No Concealment if addition made on estimated basis

Commissioner of Income-tax-III vs. Modi Industrial Corporation (HC Punjab & Haryana )25.11.2009 

FACT

In the present case, the assessee is running a rice sheller. For the assessment year 2000-01, the assessee filed the income-tax return on 25-12-2000, declaring his income as Rs. 31,49,444. Vide order dated 26-2-2003, the Assessing Officer completed the assessment under section 143(3) of the Act at net taxable income of Rs. 31,53,943. Subsequently, vide order dated 30-3-2005, the Commissioner of Income-tax-III, Ludhiana, cancelled the assessment, while exercising the powers under section 263 of the Act, with a direction to the Assessing Officer to re-frame the assessment after affording due and reasonable opportunity of being heard to the assessee. Thereupon, vide order dated 2-3-2006, the fresh assessment was completed at net taxable income of Rs. 92,76,557, after making addition of Rs. 57,74,857 on account of processing of unaccounted rice bran and Rs. 3,52,260 on account of under-valuation of closing stock of the rice bran. On second appeal by the assessee, the ITAT vide its order dated 30-3-2007 directed to apply the growth profit rate of 10 per cent and consequently, the income of the assessee was assessed at Rs. 51,13,637. It is specifically mentioned here that the ITAT had adopted the flat rate of 10 per cent for working out the unaccounted profits. Thus, the assessment was made on estimate basis. In the meanwhile, the penalty proceedings were initiated by the Assessing Officer against the assessee under section 271(1)(c) of the Act for furnishing inaccurate particulars of income and ultimately, vide order dated 27-3-2008, penalty of Rs. 11,31,723 at the rate of 150 per cent was imposed. In the second appeal by the assessee, the ITAT has set aside the said order of penalty,

HELD

After hearing learned counsel for the appellant-revenue and going through the impugned order, we are of the opinion that the learned ITAT has recorded a finding of fact with regard to the addition of income being made on the basis of estimate, which in our opinion does not require any interference. A perusal of the order dated 30-3-2007, passed by the ITAT in the assessment proceedings which has been quoted in extenso in the impugned order, makes it clear that addition of the income was made only on the basis of estimate. Therefore, we do not find that the learned ITAT has recorded a wrong finding in this regard. As far as the finding with regard to concealment of income is concerned, it is clear that in the original assessment order, there was no finding that the assessee has concealed its income and furnished inaccurate particulars of income, but subsequently after the cancellation of the assessment, the Assessing Officer has proceeded on the basis that the assessee, while inflating the electricity charges and under-valuing the closing stock of rice bran, has suppressed the income. Therefore, the additions on account of processing of unaccounted rice bran and under-valuation of closing stock of rice bran were made and income was assessed on the estimate base. Therefore, in our opinion, the ITAT is right while coming to the conclusion that when the assessment is made on estimate basis, the penalty should not be imposed. In this regard, reference can be made to a decision of this Court in Harigopal Singh v. CIT [2002] 258 ITR 85.

In view of the above, we do not find any merit in the instant appeal and in our opinion no substantial question of law arises from the order of the ITAT.

Dismissed.

Editor