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TMI Blog2019 (3) TMI 1459X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h dated 29.03.2012 passed by learned Assessing Officer (hereinafter called the AO ) u/s 271(1)(c) of the Income-tax Act, 1961 (hereinafter called the Act ) for AY 2006-07 2007-08 respectively. 2. Firstly , we shall take up appeal of the assessee for AY 2006-07. The grounds of appeal raised by assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) in ITA No. 6246/Mum/2017 for AY 2006-07 , read as under:- 1. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in sustaining penalty of ₹ 81,387/- levied by the Assessing Officer under section 271(1)(c) of the Act for the assessment year 2006-07. 1. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in not following the decision of the Karnataka High Court in CIT v. Manjunatha Cotton Ginning Factory 359 ITR 565 which was later followed by the same court in CIT v. SSA's Emerald Meadows (ITA No. 380 of 2015) against which Special Leave Petition filed by the Revenue before the Supreme Court was dismissed by the Hon'ble Court finding no merits in the case. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts vis-a-vis 1 litre of milk? Ans. We make all dairy products i.e. paneer, cream, mawa, ghee, Lassi and butter milk, shrikhand etc.. The yielding ratio cannot be ascertained as the clarification of these have been stated in earlier answers. Q. No. 11: Please submit the quantitative details of purchase of milk in litre of A.Y. 2006-07 and 2007-08 alongwith quantitative details of all your products in litre/kgms. Ans. I shall submit the details of purchase of milk at the earliest. I shall submit the sales register details at the earliest. Q. No. 12: It Is once again requested that you should provide quantitative details of milk and quantitative details of sales? Ans. We shall provide you all the details and prior to that we shall shown you all the registers and we shall give you details on your guidance. 4.2. The assessee did not produce books of accounts and vouchers before the Investigation Wing of the Revenue. Sale voucher of milk sale were not found during the survey at the assessee s premises or at various outlets of the assessee . Thus, the AO was of the prima-facie view that claim of the assessee that it is selling milk was found to be not cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed that the sale of milk was also made in cash. It was also claimed that books of accounts were produced before the AO which reflected sale of milk. It was claimed that sale of milk was made in the financial year 2006-07 in the name of Mr Amritpal Singh Nanda , Kay Bee Export and Punjab Sweet Farsan , the payments thereof for sale of milk was received by cheque from these parties, which was duly accounted for in the books of accounts. It was also claimed that in financial year 2007-08 , sale of milk was made in the name of Asian Chemist Prop., Godrej Nature Basket-Kandivili, Kailash Parbat, Nanda Distributors, R.K. Shashank Diary and the amount was received in cash, which is duly accounted for in books of accounts. The assessee also submitted complete analysis of milk wherein it also included cash sales made by it for all these years. The clarificatory statements of employees were also submitted by the assessee who earlier gave statements before the Revenue, wherein they clarified now that the assessee was also selling milk in early morning prior to opening of sales outlet and the said sales were directly accounted for by the factory. The AO had disbelieved the whole story of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the impugned assessment year , wherein additions as were made by the AO were upheld by all the appellate authorities concurrently upto Hon ble Bombay High Court. It is pertinent to mention at this stage that for AY 2008-09 similar situation arose but the tribunal based on the material on record was pleased to accept the contentions of the assessee and accepted that the assessee was engaged in the business of sale of milk in ITA no. 7965/Mum/2010 , order dated 11.06.2015, mainly on the grounds that for this impugned assessment year 2008-09, the assessee has duly submitted the relevant records/evidences before the authorities below with respect to sale of milk. The assessee for AY 2008-09 produced registers and books of accounts which gave entire details of day to day purchases, production/consumption and sales before all the authorities including tribunal. It was also observed by tribunal while adjudicating appeal for AY 2008-09 that the AO has itself accepted sale of milk by the assessee for AY 2009-10 and 2010-11. Thus since factual matrix in the assessment year 2008-09 was different than in the assessment year 2006-07 and 2007-08. The tribunal held that principal of res -judi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntative of the assessee. The same are discussed and distinguished as under: i) The decision of C1T Vs B.S. Badve 138 ITR 682 (Mum.) relates to an assessee, whose books of accounts were destroyed in fire and the Assessing Officer had estimated income. In the present case, the books of accounts have been rejected, as the assessee has not been able to substantiate the entries made in the books of accounts. These entries relating to sale of milk were apparently made to reflect a lower profit, as sale of Paneer would yield a higher profit. ii) The decision of CIT Vs Metal Products of India 150 ITR 714(P H) was delivered in favour of the assessee because, it was held by the Hon'ble Tribunal that the assessee has discharged the onus to produce books of accounts and the Dividend income was not accounted for, as it was assumed by the Firm, that the same is taxable in the hands of the Partners. In the present case the assessee has not been able to substantiate the entries made in the books of accounts. Therefore, this case law is also not applicable to the assessee's case. iii) The decision of CIT Vs Ajay Hari Dalmiya 157 1TR 145 (DEL) relates to a case, where penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.03.2012, the assessee filed first appeal before Ld. CIT(A) challenging penalty levied by the AO u/s 271(1)(c) of the 1961 Act. The Ld. CIT(A) also disbelieved the theory of sale of milk by the assessee and penalty levied by the AO was confirmed by learned CIT(A) vide appellate orders dated 22.08.2017, holding as under:- 6. The first ground of appeal challenges the penalty order contending that the assessment order is bad in law and hence the penalty proceedings initiated is also void. Noting that the validity of the assessment order was challenged even before the Hon ble ITAT which was dismissed, there is no merit in this contention and the ground is dismissed. 7. The second ground of appeal is on merits of the penalty levied. During the appellate proceedings, the appellant contended that during the assessment proceedings, computerized books of accounts were produced for verification and no defect was found relating to books of accounts. The AO has only estimated the difference in gross profit percentage on sale of milk products and gross profit percentage of sale of milk which works out to 27%. For this computation, the total purchase and sales has been adopted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue summons u/s.131 of the Act and verify the genuineness. The addition is made of surmises and conjectures. In the survey action no incriminating evidence has been detected in the hands of the appellant company. The undisclosed income is not found to be represented in any undisclosed assets. The Hon*ble ITAT did not go through all the material facts and passed an adverse order against the appellant. A miscellaneous application was also filed but was rejected by the Hon'ble ITAT. Reference was also made to the decision of the Hon'ble ITAT for A.Y.2008-09 wherein relief was granted to the appellant. Attention was invited to the observations of the Hon ble ITAT in its order for A.Y.2008-09 where it was observed that the AO should have carried out the necessary enquiry for such buyers of milk which was not done. 8. In the course of appellate proceedings, the appellant was asked to file the status of appeal filed against the Hon'ble ITAT order for A.Ys. 2006-07 and 2007-08. The appellant filed the copy of the order Hon'ble Bombay High Court in ITA Nos.950 and 951 of 2014 dated 13.12.2016. A perusal of this High Court decision shows that the appellant had framed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year. Thus the Hon ble High Court held that in view of the aforesaid distinction in facts, it cannot be said that its order for the A.Y.2008-09 will apply to A.Ys.2006-07 and 2007-08. The facts are completely different in the earlier 2 assessment years. The assessee company had failed to produce the registers indicating production, issuance and consumption in A.Ys.2006-07 and 2007-08. The rejection of the books of account is a possible view on the facts and is not perverse or arbitrary. The Hon'ble High Court also rejected the contention that the estimation of profit is arbitrary. It held that estimation is on the basis of material on record and also statements made by the employees and director during the search and survey proceedings. Such an estimation is not perverse or wild. The appeal of appellant for A.Ys.2006-07 and 2007-08 was thus dismissed by the Hon'ble High Court. 9. A perusal of the Hon'ble ITAT Order for A.Y.2008-09 in ITA No,7965/Mum/2010 dated 11.06.2015 shows that the Authorised Representative admitted before the Bench that the ITAT had decided against the appellant in A.Ys.2006-07 and 2007-08. The Authorised Representative itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of sale of milk to the tune of ₹ 12,54,254/-. Here, in this year, there is no such material that assessee has failed to submit any details in support of sale of milk. Thus, I find that the reliance on the ITAT decision for A.Y.2008-09 does not help the case of the appellant before me. 11. The Ld.AR filed a revised consolidated submission on 21.08.2017 for both the assessment years i.e. 2006-07 2007-08. In this submission it was contended that- i. Rejection of books of accounts:- Shri Swaranjit Singh Bajaj, Director of the company in his statement recorded on 08.05.2007 had stated that books are maintained in electronic form on Tally at mezzanine floor of registered office of the company (reference was made on Page 3 reproducing the submissions made by the assessee before the Hon ble ITAT in its order dated 03.07.2014). The Survey Team did not extract the accounts from the computer, the production records were maintained on loose sheets and were not considered as books of account by the AO. ii- Evidence regarding sale of milk:- Reference was made to the last para on Page 17 of the ITAT's order for A.Y.2008-09 and on Page 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in its decision on the appellant's appeal against the order of the Hon ble ITAT for A.Ys.2006-07 2007-08 held that the decision taken by the Tribunal is a possible view. This means that it may be correct or may not be correct arid there is an element of doubt involved. No penalty can be levied on a doubtful decision. 12. I have already dealt with and rejected the reliance of the appellant on the ITAT order for AY 2008-09 as the facts are different. The rejection of books of accounts in the facts of the case has been upheld not only by Hon'ble ITAT but also Hon ble High Court for AY 2006-07 and AY 2007-08. Hence this contention is also rejected. 13. It is noted that the appellant has claimed that there is almost daily sale of milk in cash of 800 to 1200 litres of milk. As much as 235680 litres are claimed as sales of milk during the year amounting to ₹ 5235661/- Only 1590 litres sales is claimed to made to parties who are named as instances where invoice was presented before the assessing officer. Balance sales are in cash for which no verifiable details are available. The sales is through casual non-permanent employees. Thus, the veracity of contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not furnished before the assessing officer. Thus, the claim and explanation is not shown to be bonafide and is not substantiated. Explanation 1 to section 271(1)( c) holds that the amount added is deemed to represent income in respect of which particulars have been concealed. The exception to the Explanation has not been made out. Thus penalty is attracted. 16. At the fag end of the appellate proceedings, the Ld AR has challenged the penalty further on the ground that the penalty notice is not valid since the assessing officer did not specify under which limb the penalty notice is issued i.e. whether there was concealment of income and furnishing of inaccurate particulars of income. Reliance was placed on Hon ble Bombay High Court's decision in the case of CIT v Samson Perincherry 392 ITR 4 (Bom) in support of the contention. 17. It is noted that in the case of CIT vs Samson Perincherry the penalty was initiated for furnishing of inaccurate particulars of income whereas the penalty was levied for concealment of income. The Hon'ble Tribunal had relied upon the extract of the decision of the Hon ble High Court of Karnataka in the case of CIT vs Manjunatha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in CIT Vs. SSA'S Emerald Meadows [supra] confirmed the decision of Hon'ble High court, which in turn, relied upon the judgment rendered in CIT Vs. Manjunatha Cotton Ginning Factory [359 ITR 565]. The decision rendered by Hon'ble Bombay High court in CIT Vs. Samson Perinchery [supra] also placed the reliance on this judgment. After perusing the ratio of the judgment rendered in CIT Vs, Manjunatha Cotton Ginning Factory [supra-], we find that the assessee's appeal was allowed by Hon'ble High court after considering the multiple factors and not solely on the basis of defect in notice u/s 274. Therefore, we are of the opinion that the penalty could not be deleted merely on the basis of defect pointed by the Ld. AR in the notice and therefore, the legal grounds raised are rejected. 19. Now in the case before me, the penalty has been levied for furnishing inaccurate particulars of income. The appellant has vehemently contested the levy of penalty in the penalty proceedings. There is no evidence shown that the appellant had any difficulty in representing its case and has suffered on account of any lack of clarity as to the charge. 20. In the case of K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricultural income to the otherwise taxable income, and unexplained investments that can be clearly attributed to concealed income. There is nothing in the order of the Hon'ble Karnataka High Court to discern that only and solely for the reason that the relevant clause is not struck off in the notice u/s 274, when the facts resulting in formation of belief to initiate penalty is available in the assessment order, penalty imposed is to be quashed. I therefore reject the legal challenge based on the notice issued u/s 274. 22. Though the assessing officer has levied the penalty as 100% of tax sought to be evaded, there appears to be error in such computation. The assessing officer is directed to verify and correct the amount of penalty computed. 8.2. Thus in nutshell the Ld. CIT(A) confirmed the penalty levied by the AO u/s 271(1)(c) of the 1961 Act both on merits and on legal grounds, vide appellate order dated. 22.08.2017. 9. Aggrieved by the appellate order dated 22.08.2017 passed by learned CIT(A) , the assessee has now filed an appeal with tribunal. The contentions are raised by learned counsel for the assessee that assessee was dealing in milk and milk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted that assessee has proved that it is engaged in business of selling milk and additions as were made by the AO as confirmed by learned CIT(A) in quantum were deleted. It was submitted that for AY 2009-10 and 2010-11 , the AO has itself accepted that the assessee is engaged in sale of milk. It was submitted that mainly on four grounds additions were made in quantum, viz. firstly books of accounts were not produced before Investigation Wing. It was submitted in this context that complete books of accounts were available in the computers at the time of search and survey conducted on 08.05.2007, and the party who conducted search and surveys could have verified the same if they have opened the computers and seen the accounts maintained in electronic form in tally software . It was submitted that the Director Shri Swarnjit Singh Bajaj, Director made the statement u/s 131 on 08.05.2007 before the survey team that books of accounts were maintained in electronic form in tally software and are available in the mezzanine floor at Registered Office in the statement recorded u/s 131 during the course of survey action u/s. 133A on 08.05.2007 which is placed in paper book at page no. 73 onw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lates to pre-amended period. 9.2. It was submitted by Ld. DR on the other hand that no proper sale vouchers evidencing sale of milk was found during search and survey operations and the claim of the assessee of selling milk is not correct. The assessee has not produced books of accounts , vouchers etc. before the Investigation Wing. Our attention was drawn to para 4 of penalty order to contend proper records and books of accounts were not maintained. It was submitted by learned DR that it is only because of search and survey operations conducted by Revenue, that it was detected that the assessee is suppressing profits by miss-declaring sale of milk products as sale of milk . It was submitted that for AY 2008-09 , the tribunal has come to the conclusion that assessee is able to prove sale of milk which is as per the factual matrix prevailing in that year as the assessee produced production records along with stock records and books of accounts before all the authorities in AY 2008-09 but for instant year under consideration, the assessee failed to prove sale of milk and the tribunal has upheld the appellate order of learned CIT(A) that the assessee has failed to prove sale of mil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 131 on 08.05.2007 which is placed in paper book/refer page 75 wherein he submitted that books of accounts are maintained in electronic form in tally software and are available at mezzanine floor of the Registered Office. It was reiterated that the assessee was not selling milk through retail outlets but it was directly sold and/or sold through small consumable packs in morning from sales outlet at 6AM through casual employees before opening of sales outlet at 8.30AM. It was submitted that salesmen posted at sales outlet correctly stated that milk was not sold through sales outlet as they were not aware that the milk was sold in the morning at 6AM through casual workers before opening of sales outlet at 8.30AM. It was claimed that accounting for the sales of milk from sales outlet in the morning at 6AM was accounted for in the books of accounts maintained at factory . Our attention was drawn to page no. 145-174 of the paper book wherein detail of purchase of milk , sale of milk and analysis of sale and purchase of milk is placed which it is claimed was duly submitted before the authorities below. It was submitted the purchase of milk was not rejected by the AO. It was submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd assessment proceedings conducted thereafter by the AO , It was observed by the AO that the assessee was showing reasonably big quantities of sale of milk in its books of accounts but hardly any documentary evidences with respect thereto was found during search and survey operations . The statement of Mr. Jaswinder Singh Bajaj, Director was recorded u/s. 131 of the Act, on 08.05.2007 at factory premises and the relevant question no. 9 to 12 were recorded thereto , which are reproduced here under:- Q. No. 9: During the course of survey action at your premises, it is noticed that M/s, Punjab Sind Dairy Products Pvt. Ltd. is not having any inward register, production/consumption register and also outward register. You are requested to clarify if such registers are maintained and, If so, please produce the same? Ans. It is very difficult to maintain such registers and so I do not maintain such registers. Q. No. 10: Please give details of all your dairy products and since your principal raw material is milk, please give details of yield ratio of each products vis-a-vis 1 litre of milk? Ans. We make all dairy products i.e. paneer, cream, mawa, ghee, Lassi and butter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustrial Estate, Walbhat Road, Goregaon (W), Mumbai 400063. The assessee had also claimed that it has sales outlet at following locations:- 1. Bhulabhai Desai Road, next to American Embassy/ Breach Candy/ Mumbai-400 026. 2. 622, Durga Niwas, Khar Pali Road, Khar (West), Mumbai - 52. 3. BMC Stall, Outside Khar Telephone Exchange, Khar Pali Raod, Khar (West), Mumbai-52. 4. Ishwar Sadan, Opp. Jewel Palace Hotel, Khar (West), Mumbai - 52. 5. Juhu Stall at JVPD Scheme, Opp. OPTIONS, Juhu Vile Parle (West), Mumbai - 52. 6. Kamdhenu Shopping Centre, Shop No. 50, Lokhandwala, Andheri (W), Mumbai -54, The authorities have concluded that the assessee sells milk product from various outlets and the assessee buys milk and manufacture various products mainly paneer and sells them through these outlets. However, it was concluded by the authorities that the assessee is not selling milk which remained unproved. The tribunal also disbelieved the theory as set out by the assessee of selling milk. The tribunal sustained the additions in quantum appeal wherein appeal of the assessee stood dismissed in ITA no. 7963 7964/Mum/2010 for AY 2006-07 2007-08 respectively, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal were upheld by Hon ble Bombay High Court in ITA no. 950 of 2014 with ITA no. 951 of 2014 , vide judgment dated 13.12.2016, by holding as under:- 2. The learned Counsel for the appellant-assessee urges only the following two questions of law for our consideration: (1) Whether on the facts and in circumstances of the case and in law , the Tribunal is right in maintaining rejection of books of accounts under Section 145(3) of the Act for Assessment Years 2006-07 and 2007-08? (2) Whether on the facts and in circumstances of the case and in law, the Tribunal is correct in approving gross profit addition ₹ 12,15,244/- for Assessment Year 2006-07 and ₹ 16,11,580/- for Assessment Year 2007-08? **** **** (i) In our view, the concurrent finding of facts rendered by the authorities under the Act that the appellantAssessee had failed to produce the Registers indicating Production, Issuance and Consumption. Thus the view to reject books of account for the Assessment Years 200607 and 200708 is a possible view on facts. Therefore it cannot be said to be perverse and/or arbitrary. (j) In the above view, Question No.(1) does not give rise to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f milk was made in the financial year 2006-07 in the name of Mr Amritpal Singh Nanda , Kay Bee Export and Punjab Sweet Farsan , the payments thereof for sale of milk was received by cheque from these parties, which was duly accounted for in the books of accounts. It was also claimed that in financial year 2007-08 , sale of milk was made in the name of Asian Chemist Prop., Godrej Nature Basket-Kandivili, Kailash Parbat, Nanda Distributors, R.K. Shashank Diary and the amount was received in cash, which is duly accounted for in books of accounts. The assessee also submitted complete analysis of milk wherein it also included cash sales made by it for all these years. The sales personnel gave statements at the time of survey that no milk was sold through sales outlet. But later, the clarificatory statements of these sales employees were also submitted by the assessee before AO, wherein they clarified now that the assessee was also selling milk in early morning at 6AM through casual workers prior to opening of sales outlet at 8.30AM and the said sales were directly accounted for by the factory. The AO has not made any investigations as to the installed capacity of the factory for process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the authorities had disbelieved the whole story of selling of milk as set out by the assessee and books of accounts were rejected u/s. 145(3) and it was held that the assessee has shown bogus sale of milk in its books of accounts in order to suppress production and sale of various milk products, which as per authorities led to suppression of profits and consequently suppression of income chargeable to tax declared in return of income with an intent to evade taxes . This led to estimation of income by the AO by applying higher G.P ratio to the sale of milk based upon profits earned on milk products dealt with by the assessee while framing assessment framed by the AO u/s 153A read with Section 143(3) of the 1961 Act vide assessment order dated 29.12.2009, which led to the additions to the income of the assessee to the tune of ₹ 14,13,628-/. Penalty proceedings u/s 271(1)(c) of the 1961 Act were also initiated by the AO. The additions as were made by the AO in quantum assessment based on preponderance of probabilities which was upheld upto by Hon ble Bombay High Court is no-doubt a justifiable view so far as quantum additions are concerned but to fasten liability to penalty u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded the available books of accounts. If the survey team would have examined or impounded the said books of accounts on 08.05.2007 i.e. at the time of survey, it would have unravel the truth. The said books of accounts along with stock records were produced before the AO during assessment proceedings however it is a matter of record that the assessee did not produce these books of accounts before the investigation wing. It was claimed that production records were kept in loose sheets but proper production records were not maintained. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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