The ITO, Ward-1(4), Surat V/S M/s. Navpad Textile Industries Ltd. 2nd Floor, Amar Shilp Apartment, Nanpura, Surat
June, 26th 2014
IN THE INCOME TAX APPELLATE TRIBUNAL " B " BENCH, AHMEDABAD
(BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI, A.M.)
I.T. A. No. 983/AHD/2011
(Assessment Year: 2003-04)
The ITO, Ward-1(4), Surat V/S M/s. Navpad Textile
Industries Ltd. 2nd Floor,
Amar Shilp Apartment,
PAN: AAACN 7695P
Appellant by : Shri P.L. Kureel, Sr. D.R
Respondent by : Shri Tushar Hemani
Date of hearing : 11-04-2014
Date of Pronouncement : 18 -06-2014
PER SHRI ANIL CHATURVEDI,A.M.
1. This appeal is filed by the Revenue against the order of CIT(A)-I, Surat dated
20.01.2011 for A.Y. 2003-04.
2. The facts as culled out from the material on record are as under.
3. Assessee is a company stated to be engaged in the business of texturising
process in textiles. It filed its return of income on 30.11.2003 declaring total
income of Rs Nil. In this case information was received by AO from the
investigation Wing that during the year under consideration, Assessee had
deposited huge sum of cash in the bank account maintained with Vitrag Co-
2 ITA No 983/AHD/2011
. A.Y. 2003-04
op Bank Ltd and later during the investigation the Director of the Assessee
had admitted that the source of initial cash deposits of Rs 69,37,812/- cannot
be explained by him and offered the same for tax. Accordingly the case was
reopened by issuing notice u/s 148 of the Act and thereafter assessment was
framed u/s 143(3) r.w.s. 147 vide order dated 18.12.2009 and additions were
made on account of low Gross profit (Rs 1,01,36,860/-), on account of
unexplained investment (Rs 69,37,812/-), on account of income from
unexplained cash credits (Rs 80,000/-) and disallowance 20% of expenses
(Rs 3,15,595/-). After making the aforesaid additions the income was
assessed at Rs Nil after set off of brought forward losses. On the aforesaid
additions made, penalty proceedings were initiated and thereafter penalty of
Rs 63,04,341 u/s 271(l)(c) was levied by the AO vide penalty order dated
29.6.2010. Aggrieved by the order of AO, Assessee carried the matter before
CIT(A). CIT(A) vide order dated 20.1.2011 granted substantial relief to the
Assessee and therefore aggrieved by the order, Revenue is now in appeal
before us and has raised the following grounds:-
1. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting
penalty levied on addition made on account of low G.P.(as the turnover of the assessee had
increased by 6.36% to the immediate preceding year and G.P. was abnormally dropped from
8.50% to 1.91% ) inspite of the assessee's failure to produce books of accounts and any other
documentary evidence during assessment and penalty proceedings.
2. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting
penalty levied on addition of Rs.69,37,812/- made on account of unexplained investment though
the assessee in his statement recorded u/s 131 of the IT. Act on oath had admitted that sum
deposited in cash in Bank was made out of undisclosed income.
3. On the facts and in the circumstances of the case, the learned CIT (A) ought to have upheld the
order of the Assessing Officer.
4. It is, therefore, prayed that the order of the CIT(A) may be set-side and that of Assessing Officer
may be restored to the above extent.
4. Before us, Ld DR with respect to penalty on GP addition, submitted that even
during the during the course of assessment proceedings and at the time of
penalty proceedings the Assessee did not produce the books of accounts
and other details and merely submitted that the computer hard disk had
crashed and the hard copy of the books of accounts were destroyed by the
termites. In the absence of books of accounts AO rejected the books results
u/s 145(3) and worked out the GP after considering the average GP of earlier
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. A.Y. 2003-04
years and after giving the credit of the GP shown by the Assessee made
addition of Rs 1,01,36,860/-. He further submitted that the turnover of the
Assessee abnormally increased by 6.36% as compared to the immediate
preceeding year and the gross profit abnormally dropped from 8.50% to
1.91%. The Ld DR further submitted that against the addition made,
Assessee did not prefer appeal and had thus accepted the findings of AO.
He submitted that in the absence of books of accounts, the AO rightly made
estimation of gross profits and the estimation was based on the assessees
own history of gross profits and the addition was not an adhoc estimation. He
further submitted that Ld CIT(A) had not appreciated the fact that Assessee
had deliberately not produced the books of accounts during enquiry stage at
Investigation wing, assessment proceedings and penalty proceedings and
further it was not proved by Assessee before CIT(A) that the GP disclosed by
the Assessee was actual and correct. With respect to addition of Rs
69,37,812/- made on account of unexplained investments, it was submitted
that Assessee had deposited huge sum of cash in Vitrag Co-op Bank. In the
statement of Shri Ketan Shah, Director of the Assessee, recorded u/s 131 by
DDIT (Inv), it was stated that the cash deposits were out of undisclosed
income. Assessee had failed to give the details of cash sales like name of
the customers, details of quantity sold etc. Further the addition was not
contested in appeal by the Assessee. The Ld DR thus submitted that in the
present facts, the AO was fully justified in levying penalty and therefore his
order be upheld. Ld DR also relied on the decision in the case of CIT vs S.
Krishnaswamy & Sons (1996) 219 ITR 157(Mad) and other decisions in its
5. On the other hand Ld AR reiterated the submissions made before AO and
CIT(A) and supported the order of CIT(A). He also placed reliance on the
decision in the case of Navjivan Oil Mills Vs CIT (2001) 252 ITR 417 (Guj)
and the decision in the case of ACIT vs Inducto Ispat Alloys Ltd (ITA No
4 ITA No 983/AHD/2011
. A.Y. 2003-04
6. We have heard the rival submissions and perused the material on record. In
the present case penalty u/s 271(l)(c) was initially levied on 3 additions viz
understatement of gross profit (Rs 1,0136,860/-), unexplained investments
(Rs 69,37,812/-) and income from unexplained sources (Rs 80,000/-) but
before us, the issue is with respect to penalty on gross profit and unexplained
investments. With respect to addition on account of understatement of gross
profit, in the absence of books of accounts and other records, A.O estimated
the gross profit on the basis of past results of the Assessee and based on
such estimation, addition was made and penalty was also levied. Thus it is
seen that addition was made on estimate basis. We are of the view that in
the absence of books of accounts, the Revenue was fully justified in making
additions but the quantum addition is not sufficient for levying of penalty u/s.
271(1)(c) of the Act for the reason that it is well settled that the parameters of
judging the justification for addition made in assessment case of Assessee is
different from the penalty imposed on account of concealment of income.
We also find that the co-ordinate Bench of Tribunal in the case of Inducto
Ispat Alloys (supra) and relying on the decision in the case of Navjivan Oil
Mills Ltd 252 ITR 417 held that when the addition was made on estimate
basis, penalty u/s 271(l)(c) was not leviable. Respectfully following the
aforesaid decision of the co-ordinate Bench of Tribunal, we direct the
deletion on penalty on the aforesaid addition. With respect to the addition on
account of unexplained investments (Rs 69,37,812/-), it is noted by the AO
that Assessee had deposited the cash aggregating to Rs 69,37,812/- in the
bank account and which was also admitted by the Director of the Assessee
as undisclosed income. It is also a fact that on the aforesaid addition,
Assessee had not preferred appeal. It is Assessee's submission that the
aforesaid bank account was disclosed in the Balance Sheet. It is also the
Assessee's submissions that Assessee was facing severe financial crunch
and the loans from Karnataka Bank were outstanding due to which
Karnataka Bank was not allowing to operate the account smoothly and
therefore the account with Vitrag Co-op. Bank was opened. It is also the
5 ITA No 983/AHD/2011
. A.Y. 2003-04
submission of the Assessee that the Assessee is a BIFR company and
because of huge losses the Assessee did not prefer against the addition
because, there would not be any tax impact even after the addition are made
and therefore it was submitted that it cannot be said that Assessee had
concealed the facts to avoid the tax liability. We find there is no finding of the
A.O that the bank account in which the cash sales were deposited were
disclosed in the balance sheet. We therefore remit the issue to the file of A.O
to verify the submissions of the Assessee and verify as to whether the bank
account in which the cash sales are deposited was disclosed in Balance
Sheet and thereafter decide the issue. In view of the aforesaid facts this
ground of Revenue is partly allowed for statistical purposes.
7. In the result the appeal of the Revenue is partly allowed for statistical
Order pronounced in Open Court on 18 - 06 - 2014.
(G.C.GUPTA) (ANIL CHATURVEDI)
VICE PRESIDENT ACCOUNTANT MEMBER
Ahmedabad. TRUE COPY
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.