IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH AHMEDABAD Before Shri S.S. Godara, JM, & Shri Manish Borad, AM. ITA No. 2367/Ahd/2015 Asst. Year: 2007-08 Nitin K. Bhatt, Prop. Dhiraj Vs. ITO, Wd-3, Gandhinagar. Trading Co., B-14, District Shopping Centre, Sector-21, Gandhinagar. Appellant Respondent PAN ABRPB3887A Appellant by Shri S. N. Divetia, AR Respondent by Shri S. L. Chandel, Sr.DR. Date of hearing: 8/9/2016 Date of pronouncement: 23/9/2016 ORDER PER Manish Borad, Accountant Member. This appeal of assessee is directed against order of ld. CIT(A), Gandhinagar, Ahmedabad, dated 10/06/2015 vide appeal no.CIT(A)/GNR/257/2014-15 passed against order u/s 271(1)(c) of IT Act, 1961 framed on 22/12/2014 by ITO, Wd-3, Gandhinagar. Following grounds have been raised in this appeal :- 1.1 order passed u/s.250 on 10.06.2015 for A.Y.2007-08 by CIT(A)-GNR, Abad upholding penalty of Rs.1,56,784/- levied u/s. 271(l)(c) by AO is wholly illegal, unlawful and against principles of natural justice. ITA No. 2367/Ahd/2015 2 Asst. Year 2007-08 1.2 Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly submissions made and evidence produced by appellant with regard to impugned penalty. 2.1 Ld.CIT(A) has grievously erred in law and on facts in confirming that appellant had suppressed income by Rs.5,79,480/- so that penalty of Rs.1,56,784/- levied u/s.271(l)(c) was justified. 2.2 That in facts and circumstances of case as well as in law, Ld.CIT(A) ought not to have upheld penalty of Rs.1,56,784/- levied u/s.271(l)(c). It is, therefore, prayed that penalty of Rs.1,56,784/- levied u/s.271(l)(c) upheld by CIT(A) may kindly be deleted. 2. Briefly stated facts of case are that assessee is individual running business in name of sole proprietary concern M/s Dhiraj Trading Co. Return of income was filed on 30/10/2007 declaring total income Rs.99,552/-. Case was selected for scrutiny assessment and income was determined at Rs.37,78,380/- after making addition towards unexplained credit difference in books of account of assessee vis- -vis books of Crompton Greaves Ltd. at Rs.36,78,829/-. Against this addition of Rs.36,78,829/- assessee went in appeal before ld. CIT(A) and addition was brought down and sustained at Rs.5,79,480/-. Revenue came in appeal before tribunal. However, Co-ordinate Bench dismissed appeal of Revenue and confirmed addition sustained by ld. CIT(A). 3. Proceedings u/s 271(1)(c) of Act were initiated by Assessing Officer at time of finalizing assessment and finally after order of ld. CIT(A) against quantum addition which was sustained partly, penalty u/s 271(1)(c) of Act at Rs.1,56,784/-was imposed on sustained addition. Against penalty order u/s ITA No. 2367/Ahd/2015 3 Asst. Year 2007-08 271(1)(c) of Act, assessee came up in appeal before ld. first appellate authority but could not succeed as same was confirmed by ld. CIT(A) by observing as under :- 6. I have considered Assessment Order and submissions filed by appellant. present dispute relates to levy of penalty u/s 271(l)(c) on addition of unexplained credit which has been confirmed at Rs.5,79,480/- by my processor CIT(A) and said addition was not further contested by appellant in ITAT . fact that reconciliation of both accounts was not furnished by appellant during course of Assessment Proceedings cannot be doubted. Such reconciliation was submitted as additional evidence under Rule 46A during course of Appellate Proceedings. It is clear case where appellant had not reconciled his accounts with that of Crompton Greaves and not recorded certain purchase and debit and credit notes in its books of accounts which it ought to have done. On perusal of reconciliation provided by appellant it is observed that there is net difference of Rs.2,20,5357- by which income has been suppressed during year according to appellant. This difference has been recomputed by CIT(A) Gandhinagar at Rs.5,79,4807- on following grounds. (i) Payment difference between two accounts Rs.48,440/- and Bank effects Rs.1,12,939/- which has effected only Balance Sheet and not Profit and Loss account. (ii) In certain cases, debit notes and credit notes have not been accounted for in books of accounts and certain bogus purchases have been recorded which were actually not made by