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2019 (3) TMI 1459 - AT - Income TaxPenalty u/s 271(1)(c) - assessee was showing reasonably big quantities of sale of milk in its books of accounts in survey no documentary evidences was found - Statement of director recorded u/s. 131 - assessment completed u/s 153A/143(3) - Allegation of department that company is engaged in milk products- Gross Profit rate of milk product was applied to the sale of milk declared by the assessee to estimate higher profits - Quantum additions as were made by the AO were upheld by all the appellate authorities concurrently upto Hon ble Bombay High Court - HELD THAT - Merely because quantum additions are upheld by appellate authorities as one of the possible view will not automatically lead to levying of penalty u/s 271(1)(c) is a well settled position of law and the AO ought to have brought on record cogent incriminating material to show that the assessee had infact furnished inaccurate particulars of income or had concealed its particulars of income in the return of income filed with the Revenue, before fastening liability to penalty u/s 271(1)(c) of the 1961 Act. AO could not brought on record any cogent material/evidences to conclusively prove that the milk was diverted toward production of milk products and the production of milk products was camouflaged as sale of milk with a view of suppress profit and evade taxes. The additions have been made on preponderance of probability by estimating of profits by treating sale of milk being unproved and applying GP ratio of milk products, but no enquiry was made by the authorities as to the installed capacity of the factory to process milk and produce milk products vis-a-vis production achieved during the period or to prove that milk was diverted for producing milk products but sales were camouflaged as sale of milk. No correlation of electricity consumed, raw material consumed, labour employed, milk processed, milk products produced etc were done to prove that milk was never sold as such but were infact used for producing milk products but camouflaged in books of accounts as sale of milk. There is no evidences on record to show that any excess stock of milk product was found from factory outlet or the sales outlet vis-a-vis records maintained by the assessee. The books of accounts were available at the time of survey on 08.5.2007 but survey team who conducted survey u/s 133A did not examine the same on 08.05.2007 and neither impounded the available books of accounts. The assessee however submitted purchase and sale of milk record before the AO as well analysis of purchase and sale of milk was submitted before the AO. No discrepancy was found by the AO in these record except that the whole story of sale of milk was disbelieved. The assessee has also brought on records VAT audit report before learned CIT(A) to substantiate that the assessee was engaged in the sale of milk but that was also rejected. The books of accounts might not have been produced before investigation wing or proper productions/ consumption records were not kept could be sufficient to reject books of accounts u/s 145(3) and to estimate profits based on premise that sales of milk was not proved on the touchstone of preponderance of probabilities but is not sufficient to fasten liability to penalty u/s 271(1)(c) as in penalty proceedings, the assessee has come out with a bonafide explanations and its burden stood discharged but it was for the AO to have rebut the contentions of the assessee and brought on record clinching evidence that the assessee furnished inaccurate particulars of income or concealed the particulars of income while filing return of income with the Revenue, which in our considered view as per detailed discussions above the AO failed to bring on record clinching evidence justifying leviability of penalty u/s 271(1)(c) - Decided in favour of assessee.
Issues Involved:
1. Sustaining of penalty under section 271(1)(c) of the Income-tax Act, 1961 for the assessment years 2006-07 and 2007-08. 2. Non-following of the Karnataka High Court’s decision in CIT v. Manjunatha Cotton & Ginning Factory. 3. Rejection of books of accounts and estimation of income. 4. Validity of penalty notice issued under section 271(1)(c) read with section 274 of the Income-tax Act. Issue-wise Detailed Analysis: 1. Sustaining of Penalty Under Section 271(1)(c): The assessee was engaged in the business of dairy products. A search and seizure operation was conducted, and it was observed that the assessee was showing large quantities of milk sales without documentary evidence. The AO concluded that the assessee's claim of selling milk was unsubstantiated and estimated the income by applying a higher gross profit ratio, leading to additions of ?14,13,628/- and initiating penalty proceedings under section 271(1)(c). The CIT(A) upheld the penalty, stating that the assessee had not maintained proper records and had shown inaccurate particulars of income by claiming milk sales. The Tribunal, however, found that the AO did not bring on record any conclusive evidence to prove that the milk was diverted for producing milk products and that the assessee had furnished inaccurate particulars of income. The Tribunal ordered the deletion of the penalty, stating that the AO failed to rebut the assessee's bonafide explanations. 2. Non-following of Karnataka High Court’s Decision: The assessee argued that the CIT(A) erred in not following the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory, which was later followed by the Supreme Court. The Tribunal noted that the penalty was levied for furnishing inaccurate particulars of income, but the AO did not specify the exact charge in the penalty notice, which was a procedural defect. However, the Tribunal decided the case on merits, finding that the AO did not bring on record any conclusive evidence to justify the penalty. 3. Rejection of Books of Accounts and Estimation of Income: The AO rejected the assessee's books of accounts under section 145(3) and estimated the income by applying a higher gross profit ratio. The CIT(A) and the Tribunal upheld the rejection of books of accounts and the estimation of income. However, the Tribunal found that the AO did not conduct a thorough investigation to prove that the milk was diverted for producing milk products. The Tribunal noted that the assessee had provided explanations and maintained stock records, and the AO failed to bring on record any discrepancies. 4. Validity of Penalty Notice: The assessee contended that the penalty notice issued under section 271(1)(c) read with section 274 was defective as it did not specify the exact charge. The Tribunal noted that the AO did not strike off the relevant portion in the notice to indicate whether the penalty was for concealment of income or furnishing inaccurate particulars of income. However, the Tribunal decided the case on merits, finding that the AO did not bring on record any conclusive evidence to justify the penalty. Conclusion: The Tribunal allowed the appeals for both assessment years 2006-07 and 2007-08, ordering the deletion of the penalty levied under section 271(1)(c) of the Income-tax Act, 1961. The Tribunal found that the AO did not bring on record any conclusive evidence to prove that the assessee had furnished inaccurate particulars of income or concealed income. The Tribunal also noted procedural defects in the penalty notice but decided the case on merits.
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