2011-VIL-737-ITAT-KOL
Income Tax Appellate Tribunal KOLKATA
I.T.A Nos. 2172 & 2173/Kol/2010
Date: 12.08.2011
METROPOLITAN ENGG. CO-OPT. SOCIETY LTD.
Vs
ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-NADIA
For the Appellant : A. K. Chakraborty, P. S. Gupta, D. Saha
For the Respondent : S. K. Roy
BENCH
S. V. Mehrotra (Accountant Member) And Mahavir Singh (Judicial Member)
JUDGMENT
Mahavir Singh (Judicial Member)
These appeals by assessee are arising out of orders of CIT(A)-XXXVII, Kolkata in Appeal No.1087/Set aside/CIT(A)-XXXVI/Kol/Nadia/09-10 and 1086/Set aside/CIT(A)- XXXVI/Kol/37/Nadia/09-10 vide dated 15.09.2010. Assessment was framed by ACIT, Circle- Nadia u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2001-02 vide his order dated 31.03.2004. Penalty under dispute was levied by ACIT, Circle-Nadia u/s 271(1)(c) of the Act vide his order dated 29.09.2004. For the sake of brevity, we dispose of both these appeals by this consolidated order.
2. First we take up ITA No.2172/Kol/2010. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of Assessing Officer in estimating net income from work contract of the assessee @ 10% on gross contract receipts. For this, the assessee raised following grounds:
“1) For that on the facts and in the circumstances of the case, the order of the 1d. C.I.T.(Appeals) was not fair and proper and on the other hand it was made contrary to law, sound and adequate principles.
2) For that the Ld. C.I.T.(Appeals) was not at all justified in determining the net income of the works contract business of the appellant @ 10% of the gross contract receipts of Rs. 1,40,59,952.00 as per which the profit was determined at Rs. 14,05,995.00.
3) For that the Ld. C.I.T.(Appeals) failed to consider the rate of net profit of the works contract business of the appellant for the previous Assessment Years before estimating and determining the net profit @ 10% for the year under appeal.
4) For that both the Ld. C.I.T.(Appeals) was not at all justified in making the addition of Rs. 10,86,736.00 in respect of the works contract business of the appellant.
5) For that the Ld. C.I.T.(Appeals) ought to have considered the written submission made by the appellant at the appellate stage and also the past records of the appellant before making the addition of Rs. 10,86,736.00 by virtue of estimating the profit of the works contract business @ 10% of the gross receipts without passing a speaking order in respect of estimating the profit at a high rate.
6) For the both the Ld. C.I.T.(Appeals) and the Ld. Assessing Officer eared both in points law and on facts.”
3. The brief facts are that assessee is an Engineers’ Cooperative Society and is engaged in the business of execution of works contract and retail distribution of Liquid Petroleum Gas and manufacturing of bricks and P.C.C. Poles Casting. It is also carrying on business of execution of works contract and labour contract in District Nadia and during the year under consideration, it received gross work contract payment of Rs. 1,40,59,952/- from various work awarded by departments of Govt. of West Bengal. Out of the said gross payment of Rs. 1,40,59,952/-, assessee declared gross profit @ 8.77%, which comes to the tune of Rs. 12,33,042/- and after deduction of all business expenses it disclosed net profit of Rs. 3,19,261/- that is @ 2.27% of the gross bill received. It also disclosed the total net profit out of the other business as under:
|
i) |
Works contract business |
Rs.3,19,261.00 |
|
ii) |
brick mfg. business |
Rs. 2,536.37 |
|
iii) |
Retail distribution of LPG |
Rs.1,93,181.42 |
|
iv) |
P.C.C. Pole Mfg. business |
Rs.1,65,368.33 |
|
|
Total |
Rs.6,80,347.12 |
The Assessing Officer during the course of assessment proceeding considering the net profit of the assessee as low and to verify assessee’s profit in the line of business and the correctness of claim regarding purchase of stone chips and other materials, he got enquiry made by ITO, Burdwan, Suri, District Birbhum in respect of purchase of stone chips from M/s. Bhagat Stone Works and Shri Shambhu Bhakat. Assessing Officer also issued summons u/s. 131 of the Act to M/s. Pinky Enterprises, Shri Bibhuti Saha and Sri Apu Lodh. Shri Raghunath Prasad, partner of Bhagat Stone Works and Shri Shambhu Bhagat before the Assessing Officer admitted that they have not entered into any transaction with the assessee during the year under consideration particularly the purchases disclosed by the assessee. Similarly, Shri Bibhuti Saha, Shri Apu Lodh and M/s. Pinky Enterprises also clearly admitted that they have not entered into any transaction of purchase and sale with the assessee regarding stone chips. In view of these facts, Assessing Officer referred the matter back to assessee for its comments but assessee could not state anything and considering all Assessing Officer came to the conclusion that claim of the assessee that he has purchased stone chips and other materials from the above concerns is not genuine, therefore, the amount shown as outstanding is without any basis. Accordingly, he rejected the books of accounts and proceeded to assess the income by estimating the income. Assessing Officer made disallowance by observing as under:
“So, from the above discussions and documents availed, it is clear that in the case of Pinky Enterprises, one of the creditors for transportation were paid Rs. 58,215/- during the F.Y.2000-01 which were not recorded in the cash book from undisclosed sources. And in the case of other loan creditors namely
|
(1) |
Sambhu Bhagat … |
Rs.9,21,061/- |
|
(2) |
Bhagat Stone Works … |
Rs. 2,640/- |
|
(3) |
Bibhuti Saha … |
Rs.4,43,800/- |
|
(4) |
Apu Lodh alias Arpan Lodh … |
Rs.1,69,231/- |
Expenses debited to trading account were false and the Society, thus, suppressed the gross profit. As a result, the entire amount of Rs. 16,15,947/- is added to Net Profit.
