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TMI Blog2012 (5) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal No. 322 (Delhi) of 2008 - - - Dated:- 29-3-2012 - R.P. TOLANI, B.C. MEENA, JJ. N.K. Chand for the Appellant. R.K. Sharma for the Respondent. ORDER B.C. Meena, Accountant Member This appeal filed by the revenue emanates from the order of CIT (Appeals)-I, Jaipur dated 26.10.2007 for the assessment year 2003-04. 2. The assessee is a contractor undertaking project of Indian Railways on turnkey basis. A search action under section 132 of the Income-tax Act was carried out on 14.3.1995. The assessee company maintains many branches/project offices all over India. The Assessing Officer applied net profit rate @ 11% on the total contract receipts on estimate basis which was reduced to 8% by ITAT vide its order dated 05.09.2002. A penalty under section 271(1)( c ) was levied of Rs.24,00,977/- on 31.03.2002. The CIT (A) deleted the penalty on the ground that the estimation of income by applying flat net profit ratio does not tantamount to concealment or filing inaccurate particulars. The CIT (A) granted the relief by holding as under :- "The contention of the A/R is considered. The Hon'ble ITAT's order (DB) was gone through. While fixing profit rate at 8% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Now, the revenue has challenged the order of the CIT (A) on the following grounds :- "1. The order of the Learned Commissioner of Income Tax (Appeals) is erroneous contrary to facts law. 2. Whether, on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was justified in canceling the penalty under section 271(1)( c ) imposed at Rs.24,00,977/- holding that there was no positive concealment detected by the AO even though the net profit rate of 11.64% is recorded in the sized materials. 3. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in canceling the penalty under section 271(1)( c ) even though the assessee has concealed particulars of income in the form of illegal payment of Rs.30,00,000/- to Railway Officials, inflated payments of Rs.38,00,000/- through adjustment of last date of the accounting period undisclosed benami investment of Rs.32,00,000/- in public issue (Promoter's quota). 4. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justified in canceling the penalty under section 271(1)( c ) imposed at Rs.24,00,977/- whereas the assessed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. Nothing has been brought on record as to how the said rate of 11.64% has been stated by the said Slim A.K.Solanki and what were the basis of stating the rate of 11.64%. What was his authority to make such a statement has also not been enquired. All these questions remain unanswered and as the Assessing Officer himself did not strictly applied the rate so stated by him, no credence can be given to such a statement for applying rate of 11 % by the Assessing Officer in the case of the appellant, more particularly when the same was not produced before the Tribunal also when asked to do so. 27. From the various replies furnished by the assessee and from the findings of the Assessing Officer in the assessment order, it cannot conclusively be said as to what are the remaining payments which could be said not to have been incurred wholly and exclusively for purpose of carrying on of the business as the assessee has been able to substantiate its claim before the Assessing Officer. We also find that nowhere in the assessment order the Assessing Officer made it clear as to how he has arrived at the surgical precision rate of 11 %. Even if in the absence of any supporting vouchers the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments made for business compulsions and the same being a business necessity cannot be said to be not deductible. ( ii ) Inflated payments of Rs.38 lakhs the said allegation is also struck down by ITAT'S order as baseless unsubstantiated. The relevant para of ITAT's order is stated as under :- 19. The interest free advances stated to be given to Directors stand duly replied by the appellant as per paper book page 132. The record reveals that such advances are not Rs.50 lacs but only Rs.36.7 lacs. The circumstances under which the advances have been made have also been detailed, which inter-alia included the payments as required for meeting out the contingencies of the business since the work of the appellant is spread over to 19 sites. The said payments are duly accounted for and the account thereof had been rendered by the Directors before the close of the annual account and expenditure incurred on that account has also been duly recorded in the books of account. The assessing officer has not probed the inflation of expenses and, therefore, there is no material which could lead to application of higher rate of profit on this account. The ld. Departmental Representative has al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of account. The assessing officer has not probed the inflation of expenses and, therefore, there is no material which could lead to application of higher rat of profit on this account. The ld. Departmental Representative has also mentioned about inflated payments of Rs.38 lacs. We have verified this allegation with reference to the reply furnished by the assessee at pages 127 128. as referred in the preceding paragraph, such withdrawals are being made by the Directors for meeting out business contingencies and necessities at different sites of the appellant company as its works are spread over even to a very small places where adequate facility of each and every material or supplies thereto are not available. Besides this, the assessing officer having neither proved the inflation nor brought on record even a single transaction to show the suppression of profits, it cannot be said that the amounts so withdrawn by the Directors and adjusted at the end of the year are inflated payments. In fact, in the accounting parlance business circles the purpose of making imprest advance is to meet liability of the business on day to day basis for the convenient handling and accounting a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timately the AO has to resort to estimated addition only. He could not point out any J specific item of any addition with any conclusive evidence. C1 Even the addition made by the AO on estimated basis is substantially reduced by the CIT(A) after considering the various facts and figures and circumstances of the case. The said action of the CIT(A) has become final consequent to the decision of the Hon'ble Tribunal in dismissing the Departmental appeal. Resultantly the income of Rs.1,02,980 is on the basis of estimated profit rate only. It is not on account of any specific item of addition or disallowance. Such an addition made on the basis of guess work cannot be subjected matter of penalty for concealment of income. Penalty being a quasi criminal proceeding there is a duty cast on the AO to establish the guilt of the assessee in concealing in concealing the income or furnishing of inaccurate particulars of such income." ( ii ) In the case of CIT v. Modi Industrial Corporation [2010] 195 Taxman 68 the Hon'ble Punjab Haryana High Court held as under :- "Penalty under s. 271(1)( c ) Concealment-Additions based on estimate- AO made additions on account of processing of unac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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