-1- IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD Before S/Shri D.K.Tyagi, JM and A. Mohan Alankamony, AM. ITA No.2155/Ahd/2010 Asst. Year :1994-95 Asstt. CIT, Range-4, Vs. Manish Organics Ahmedabad. India Ltd.,7-A, Ratnam Sheth, C.G. Road, Ahmedabad. (Appellant) (Respondent) .. Appellant by :- Shri A. K. Patel, Sr.DR Respondent by:- Shri Sunil Talati, AR Date of hearing : 24/11/2011 Date of pronouncement : 30/11/11. ORDER Per D. K. Tyagi, Judicial Member. This is appeal filed by Revenue against order of ld. CIT(A) dated 15.03.2010. 2. effective ground raised in this appeal is regarding deletion of penalty of Rs.6,29,093/- levied u/s 271(1)(c) of Act. facts of case are that AO levied penalty mentioning that in assessment order AO made addition on various issues out of which following two additions have been sustained by CIT(A) and Hon ble ITAT: ITA No.2155/Ahd/2010 Asst. Year 1994-95 1. Inter corporate deposits and interest thereon Rs.12,91,500/- 2. Sales Commission Rs. 53,010/- 3. Factory Miscellaneous expenses Rs. 23,084/- ---------------------- Rs.13,67,594/- Mentioning decisions of Hon ble Allahabad High Court in case of Banaras Textorium vs. CIT (1988) 169 ITR 782 and in case of Zeekoo Shoe Factory vs. CIT (1981) 127 ITR 827 and decision of Hon ble Gujarat High Court in case of Jamnadas & Co. vs. CIT (1994) 210 ITR 218 AO held that assessee has furnished inaccurate particulars of income. He, therefore, levied penalty on additions sustained of Rs.13,67,594/- on tax worked out thereon. AO levied minimum penalty of Rs.6,29,093/-. assessee went in appeal before first appellate authority wherein ld. authorized representative vide written submission submitted as under :- Further to statement of facts and grounds of appeal your appellant respectfully submits that order passed by ld. AO suffers from vice of application of mind as stated in ground no.1 since before ld. AO passed order on 29.01.2009 reply to show cause notice was already furnished, copy of which is enclosed herewith as Exhibit-A. It was explained in said reply that all particulars were duly furnished in audited accounts and there was no concealment nor furnishing of inaccurate particulars of income. In this connection your appellant relies upon decision of Hon ble Gujarat High Court in case of CIT vs. Scientific Chemicals (2005) 198 CTR (Guj) 661, copy of which is enclosed herewith as Exhibit-B, wherein High Court has held that when explanation to show cause has been furnished and same is not considered by holding that no explanation is furnished order of penalty suffers from lack of application of mind and is liable to be quashed. penalty be cancelled now. 2 ITA No.2155/Ahd/2010 Asst. Year 1994-95 It is further submitted that AO has disallowed commission payment on ground that details of services and confirmations are not available. CIT(A) granted partial relief and for balance addition sustained ITAT did not grant relief on ground that no further fresh evidences have been furnished by assessee. Similarly, second addition was of Factory Miscellaneous expenses. These were also disallowed on ground of inadequate proof and evidences. It is submitted that books of accounts are subject to Internal Audit, Statutory and Tax audit. For all expenses there are always possibility of full details and evidences are not available or preserved. But merely because of that if AO disallowed some small expenditure of such big Public Limited Company, addition automatically cannot result into view that assessee has concealed particulars of income or has submitted inadequate particulars. So far as Inter-corporate deposits and interest are concerned, it is submitted that it is public limited company and deposits of crores of rupees were received every year u/s 58A of Companies Act. Merely because Company Law department and Accounts department of company were not meticulous to obtain full details of depositors it cannot be added as unexplained cash credit of company. However, by virtue of strict interpretation of section 68, non-submission of certain details by depositors, it could be case for addition u/s 68 but it cannot be ground for levy of penalty inasmuch as assessee had submitted all details and deposits are not accepted by Management but but staff as public limited company. At it is held by Gujarat High Court in case of National Textiles vs. CIT (2000) 249 ITR 125 and consistently followed by Tribunals, merely because additions are made u/s 68 and sustained penalty cannot be levied. Copy of decision is enclosed. However, simply because