Sakthi Fabrics, Tiruppur vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, CHENNAI ी ए. मोहन अलंकामणी, लेखा सद य एवं ी वी. दग ु ा# राव, या$यक सद य केसम%

BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER

आयकर अपील सं./ITA No.1729/Mds/2014 $नधा#रण वष# /Assessment Year : 2009-10

M/s Sakthi Fabrics, No.10/1, Kathir Nagar, 8th Street, The Income Tax Officer, Behind DSK Hospitals, v. Ward I(2), Kangeyam Road, Tirupur. Tirupur - 641 604.

PAN : AAQFS 4648 L (अपीलाथ*/Appellant) (+,यथ*/Respondent)

अपीलाथ* क- ओर से/Appellant by : Sh. T. Banusekar, CA +,यथ* क- ओर से/Respondent by : Shri A.V. Sreekanth, JCIT

सन ु वाई क- तार ख/Date of Hearing : 22.12.2014 घोषणा क- तार ख/Date of Pronouncement: 20.02.2015

आदे श /O R D E R

PER V. DURGA RAO, JUDICIAL MEMBER:

This appeal filed by the assessee is directed against the

order of the Commissioner of Income Tax (Appeals)-II, Coimbatore,

dated 28.03.2014 relevant to the assessment year 2009-10. 2 I.T.A. No. 1729/Mds/2014

2. Facts are in brief that the assessee is engaged in the

business of exporting hosieries. The assessee filed a return of

income for the year under consideration declaring a total income of

` 1,72,830/-. A survey under Section 133A of the Income-tax Act,

1961 (in short 'the Act') was conducted in the business premises of

the assessee on 09.08.2011. During the course of the survey, the

assessee has admitted an undisclosed income of ` 67,00,780/-.

Further, during the survey, the A.O. has found that an amount of `

81,90,721/- was shown as outstanding credit balances against

various parties from whom purchases were made and these credits

were shown to have been paid off through cheques in subsequent

years. On verification from the bank, it was found that the cheques

were only self cheques. A sworn statement was recorded from the

Managing Partner Shri M. Loganathan under Section 131 of the Act

wherein the partner admitted a sum of ` 67,00,780/- for the year

under consideration as undisclosed income generated out of

fictitious purchases entered in the books of account. The

assessment was completed under Section 143(3) of the Act.

Thereafter the A.O. has initiated penalty proceedings under Section

271(1)(c) of the Act and issued a notice under Section 274 of the

Act and in response to that notice, the assessee has filed a detailed

reply dated 11.06.2012. The relevant portion of the letter filed by the 3 I.T.A. No. 1729/Mds/2014

assessee before the A.O., during the course of penalty proceedings,

is extracted as under:-

"Page-1 para 1.3 On the date of survey itself, we have submitted that

a) the nature of the trade was such that we would not always be in the position of purchasing the entire lot of goods from organized sectors.

b) In some emergency cases, the circumstances would demand us to purchase the items from local unorganized vendors who would not maintain any details.

c) Even though we have really transacted with the concerned parties, we would not be able to get co-operation from those vendors in the unorganized sectors to prove the genuineness of the transactions we have carried out with them.

Para 1.4 we further submit that

a) Because of this peculiarity of the circumstances prevailing in this trade, we had been forced to account some of these expenses in certain other names.

b) As and when the payments of the expenses were to be made, the payments were recorded in the books as if made to the parties in whose name the expenses were accounted.

Para 1.5 we also submit that

a) At that point of time, it would be very difficult for us to identify the real suppliers with whom we had transacted and produce the letters from them confirming our business transactions with them.

b) Moreover, this would affect our business relationship also.

Para 1.6 We also submit that therefore, considering the difficulty narrated above, and to avoid consequential business disruptions, during the course of survey, we agreed to offer ` 67,00,780/- as our business income for the financial year 2008-09 with a request not to levy penalty.

Para 1.7 Consequently, during the assessment proceedings, on the basis of the pretext that no penalty would be levied, we had voluntarily offered the amount of ` 67,00,780/- as our business income as discussed in earlier paragraphs.

Para 1.8 The assessment u/s 143(3) was completed based on the admission made by us voluntarily during the course of survey and the entire assessed tax has been paid in full.

4 I.T.A. No. 1729/Mds/2014

Para 1.9 Our explanation and submissions were accepted during the course of assessment and the income was assessed by making addition of the said sum only."

The A.O. after considering the explanation of the assessee, has

come to a conclusion that the assessee has recorded a fictitious

purchases in the books of account to reduce the income of the

business with the purpose of evading the tax. The A.O. held that it

is a clear case of concealment warranting penalty under Section

271(1)(c) of the Act. Accordingly, penalty was levied under Section

271(1)(c) of the Act.

3. On appeal, the Ld. CIT(Appeals) has confirmed the penalty

levied by the A.O.

4. The assessee carried the matter in appeal before the

Tribunal.

5. The Ld.counsel for the assessee has submitted that the

amount of ` 67,00,780/- was voluntarily offered by the assessee

and accordingly the assessment was completed. When the

assessee offered an amount voluntarily, no penalty under Section

271(1)(c) can be invoked. The A.O. has imposed the penalty under

Section 271(1)(c) of the Act based on the sworn statement recorded

under Section 131 of the Act from the Managing Partner Shri M. 5 I.T.A. No. 1729/Mds/2014

Loganathan. The Ld. counsel submitted that the statement given by

the Managing Partner has no evidentiary value. For that, he relied

on the decision of Hon'ble Supreme Court in the case of CIT v. S.

