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TMI Blog2016 (9) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, this is not a fit case for levy of penalty u/s 271(1)(c) of the Act. We are inclined to delete the penalty in respect of estimate income on sale of yarn. Aaddition sustained u/s 68 - Held that:- After going through the explanation of the assessee, we are of the opinion that the explanation given by the assessee was a possible one though it was not satisfactory. The Tribunal has noticed these facts in the quantum appeal and confirmed the addition to that extent on account of unsatisfactory explanation given by the assessee in respect of the credits outstanding in the books of account. But it is not good enough for imposition of penalty because it relates to lack of tendering explanation to the satisfaction of the Assessing Officer and not disproving the contention of the assessee about the genuineness of the receipts. Accordingly, in our opinion, this issue is not a fit case for levy of penalty u/s 271(1)(c) of the Act. Disallowance u/s 40A(3) - Held that:- There is a judgment of the Delhi High Court in the case of CIT vs Vatika Construction Pvt. Ltd. [2012 (10) TMI 808 - DELHI HIGH COURT] wherein held that when there is addition u/s 40A(3) of the Act levy of penalty on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sustained in appellate proceedings. 3. Your appellant states that the additions made and reduced in the appellate proceedings are not based on any actual concealment but on computation involving estimates and fluctuating parameters. The original addition made in the assessment order was reduced in appeal proceedings. Under the circumstances such additions cannot be considered as concealment of income or furnishing of inaccurate particulars warranting levy of penalty. 4. Your appellant further states that statutory disallowance under section 40A(3) in respect of payments made in a village without banking facilities cannot justify levy of penalty particularly in view of provisions of Rule 6DD. 5. Your appellant further states that additions made under section 68 in respect of payments received by cheques as confirmed in the assessment order and from an identifiable corporate entity cannot attract levy of penalty without the transactions being proved to be false, particularly when the other similar receipts by cheques were accepted. 6. Your appellant further states that in the absence of satisfaction regarding concealment of income discernible from the assessment order th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2005-06 and 7.52% for assessment year 2006-07 and there is no constant in gross profit rate which is fluctuating. It would depend upon market conditions. In this assessment year, the machinery was kept idle and also there is rate difference of raw material. Because the addition was sustained by the Tribunal for this assessment year, it cannot be reason for sustaining penalty u/s 271(1)(c) of the Act in the penalty proceedings. 7. On the other hand, the ld. Departmental Representative submitted that there was an inspection carried out by the sales tax authorities and also central excise authorities, who confirmed the sale suppression and also production suppression by the assessee. The gross profit rate for the assessment year 2005-06 was 2.57% and it was 11.52% for assessment year 2006-07, therefore, the Assessing Officer had taken the average gross profit rte at 5% for which the assessee also accepted vide letter dated 20.10.2009 and income from suppressed sale was reworked originally at ₹ 22,23,566/-. However consequent to petition u/s 154 by the assessee, the CIT(A) reduced the suppressed sales to ₹ 11,47,500/- on account of typographical error ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se that these facts which determine the gross profit is constant. Being so, various High Courts, held that whenever the addition is sustained on account of estimation basis, penalty cannot be levied. The judgments relied upon by the ld. AR laid down the same principles. In our opinion, since there is no concrete evidence of concealment of sale of yarn, levying penalty in this case cannot be sustained. Accordingly, this is not a fit case for levy of penalty u/s 271(1)(c) of the Act. We are inclined to delete the penalty in respect of estimate income on sale of yarn. 9. The next issue is with regard to levying penalty in respect of addition sustained u/s 68 of the Act. 10. The assessee said to have received a sum of ₹ 4,77,609/- from M/s Kalavathy Finance Ltd. Since M/s Kalavathy Finance Ltd did not confirm the above transaction, addition was sustained by the CIT(A). According to the Assessing Officer, the assessee has not discharged the burden cast upon it. Consequently, penalty was levied u/s 271(1)(c) of the Act. On appeal, the CIT(A), without discussing much in his order, confirmed the penalty on this issue also. 11. The ld. AR submitted that the total receipt from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, in our opinion, this issue is not a fit case for levy of penalty u/s 271(1)(c) of the Act. Placing reliance on the order of the Co-ordinate Bench in the case of Supreme Steel and General Mills vs DCIT 45 CCH 61, (Delhi Tribunal), we delete the penalty levied u/s 271(1)(c) of the Act. 14. The next issue is with regard to penalty on disallowance of ₹ 9,56,300/- u/s 40A(3) of the Act. 15. The Assessing Officer invoked the provisions of section 40A(3) of the Act on account of cash payment exceeding ₹ 20,000/- on the same say to the same party for an expenditure relating to a single invoice. The assessee has adopted the practice of entering the payments in its books after splitting the same into ₹ 19,500/- and lesser amount than that. Consequent to the disallowance u/s 40A(3), penalty proceedings u/s 271(1)(c) of the Act were initiated. 16. The ld. DR supported the order of the CIT(A) confirming the penalty. 17. We heard the rival submissions on this issue. There is a judgment of the Delhi High Court in the case of CIT vs Vatika Construction Pvt. Ltd. 229 taxman 562 wherein held that when there is addition u/s 40A(3) of the Act levy of penalty on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 (iii) Addition u/s 68 ₹ 15,30,680 (iv) Stock in process not considered In closing stock ₹ 5,36,355 (v) Undisclosed sale of yarn ₹ 43,800 (vi) Undisclosed investment in stock ₹ 38,73,353 (vii) Disallowance u/s 40A(3) ₹ 16,07,397 21. Aggrieved by the above order, the assessee went in appeal before the CIT(A) who sustained the following additions vide his order dated 30.4.2010: (i) Addition u/s 68 of the Act ₹ 7,81,447 (ii) Unaccounted investment in stock ₹ 16,30,178 (iii) Disallowance u/s 40A(3) ₹ 4,91,599 Total ₹ 29,03,224 22. It is also noted that the assessee has not challenged the disallowance towards unexplained c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost after WDV as per IT depreciation statement. This is an error committed by the assessee and this cannot be a reason for levy of penalty u/s 271(1)(c) of the Act as held by the Supreme Court in the case of Price Water Coopers Pvt. Ltd vs CIT, 348 ITR 306, wherein held that imposition of penalty would be unwarranted in case the assessee has committed an inadvertent and bona fide error and had not intended to or attempted to either conceal its income or furnish inaccurate particulars of income. The same view was taken by the Supreme Court in the case of CIT vs Reliance Petroproducts Pvt. Ltd, 322 ITR 158. In this case the Supreme Court held that merely because the assessee claimed deduction of interest expenditure which had not been accepted by the Assessing Officer, penalty u/s 271(1)(c) of the Act is not attracted, merely making a claim which is not sustainable in law by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. In our opinion, the above ration laid down by the Supreme Court is squarely applicable to the facts of the present case. Being so, in our opinion, this issue is not a fit case for levy of penalty u/s 271(1)(c) of th ..... 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