appellant but pertain to third parties. These transactions have gone to reduce profits by Rs.5,55,180/-. (iii) Sale of Rs. 3,47,0857- made to Crompton Greaves have not been recorded in books of accounts although payment is received through bank. On such sale GP @ 7% amounts to Rs.24,300/- by which profit has been suppressed. Thus appellant has suppressed taxable income by Rs.5,79,480/- (555180 + 24300) during year under consideration. difference noticed in reconciliation has gone to deviate true and fair view of books of accounts, simultaneously suppressing taxable income of appellant reflected in computation of income filed by it. ITA No. 2367/Ahd/2015 4 Asst. Year 2007-08 Before proceeding further it is pertinent to observe few of basic principles that govern imposition of penalty u/s.271(l)(c) of Act. Courts are of view that provisions of Sec.27i(l)(c) have to be strictly applied in larger interest of discipline in filing correct returns by assessees. It has also been held by courts that for levying penalty u/s.271(l)(c) two facts should co-exit-first that amount in question is part and parcel of income of assessee and secondly, assessee must have filed inaccurate particulars or must have concealed particulars of such income. careful circumspection of said Explanation divulges that where in respect of any facts material to computation of total income of any person under this Act, such person fails to offer explanation or offers explanation which is found to be false, or such person offers explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all facts relating to same and material to computation of his total income have been disclosed by him, then, amount added or disallowed in computing total income of such person as result thereof shall, for purposes of cl.(c) of this sub- section, be deemed to represent income in respect of which particulars have been concealed. Indeed one has to take into consideration explanation and justification given by assessee, but it cannot be accepted as bona fide and true on mere asking. Onus under Explanation 1 is on assessee to prove reason as to why particular claim or deduction was made. justification and cause shown should be bona fide and acceptable. Penalty cannot be deleted by merely recording explanation, though not proved and established. It is not for Revenue to show that explanation offered is not false or bogus; Section 271(l)(c) of Act is invoked when assessee furnishes inaccurate particulars or conceals his income. Explanation 1 can come to rescue of assessee in case he had offered explanation but was unable to substantiate it, provided he is able to establish that explanation offered was bona fide and facts relating to furnishing of inaccurate particulars and material for computation of total income were duly disclosed by him. moot question and issue is whether assessee has discharged burden under Explanation 1 to Section 271(l)(c) of Act. Viewing facts in light of provision of section 271(l)(c), I am inclined to believe that it is clear case of furnishing inaccurate particulars of income by appellant wherein during course of Assessment Proceedings no reconciliation was furnished and subsequently when same was furnished as additional evidence under Rule 46A during course of Appellate Proceedings difference was computed by appellate himself at Rs.2,20,535/- only as against Rs.5,79,4807-computed by Ld. CIT(A) which means that appellant is also accepting that there is error in ITA No. 2367/Ahd/2015 5 Asst. Year 2007-08 recording transactions in books of account and same cannot be held as inadvertent error not justifying penalty as per observations made in preceding paras. I find merit in argument of AO that such default was detected only since scrutiny assessment took place which otherwise would not have come to light. In my opinion, in these circumstance, it has to be held that order of AO levying penalty u/s 271(l)(c) does not suffer from any legal infirmity. Thus, penalty u/s 271(l)(c) levied by AO for Rs.1,56,784 is confirmed. These grounds of appeal are dismissed. 4. Aggrieved, assessee is now in appeal before Tribunal. 5. Ld. AR submitted that there was neither concealment nor furnishing of inaccurate particulars of income. assessee could not reconcile both accounts since contra account was not with him at time of assessment. There was genuine difficulty faced by assessee in locating difference in view of voluminous transactions with said party, unavailability of required documents. Ld. AR further submitted that Assessing Officer failed to appreciate that impugned addition of Rs.36,78,829/- was scaled down to Rs. 5,79,480/- after making reconciliation on basis of debit notes and credit notes and verification of bills and payments between both parties. In such circumstances penalty u/s 271(1)(c) of Act should not be levied. 6. On other hand, ld. DR supported orders of lower authorities. ITA No. 2367/Ahd/2015 6 Asst. Year 2007-08 7. We have heard rival contentions and perused material on record. Solitary grievance of assessee is regarding confirmation of penalty of Rs.1,56,678/- u/s 271(1)(c) of Act on sustained addition towards suppressed income of Rs.5,79,480/- due to difference in accounts between assessee and Crompton Greaves Ltd. 8. We observe that at time of assessment proceedings Assessing Officer noticed that assessee has shown Crompton Greaves Ltd. as its creditor for Rs. 52,93,233/-. As per confirmation of Crompton Greaves Ltd. closing balance of assessee s proprietary concern was Rs.16,14,404.33. difference between two amounts i.e. Rs.52,93,233/- and Rs. 16,14,404.33 calculated at Rs.36,78,829/- was added by ld. Assessing Officer at time of framing assessment. However, when matter came up before first appellate authority assessee placed before him complete reconciliation figuring out on various mistakes made by Accountant of assessee for not entering purchases, debit notes, cash discount, credit note etc. After accepting submissions of assessee, ld. CIT(A) sustained addition of Rs.5,79,480/-. 9. We further observe that Co-ordinate Bench in ITA No.828/Ahd/2011 while adjudicating issue raised in quantum appeal for asst. year 2007-08, upheld order of ld. CIT(A). We further observe that if we look into facts of case in proper perspective of penalty u/s 271(1)(c) of Act, it reveals that ITA No. 2367/Ahd/2015 7 Asst. Year 2007-08 sustained addition of Rs.5,79,380/- has been emerged on account of difference in account balance of assessee and its creditor M/s Crompton Greaves Ltd. alleged difference between two accounts stood at Rs.36,78,829/- practically came down to Rs.5,79,480/- after giving cognizance to multiple entries of debit notes and credit notes payments etc. It gives impression that there has been some clerical mistake at level of Accountant on various occasions which has ended up into such difference between two parties. With very efforts of assessee this difference was explained to major extent. It is quite possible that remaining difference of Rs.5,79,480 may have its genesis in some unreconciled entries for current year or may be of past year. We are of confirmed view that in such situation assessee should not be treated in default for purpose of invoking penalty u/s 271(1)(c) of Act. There is no other mistake pointed out in books of account of assessee, no other addition has been made. Addition on account of difference due to lack of reconciliation cannot be termed as concealment of income or furnishing of inaccurate particulars of income. We, therefore, set aside order of ld. CIT(A) and delete addition of Rs.1,56,784/- u/s 271(1)(c) of Act. This ground of assessee is allowed. 10. Other grounds are of general nature, which need no adjudication. ITA No. 2367/Ahd/2015 8 Asst. Year 2007-08 11. In result, appeal of assessee is allowed. Order pronounced in open Court on 23rd September, 2016 Sd/- sd/- (S. S. Godara) (Manish Borad) Judicial Member Accountant Member Dated 23/9/2016 Mahata/- Copy of order forwarded to: 1. Appellant 2. Respondent 3. CIT concerned 4. CIT(A) concerned 5. DR, ITAT, Ahmedabad 6. Guard File BY ORDER Asst. Registrar, ITAT, Ahmedabad 1. Date of dictation: 19/09/2016 2. Date on which typed draft is placed before Dictating Member: 23/09/2016 other Member: 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: 26/9/2016 7. Date on which file goes to Head Clerk: 8. date on which file goes to Assistant Registrar for signature on order: 9. Date of Despatch of Order: Nitin K. Bhatt v. ITO, Wd-3, Gandhinagar