addition has been made and confirmed, it cannot tantamount to furnishing of inaccurate particulars of income. For sake of repetition, it is submitted that accounts of appellant were duly audited and tax audited and no such discrepancy was ever pointed out by Auditor. ld. AO has simply listed out some of case laws which are not relevant and applicable to facts of case and it appears that in reasons ld. AO has simply stated that additions having been confirmed and in view of paragraphs extracted from judgment he was satisfied that inaccurate particulars of income 3 ITA No.2155/Ahd/2010 Asst. Year 1994-95 were furnished. In doing so he has ignored detailed explanation given in reply to show cause notice by holding that assessee has failed to submit any reply. penalty thus levied is without application of mind and simply because addition has been made, same is levied. same deserves to be cancelled and same be cancelled. ld. AO has relied upon decision of Supreme Court in case of Union of India vs. Dharmendra Textile Processors 166 Taxman 65 (SC) by holding that penalty is civil liability and willful concealment is not essential ingredient as is case in matter of prosecution and that addition made will be followed by penalty. However, ld. AO has failed to appreciate that in view of Explanation (1) to section 271(1)(c), when assessee has submitted plausible explanation and his bona fides by carrying issue of disallowance right upto Tribunal, it was not fit case for levy of penalty. It be so held now. It may also be stated that decision of Supreme Court in case of Dharmendra Textile Processors has been later explained by Supreme Court in case of Union of India vs. Rajasthan Spinning and Weaving Mills Ltd. (2009) 224 CTR (SC) 1, copy enclosed and also in following cases. (i) ACIT vs. VIP Industries (2009) 21 DTR (Mum. Tribunal) 153 (ii) Kanbay Software India (P) Ltd. vs. DCIT (2009) 22 STR (Pune) trib) 481 (iii) Addl.CIT vs. Premchand Gard (2009) 123 TTJ (Delhi)(T.M.) 433. (iv) CIT vs. Siddharth Enterprise ITA 908/P &H dated 14th July 2009 copy enclosed. Considering entirety of facts of case and in view of continuous legal proceedings after lapse of as many as 15 years when heavy losses were incurred, there could be no imaginable intention to conceal any income or furnishing any inaccurate particulars of income. In view of facts of your appellant s case and decisions clarifying latest position, penalty of huge amount of Rs.6,29,093/- be deleted. ld. CIT(A) considering facts and circumstances of case as also submissions of assessee deleted penalty holding that assessee is public limited company and is accepting deposit in large 4 ITA No.2155/Ahd/2010 Asst. Year 1994-95 number from public. If assessee fails to produce some of depositors to prove genuineness and creditworthiness inspite of efforts made it may result into addition u/s 68 but it cannot lead to penalty for furnishing inaccurate particulars of income. Aggrieved, Revenue is in appeal before us. 3. ld. DR relied on penalty order and submitted that penalty u/s 271(1)(c) is civil liability and for attracting such civil liability, willful concealment is not essential ingredient as is case in matter of prosecution u/s 276C Union of India vs. Dharamendra Textile Processors (supra). Any concealment or inaccuracy in particulars of income in return occurring at any stage upto and inclusive of ultimate stage of working out of total income would attract penalty provision of section 271(1)(c). Every figure in return which is set opposite to item of income is particular income, whether figure is one of which is stated independently of any thing else that appears in return or documents accompanying it or whether it is something derived from other figures elsewhere stated in such return or documents. False result may be produced by falsity of one or more of constituent items in return. words inaccurate particulars would cover falsity in final figure as also constituent elements or items. They simply would mean inaccurate in some specific or definite respect 5 ITA No.2155/Ahd/2010 Asst. Year 1994-95 whether in constituent or subordinate items of some or end result. AO was satisfied that assessee had furnished inaccurate particulars of income in respect of issues discussed in assessment order and confirmed by judgments of CIT(A) and Tribunal and it is fit case for levy of penalty under section 271(1)(c). Therefore, penalty in respect of income sought to be evaded was rightly levied and ld. CIT(A) is not correct in deleting same. ld. DR prayed that order of ld. CIT(A) be set aside and that of AO be restored. 4. ld. counsel of assessee heavily relied on order of ld. CIT(A) and reiterated submissions made before first appellate authority. He submitted that ld. CIT(A) has correctly appreciated facts of case and deleted penalty. His order may kindly be upheld. 5. We have considered rival submissions and perused material on record. undisputed fact is that assessee is Public Limited Company having huge turnover but suffering losses and has ultimately been closed down. net loss returned is Rs.59,54,460/- and there was no intention to reduce any taxable income. Even after additions assessed income remained loss. accounts are subject to Internal Audit, Statutory Audit and Tax Audit. AO has levied penalty on additions Rs.13,67,594/- sustained by appellate authorities on tax worked out thereon. AO levied minimum penalty of Rs.6,29,093/-. 6 ITA No.2155/Ahd/2010 Asst. Year 1994-95 This is case where explanation of assessee has not been accepted by Department. levy of penalty is merely on disallowance of expenditure and not finding of concealment of any particulars or mala fide intention to reduce taxable income. Hon ble Gujarat High Court in case of National Textiles vs. CIT 249 ITR 125 has held that provisions of section 68 permits AO to treat unexplained cash credits as income for making certain additions if there is failure by assessee to give explanation. However, addition made on this count automatically cannot justify penalty levied u/s 271(1)(c). Hon ble High Court further held that for levy of penalty u/s 271(1)(c) two factors must co-exist (i) there must be some material or circumstances leading to reasonable conclusion that amount does represent assessee s income. It is not enough for purpose of penalty that amount has been assessed as income and (ii) circumstances must show that there was animus, i.e. conscious concealment or act of furnishing of inaccurate particulars on part of assessee. Explanation -1 to section 271(1)(c) has no bearing on factor no.1 but has bearing only on factor no.2. explanation does not make assessment order conclusive evidence that amount assessed was in fact income of assessee. No penalty can be imposed if facts and circumstances are equally consistent with 7 ITA No.2155/Ahd/2010 Asst. Year 1994-95 hypothesis that amount does not represent concealed income with hypothesis that it does. If assessee gives explanation which is unproved but not disproved i.e. it is not accepted but circumstances do not lead to reasonable and positive inference that assessee s case is false, explanation cannot help Department because there will be no material to show that amount in question was income of assessee. This case is also covered by decision of Tribunal, Ahmedabad in case of ACIT vs. Excel Forging (P) Ltd. in ITA No.1709/Ahd/2005 dated 26.12.2008 wherein it has been held that non- availability of confirmation and other details are valid points for making addition u/s 68. But because explanation of assessee with regard to genuineness of deposits is not accepted, it cannot straight away result into penalty. In present case assessee is public limited company accepting deposit in large number from public. assessee failed to produce some of depositors to prove genuineness and creditworthiness inspite of efforts made, it resulted into addition u/s 68 but it cannot lead to penalty for furnishing inaccurate particulars of income. Therefore, in our considered opinion ld. CIT(A) has rightly deleted penalty. There is no infirmity in his order. We uphold same. appeal filed by Revenue is dismissed. 8 ITA No.2155/Ahd/2010 Asst. Year 1994-95 6. In result, appeal filed by Revenue is dismissed. Order was pronounced in open Court on 30.11.11. Sd/- Sd/- (A. Mohan Alankamony) (D.K. Tyagi) Accountant Member Judicial Member Ahmedabad, Mahata/- Copy of Order forwarded to:- 1. Assessee. 2. Revenue. 3. CIT(Appeals)- 4. CIT concerns. 5. DR, ITAT, Ahmedabad 6. Guard File. BY ORDER, Deputy/Asstt.Registrar ITAT, Ahmedabad 1.Date of dictation 28/11/2010. 2.Date on which typed draft is placed before Dictating Member .Other Member 28/11/2011 3.Date on which approved draft comes to Sr.P.S./P.S . 4.Date on which fair order is placed before Dictating Member for pronouncement .. 5.Date on which fair order comes back to Sr.P.S./P.S 6.Date on which file goes to Bench Clerk .. 7.Date on which file goes to Head Clerk . 8.The date on which file goes to Asstt. Registrar for signature on order 9.Date of Despatch of Order .. 9 ACIT.-(OSD)-1-Range-4 v. Manish Organics India Ltd