Rajwani Synthetics Pvt. Ltd.,, Surat vs Assessee

.Rajwani Synthetics (P) Ltd., Vs Income-tax Officer, Ward 4(1), 320, Shalimar Market, Surat. Ring Road, Surat. (Appellant) (Respondent) PA No.AABCR 1140E

Appellant by Shri Mehul Shah, AR Respondent by Shri Nimesh Yadav, Sr.DR

Date of hearing: 20/5/2015 Date of pronouncement: 26/5/2015

ORDER

PER Shri Rajpal Yadav, Judicial Member.

Assessee is in appeal before us against the order of CIT(A) dated 18.11.2009 passed for AY 2000-01. The grievance of the assessee is that ld. CIT(A) has erred in confirming the penalty of Rs.10,04,022/- imposed under section 271(1)(c) of the I.T. Act, 1961.

2. The brief facts of the case are that assessee is a company and a100% Export Oriented Unit. It comprises of two units where weaving of grey cloth was being carried out in one unit and twisting of yarn ITA No.1112/Ahd/2010 2 Asst. Year 2000-01

was being carried out in second unit. The Excise Authorities had carried out a preventive check on unit no.2 at plot Nos.90-93, Surat. This check was carried out on 15.10.99. It was found by the Excise Authorities that there was shortage of polyester twisted yarn, reject yarn, waste yarn, due to illicit clearance and sold out by the assessee in the open market to different parties on cash basis. The assessee did not file return of income for AY 2000-01 within due date provided under section 139 of the Act. The assessee also did not submit audit report as required u/s 44AB. The AO had issued notice under section 148 on 30.03.2005 which was duly served upon the assessee on 31st March, 2005. The AO thereafter issued a detailed questionnaire under section 142(1), but all these notices remained uncomplied with. The ld. AO under compelling circumstances passed the assessment order under section 143 (3) read with section 147 on 7th March, 2006. He determined the taxable income of the assessee at Rs.26,07,850/-. The computation made by the AO reads as under :-

(1) On account of cash sales found by the Excise Authorities - Rs.12,590/-

(2) On account of estimated income @ 1% On Export turnover Rs.8,24,059/-

(3) On account of unexplained expenditure u/s 69C on purchase of Adv.Lic./ARO: Rs.17,71,200/-

Total Income Rs.26,07,849/- Rounded off u/s 288A Rs.26,07,850/-

The ld. AO has initiated penalty proceedings under section 271(1)(c) and ultimately imposed a penalty of Rs.10,04,022/- on the ground that assessee has furnished inaccurate particulars of income.

ITA No.1112/Ahd/2010 3 Asst. Year 2000-01

Conclusion of the AO in paragraph 9 of the penalty order reads as under :-

"9. In the light of the above facts of the case, I am satisfied that the assessee company has concealed its income to that extent by way of furnishing inaccurate particulars of income. Therefore, I am of the opinion that this is the fit case for levy of penalty u/s 271(1)(c) of the Act. As per provision of the Act, the penalty is worked out as under :

(a) Income returned no return filed (b) Assessed income u/s 143(3) rws 147 Rs.26,07,850/- (c) Concealed income Rs.26,07,850/- (d) Tax on income sought to be evaded Rs.10,04,022/- (e) Minimum penalty leviable (100% of tax sought to be evaded) Rs.10,04,022/- (f) Maximum penalty leviable (300% of tax sought to be evaded) Rs.30,12,066/-

10. Therefore, I levy minimum penalty of 100% of tax sought to be evaded. This comes to Rs.10,04,022/- Issue D.N. and Challan accordingly.

11. This order is passed after obtaining prior approval u/s 274(2) (a) of the Act, from the Additional Commissioner of Income-tax, Range-4, Surat, vide letter No.SRT/Addl.CIT-4/Approval/271(1)(c)/2008-09, dated 30/03/2009.

Sd/-

(Dewangi Marthak) Income-tax Officer, Wd-4(1), Surat.

30.03.2009''

3. The quantum addition made by the AO travelled upto the Tribunal and the Tribunal has confirmed the addition substantially. The relevant findings of the Tribunal on all these three additions is worth to note for the purpose of appreciating the penalty proceedings.

ITA No.1112/Ahd/2010 4 Asst. Year 2000-01 The Ground No. 1 of the assessee's appeal reads as under:

"1. On the facts and in circumstances of the case as well as law on the subject, the ld.CIT(A)has erred in confirming the action oft he AO in making addition of Rs. 12,590/- for income estimated @ 1% on alleged cash sales ofRs.12,58,998/-

7. We have considered rival submissions. We find that the assessee has not filed its return of income in response to the notice under Section 148 of the Act. Claim of the assessee was that the books of accounts were seized by the Excise and Revenue department and remaining records were destroyed in fire on 5-5-2004 in its office premises. On a specific query from the Bench that whether the assessee has ever applied for copies of extract of the relevant record received by the department from the Excise department, the learned counsel for the assessee showed its inability and conceded that no such request was made by the assessee in this regard. In these facts of the case and also considering that Shri Rajwani, director of the assessee-company has admitted that the net profit was approximately 1% of the turnover, we hold that the estimation made at 1 % of the turnover could not be said to be excessive, which is accordingly confirmed and the Ground No.l of the assessee's appeal is dismissed.

