Income-tax Appeal No. 319 v. Shri N.S.Ichoponani

CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Mr. Denesh Goel, Advocate for the appellant. Mr. Animesh Sharma, Advocate for the respondent. **** ADARSH KUMAR GOEL, J ( Oral) . This appeal has been preferred under Section 260A of Income Tax Act, 1961 (hereinafter referred to as 'the Act”) proposing following substantial questions of law arising out of order dated

6.12.2004 of the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as “the Tribunal”) passed in ITA No.855/Chandi/93 in respect of assessment year 1984-85:- “I). Whether on the facts and in the circumstances of the case, Hon'ble ITAT was justified in deleting the penalty by holding that nothing was brought on record by the Revenue to prove that net profit arrived at by the assessee was a result of concealment of income by the assessee when it was categorically proved in the order after utilizing the documents and evidences available Income-tax Appeal No. 319 of 2005 -2- **** coupled with corroborate evidences in the shape of various figures found in the return filed by the assessee that the assessee had concealed its income? ii) Whether on the facts and in the circumstances of the case the Hon'ble ITAT was justified in taking a different view of facts that penalty was imposed only on mere disallowance of expenditures when the penalty was actually imposed on the basis of evidences collected during the assessment proceedings on which basis the ITAT itself confirmed the addition made by the A.O. while deciding the quantum appeal? iii) Whether on the facts and in the circumstances of the case without prejudice to the above grounds, the ITAT was justified in altogether ignoring Explanation 1 to the provisions of section 27(1)(c) while deleting the penalty?” The assessee is engaged in the business of manufacturing of Poultry Feed and for the assessment year in question income declared by the assessee was Rs.15,350/-. After search on the premises of the assessee and also the Accountant of the assessee on 14.10.1986, the Assessing Officer made assessment at income of ` 14,64,280/-. The Assessing Officer also levied penalty. On appeal by the assessee, the addition was upheld except for reduction of the quantum to certain extent. Finally, the Tribunal sustained addition to the extent of ` 6,70,781/-. Appeal arising out of the order of penalty was considered separately. The Income-tax Appeal No. 319 of 2005 -3- **** Tribunal held that since the addition was result of disallowance, the assessee could not be held to have concealed the particulars of income. The observations of the Tribunal are:- “We, however, after perusing the paper book page-1 find that the ITAT while sustaining the addition of Rs.6,70,681/- basically relied upon the authenticity of the paper seized wherein net profit of Rs.6,70,681/- was arrived at by the ex-accountant of the assessee Sh. Sidhu for a/y 1983-84. However, we have noticed the fact that the nothing could be brought by the revenue that such net profit arrived was a result of concealment of any income by the assessee whereas we find force in the submission of the ld. AR that such net profit was a result of disallowance of excess expenditure claimed by the assessee, which cannot attract penal provisions u/s 271 (1) (c ). We, therefore, after going through the said order of ITAT, find merit in the submission of ld. AR that the addition sustained by the ITAT was basically on account of disallowance of expenditure and not on account of appraisal of seized material. We are, therefore, of the opinion that the AO was not justified in levying the impugned penalty u/s 27(1)(c) and the CIT(A) was justified in deleting such penalty. We, therefore, do not find any infirmity in the order of the CIT(A) and uphold the same.” Income-tax Appeal No. 319 of 2005 -4- **** We have heard learned counsel for the parties. Assumption in the impugned order of the Tribunal is that there was no concealment of particulars of income. According to the assessee the net profit was arrived at as a result of disallowance of excess expenditure as held by the Tribunal. Learned counsel for the revenue submits that assumption in the order of the Tribunal that addition was based on net profit arrived at by disallowance of excess expenditure was without any material on record and the assumption was unfounded and thus, impugned order was perverse to that extent. Addition was upheld as the assessee had concealed material particulars. We have not been shown any material by learned counsel for the assessee which may support the assumption in the order of the Tribunal that addition was on account of material which did not relate to concealment by the assessee. The Tribunal has also not indicated any material in support of its finding. On the other hand, the finding recorded by the Assessing Officer is as under:- “The entire blame of manipulation of figures was placed at the door of Sh. Sidhu, accountant of the assessee. It was further contended that at one stage the accountant applied GP rate of 19% and the same was applied at 13% thereafter and the same was made the basis for the additions. The assessee wants to convey that main addition are only on account of higher gross profit rate after deducting the trading discount from turnover. The Income-tax Appeal No. 319 of 2005 -5- **** assessee wants to convey that applying a GP rate of

19.7% did not make the assessee liable for penal action u/s 271(1)(c ). As regards the sales outside the books of accounts are concerned, the same were computed at Rs.4545744/- outside books of account and they were confirmed in appeal also. It will also be appropriate to mention here that application u/s 245C(1) was rejected by the Settlement Commission. The appeal of the assessee had been heard by the ITAT but the judgment has not been received so far. The penalty is going to be barred by limitation by 31.5.92 and, therefore, it is not possible for the undersigned to keep nit pending. Taking into consideration the totality of circumstances, I do not agree with the contention of the assessee and accordingly, hold that this is a fit case for levy of penalty and penalty @ 100% of the tax sought to be evaded.” The above observations have not been dealt with by the Tribunal. In this view of the matter, finding recorded by the Tribunal vitiated by perversity. Thus, substantial question as to perversity of finding of Tribunal arises and has to be answered in favour of the revenue. Accordingly, we allow this appeal, set aside the impugned order and remand the matter to the Tribunal for a fresh decision in accordance with law after considering the rival Income-tax Appeal No. 319 of 2005 -6- **** submissions. The parties may appear before the Tribunal for further proceedings on 15.2.2011. The revenue may serve the assessee for the said date. (Adarsh Kumar Goel) Judge December 01,2010 Pka (Ajay Kumar Mittal) Judge