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TMI Blog2017 (2) TMI 411X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 612,73,640/-. The case of the assessee was selected for scrutiny u/s 143(2) of the Act. On scrutiny of the details/information produced by the assessee the AO observed that the business results shown by the assessee in comparison to immediately last two years are as under:- Asstt. Year Turnover (Rs. In lacs) Gross profit rate 2007-08 302.00 38.45% 2006-07 375.70 40.34% 2005-06 472.20 44.39% The AO from the trading results observed that the gross profit rate has fallen down from 40.34% to 38.45% and the AO asked for the reasons from the assessee for fall in gross profit rate. The assessee submitted that the fall in gross profit rate was due to not getting the orders from the foreign buyers and the assessee had to introduce new items to sustain in the market which affected the profits margins of the assessee. Further, the assessee submitted that there was escalation of input costs like raw material, labour etc. Considering the submission of the assessee and documents available on record at the time of assessment proceedings, the AO observed that there are defects in the books of account of the assessee and therefore, he applied the provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that no penalty can be imposed where the trading additions are purely based on an estimation and reliance was placed on the decision of the Hon'ble Rajasthan High Court in case of Shiv Lal Tak (251 ITR 373) & Mahendra Singh Khedla (252 CTR 453), besides other decisions. The ld. CIT(A), however, rejected the contention of the assessee and stated that since specific defects have been established in the books of account, therefore, estimation is not just plain estimation but is supported by positive evidence and accordingly, penalty u/s 271(1)(c) was confirmed. 7. During the course of hearing, the ld. AR submitted that for the so called defects pointed out by the ld. AO, complete explanation was furnished during the course of assessment proceedings. Wood is a natural product and its specific variety/quality determines its net realizable value. Even the rate of teak wood or yellow oak wood vary widely depending on its variety. The explanation offered by the assessee was not found false. The explanation, even though was not accepted, was not held to be lacking in bona-fides. Needless to mention that all facts were placed before the ld. AO. In view of this provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of assessee]..." 10. Ld. CIT(A) misplaced his reliance on various judgments, as set out at Page 14 of his order, as the facts of those cases are totally different from the facts of the case at hand. Below mentioned paras highlight such difference:- 10.i In this case of Swarup Cold Storage & General Mills (Supra), the assessee had not even filed its return of income before the due date. The same was filed, in response to the notice under section 142. Further, the assessment was made by the AO ex-parte and assessee at no point of time, during the assessment and appellate proceedings, produced its books of accounts. The appellate authorities even doubted the assertion, of the assessee, that the return of income was filed on the basis of regularly maintained books of accounts. Whereas, in the present case, the assessee has been regularly maintaining his books of accounts which are duly audited which have nowhere been doubted by the lower authorities. These books of accounts were even produced before the ld. AO for his examination during the assessment proceedings. 10.ii In the case of A.K. Bashu Sahib (Supra), assessee himself denied the maintenance of any books of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee came forward with certain disclosures under section 68. The assessee even admitted to have manipulated his books of accounts at the time of filing the return of income. Whereas, in the case at hand, it is not the allegation of the departmental authorities that assessee has manipulated the books of accounts at any point of time. 11. Ld. CIT(A) has misplaced his reliance on the judgment of the Hon'ble Supreme Court in the case of Dharmendra Textile Processors & Others [2008] 306 ITR 277 (SC). Ld. CIT(A) has misread the judgment. Hon'ble Apex Court has not at all held that mens rea is not essential. 12. It is submitted that the Hon'ble Apex Court in Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 224 CTR 1 (SC) and in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC) observed that conditions in section 271(1)(c), namely, concealment and furnishing of inaccurate particular, must be proved to levy penalty, demonstrated its intention that one's 'state of mind' had to be taken into account to see if that person wanted to contravene law by concealing income. Relevant extracts of the Hon'ble Supreme Court judgments have been set out for the sake of conv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e position: "..The views expressed by Their Lordships in Daramendra Textile Processors' case (supra) cannot be viewed as an authority for the proposition that a penalty under section 271(1)(c) is an automatic consequence of an addition being made to income of the taxpayer, for the reason that whether it is a civil liability or a criminal liability, penalty under section 271(1)(c) can only come into play when the conditions laid down under that section are to be satisfied. In view of the elaborate discussions in the preceding paragraphs, by no stretch of logic or rationale it could be said that imposition of penalty under section 271(1)(c) has a cause and effect relationship with addition being made to the returned income per se. An addition being made to income does, because of impact of Explanation 1, effectively does raise a presumption against the assessee but that is an entirely rebuttable presumption and the scheme of rebuttal is provided in the Explanation itself..." In the light of the above discussions, and for the detailed reasons set out above, we are of the considered view that even post Dharamendra Textile Processors' judgment (supra) by the Hon'ble Supreme Court, mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as justified and rightly confirmed by the CIT(A). 18. We have heard the rival contention and perused the material available on record. In this case, books of accounts have been rejected and thereafter, the Assessing Officer has estimated a GP rate of 42.36% as against declared GP rate of 38.45% which has finally been sustained by the Coordinate Bench at 40.40%. This GP rate 40.40% has been applied by the CIT(A) following the GP rate of 40.34% in the immediately preceding A.Y. 2006-07. As we have noted above, the coordinate bench while sustaining the GP rate of 40.40% has held that the Ld. CIT(A) has considered the unusual business conditions prevalent during the subject matter in terms of profit margins getting effected by increase in cost of raw material, introduction of new products in the market and fact that some of the assessee's customers did not place orders during the year resulting in fall of the turnover and the view of the Ld. CIT(A) was held to be fair and reasonable which has factored in the business environment as well as guided by the assessee's past history. In the light of the findings of fact in the quantum proceeding, we do not see any linkage in terms of basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO as not found satisfactory. The AO accordingly made estimate. The circumstances suggest that it may be just and proper case of making estimated trading addition but an inference therefrom cannot be drawn beyond doubt especially keeping in mind the nature of work in not maintaining those books and details supported with proper vouchers etc. that there was concealment of particulars of income or furnishing inaccurate particulars thereof on the part of the assessee to attract the penal provisions. In view of above discussion and keeping in mind the fact and circumstances of the present case, we are of the view that the ld. CIT(A) was justified in deleting the penalty in absence of positive evidence with the department that there was concealment of particulars of income or furnishing inaccurate particulars thereof on the part of the assessee towards the addition in question. The first appellate order on the issue is thus upheld." While affirming the above findings of the Tribunal, the High Court further held as under: "The above finding of the Tribunal makes it clear that additions made by the Assessing Officer were based on estimation only. A fact or allegation based on estim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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