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ITO, Ward 13 (4), New Delhi. Vs. M/s. Ocean Metals (P) Ltd., G 55, Masjid Moth, Greater Kailash Part II, New Delhi 110 048.
August, 06th 2014
                (DELHI BENCH `E' : NEW DELHI)


                          ITA No.5778/Del./2012
                     (ASSESSMENT YEAR : 2005-06)

ITO, Ward 13 (4),               vs.          M/s. Ocean Metals (P) Ltd.,
New Delhi.                                   G ­ 55, Masjid Moth,
                                             Greater Kailash Part ­ II,
                                             New Delhi ­ 110 048.

                                             (PAN : AAACO0922A)

      (APPELLANT)                                   (RESPONDENT)

              ASSESSEE BY : Shri Shailesh Gupta, Advocate
              REVENUE BY : Shri Sunil Sharma, Senior DR



      This appeal filed by the revenue emanates from the order of CIT

(Appeals)-XVI, New Delhi dated 23.07.2012 for the assessment year 2005-


2.    In this case, the revenue has challenged the deletion of penalty levied of

Rs.13,00,326/- u/s 271(1)(c) of the Income-tax Act, 1961.

3.    We have heard both the sides on the issue. At the time of the hearing,

the ld. AR submitted that this penalty has been levied on the addition

sustained by the CIT (A) in respect of the addition made on account of low
                                           2                 ITA No.5778/Del./2012

gross profit to the extent of Rs.35,02,280/-. The original addition on this

issue was of Rs.53,77,921/-. The CIT (A) deleted the penalty on the basis

that there is a difference of opinion regarding the quantum of addition and

directed to delete the penalty.       Ld. AR also submitted that this addition

sustained by the CIT (A) has been deleted by the ITAT in the quantum appeal

filed by the assessee while deciding the ITA No.2172/Del/2009 in its order

dated 14.03.2014. He draw our attention to paras 18 & 19 of the aforesaid

ITAT order. The relevant para of the order is reproduced below :-

      "18. The Ld. CIT (A) has upheld the action of the Assessing Officer in
      rejecting the books of account u/s 145(3) of the Act, on the basis that there
      was drastic decline in the gross profit of the assessee as compared to the
      preceding years, the payment of excise duty of Rs.39 lac included in the
      sale price, will only have marginal impact on the operational results of the
      assessee and that the assessee has not explained the mismatch in the
      monthly production figure and corresponding production expenses. He has
      also noted that the assessee has not added the excise duty component while
      valuing its closing stock, though it is specifically provided in section 145A
      of the I. T. Act. He has also noted that the assessee has made certain sales
      to its sister concern, at a value lower than its purchase price of raw
      material. We find that Ld. CIT (A) while noting above observation has not
      considered the explanation of the assessee on those observations made by
      the Assessing Officer. Still there is no dispute that payment of excise duty
      of Rs. 39lac included in the sales price will only for marginal impact on the
      operational results of the assessee, which will not bring down the gross
      profit to such an extent and that there were mismatch in the assessees
      monthly production figure and corresponding product
      ion expenses.

      19.     We are of the view that the Ld. CIT (A) rightly upheld the action of
      the Assessing Officer in rejecting the books of account u/s 145(3). But
      merely because books of account were rejected the action of the authorities
      below in estimating the profit by adopting a particular GP rate without
      assigning any reason in support resulting into the trading addition cannot be
      justified. The addition made by the Assessing Officer at Rs.53,77,921/- and
      sustained by the Ld. CIT (A) at Rs. 35,02,280/- on account of trading
      addition applying an estimated gross profit rate without assigning the very
      basis, thus cannot be justified. In this regard, we find support from the
      decision of the Hon'ble Rajasthan High Court in the case of CIT vs. Gotan
                                            3                 ITA No.5778/Del./2012

        Lime Khanij Udhyog (supra, wherein the Hon'ble High Court has been
        pleased to hold that Section 145 of the I.T. Act, 1961, only provides the
        basis on which computation of income is to be made for the purpose of
        determining the amount of tax. The provision by itself does not deal with
        addition or deletion to the income. Therefore, mere rejection of, or some
        deficiency in, the books of account would not mean that it must necessarily
        lead to additions to the sustained income.

        20.    We thus while setting aside the addition made and sustained by the
        authorities below direct the Assessing Officer to delete the addition.
        Ground no.3 of the appeal of the Revenue is thus rejected and ground
        no.1,1.1to 1.4 of the appeal preferred by the assessee are partly allowed.

        21.     In the result, the appeal preferred by the Revenue is dismissed and
        that preferred by the assessee is partly allowed."

Thus, the basis on which the penalty was levied itself has been got deleted in

the quantum appeal, therefore, there is no question of sustaining any penalty

for concealment of income. We sustain the order of CIT (A) for deleting the


4.      In the result, the appeal of the revenue is dismissed.

     Order pronounced in open court on this 4th day of August, 2014.

                  Sd/-                                         sd/-
           (ABY T. VARKEY)                                (B.C. MEENA)
          JUDICIAL MEMBER                             ACCOUNTANT MEMBER

Dated the 4th day of August , 2014.
Copy forwarded to:
     4.CIT(A)-XVI, New Delhi.
     5.CIT(ITAT), New Delhi.
                                                                      AR, ITAT
                                                                     NEW DELHI.
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