Khader Khan Son (2013) 352 ITR 480 (SC).

6. On the other hand, the Ld. D.R. has submitted that the

Managing Partner of the assessee-company himself has accepted

that there are fictitious payments and based on that statement, the

penalty is imposed. He strongly supported the orders passed by the

authorities below.

7. We have heard both sides and perused the records and

gone through the orders of the authorities below. There was a

survey conducted in the business premises of the assessee on

09.08.2011. During the course of survey, the A.O. has recorded a

statement under Section 131 from Shri M. Loganathan, Managing

Partner of the company. The A.O. asked him under question No.6

that - "you have paid to some parties through cheque in subsequent

years and the same has been debited to their accounts. But,

according to the bank statements of your concern, cash has been

withdrawn under self cheque and has been credited in the books of

accounts of both the concerns. Please produce your explanation for

the same." In reply, he submitted that "the purchase bills were 6 I.T.A. No. 1729/Mds/2014

obtained by us for 1% commission and the purchase invoices were

obtained to reduce the profit of our business concern. As per our

books of accounts, we have made entries as payments made for

those purchases to parties. But, the amount has been drawn by our

staff and brought back and credited into business books as cash.

The above amounts has been utilised by us for investments in our

individual name and family member's name." The assessee has

offered an amount of ` 67,00,780/- as initial income for the relevant

assessment year. Accordingly, the assessment was completed

under Section 143(3) of the Act. Thereafter, penalty proceedings

were initiated. During the course of penalty proceedings, it was

submitted that the entire purchases are genuine and made from the

local vendors who are unorganized traders and who do not keep

any account. The nature of the trade is such that we would not

always be in a position to purchase the entire lot of goods only from

organized sectors. In some emergency cases, the circumstances

would demand us to purchase items from local unorganized

vendors who would not maintain any details. Even though we might

have really transacted with the concerned parties, we would not be

able to co-operation from those vendors in the unorganized sectors

to prove the genuineness of the transactions carried out with them.

It is also submitted that it would be very difficult for us to identify the 7 I.T.A. No. 1729/Mds/2014

real suppliers with whom we had transacted and produce letters

from them confirming the business transactions because the

unorganized sector parties keep moving from one place to another

place. However, the A.O. has not agreed with the submissions of

the assessee and came to a conclusion that assessee has

concealed the income and accordingly, he levied penalty under

Section 271(1)(c) of the Act. When the matter was carried in

appeal, the Ld. CIT(Appeals) confirmed the same. We find from the

orders of the authorities below that the penalty was levied based on

the statement recorded during the course of survey under Section

131 of the Act. When the assessee submitted a detailed

representation, the A.O. simply rejected without examining the

same. In this connection, the Hon'ble Gujarat High Court in the

case of National Textiles v. CIT (2001) (249 ITR 125) (Guj.) held

that in order to justify the levy of penalty, there must be some

material or circumstances leading to reasonable conclusion that the

amount does represent the assessee's income and the

circumstances must show that there was conscious concealment or

act of furnishing of inaccurate particulars. The Explanation 1 to

Section 271(1)(c) of the Act does not make the assessment order

conclusive evidence that the amount assessed was in fact the

income of the assessee.

8 I.T.A. No. 1729/Mds/2014

8. In the present case, the assessment was based on the

statement made by Shri M. Loganathan, Managing Partner of the

company under Section 131 of the Act. With respect to statement

recorded under Section 131 of the Act, the Hon'ble Supreme Court

in the case of CIT v. S. Khader Khan Son (2013) (352 ITR 480) held

that Section 133A does not empower any IT authority to examine

any person on oath, hence, any such statement has no evidentiary

value and any admission made during in the statement cannot by

itself be made the basis for addition.

9. In the case of CIT v. Balraj Sahni (1979) 119 ITR 36 (Bom),

the Hon'ble Bombay High Court has held that assessment

proceedings are different from penalty proceedings. In penalty

proceedings, the burden was always on the revenue to prove

concealment and a finding reached in the quantum appeal that a

particular income is liable to be added as income of the assessee is

not binding in penalty proceedings. In this case, the A.O. imposed

the penalty based on the statement recorded under Section 131 of

the Act and thereafter, the assessee has submitted detailed reply

with regard to the nature of business under what circumstance the

amount was offered as the additional income. The A.O. without

enquiry/investigation to verify the correctness of the explanation 9 I.T.A. No. 1729/Mds/2014

given by the assessee, he has simply rejected the explanation given

by the assessee and imposed the statement given by the Managing

Partner of the company during the course of survey.

10. Keeping in view the facts and circumstances of the case and

also following the above said judicial precedence, we are of the

opinion that this is not a fit case to levy penalty under Section

271(1)(c) of the Act.

11. In the result, the appeal filed by the assessee is allowed.

Order pronounced on Friday, the 20th of February, 2015 at

Chennai.

Sd/- sd/- (ए. मोहन अलंकामणी) (वी. दग ु ा# राव) (A. Mohan Alankamony) (V. Durga Rao) लेखा सद य/Accountant Member या$यक सद य/Judicial Member

चे नई/Chennai, th =दनांक/Dated, the 20 February, 2015.

Kri.

आदे श क- +$त?ल@प अAे@षत/Copy to: 1. अपीलाथ*/Appellant 2. +,यथ*/Respondent 3. आयकर आयB ु त (अपील)/CIT(A)-II, Coimbatore 4. आयकर आयB ु त/CIT-III, Coimbatore 5. @वभागीय +$त$न ध/DR 6. गाड# फाईल/GF.