Db Income Tax Appeal v. M/S. Kiran Infra Engineers Ltd

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR (1) DB Income Tax Appeal No.49/2014Commissioner of Income Tax Vs. M/s. Kiran Infra Engineers Ltd. (2) DB Income Tax Appeal No.50/2014Commissioner of Income Tax Vs. M/s. Kiran Udyog Date of Order :::: 25/05/2016 Hon'ble Mr. Justice M.N. BhandariHon'ble Mr. Justice J.K. Ranka Mr. RB Mathur with Mr. Nikhil Simlote, counsel for the appellant BY THE COURT (Per: Hon'ble J.K. Ranka, J.) 1.Instant appeals under Section 260A of the Income Tax Act, 1961 (for short, 'Act') are directed against theorder dt.16/01/2013 passed by the Income TaxAppellate Tribunal, Jaipur Bench, Jaipur 'A' Jaipur (forshort, 'Tribunal'). It relates to the assessment years2007-08 & 2006-07 respectively where the penalty underSection 271(1)(c) of the Act was deleted by theCommissioner of Income Tax (Appeals) [for short,'CIT(A)''] which was upheld by the Tribunal. 2.Brief facts noticed for disposal of both theseappeals are that the respondent-assessee is engaged inmanufacturing of railway signaling equipments and soalso engaged in contract work with Indian Railways,other Government agencies and with some private companies. The assessee was also engaged in theactivity of generation and sale of electricity throughwind mill. The assessee had undertaken contract work invarious parts of the country and it is claimed that theaccounts were audited, however, the books of accountswere not found proper and defects were noticed by theAssessing Officer (for short, 'AO') particularly on accountof expenditure claimed on wages, material purchasedand the AO invoked provisions of Section 145(3) of theAct. In the assessment, the AO disallowed 1% of the rawmaterial purchased, 30% out of wages expenses onadhoc basis and 30% on account of other expenses. Itwas found that the CIT(A) restricted the addition in boththe assessment years and such disallowance was alsoupheld by the Tribunal. Since there was wide gape anddifference in between the income declared in the returnof income vis-a-vis the income finally assessed afterorder of the Tribunal, the AO initiated proceedingsunder Section 271(1)(c) of the Act. The AO soughtexplanation from the assessee and the assesseecontended that the penalty is distinct and separateproceedings and merely because some expenditure wasdisallowed on adhoc basis, it does not come within thedefinition of either concealment of income or furnishinginaccurate particulars of income. On the contrary, itwas claimed that the accounts were audited, all possible vouchers were maintained and noticing certaindiscrepancies, the disallowance was made and suchdisallowance though made by the AO was reducedsubstantially by the CIT(A) and the Tribunal andtherefore, on adhoc estimated addition/disallowance nopenalty in law is leviable as there is no positive findingabout concealment of income. However, the AO leviedthe penalty to the extent of Rs.20,11,194/- andRs.12,75,548/- respectively. 3.The matter was carried in appeal before the CIT(A)who was satisfied with the explanation offered anddeleted the penalty. who was satisfied with the explanation offered anddeleted the penalty. 4.On an appeal by the Revenue before the Tribunal,the Tribunal upheld the order passed by the CIT(A) anddismissed the appeal. the Tribunal upheld the order passed by the CIT(A) anddismissed the appeal. 3.The matter was carried in appeal before the CIT(A)who was satisfied with the explanation offered anddeleted the penalty. who was satisfied with the explanation offered anddeleted the penalty. 4.On an appeal by the Revenue before the Tribunal,the Tribunal upheld the order passed by the CIT(A) anddismissed the appeal. the Tribunal upheld the order passed by the CIT(A) anddismissed the appeal. 5.Learned counsel for the appellant contended thatyear after year the additions are being made and theassessee is in a habit of non-maintaining proper books ofaccounts and vouchers and merely because applicationof net profit rate on adhoc basis or/and disallowance ofexpenses, has been made is no ground for deleting thepenalty. He contended that it is not that small additionwas sustained rather the disallowance/addition in theassessmentyear2006-07resultedintoaddition/disallowance to the extent of Rs.37,89,508/-and the addition/disallowance in the assessment year 2007-08 to the extent of Rs.59,75,032/-. He contendedthat the assessee on the one hand does not maintainproper books of accounts and is not showing the realincome, on the other hand, in almost all the yearsincluding the years under appeal, books of accounts arebeing rejected and huge additions are made and penaltywas not required to be deleted at least in a case likethis. He contended that substantial questions of lawarise. 6.We have heard learned counsel for the Revenueand have perused the impugned order. 7.Admittedly, the penalty in the instant case hasbeen levied on account of certain estimated additions/disallowance which were finally sustained by theTribunal, however, the fact remains that the AO madeadhoc addition which was reduced in appeal by theappellate authorities and that too on adhoc/estimatedbasis. It may be a factor that the books of accountswere rejected primarily on the basis that the assesseebeing a manufacturer of railway signaling equipmentand so also engaged in contract work with IndianRailways, other Government agencies and with someprivate companies and it may be possible that thevouchers received from various quarters as the workadmittedly is in different parts of the country and in sofar as the said vouchers are concerned, may not be full proof but that does not mean that the assesseeconcealed the income or furnished inaccurateparticulars. The findings in quantum proceedings thoughrelevant and admissible but in so far as the penalty isconcerned, it is distinct and separate proceedings andthe penalty being quasi-criminal in nature, merelybecause an addition has been sustained and the assesseedoes not file an appeal is no ground to impose penalty.Something more is required to be brought into by the AOto prove that there was some concealment of income.Even when the books of accounts are to be rejected andprofit has to be estimated, then it should also be basedon some cogent material and it must be something morethan mere suspicion and should have reasonable nexusto the material available on record and circumstances ofthe case. It was claimed by the assessee that majorityof the work in various States throughout the country wascompleted by engaging local labour and on account ofvarious factors and the labour class being such may notbe having banking facilities/bank accounts, smallpayments was required to be made in cash. Admittedly,in a case of contract or the business being run by theassessee, the entire activity was labour intensive andengaging contractual labour or/and illiterate labour andtherefore, there is quite possibility that the vouchersmay not have been maintained to the satisfaction of the Revenue but then the fact prove that even the AO hadno basis except to estimate certain percentage ofexpenses. Revenue but then the fact prove that even the AO hadno basis except to estimate certain percentage ofexpenses. 8.If we take into consideration the assessment year2006-07, the addition which was sustained in quantumappeal, is namely: (a) addition of Rs.37,89,508/- byapplication of net profit rate of 7% on gross contractreceipts; (b) adhoc addition of Rs.80,000/- inmanufacturing activity and (c) adhoc disallowance ofexpenses of Rs.6,130/- and in the assessment year 2007-08: (a) addition of Rs.59,75,032/- by application of netprofit rate of 7% on gross contract receipts; (b) additionof Rs.1,04,465/- made in manufacturing activity byadhoc addition. In our view, the estimated addition asnoted herein above, cannot be said to fall within thedomain of imposition of penalty under Section 271(1)(c).In order to impose penalty under the said section, therehas to be concealment of particulars of income by theassessee and the assessee must have furnished accurateparticulars of his income. The meaning of word“particulars” used in Section 271(1)(c) would embracethe meaning of the details of the claim made.Admittedly, no information given in the return ofincome was found to be incorrect or inaccurate, theassessee cannot be held guilty of furnishing ofinaccurate particulars in order to expose the assessee to penalty unless the case is strongly covered by theprovision, the penalty provisions cannot be invoked. 9.This Court in the case of Shiv Lal Tak Vs.Commissioner of Income-Tax (2001) 251 ITR 373 had anoccasion to consider the case of a building contractorwhere also the AO noticed various defects in themaintenance of accounts and finding unvouched natureof expenditures, the assessee agreed for application ofgross profit rate at 12% on contract receipts so declaredby the firm. Penalty proceedings were initiated by theAO and the penalty was imposed by holding that theadditions made in the total income was substantiallyhigher the income in response of which particulars havebeen concealed ultimately levied penalty on findingsome of the expenditure referred in the order havingnot been properly explained. The said penalty wassustained by the CIT(A) as well as by the Tribunal andthis Court taking into consideration the nature ofadditions held that the explanation raised only apresumption which was rebutable. This Court found thatthe question of bonafides had to be proved as the factlike any other fact or preponderance of probabilitiesuninfluenced by any rule of presumption. Theexplanation could not be rejected merely because it wasnot supported and thus deleted the penalty. 10.The Apex Court in the case of CIT Vs. Reliance 10.The Apex Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd.: [2010] 322 ITR 158 (SC) had anoccasion to consider penalty under Section 271(1)(c)when in the said case an addition in respect of interestexpenditure was made. The said expenditure wasclaimed by the assessee on the basis of expendituremade for paying the interest on the loss incurred by itby which amount the assessee purchased some IPLshares by way of its business policies. However,admittedly the assesseee did not earn any income byway of dividend from those shares and such claim ofinterest to the extent of Rs.28,77,242/- was disallowed.The claim of the assessee was that all the details givenin the return were correct. There was no concealmentof income nor there was any inaccurate particulars ofsuch income furnished and the disallowance made bythe AO in the assessment year of interest was solely onaccount of different views taken on the same set offacts and therefore, they could at the most be termedas difference of opinion but nothing to do with theconcealment of income or furnishing of inaccurateparticulars of such income. It was further claimed thatmerely disallowance of the claim in the assessmentproceedings could not be the sole basis for levyingpenalty under Section 271(1)(c) of the Act. The ApexCourt, taking into consideration the meaning of thewords “inaccurate” and “particulars”, opined that the said words should mean the details supplied in thereturn which are not accurate, not exact or correct, notaccording to the truth and erroneous and there being nofinding that any detail supplied by the assessee in returnof income was found to be incorrect or erroneous orbeing false. No question arose for invoking penaltyunder Section 271(1)(C) and further observed thatmerely making a claim not sustainable in law by itselfwill not amount to furnishing inaccurate particularshaving regard to the income of the assessee. It furtherobserved merely because the assessee had claimed theexpenditure which claim was not accepted or was notacceptable to the Revenue, that by itself would notattract the penalty under Section 271(1)(c) anddismissed appeal of the Revenue. 11.Taking into consideration the above, in our view,the penalty was rightly deleted by the appellateauthorities and in our view, is based on finding of factsbased on material on record and no question of lawmuch less substantial question of law can be said toemerge out of the order of the Tribunal so as to call forinterference. We find no error, adversity or perversity inthe order impugned. 12.Consequently, the appeals, being devoid of merit,are hereby dismissed. [J.K. Ranka],J. [M.N. Bhandari],J. Raghu/p.10/ Certificate:All corrections made in the judgment/order have beenincorporated in the judgment/order being e-mailed.Raghu, Sr. PA.