|
|
S.C’s name |
Amount |
|
1) |
Pinky Enterprises |
Rs. 58,215/- |
|
2) |
Sambhu Bhagat |
Rs. 9,42,061/- |
|
3) |
Bhagat Stone Works |
Rs. 2,640/- |
|
4) |
Bibhuti Saha |
Rs. 4,43,800/- |
|
5) |
Apu Lodh alias Arpan Lodh |
Rs. 1,69,231/- |
|
|
|
Rs. 16,15,947/- |
Shri M. L. Bhowmik, A/R and Shri Sovan Roy, Director, accepted the addition of Rs. 16,15,947/- as income from undisclosed sources to net profit.”
4. Aggrieved, assessee preferred appeal before CIT(A), who after considering remand report of Assessing Officer as well as submissions of assessee estimated net profit at 10% of gross contract receipts but deleted the other additions by holding as under:
“I have carefully considered the above. The previous year under consideration is 2000-01. In other words more than 10 years have elapsed. Therefore, allowing cross examination, now, in my view does not serve any purpose because the alleged suppliers may not be keeping old records with them now. I also find from the A/R’s written submissions, extracted above, that all the necessary bills and vouchers for the purchases and other payments were admittedly not maintained by them and therefore they could not furnish the same before the A.O. for his scrutiny, at the time of assessment proceedings. In other words non-furnishing of all the details at the time of scrutiny proceedings made the scrutiny in effective.
Considering all, particularly considering the facts that the appellant failed to furnish necessary evidence, for purchase and other expenses before the AO and also considering the facts that without the purchase of stone chips and other material the appellant could not have executed Civil Contract Works and further considering the fact that the net profit of the appellant‘s contract business for the year was only 2.27. I am of the view that estimating the profit from the Civil Contract Business of the appellant @ 10% of the gross contract receipts would be fair and reasonable. Accordingly , the AO. is directed to estimate the profit of the appellant’s contract business @ 10% of the gross contract receipts of Rs. 1,40,59,952/- as per which the profits works out at Rs. 14,05,995/-.
Considering the net profit admitted by the appellant in the return at 319261/- the addition in this regard would be Rs. 10,86,734/-. Accordingly the AO. is directed to restrict the addition to Rs..10,86,734/- in the place of Rs. 16,15,947/-.”
Aggrieved, assessee is now in appeal before us.
5. We have heard rival contentions and gone through facts and circumstances of the case. Before us, Ld. Counsel for the assessee fairly stated that a reasonable estimate to net profit can be made and for this he referred net profit percentage for earlier three years ranging 1.41% to 1.92%, as may be seen from the following table:
|
Assessment years |
Gross bill received |
Net Profit |
Rate of Net Profit |
|
|
1998-1999 |
71,03,860.00 |
1,00,425.40 |
1.41% |
accepted |
|
1999-2000 |
1,21,37,121.00 |
9,17,448.00 |
1.08% |
do |
|
2000-2001 |
1,21,76,378.00 |
2,34,873.00 |
1.92% |
do |
|
2001-2002 |
1,40,59,952.00 |
3,19,261.00 |
2.27% |
|
On enquiry from the bench, the Ld. Counsel fairly stated that these were accepted u/s. 143(1) of the Act and no scrutiny assessment was made. But Ld. Counsel stated that in view of very specific nature of work contract business, where verification is not possible and the only way of computing income from such business is only a reasonable estimate can be made by applying reasonable rate of profit expected to be earned from such type of business. Ld. Counsel also stated that a fair estimate of 5% to net profit out of gross receipt will meet ends of justice. For this, he stated that payments were received from State Govt. Department for civil construction work done and admitted. He stated that purchases, labour payments and transport charges effected through aforesaid sundry creditors amounting to Rs. 16,15,000/- as held to be bogus will result into abnormally high profits i.e. @ 15.98% on a turnover of Rs. 1,40,59,952/-. Ld. Counsel for applying a reasonable rate of net profit of gross contract receipt relied on the decision of Hon’ble Orissa High Court decision in the case of CIT Vs. Nandaram Hundatram (1976) 103 ITR 433 wherein it is held that “if the assesee failed to produce acceptable accounts, revenue would be justified in estimating real income at certain percentage of gross receipts.” Ld. Counsel also relied on the decision of Royal Medical Hall Vs. CIT (1962) 46 ITR 748 (AP), wherein it is held that “estimate of income on the basis of materials available and the past assessment record was held proper.”
6. We find that the assessee is an Engineering Cooperative Society and engaged in the business of execution of work contracts including retail distribution of LPG and manufacturing of bricks and RCC pole casting. In view of this specific nature of assessee’s business and as conceded by Ld. Counsel for the assessee i.e. a fair and reasonable estimate of 6% of net profit of gross contract receipt will meet the ends of justice and we estimate net profit at 6%, in view of facts and circumstances that assessee’s outstanding sundry creditors are bogus and books of account rejected are not supported by vouchers. Accordingly, we direct the Assessing Officer to recompute the income by applying 6% of net profit on gross contract receipts. Appeal of the assessee is allowed in part.
7. Now, we take up ITA No.2173/Kol/2010. The only issue in this appeal of the assessee is against the order of CIT(A) confirming levy of penalty u/s. 271(1)(c) of the Act. For this, assessee has raised the following seven grounds:
“1) For that on the facts and in the circumstances of the case, the order of the Ld. C.I.T.(Appeal) confirming the penalty order passed by the Ld. A.C.I.T., Circle- Nadia was not fair & proper and on the other hand it was made contrary to law, sound and adequate principles.
2) For that the Ld. C.I.T.(Appeal) was not at all proper and justified in confirming the penalty u/s. 271(1)(c ) of the I.T. Act, 1961 and passing the order for re-computing the penalty @ 100% on estimated income of Rs. 10,86,734.00.
3) For that the reasons adduced by the Ld. C.I.T.(Appeal) in support of confirming the penalty order are not at all convincing and as such the penalty u/s. 271(1)(c ) is liable to be waived.
4) For that both the Ld. authorities below failed to establish any mensrea and/or evil motive of the humble appellant in his penalty order passed u/s. 271(1)(c) of the I.T. Act,1961.
5) For that on the facts and in the circumstances of the case both the Ld. C.I.T.(Appeal) and the Ld. Assessing Officer have failed to establish that the humble appellant had concealed the particulars of income or had deliberately furnished inaccurate particulars in respect of the purchases made by the appellant from the sundry creditors.
6) For that the Ld. C.I.T.(Appeal) was wrong in observing that the A/R of the appellant and the Director of the appellant society accepted the addition of Rs. 16,15,947.00 and he ought to have observed that the humble appellant did not get any opportunity to cross examine all the sundry creditors who gave their witnesses before another Income Tax Officer of another District.
7) For the both the Ld. C.I.T.(Appeal) and the Ld. Assessing Officer eared both in points of law and on facts.”
8. We have heard rival contentions and gone through facts and circumstances of the case. We find that Assessing Officer has levied penalty on the basis of addition made by Assessing Officer in respect of following sundry creditors:
|
“1) |
Pinky Enterprises |
Rs. 58,215/- |
|
2) |
Sambhu Bhagat |
Rs. 9,42,061/- |
|
3) |
Bhagat Stone Works |
Rs. 2,640/- |
|
4) |
Bibhuti Saha |
Rs. 4,43,800/- |
|
5) |
Apu Lodh |
Rs. 1,69,231/- |
|
|
|
Rs. 16,15,947/- |
We find that CIT(A) has estimated the income by applying 10% of net profit of gross contract receipts in the absence of proper books of account. Even now, as decided above, we have decided the appeal of the assessee estimating the net profit at 6%, but the same CIT(A) has upheld the penalty entirely on different premise from what was levied by Assessing Officer. Now question arises whether on estimate penalty can be levied or not. We are of the view that on estimates penalty u/s 271(1)(c) of the act cannot be levied because there remains no element of concealment of income or furnishing of in accurate particulars of income as in the given facts and circumstances of this case. Recently, Hon’ble Chhattisgarh High Court in the case of CIT v Vijay Kumar Jain (2010) 325 ITR 378(Chhattisgarh), held that no penalty can be levied in the case of estimating rate of profit and more particularly in a case where the AO has made addition altogether on different premise and initiated penalty qua that, but in the present case before us, the CIT(A) has estimated the net profit on gross receipts after applying 10% of net profit rate and subsequently Tribunal reduced the estimate to 6%. Hon’ble High Court in Vijay Kumar Jain (supra) held as under:
“The question for our consideration for deciding this appeal is whether the Commissioner of Income-tax (Appeals) and the Tribunal were justified in cancelling the penalty under section 271(1)(c) of the Act imposed by the Assessing Officer in the admitted facts that the Assessing Officer after rejecting the book results estimated the net profit of the assessee at the rate of 10 per cent. of the total receipt in the return and on difference of profit so estimated, imposed additional tax ?
In Chairman, SEBI [2006] 131 Comp Cas 591; [2006] 5 SCC 361, the question before the Supreme Court was whether once it is conclusively established that a mutual fund has violated the terms of certificate of registration and statutory regulations, the imposition of penalty becomes a sine qua non of the violation. Answering in the affirmative and allowing the appeals, the Supreme Court held that mens rea is not an essential ingredient for contravention of the provisions of a civil Act. Unless the language of the statute indicates the need to establish the element of mens rea, it is generally sufficient to prove that a default in complying with the statute has occurred and it is wholly unnecessary to ascertain whether such a violation was intentional or not. The breach of a civil obligation which attracts a penalty under the provisions of an Act would immediately attract the levy of penalty irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not.
In Dilip N. Shroff v. Joint CIT [2007] 291 ITR 519, the Supreme Court, while considering the nature and applicability of section 271(1)(c) and Explanation 1 thereto, held that even if the statute says that one is liable for penalty if one furnishes inaccurate particulars, the same may not by itself be enough to hold that nothing more is needed if the particulars furnished are found to be inaccurate. An element of mens rea is needed before penalty can be imposed. Concealment and furnishing inaccurate particulars refer to a deliberate act or omission on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi. Another Division Bench of the Supreme Court, doubting the correctness of the above view expressed in Dilip N. Shroff referred the controversy involved in the appeals to a larger Bench.
In Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277 (SC), it was held by the three-judge Bench of the Supreme Court in paragraph-20 that Dilip N. Shroff case was not correctly decided but Chairman, SEBI's case has analyzed the legal position in the correct perspective and accordingly answered the reference.
In Atul Mohan Bindal [2009] 317 ITR 1 (SC), it has been observed that if the Assessing Officer is satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income, such person may be directed to pay penalty. In paragraph 13, it has been further observed that for applicability of section 271(1)(c), conditions stated therein must exist.
The Supreme Court in its latest decision in the matter of CIT v. Reliance Petroproducts P. Ltd. [2010] 322 ITR 158, while considering the applicability of section 271(1)(c) of the Act, held that in order to impose penalty under the aforesaid section, there has to be concealment of particulars of income of the assessee and the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.
If we examine the facts of the present case in the light of the principles of law laid down by the Supreme Court in the aforesaid judgments, we find that the assessee furnished accurate particulars of the entire receipt of Rs. 21,76,274. After deduction towards expenditure and addition of net profit through other sources, taxable net income was shown at Rs. 70,818. However, since the assessee did not produce any evidence and books of account including the balance-sheet for the assessment year, net profit was estimated at the rate of 10 per cent. of the receipt from all sources and on difference of profit so estimated, additional tax was imposed and it was further directed that proceeding under section 271(1)(c) of the Act for imposition of penalty be separately drawn against the assessee for concealment of income by not producing proper evidence of expenditure. To impose penalty under section 271(1)(c), conditions stated therein must exist meaning thereby the assessee must have concealed the particulars of his income or furnished inaccurate particulars of such income.
In the instant case, it is not the case of the Revenue that the assessee concealed the particulars of his income or any particulars of income furnished by him was found to be inaccurate by the Assessing Officer. The assessee declared the net profit by estimating it at the rate of 6.36 per cent. of his gross receipt as the Assessing Officer in similarly situated cases had accepted lower net profit than 6.36 per cent. declared by the assessee. Considering the aforesaid facts, the Tribunal held that the order of the Commissioner of Income-tax (Appeals) in cancelling penalty cannot be faulted with and accordingly upheld the order.
In our considered opinion, in view of the undisputed facts that particulars furnished by the assessee regarding receipt in the relevant financial year have not been found inaccurate; it is also not the case of the Revenue that the assessee concealed any income in his return, the order of the Tribunal confirming the order of the Commissioner (Appeals) cancelling the penalty imposed by the Assessing Officer under section 271(1)(c) of the Act cannot be faulted with.”
In view of the above case law of Vijay Kumar Jain (supra), we are of the view that in case of estimate of net profit, as is in the given facts and circumstances of the case, penalty u/s. 271(1)(c) cannot be levied and we delete the same. Orders of the lower authorities are reversed and appeal of assessee is allowed.
9. In the result, the appeals of assessee in ITA No.2172/K/2010 is partly allowed and in ITA No. 2173/K/2010 is allowed.
10. Order pronounced in open court on 12.8.2011.
DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.