Tyco Valves & Controls (India) Pvt. ... vs Assessee

Tyco Valves & Controls V/S The Assistant Commissioner India Pvt. Limited 302, A, of Income Tax, Circle-4, Ivory Terrace R. C. Dutt Baroda Road, Alkapuri, Baroda 390007 (Appellant) (Respondent)

PAN: AAACK 8890L

Appellant by : Shri J.P.Shah Respondent by : Shri Nimesh Yadav, Sr. D.R.

(आदे श)/ORDER

Date of hearing : 14-05-2015 Date of Pronouncement : 29 -05-2015

PER ANIL CHATURVEDI, ACCOUNTANT MEMBER.

1. These 2 appeals filed by the Assessee are against the order of CIT(A)-III, Baroda dated 08.09.2011 for A.Ys. 1995-97 & 1997-98.

2. At the outset, before us, both the parties submitted that though the appeal of the Assessee relates to 2 different assessment years but the facts and circumstances of both the cases are similar except for the assessment years and amounts and the submissions are also common for both the appeals and therefore both the appeals can be heard together. We therefore proceed to 2 ITA Nos. 3130 & 3131/AHD/2011 . A.Ys. 1996-97 & 1997-98 dispose of both the appeals together for the sake of convenience and thus proceed with the facts for A.Y. 1996-97.

3. The relevant facts as culled out from the material on record are as under.

4. Assessee is a company stated to be engaged in the business of manufacturing and trading of various types of industrial valves. Assessee filed its return of income for A.Y. 1996-97 on 30.11.1996 declaring total taxable income of Rs. 14,05,370/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 26.02.1999 and the total income was determined at Rs. 97,68,540/- interalia by estimating the gross profit at 43.95% which resulted into addition of Rs. 83,00,000/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 24.11.1999 estimated the gross profit at 39% as against 49.35% made by A.O. and thus the addition was sustained at Rs. 42,85,000/-. Against the order of ld. CIT(A), Assessee as well as Revenue preferred appeal before Hon'ble ITAT. Hon'ble ITAT vide order dated 29.06.2006 set aside the issue to the file of A.O for fresh adjudication. Pursuant to the aforesaid direction of Hon'ble Tribunal, order was passed u/s. 143(3) r.w.s. 254 by the A.O by order dated 31.12.2007 and the gross profit was estimated at 39.5% which resulted into final addition on account of gross profit at Rs. 38,73,874/-. On the aforesaid addition on account of estimation of gross profit, penalty of Rs. 17,81,981/- u/s. 271(1)(c) on account of furnishing of inaccurate particulars of income was levied by order dated 31.03.2010. Aggrieved by the aforesaid order of A.O, Assessee carried the matter before ld. CIT(A) who vide order dated 08.09.2011 upheld the penalty levied by A.O by holding as under:-

3 ITA Nos. 3130 & 3131/AHD/2011 . A.Ys. 1996-97 & 1997-98 15.2 In the present case, as can be seen from the facts narrated above, despite being given ample opportunities during the course of original assessment proceedings and during the course of assessment proceedings done in pursuance to setting aside of the original assessment by ITAT, as per the directions given by ITAT, the appellant failed to provide complete details for the purposes of verification of the input/output ratio and also failed to discharge the onus lying on it in relation to verification of the correctness of its accounts. This is despite the fact that a specific direction In this regard had been issued by ITAT while setting aside the original assessment order. Thus the correctness of the books of accounts could not be verified. ITAT in its order for the AY 96-97 setting aside the original assessment order has also observed that the statutory auditors of the Company have observed that the appellant's internal audit in respect of quantitative and qualitative checks of materials need to be further strengthened. Moreover, the rejection of books result had been upheld by ITAT. The appellant has not filed any appeal to High Court on this point. Thus this has been accepted by it. Even no appeal has been filed against the order of CIT(A) passed for deciding the appeal against the set aside assessment order.

5.3 The above mentioned decision of Hon'ble Gujarat High Court in the case Chandra Vilas Hotel, was for A.Y. 1967-68. The law relating to penalty was amended w.e.f. 01.04,1976 and original explanation was replaced by the present one. After this amendment, the revenue is not required to prove that the assesses is guilty of any fraud or has committed a willful neglect i.e. mens rea is not to be proved by the revenue. As per the present explanation 1, if the assessee offers an explanation in respect of any facts material to the computation of the total income, which he is not able to substantiate and fails to prove that such explanation is bonafide 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 of such person as a result thereof, shall be deemed to represent the income in respect of which particulars have been concealed.

15.4 In the present case, the appellant has not been able to substantiate its explanation regarding steep fall in GP rate as compared to the GP rate for AY 1995-96. Also its inability to get its input/output ratio verified at the assessment and appellate stage and even after specific direction given by ITAT makes it evident that it has failed to prove that the explanation offered by it is bonafide and that all facts relating to the same has been disclosed by it. In such circumstances, the above mentioned decision of Hon'ble Gujarat High Court in the case of Chandra Vilas Hotel (supra) is fully applicable in facts as well as in law. Thus, the addition made on account of low GP rate in this case clearly falls within the mischief of the provisions of Section 271(1) (c). 15,5 For levy of penalty in cases where addition is made on estimate basis, besides the decision of Hon'ble High Court in the case of Chandra Vilas Hotel cited above, reliance is also based on following decisions:

i) 269 ITR 492(ker) in the case of T,J. Mathai. ii) 152 ITR 529 (Mad) affirmed in 236 ITR 977 (SC) in the case of B.A.Balasubamaniam iii) 208 ITR 202 (Bom) in the case of Yusuf Abdulla Patel.

