Rajeshbhai Bhupatbhai Patel, Surat vs Department Of Income Tax

The Deputy Commissioner Shri Rajeshbhai Bhupatbhai of Income Tax, Patel Prop. Shyam Textiles, Circle-9, Vs 81-B, Hans Society, Surat Varachha Road, Surat- (Appellant) 3955006 PAN: AGQPP9625A (Respondent)

Revenue by: Shri Dinesh Singh, Sr. D.R. Assessee by: None

Date of hearing : 30-03-2015 Date of pronouncement : 24-04-2015

आदे श/ORDER

PER : RAJPAL YADAV, JUDICIAL MEMBER:-

Revenue is in appeal before us against the order of Ld. CIT(A)-V, Surat dated 29th July, 2011 passed for assessment year 2006-07.

I.T.A No. 2868/Ahd/2011 A.Y. 2006-07 Page No 2 DCIT vs. Shri Rajeshbhai Bhupatbhai Patel Prop. Shyam Textiles

2. The solitary grievance of the revenue is that Ld. CIT(A) has erred in deleting the penalty of Rs. 7,71,275/- imposed by AO u/s. 271(1)(c) of the Income Tax Act (hereinafter referred to as the "Act").

3. The brief facts of the case are that assessee is an individual. He has filed his return of income on 16-10-2006 declaring total income at Rs. 6,42,125/-. The assessee is engaged in the business of manufacturing of grey cloth. During the year, assessee had shown yield of grey cloth manufactured from denier quality 30/40 yarn at 14.65 meter per kg. AO has observed that assessee did not maintain daily consumption register, production register, and day to day stock register and therefore his books of account are not reliable. He further observed that other assessees in this line of business were showing the yield at 22 to 24 meters per kg of yarn consumed. He accordingly rejected book result of assessee and estimated the production. According to the AO, assessee ought to have produced at least 18 meters per kg consumption of yarn. The assessee has shown total production at 20,35,740 meters. AO has estimated it at 22,22,192 meters. The value of alleged excess estimated production at 1,86,452/- meters has been worked out at Rs. 24,23,876/- AO has made addition of this amount. He issued a show cause notice u/s. 271(1)(c) r.w.s. 274 and arrived at a conclusion that assessee has furnished inaccurate particulars of his income on the issue of actual production. Accordingly, penalty u/s. 271(1)(c) has been imposed at Rs. 7,71,275/-.

4. On appeal, Ld. CIT(A) has deleted the penalty on the ground that AO has made addition on estimation. He has relied upon the details of assessee and worked out the addition required to be made in the book I.T.A No. 2868/Ahd/2011 A.Y. 2006-07 Page No 3 DCIT vs. Shri Rajeshbhai Bhupatbhai Patel Prop. Shyam Textiles

result of the assessee. According to the CIT(A), there cannot be any penalty on an estimated addition.

5. In response to the notice of hearing, no-one has come present on behalf of the assessee. With the assistance of Ld. DR, we have gone through the record and proceeded to decide this appeal ex-parte qua assessee.

6. Section 271(1)(c) of the Act has a direct bearing on the controversy and, therefore, it is salutary upon us to take note of the relevant provisions of section 271(1)(c) along with Explanation 1 which read as under:

"271. Failure to furnish returns, comply with notices, concealment of income, etc. (1) The Assessing Officer or the Commissioner (Appeals) or the CIT in the of course of any proceedings under this Act, is satisfied that any person

(a) and (b)** ** **

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income. He may direct that such person shall pay by way of penalty.

(i)and (Income-tax Officer,)** ** **

(iii) in the cases referred to in Clause (c) or Clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefit the furnishing of inaccurate particulars of such income or fringe benefits:

I.T.A No. 2868/Ahd/2011 A.Y. 2006-07 Page No 4 DCIT vs. Shri Rajeshbhai Bhupatbhai Patel Prop. Shyam Textiles

Explanation 1- Where in respect of any facts material to the computation of the total income of any person under this Act, (A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the CIT to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income or such person as a result thereof shall, for the purposes of Clause (c) of this sub-

section, be deemed to represent the income in respect of which particulars have been concealed."

7. A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result of such concealment of income or furnishing inaccurate particulars. The other most important features of this section is deeming provisions regarding concealment of income. The section not only covered the situation in which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play. This deeming fiction, by way of Explanation I to I.T.A No. 2868/Ahd/2011 A.Y. 2006-07 Page No 5 DCIT vs. Shri Rajeshbhai Bhupatbhai Patel Prop. Shyam Textiles

section 271(1)(c) postulates two situations; (a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or Learned CIT( Appeal); and, (b) where in respect of any fact, material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and the assessee fails, to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of the total income. Under first situation, the deeming fiction would come to play if the assessee failed to give any explanation with respect to any fact material to the computation of total income or by action of the Assessing Officer or the Learned CIT(Appeals) by giving a categorical finding to the effect that explanation given by the assessee is false. In the second situation, the deeming fiction would come to play by the failure of the assessee to substantiate his explanation in respect of any fact material to the computation of total income and in addition to this the assessee is not able to prove that such explanation was given bona fide and all the facts relating to the same and material to the computation of the total income have been disclosed by the assessee. These two situations provided in Explanation 1 appended to section 27 1(1)(c) makes it clear that that when this deeming fiction comes into play in the above two situations then the related addition or disallowance in computing the total income of the assessee for the purpose of section 271(1)(c) would be deemed to be representing the income in respect of which inaccurate particulars have been furnished.

I.T.A No. 2868/Ahd/2011 A.Y. 2006-07 Page No 6 DCIT vs. Shri Rajeshbhai Bhupatbhai Patel Prop. Shyam Textiles

8. In the light of the above, we examine the facts on record then it will reveal that contention of the assessee before the AO was that the weight of grey cloth manufactured by him is 6.822 kg for per 100 meters whereas the weight of manufactured cloth by similarly situated assessee who have shown production at 22.14 meters per kg of consumption of yarn is 4.51 kg per 100 meter. Thus, there is significant difference between the output and the result of both these assessees cannot be compared. The assessee also pleaded that if the weight of the cloth produced at 22.14 meters of 1 kg consumption of yarn is multiplied with 22.14 and then divided by the weight of assessee's cloth then output will come at 14.65 meters per kg of yarn. In other words, the explanation of the assessee is 4.514 kgsx22.14 meters / 6.822 kg = 14.65 Mts.

9. The AO has observed that assessee did not maintain day to day stock register of grey cloth; production register and consumption of raw material register, therefore, book result is to be disbelieved. In our opinion, when assessee has submitted the details of raw material consumed during the year, the details of total production and details of power-loom used by him then AO would have easily worked out the production result. The books is to the rejected u/s. 145(3) when it is not possible for the AO to deduce true income from the book result. Ld. AO has not given any reason as to how he could not deduce the true result. Though, it is not an issue agitated by the assessee before the Tribunal in the present appeal. We are just appreciating this aspect, whether in this facts and circumstances, penalty can be imposed upon the assessee. We find that AO has made addition simply on account of his difference of opinion qua the production ratio from consumption of ram material. Ld. First Appellate Authority has rightly observed that assessee has not furnished inaccurate I.T.A No. 2868/Ahd/2011 A.Y. 2006-07 Page No 7 DCIT vs. Shri Rajeshbhai Bhupatbhai Patel Prop. Shyam Textiles

particulars. The AO has made addition on an estimate basis and the explanation of the assessee in support of his claim of the production is not false. It was not accepted by the AO on a difference of opinion. Therefore, no penalty can be imposed upon the assessee. We do not find any merit in this appeal. It is dismissed.

Order pronounced in the open court on 24-04-2015

Sd/- Sd/-

(ANIL CHATURVEDI) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 24/04/2015 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