2005-06 Page No 2 DCIT vs. M/s. Paladiya Brothers

2. The grievance of the revenue is that ld. Commissioner of Income Tax (Appeals) has erred in deleting the penalty of Rs. 6,03,283/- imposed by the Assessing Officer u/s. 271(1)(c) of the income tax act.

3. Brief facts of the case are that assessee is a firm engaged in the business of manufacturing and export of diamonds. It has filed its return of income on 30th August, 2005 declaring total income at Rs. 77,54,689/-. The case of the assessee was selected for scrutiny assessment and a notice u/s. 143(2) was issued on 29th August, 2006. On scrutiny of the accounts, it revealed to the Assessing Officer that assessee had declared a GP of Rs. 1,67,36,708/- @ 10.15% of the total turnover. According to the Assessing Officer, the GP shown in the last year was 15.11% of the turnover. Thus, there was a fall in GP. Ld. Assessing Officer has pointed out defects in the maintenance of accounts and accordingly rejected the book result. He estimated the GP at 11.15% as against 10.15% disclosed by the assessee. Thus, ld. Assessing Officer has made an addition of Rs. 16,48,655/-. This addition has been confirmed up to ITAT.

4. The ld. Assessing Officer has initiated penalty proceedings u/s. 271(1)(c) and after hearing the assessee has imposed a penalty of Rs. 6,03,283/- which is equivalent to the taxes sought to be evaded on an addition of Rs. 16,48,655/-.

5. On appeal, Ld. First Appellate Authority has deleted the penalty by observing as under:-

"6. I have considered the penalty order as well as the submission of appellant. Though the Assessing Officer had pointed out that quality wise register of stock, manufacturing and sales of diamonds was not I.T.A No.2199/Ahd/2011 A.Y. 2005-06 Page No 3 DCIT vs. M/s. Paladiya Brothers

maintained, yet, the Assessing Officer could not point out any particular purchase, manufacturing or export bill as non-genuine. No disallowance of labour expenses claimed were made by the Assessing Officer. Instead of making the item wise addition on account of valuation of Closing Stock, yield or production the Assessing Officer preferred to estimate Gross Profit rate of 11.15%. Apart from the discussion on quality wise stock register and piece wise records of manufacturing of diamonds and basis of valuation of stock in the assessment order there is no reference to detection of any concealment of facts or income. The very question of punishment of concealment requires to be considered. The CIT(A) had deleted the addition made by Assessing Officer. The Hon'ble ITAT had also estimated Gross Profit of 8% in a number of cases for A.Y. 2005/06 as against the Gross Profit of 10.15% shown by the assessee.

During the penalty proceedings the appellant explained that for comparison purposes the Gross Profit has to be calculated excluding exchange difference in view of the decision of the ITAT in the case of ACIT vs. Pankaj Diamonds in ITA No. 2608/A/2009. This fact was not brought to the notice of ITAT by the AR during the hearing of quantum Appeal. Similarly, the reason for reduction in Gross Profit due to increase in cost of rough diamonds and labour was also explained during the penalty proceedings with all evidences. If these two factors of exchange difference and increase in cost of rough diamonds and labour compared to increase in sale prices are considered there is no variation in Gross Profit. These facts itself proves that there doubts about the correct profit which ipsofacto could not tantamount to concealment of income. In my opinion penalty cannot be levied where the addition has been made on estimate basis howsoever the method of estimation may be quite scientific. Accordingly, the concealment penalty of Rs.6,03,283/- is hereby deleted."

6. In response to the notice of hearing, no-one has come present on behalf of the assessee but written submissions have been filed. With the assistance of ld. Departmental Representative, we have gone through the record and the written submissions of the assessee. It emerges from the record that though assessee maintained the books of accounts but I.T.A No.2199/Ahd/2011 A.Y. 2005-06 Page No 4 DCIT vs. M/s. Paladiya Brothers

according to the Assessing Officer certain ancillary details which are supporting to the books accounts are not completely maintained. For example, assessee failed to produce quality data of diamonds manufactured by it. It failed to produce the written slips vide which rough diamonds were handed over to the labourers for job work. To our mind, these types of documents are specifically not mandated by the law but these are documents for internal accounting purpose. No-doubt, such documents may help the Assessing Officer to cross verify the stock position by re-conciliating with purchases, sales, yield and wastage claimed by the assessee. Therefore, the Assessing Officer has rejected the book result because of his inability to deduce true income, but it cannot be alleged that assesse had made a deliberate attempt of concealing the income. The addition is a result of difference of opinion about the nature of details required to be maintained by the assesse as against of the Assessing Officer. The assessee has shown GP of 15.11% in the last year but even after rejection of books of accounts ld. Assessing Officer has made the addition at 11.15% of the turnover. It suggests that addition was on an estimate basis and on estimated addition, assessee not deserves to be visited with penalty. Ld. Commissioner of Income Tax (Appeals) has rightly deleted the penalty. We do not find any merit in this appeal. It is dismissed.

Order pronounced in the open court on 24-06-2015

Sd/- Sd/-

(ANIL CHATURVEDI) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 24/06/2015 ak I.T.A No.2199/Ahd/2011 A.Y. 2005-06 Page No 5 DCIT vs. M/s. Paladiya Brothers

आदेश क त ल प अ े 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/आदेश से,

उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद