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TMI Blog2016 (12) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... mation done by the AO have been partially confirmed by ITAT by taking a macro view in terms of N. P rate instead of individual expenses and is again an estimation and nothing more. The Hon’ble Rajasthan High Court in case of CIT vs. Mahendra Singh Khedla (2012 (3) TMI 568 - RAJASTHAN HIGH COURT) has held that the additions have been sustained by the Tribunal only on estimation and a fact or allegation based on estimation cannot be said to be correct only, it can be incorrect also. Therefore, penalty was wrongly levied by the AO. - Decided in favour of assessee. - ITA No.928/JP/12 - - - Dated:- 25-11-2016 - SHRI KUL BHARAT, JM AND SHRI VIKRAM SINGH YADAV, AM For The Assessee : Shri P.C. Parwal (CA) For The Revenue : Shri O.P. Bateja (Addl.CIT) ORDER PER SHRI VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of Ld. CIT(A)-III, Jaipur dated 06.10.2012 wherein the assessee has taken following ground of appeal: The ld. CIT(A) erred in confirming the penalty of ₹ 29,05,775/- levied u/s 271(1)(c) of the IT Act,1961 by the Assessing Officer on the basis of adhoc disallowance of expenses. 2. The brief facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but the same has been determined only on the basis of specific disallowances made by the AO. These disallowances were made in view of non-verifiable expenses and noncompliance/ partial compliance by the assessee. The bills and the vouchers were not produced at all. Non-verifiability of expenses claimed leads to both inaccuracy of the particulars of income and concealment of true income. Accordingly, the AO imposed penalty of ₹ 29,05,775/- u/s 271(1)(c) on the amount of ₹ 86,32,725/- on account of concealment of particulars of income. The Ld. CIT(A) confirmed the levy of penalty by holding that in the assessment order dt. 30.12.2009, the AO has noted specific defects in the accounts of the appellant. In view of the said defects, AO made specific disallowances of various expenses resulting into total addition of ₹ 1,39,94,870/-. These disallowances were confirmed by the ld. CIT(A) for the reason that the assessee has not been able to substantiate the expenses with supporting bills/vouchers. Hon ble ITAT upheld the rejection of books of accounts u/s 145(3) as admitted by the appellant. However, to simplify the matter, Hon ble Tribunal upheld the addition by applyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Turnover Net profit before depreciation, interest remuneration to partners interest to third parties N.P. Rate Net profit after depreciation, interest remuneration to partners interest to third parties N.P. Rate 07-08 16,75,20,136 1,68,67,512/- 10.07% 1,07,77,678/- 6.43% 06-07 4,62,66,360 50,07,165/- 10.82% 9,03,391/- 1.95% The Hon ble ITAT vide Para 8 of its order dt. 31.05.2011 (PB 26) after considering the order of lower authorities and the contention of the assessee held that instead of disallowing expenses head-wise, a reasonable N.P. rate should be applied. Keeping in mind the past history of the case and defects noted by AO, the AO is directed to re-compute the profit by applying N.P. rate of 11.5% against N.P. rate of 10.07% shown by the assessee. Thus, the rate so applied is subject to the claim of depreciation, interest and remuneration to partners and interest to third parties. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no specific expenditure which is disallowed by the AO. Hon ble ITAT has also not approved disallowance of the expenses as made by the AO. Thus, when the penalty proceedings is initiated by the AO with reference to the disallowance of expenses, which do not remain after the order of ITAT, no penalty can be levied with reference to the addition sustained by Hon ble ITAT by application of N.P. rate. The Ld. CIT(A) has upheld the levy of penalty only for the reason that Hon ble Tribunal upheld the addition by applying higher N.P. rate of 11.5% to simplify the matter. For such reason, without pointing out any specific instance of inflation of expenses or claim of bogus or non-genuine expenses, penalty cannot be levied. The cases relied by CIT(A) are therefore distinguishable on facts as in those cases either there was a finding that the expenses claimed are bogus or the assessee admitted of the same. However, in the present case, there is no allegation of inflation in expenses or claim of bogus expenses. The N.P. rate declared by the assessee during the year on an increased turnover even after claim of depreciation, interest and remuneration to partners is better as compared to earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITAT shall form the basis for levy of penalty. Where the additions have been deleted, there would not be any basis to levy penalty as the machinery provisions would fail. The AO is directed to verify N. P rate of 10.07% disclosed by the assessee and whether the same was before depreciation, interest, remuneration to partners and interest to third parties, and where the same is found to be correct, allow the necessary relief to the assessee. 2.5 Now coming to the additions sustained by the Coordinate Bench in the quantum proceedings and consequent levy of penalty, it is the contention of the ld AR that the addition has been sustained on purely an estimate basis and the same should not form the basis for levy of penalty. It is noted that the AO has disallowed ₹ 80,80,238/- being 10% of various expenses and also made disallowance of ₹ 59,14,632/- on account of outstanding wages at the year end, totalling to ₹ 1,39,94,87/-. The Coordinate Bench has held that in instead of disallowing various expenses under the individual head, it will be better if a reasonable net profit rate is applied and keeping in mind, the past history of the case and defects noted by AO, N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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