Ground No.2 of the assessee's appeal reads as under :

"2. On the facts and in circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of the, AO in making addition of Rs.8,24,059/- for income estimated @ 1% on estimated turnover ofRs.8.24.05,874/-"

10. We have considered rival submissions. We find that the assessee's export turnover for six months from April, 1999 to September, 1999 at Rs.4.12 crores could not disputed by the assessee. In view of the fact that the assessee's export turnover for the six months for the two units at Rs.4.12 crores was not disputed by the assessee, we hold that the estimation of the assessee's total export turnover for the whole year at Rs.8.24 crores could not be said to be unjustified or excessive. In reply to a specific query from the Bench that whether the assessee has ever applied for copies of the extract of the seized material received by the department from the Excise department, the learned counsel for the assessee showed its inability and submitted that the assessee could not apply for the copies thereof. We find that the assessee has not made any endeavour to file any explanation with regard to this issue and no effort was made by the assessee to obtain the extract of the seized materials with the Excise department or by obtaining bank statement from the banks or obtaining accounts copies of its creditors and debtors etc. in order to prove the actual export turnover of the assessee. In these facts of the case, we are of the considered view that there is no mistake in the order of the CIT(A) in confirming the AO's action in estimating the assessee's export turnover for the whole year at Rs.8.24 crores and applying net profit at 1 % thereon to estimate the profit. Accordingly, the ground no.2 of the assessee's appeal is dismissed.

ITA No.1112/Ahd/2010 5 Asst. Year 2000-01

The ground no.3 of the assessee's appeal reads as under:

"3. On the facts and in circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of the AO in making addition of Rs.17,71,200/- for alleged unexplained expenditure u/s.69C of the Act onjutrchase of Adv. License/ARO"

13. We have considered rival submissions. We find that the department has produced the details of ARO for the amount of Rs.59.04 lakhs and has confronted to the assessee the statement of Shri Roopchand Jain and Hastimal Jain under Section 131. Shri Roopchand Jain has stated in his statement under Section T3T~of the Act that he had received premium at the rate of 30% on L/unutilised Advance License/ARO and made the payment of premium in cash. The director of the assessee-company, Shri Rajwani has also admitted in statement recorded under section 131 of the Act on 17-1-2006 that Shri Ruupcauiiu Jam was known m hun and iiatiaiso acinimcii me purcnase of the Advance License/ARO through him. The assessee could not show any evidence that it has ever tried to obtain the copy of the statement of Roopchand Jain from department. The assessee has been, throughout, non-cooperative with the department. In these circumstances and in view~oTfRe~tacts~0f the case, we hold that the AO was justified in assessing premium at the rate of 30% paid in cash by the assessee-company for the purchase of Advance License/ARO as the assessee could not furnish any explanation regarding the source thereof. The AO has provided number of opportunities to the assessee to file explanation on this issue, which the assessee failed to comply with and the assessment has to be framed ex pane under Section 144 r.w.s. 147 of the Act.

The ld. counsel for the assessee at the very outset contended that additions made by the AO are on estimate basis and no penalty can be imposed on an addition made on estimate basis. For buttressing his contention he relied upon the decision of Hon'ble Gujarat High Court in the cases of CIT vs. Navnit Pochalal - 85 Taxmann 623 (Guj), Jajoo Overseas Pvt. Ltd. vs. ITO ITA No.2850/Ahd/2012 and DCIT vs. Roger Enterprises P. Ltd. 33 CCH 116 (Del.).

4. On the other hand, the ld. DR relied upon the orders of Revenue authorities below and contended that assessee did not participate the assessment proceedings. Under the compelling ITA No.1112/Ahd/2010 6 Asst. Year 2000-01

circumstances the AO has determined the income on an estimate basis. There is no explanation at the end of assessee qua the income determined by the AO for which it is deemed that assessee has concealed the particulars of income.

5. 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:

Explanation 1- Where in respect of any facts material to the computation of the total income of any person under this Act, ITA No.1112/Ahd/2010 7 Asst. Year 2000-01

(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."

6. 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 ITA No.1112/Ahd/2010 8 Asst. Year 2000-01

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 ITA No.1112/Ahd/2010 9 Asst. Year 2000-01

the income in respect of which inaccurate particulars have been furnished.

7. In the light of above let us examine the facts of the present case. The income in the present case has not been estimated by the AO after rejecting the book result or finding defects in the details/explanation submitted by the assessee. The assessee failed to give any explanation in support of its defence as far as first two items of additions are concerned. If we recognize the contention of assessee as admissible in law that where additions are made on estimate basis then no penalty would be imposable, then, no assessee would like to comply with the provisions of the Income-tax Act with regard to the maintenance of books of account and get them audited. The simple reason would be that, at least the assessee could avoid the responsibility of payment of penalty. The assessee cannot be absolved from the liability of penalty simply by taking a plea that since income has been estimated by the AO, therefore, no penalty is imposable upon the assessee. Such reasoning would give a premium to negligent assessee over those assesses who maintain books of account and also face penalty proceedings in case any addition is being made to their income. In the present case, the assessee has put the AO against the wall and compelled him to determine the income on estimate basis. The AO has no option except to consider the details collected from the Excise Authorities and other substantial evidence for arriving at the income of the assessee. Therefore, there is no merit in this argument of the ITA No.1112/Ahd/2010 10 Asst. Year 2000-01

assessee. Apart from the above, the penalty is being imposed upon the assessee with the help of explanation (1) appended to section 271(1)(c). As per this explanation for the additions made to the income of assessee, it is to be deemed that particulars of income has been concealed by the assessee. The assessee has to give an explanation and to substantiate that explanation; both the parts are missing in the present case.

8. As far as the addition of Rs.17,71,200/- on account of unexplained expenditure on purchase of advance license/ARO is concerned, we find from the finding of the ITAT that this addition has been made by the AO on the basis of the statement of one Shri Roopchand Jain. The statement was not recorded by the AO, rather it was recorded by the DIT. The assessee before the ld. first appellate authority in the quantum appeal has specifically alleged that copy of the statement was not supplied to it along with notice or questionnaire, nor the assessee was given an opportunity to cross examine. This is a statement of a third person, which was recorded at the back of the assessee and it cannot be given weightage for making addition to the income of assessee. The assessee has relied upon the decision of Hon'ble Supreme Court in the case of Kishenchand Chellaram 125 ITR 713 (SC). However, this objection was over ruled and addition was confirmed. The ld. counsel for the assessee drew our attention towards the statement of the assessee recorded on 17th January 2006. He pointed out that in reply to question No.17 assessee has specifically denied payment of any premium on the licence. The question No.17 reads as under :-

ITA No.1112/Ahd/2010 11 Asst. Year 2000-01

Q. Through Roopchand Jain obtained licence on which how much premium was given ?

Ans: We have not given any premium for the same.

The ld. counsel for the assessee submitted that there is no evidence possessed by the Revenue indicating that assessee has paid the premium in purchase of licence.

9. The ld. DR has contended that assessee did not challenge this issue before the AO in the quantum proceedings, because assessment is an ex-parte order. The Tribunal has already confirmed the addition. Now in the penalty proceedings assessee cannot be permitted to raise an altogether contradictory stand.

10. On due consideration of the facts and circumstances, we are of the view that penalty proceedings is an independent proceedings. No doubt addition on unexplained investment on purchase of licence by making payment over and above value of the licence has been confirmed up to the Tribunal but for visiting the assessee with the penalty on such an amount there should be a concrete evidence exhibiting the fact that assessee had actually paid the premium and made unexplained investment and he has concealed the particulars of income deliberately. For argument sake, if the statement of Roopchand Jain recorded by the DIT during the course of some investigation is excluded then what remains with the Revenue. The ITA No.1112/Ahd/2010 12 Asst. Year 2000-01

assessee nowhere admitted that he has paid premium on purchase of the licence. The assessee has specifically asked for an opportunity to cross-examine Shri Roopchand Jain before ld. CIT(A) in the quantum proceedings but no such opportunity was granted. Therefore, in our opinion the Revenue failed to collect a concrete evidence for this amount and assessee should not be visited with penalty on this addition. In view of the above discussion we allow the appeal of assessee and direct the AO to exclude the addition of Rs.17,71,200/- for the purpose of computing the penalty. The penalty qua two additions of Rs.12,590/- and Rs.8,24,059/- is confirmed.

Order pronounced in the open Court on 26/5/2015

Sd/- Sd/- (Anil Chaturvedi) (Rajpal Yadav) Accountant Member Judicial Member

Mahata/-

Copy of the order forwarded to: 1. The Appellant 2. The Respondent 3. The CIT concerned 4. The CIT(A) concerned 5. The DR, ITAT, Ahmedabad 6. Guard File BY ORDER

Dy. Registrar, ITAT, Ahmedabad ITA No.1112/Ahd/2010 13 Asst. Year 2000-01

1. Date of dictation: 20/5/2015

2. Date on which the typed draft is placed before the Dictating Member: 21.5.2015 other Member:

3. Date on which approved draft comes to the Sr. P. S./P.S.:

4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________

5. Date on which the fair order comes back to the Sr. P.S./P.S.:

6. Date on which the file goes to the Bench Clerk:

7. Date on which the file goes to the Head Clerk:

8. The date on which the file goes to the Assistant Registrar for signature on the order:

9. Date of Despatch of the Order: