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TMI Blog2025 (1) TMI 1119X X X X Extracts X X X X X X X X Extracts X X X X ..... committed serious error in not quashing the assessment order as the notice u/s. 143 (2) of the Act has been issued by the learned Assessing Officer on an extraneous reasons and is a case of non application of mind. 3. That, the order of the learned Assessing Officer is illegal, arbitrary, without jurisdiction, unjust and contrary to the evidence on record and for that matter same is liable to be quashed and/or annulled. Therefore penalty should not be levied as there is neither concealment of income nor furnishing of inaccurate particulars of income. The learned CIT appeals have partially consider the fact. 4. That, the learned Assessing Officer has proceeded to complete assessment without serving notice u/s. 143 (2) of the Act on the appellant within the prescribed period for which the assessment orders, demand notice are liable to be quashed and/or annulled. Therefore penalty should not be levied as there is neither concealment of income not furnishing of inaccurate particulars of income. 5. That, the learned Assessing Officer has issued notice u/s 143 (2) of the Act on an extraneous reason and is a case of non- application of mind for that matter notice u/s 143 (2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has made double addition u/s. 40 (a) (ia) of the Act which is not sustainable in the eye of law and the addition u/s. 40(a) (ia) of the Act is liable to be deleted. Therefore penalty should not be levied as there is neither concealment of income nor furnishing of inaccurate particulars of income. 12. That, the learned Assessing Officer has erred" both in law and in fact by initiating penalty proceeding u/s. 271 (1) (C) of the Act and for that matter the penalty proceedings is liable to be quashed. Therefore penalty should not be levied as there is neither concealment of income nor furnishing of inaccurate particulars of income. 13. Without prejudice to the above the LAO has erred in levying penalty on estimation of 8% profit on gross receipts ignoring the profit shown by the assessee in the return of income i.e. Rs. 35,29,929/-. 14. That The learned CIT (Appeals) has not appreciated the fact that there is no concealment of income amounting to Rs. 33, 55,197/-, towards suppressed profit, of Rs. 9, 00,000/- towards capital introduction leading to concealed income Rs. 4, 14,975/- on account of unexplained expenditure and has up hold penalty of 100% on income alleged to have es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (iii) prior period expenses : Rs. 1,76,917/-; (III) the assessee's claim for deduction of interest on capital and remuneration paid to partners were disallowed as it had failed to comply with the notices issued by the A.O u/ss. 142(1) and 143(2) r.w.s. 184(5) of the Act. 5. The CIT(Appeals) based on his aforesaid observations made an addition of Rs. 62,12,481/-, viz. (i) addition towards understatement of net profit (admitted by the assessee firm) : Rs. 33,54,197/-; (ii) disallowance of certain expenses which were inadmissible :Rs.4,14,975/-; and (iii) disallowance of the assessee's claim for deduction of interest on capital and remuneration paid to partners :Rs.24,43,309/-. Accordingly, the CIT(Appeals) after making the aforesaid additions to the returned income of the assessee firm, determined its business income at Rs. 97,42,411/-. 6. Apropos the disallowance made by the A.O of the assessee's claim for deduction of expenses u/s. 40(a)(ia) of the Act of Rs. 4,89,10,524/-, the same was scaled down by the CIT(Appeals) to Rs. 82,08,597/-. 7. Apropos the addition of Rs. 9 lacs made by the A.O towards unexplained cash credits in the capital accounts of the partners, the CIT(App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm in its return of income filed on 13.10.2008 i.e. Rs. 35,29,930/-, thus, observed that for the balance addition Rs. 1,53,21,080/-[Rs.1,88,51,010/- (-) Rs. 35,29,930/- ], the assessee firm was liable to be subjected to penalty for concealment of income u/s. 271(1)(c) of the Act. Accordingly, the A.O vide his order passed u/s. 271(1)(c) of the Act, dated 25.02.2013 holding a conviction that the assessee firm had concealed its income to the tune of Rs. 1,53,21,080/-, thus, imposed penalty of Rs. 50 lacs. 10. Aggrieved the assessee assailed the order passed by the A.O u/s. 271(1)(c) of the Act, dated 25.02.2013 before the CIT(Appeals). 11. Apropos the disallowance of the assessee's claim for deduction of interest and remuneration paid to the partners, the CIT(Appeals) was of the view that as neither element of concealment nor furnishing of inaccurate particulars of income regarding the said issue was involved, therefore, no penalty on the said amount was liable to be imposed. At the same time, the CIT(Appeals) directed the A.O to levy minimum penalty on the balance addition of business income of Rs. 37,67,172/-(out of Rs. 62,12,482/-), viz. (i) understated/suppressed business incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udit report, the appellant firm maintains cash book, ledger, bank statements, bills and vouchers etc. generated by computer. As per the audited "Gross Contract and P&L A/c.", the total turnover of the year from fabrication, erection, machine hiring, material supply, running maintains is Rs. 13,69,18,308/-, besides WIP of Rs. 22,26,400/- and gross profit is Rs. 2,81,05,809/-. The net profit of the firm is Rs. 68,82,I27/-, after deduction of remuneration and interest of Rs. 18,00,000/- and Rs. 6,43,309/- paid to the partners. The net profit was distributed at Rs. 33,72,242/- to Shri Rajkishore Sahu, Partner and Rs. 35,09,885/L to Shri Way-Math Sahu, Partner and credited to their respective Capital Account. But, contrary to the net income of Rs. 68,82,127/-, the appellant firm filed the return for Rs. 35,27,930/-. Thus, there is a clear cut understatement of net profit of the year to the extent of Rs. 33,52,19743'he Ld. AR attributes the difference to an inadvertent omission and admits the net profit of the appellant firm for the year under consideration at Rs. 68,82,127/- Fresh opportunities of producing the books of account alongwith bills and vouchers were given even at appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed. Also, reliance is placed in the decision of the Hon'ble High Court of Chhattisgarh in the case of Chandra Prasad Liquor Vs. CIT reported in (2009) 227 CTR 409. In this case, the assessee did not produce the books of account, bills and vouchers. The AO enhanced the trading result by invoking provision u/s 144 of the Act. The CIT(Appeals) dismissed the appeal which was subsequently, affirmed by the Tribunal the AO levied penalty u/s 271(1)(c) for having furnished inaccurate particulars of income and having concealed the particulars of income. The CIT(Appeals) dismissed the appeal. The Hon'ble Tribunal observed that there is no explanation on record by the assessee as to how the expenditure claimed were not excessive or the expenditure claimed were in relation to the business of the assessee and were of allowable in nature while computing the business income. In absence of any explanation from the assessee the provision of Explanation-1 to section 271(1)(c) is applicable, which lays down that the assessee is guilty of concealment of particular of income in such circumstances and it is deemed concealment. The Hon'ble High Court, Chhattisgarh relying upon the judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition to that extent made by the AO u/s 40(a)(ia) was modified to addition u/s 69C. The AO has not made any specific comment regarding penalty imposable on such addition. Rather, he treated the addition as confirmed by CIT(Appeals) u/s 40(a)(ia) of the Act. In view of the above, I find that no penalty on the impugned sum is also imposable for the reasons mentioned above. 6. Regarding penalty imposed on addition of Rs. 9,00,000/- sustained in the quantum appeal, it was observed by the CIT(Appeals), Bilaspur in captioned appellate order that the primary information on date, mode and source of introduction of fresh capital by the partners to the partnership firm could not be adduced even at the appellate stage. Rather relying on the ratio of the case CIT vs Taj Borewells (2007) 291 ITR 232 (Mad), he argued that no addition u/s 68 on this count can be made on the basis of the Balance Sheet since13 & L A/c. and Balance Sheet are not books of account. In this regard, the observation made by the CIT(Appeals), 'Bilaspur is reproduced hereunder:- "If the books of account is considered in isolation, then it may mean books in which merchants, traders and business man generally keep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting procedure to be followed with regard to assets and ides. If the same is not followed, the accounts of the assessee would not tally. Therefore, failure on the part of the assessee to explain an impugned item of balance sheet with reference to the cash book, ledger etc. as defined in section 2(12A) of the Act, justify assessment of the same u/s 68 of the Act. [Relied on Haji Nazir Hussain Vs. ITO (2004) 91 ITD 42 (Del.) TM]. In the case of Taj Borewells no books of accounts were maintained and it was the first year of assessment different since the books of account are maintained and the impugned, assessment year is not the first year of assessment in the present case in hand. The decisions °faker case laws relied on by the Ld. AR are also not applicable since the primary requirement of establishing the fact of introduction of fresh capital by the partners has not been discharged by adducing the books of account. The Ld. AR was never required to explain the source of the partners. Thus, the first burden to establish the credit entry in the books of account of the previous year has not been discharged either by producing the cash book or the partners. [Relied on CIT Vs. Met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(Appeals) : Rs. 9 lacs. A). Re: Unexplained cash credit in the partners' capital account: Rs. 9 lacs 17. Ostensibly, the assessee firm in the course of the assessment proceedings had failed to explain the source of the credits in the partners capital accounts aggregating to Rs. 9 lacs, viz. (i) Shri Raj Kishore Sahu: Rs. 3.50 lacs; and (ii) Shri Uday Nath Sahu: Rs. 5.50 lacs. As the assessee firm even in the course of the quantum appeal had failed to come forth with an explanation as regards the source of the credits in the partners capital accounts and, thus, discharge the onus that was cast upon it u/s. 68 of the Act, therefore, the said addition was upheld by the CIT(Appeals). 18. As is discernible from the record, the A.O had, thereafter, imposed penalty u/s. 271(1)(c) of the Act on the addition of Rs. 9 lacs, which, thereafter, was upheld by the CIT(Appeals). 19. We have thoughtfully considered the issue in hand i.e. imposition of penalty u/s. 271(1)(c) of the Act qua the addition of the unexplained credits in the partners capital account during the subject year. As observed by the CIT(Appeals) and, rightly so, as the assessee firm as per the mandate of "Explanation-1" o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing confronted with the aforesaid fact in the course of the quantum appeal before the CIT(Appeals), had stated that the said infirmity was on account of an inadvertent omission, but we are unable to persuade ourselves to concur with the same. As the assessee firm had failed to come forth with any plausible explanation for having suppressed/understated the "net profit" in its return of income by an amount of Rs. 33,52,197/- (supra), therefore, as observed by the CIT(Appeals) and, rightly so, it was liable to be saddled with penalty u/s. 271(1)(c) of the Act. We, thus, in terms of our aforesaid observations finding no infirmity in the view taken by the CIT(Appeals) who had rightly saddled the assessee firm with penalty u/s. 271(1)(c) of the Act on the aforementioned amount of understated/suppressed "net profit of Rs. 33,52,197/-, uphold the same. C). Re: Disallowance of assessee's claim for deduction of expenses Rs. 4,16,975/- 24. Apropos the assessee's claim for deduction of expenses of Rs. 4,16,975/-, viz. (i) FBT : Rs. 1,29,423/-; and (ii) donation : Rs. 1,10,635/-; and (iii) prior period expenses : Rs. 1,76,917/-, we find that the assessee firm had submitted before the CIT(Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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