16. On the basis of these facts, it is held that penalty u/s 27l(l)(c) has been rightly imposed in this case, Accordingly, the appeal is dismissed.

4 ITA Nos. 3130 & 3131/AHD/2011 . A.Ys. 1996-97 & 1997-98

5. Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now in appeal before us and has raised the following ground:-

1. The Hon'ble CIT(A) has erred in law and in facts of the case in upholding the action of the Assessing Officer ["hereinafter referred to as the A.O"] in levying penalty u/s.

271(1)(c) of the Act.

6. Before us, ld. A.R. reiterated the submission made before A.O and ld. CIT(A) and further submitted that the fall in gross profit was not accepted by the A.O and therefore he rejected the books of accounts and thereafter estimated the gross profit. Against the order of A.O, the matter was carried before ld. CIT(A) who granted partial relief. Against the order of ld. CIT(A) appeal was preferred by Assessee and Revenue before Hon'ble ITAT and pursuant to the directions of ITAT, the gross profit was finally estimated at the lower figure than that was estimated at the initial state and additions were made. The ld. A.R. further submitted that the G.P rate which was adopted by various authorities clearly prove that more than 2 views have been taken in the matter and that estimation of G.P was being made on an adhoc basis and in such circumstances on the additions made on estimated basis, penalty u/s. 271(1)(c) on account of concealment could not be levied. He further submitted that A.O nowhere in the assessment order has pointed out any discrepancy in the maintenance of books of accounts nor has proved with any example that the purchases, trading or manufacturing expenses have been found to be excessive and has also not disputed the valuation of stock. It was further submitted that the accounts of the Assessee are audited and no adverse comments have been made by the auditors in their audit report. He therefore submitted that the addition made on account of variation 5 ITA Nos. 3130 & 3131/AHD/2011 . A.Ys. 1996-97 & 1997-98 in G.P rates cannot form the basis for levying penalty u/s. 271(1)(c). He further submitted that Assessee has not furnished inaccurate particulars of income or concealed the income. He further placed reliance on the decision in the case of CIT vs. Reliance Petro Products Pvt. Ltd. (2010) 322 ITR 158 and other decision. He further submitted that the penalty proceedings are distinct and separate from the assessment proceedings. The ld. D.R. on the other hand supported the order of A.O and ld. CIT(A) and further submitted that the estimation of gross profit was based on account of inability of the Assessee to discharge the onus on it relating to verification of input/output ratio in physical terms as directed by Hon'ble ITAT. He thus supported the order of A.O and ld. CIT(A).

7. We have heard the rival submissions and perused the material on record. We find that in the present case at the initial stage while framing assessment u/s. 143(3) the addition on account of gross profit was estimated by the A.O at 43.95% which was reduced to 39% by ld. CIT(A) and finally pursuant to the order of the Hon'ble Tribunal the gross profit was estimated at 39.5% which resulted into final addition on account of gross profit at Rs. 38,73,874/- and on the aforesaid addition, penalty u/s. 271(1)(c) has been levied by the A.O. It is also a fact that the addition on account of gross profit was estimated by 3 authorities at three different figures and the final addition has been made on estimated basis. It is also a fact that the Assessee had furnished the explanation with respect to the fall in gross profit before the A.O but however the explanation of the Assessee was not accepted. It is not a case where the explanation furnished by the Assessee has been found to be false or incorrect. It is a settled law that when the addition is made on the estimate basis, no penalty on account of concealment of income 6 ITA Nos. 3130 & 3131/AHD/2011 .

A.Ys. 1996-97 & 1997-98 u/s.271(1)(c) is sustainable. Further, it is also an admitted proposition in law that the finding in the quantum proceeding is not a factor for determining the question for the purpose of imposing penalty. Question of penalty has to be decided independent of such finding. 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 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(l)(c) of the Act on the preponderance of probabilities. We further find that Hon'ble Gujarat High Court in the case of CIT vs. Subhash Trading Company (1996) 221 ITR 110 (Guj) had concluded that where income is assessed on estimate basis after rejecting book results, penalty u/s. 271(1)(c) cannot be imposed by mere application of Explanation thereof in the absence of any evidence to conclude a positive finding that there was concealment of income.

In view of the aforesaid facts and following the decision of Hon'ble Gujarat High Court in the case of CIT vs. Subhash Trading (supra) we are of the view that no penalty is leviable in the present case and therefore direct its deletion. In the result this ground of Assessee is allowed.

8. Further as admitted by both the parties, that the facts of the case for A.Y. 97- 98 is similar to that of A.Y. 96-97, we therefore for the reasons given hereinabove, while deciding the appeal for A.Y. 96-97 and for similar reasons, direct the deletion of penalty for A.Y. 97-98 in ITA No. 3130/AHD/2011. Thus this ground of Assessee is allowed.

7 ITA Nos. 3130 & 3131/AHD/2011 . A.Ys. 1996-97 & 1997-98

9. In the result, both the appeals of Assessee are allowed.

Order pronounced in Open Court on 29 - 05 - 2015.

Sd/- Sd/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad. TRUE COPY Rajesh

Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) - 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad