IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "D", MUMBAI
BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
ITA No. 93/Mum/2011
Assessment Year: 2004-05
DCIT-14(2) M/s. Rishabh Impex
3rd Floor Earnest House Gulabdas & Co.
Nariman Point Mumbai Ramdas Building, 4th
Vs.
Floor, 456,
Mumbai 400 002
PAN:-AAAFR 5747 B
(Appellant) (Respondent)
Assessee by Shri Reepal G
:
Tralshawala
Revenue by : Shri Love Kumar
Date of hearing : 17.03.2015
Date of Pronouncement : 10.04.2015
ORDER
PER AMIT SHUKLA, JM:
This appeal has been preferred by the Revenue against order
dated 28.10.2010, passed by the Ld.CIT(A)-25, Mumbai in relation to
the penalty proceeding u/s 271(1)(c) for the A.Y. 2004-05. The Revenue
is mainly aggrieved by deletion of penalty of Rs.33,94,175/-, which was
levied on addition made on account of gross profit.
2. The brief facts of the case are that, the assessee is engaged in the
business of manufacturing and export of fabrics and other items. The
return of income was filed on 01.11.2004 at Rs.61,39,482/-, after
claiming deduction u/s 80HHC of Rs.25,87,814/-. As against the return
2 ITA No. 93/Mum/2011
Assessment Year: 2004-05
income, the assessment was completed at an income of
Rs.4,39,90,930/- after making the following disallowances:-
i) On account of GP Rs.2,75,89,717/-
ii) Disallowance of loss on exchange rate fluctuation Rs.9,19,212/-
iii) Disallowance of Keyman insurance Rs.67,54,701/-
iv) Disallowance of dedn. U/s 80HHC Rs.25,87,814/-
After the appeal affect, the penalty proceedings have been initiated on
the addition made on account of gross profit. The assessee had shown
sales of Rs.31,22,46,861/- which comprised of export sales of Rs.31.20
crores. The gross profit was shown at Rs.36,34,969/- which was 1.17%.
The Assessing Officer noted that in the earlier years the gross profit
shown by the assessee were as under:-
A.Y. Total sales Gross Profit Gross profit (%)
2003-04 39,02,02,282 4,67,24,149 11.97
2002-03 35,00,71,469 4,14,22,279 11.83
2001-02 43,55,29,670 5,37,52,961 12.34
3. In response to show cause notice by the AO, it was submitted by
the assessee that the gross profit had declined due to continuous fall/
devaluation of US $ during the relevant year and also gave the evidence
to the effect that average fall of forex during the period was around
10%. The Assessing Officer held that even though part of the decline in
GP could be attributed to fall in exchange rate, however same cannot be
implied for the whole year. He worked out the percentage fall in
exchange rate from April 2003 to March 2004 which has been tabulated
by him at page 3 of the penalty order and analyzed that fall in exchange
3 ITA No. 93/Mum/2011
Assessment Year: 2004-05
rate was around 2%, whereas fall in GP is around 12% and therefore,
the reason given by the assessee for downfall in GP is not correct.
Accordingly he estimated gross profit @ 10%, after taking the average
GP rate and also factor relating to fall in the exchange rate.
4. In the first appeal, the Ld. CIT(A) has reduced the GP addition by
holding that GP rate should be 7% as average fall in forex was around
3%, which has been confirmed by the Tribunal also In the penalty
proceedings, the assessee submitted that fall in GP was mainly due to
decrease in sales realization due to rising value of Indian rupee. This
was also palpable with the increase to the cost of production. The
assessee had submitted various documentary evidences in support of
the explanation furnished not only during the course of the assessment
proceedings but was also during the penalty proceedings. Entire
quantitative details of purchases were submitted in which no
discrepancy was found in the course of the quantum proceedings. The
entire purchases were fully verified by the Excise department because,
the assessee has claimed rebate under the Central Excise. Further the
GP addition has been reduced by the Ld. CIT(A) which shows that there
is difference of opinion with regard to the quantification of addition.
However, the Ld. AO levied the penalty on GP addition which was
sustained at 7%.
5. The Ld. CIT(A) has deleted the penalty after observing and holding
as under:-
"4.2 There is no dispute that penalty is levied in respect of GP
addition only which was reduced by appellate authorities
substantially. The para 7 and para 9 of the penalty order are
contradictory in the sense that in para 9, the AO states that
"Therefore, the amount of Rs.2505098 is treated as income in
respect of which particulars have been concealed." Whereas in
4 ITA No. 93/Mum/2011
Assessment Year: 2004-05
para 9 he states that the minimum penalty leviable being 100%
of the tax sought to be evaded is Rs.33,94,175/-. It is difficult to
understand how minimum penalty @ 100% of tax sought to be
evaded on concealed income of Rs.25,05,098/- works out to
Rs.33,94,195/-. Thus, it transpires that para 5 to 9 which
contains conclusions and findings lacks application of mind.
4.3 Without prejudice to above, it is undisputed that penalty is
levied in respect of GP addition only. The GP addition is made for
low GP rate in comparison of preceding years. Neither any bogus
purchases nor any inflated purchases are found. Similarly, neither
any suppression of sale is found nor any understatement/under
invoicing of sale is found. No violation either u/s 40A(3) or
section 40A(2) is noticed. Neither any bogus or inflated expense
is found. Neither any excess nor shortage of stock is found. In
given circumstances, it is difficult to believe that there was any
deliberate or willful concealment of income. Whole addition is
based on estimation only. In such factual matrix, none of case
laws referred by the AO is applicable to the facts of the case. On
the contrary the judici8al pronouncements referred and explained
in the Ld. AR's written submissions divulges the correct state of
law on concealment penalty. Apart therefrom, the latest decision
of the Hon'ble Supreme Court in the case of Reliance
Petroproducts (323 ITR 158) should not lose sight which states
that mere making a claim which is not sustainable in law, by itself
will not amount to concealment. Even in the instant case, it is not
a case of wrong claim but it is a case of pure estimation. No false
purchase/sales/expenses etc. have been found. The Hon'ble High
Court of Punjab and Haryana had in the case of Harigopal Singh
V. CIT (125Taxman 242) held that provisions of section 271(1)(c)
Are not attracted to cases where income is assessed on estimate
basis and additions are made therein on that basis. Similarly in
the case of CIT Vs. MM Rice Mills (123 Taxman 308), the Hon'ble
High Court had held that mere addition made by applying proviso
to section 145(1) cannot be made basis for imposition of penalty
for concealment u/s 271(1)(c). The case laws referred in Ld. AR's
submission, discussed in para 3.1 also do not justify levy of
penalty in given facts of the case. In view of facts of the case and
judicial pronouncements referred or discussed above, the penalty
levied by the AO is not justifiable and the same is deleted.
Accordingly, the appeal is allowed."
5 ITA No. 93/Mum/2011
Assessment Year: 2004-05
6. We have heard the rival submissions and perused the relevant
finding given in the impugned order and also the material placed on
record. The subject matter of levy of penalty is on account of addition
made on account of estimation of GP rate. In the penalty order, the
Assessing Officer has held that amount of Rs.25,05,095/- is treated as
income in respect of which particulars have been concealed. On such
addition, he has levied penalty of Rs.33,94,175/-. From the explanation
furnished by the assessee before the AO, and also the facts of the case,
it is seen that out of total turnover of 31.22 crores, the export sales is at
31.20 crores. Thus, the major sales is by way of export only. In the
quantum proceedings, the assessee has filed the entire quantitative
details of purchases, in which no discrepancy has been found and entire
purchases stood verified. This is also evident from the fact that the
assessee has claimed rebate under the Central Excise, therefore, the
said purchases have been verified by the excise department also. There
is no discrepancy either in the quantity or in the value of sales made by
the assessee. The addition has been made on the ground that there is
steep fall in the gross profit rate as compared to the earlier years. The
assessee's case was that, same was due to decrease in sales realization
due to devaluation of foreign exchange along with increased in cost of
production. The assessee's explanation regarding fall in foreign
exchange has been not been accepted completely on the ground that
the average fall of US $ was not much. This cannot be reason for
rejecting the assessee's books and estimating the gross profit unless no
discrepancy has been found either in the quantity in value of purchase
and sales. Thus, mere estimation of gross profit at 10% which has been
further reduced to 7%, cannot be the basis for levy of penalty for
6 ITA No. 93/Mum/2011
Assessment Year: 2004-05
furnishing of inaccurate particulars. The finding of the Ld. CIT(A) after
analyzing the facts of the case, appears to be legally and factually
correct, accordingly, order of the Ld. CIT(A) is affirmed and ground
raised by the Revenue is treated as dismissed.
7. In the result, appeal filed by the Revenue is dismissed.
Order pronounced in the open court on this 10th day of April, 2015.
Sd/- Sd/-
(B.R. BASKARAN) (AMIT SHUKLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 10.04.2015
*Srivastava
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR "D" Bench
//True Copy//
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
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