M/s. Hi-Libas Pvt.Ltd., Surat V. The Income tax Officer.Ward-1(2), Surat

CO 286/AHD/2009

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6298 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-08-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 03-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MEENA
• Assessee Lawyers: R N VEPARI
• Keywords: Unexplained expenditure; Depreciation
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SHRI R.C.SHARMA, A.M.) I.T.A. NO. 3052/AHD./2009 : ASSESSMENT YEAR : 2003-2004 I.T.O., WARD-1(2), SURAT VS- M/S. HI-LIBAS PRIVATE LTD., SURAT (PAN : AAACD 8501G) (APPELLANT) (RESPON DENT) C.O. NO.286/AHD./2009 : ASSESSMENT YEAR : 2003-2004 (ARISING OUT OF ITA NO.3052/AHD/2009) M/S. HI-LIBAS PRIVATE LTD., SURAT -VS- I.T .O., WARD-1(2), SURAT (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY : SHRI S.K.MEENA, SR.D.R. ASSESSEE BY : SHRI R.N.VEPARI, A.R. DATE OF HEARING : 10/08/2011 DATE OF PRONOUNCEMENT : 12/08/2011 O R D E R PER BENCH : THIS APPEAL FILED BY THE REVENUE AND THE CROSS OBJ ECTION FILED BY THE ASSESSEE ARE AGAINST THE ORDER DATED 15-09-2009 OF LEARNED C OMMISSIONER OF INCOME TAX(APPEALS)-I, SURAT FOR PARTLY CONFIRMING THE PEN ALTY OUT OF PENALTY OF RS.25,81,803/- LEVIED BY THE AO UNDER SECTION 271(1 )(C) OF THE I.T. ACT, 1961 FOR THE ASSESSMENT YEAR 2003-2004. 2. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE IS A COMPANY. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME DE CLARING NIL INCOME ON 04.11.2003. THE AO FRAMED THE ASSESSMENT UNDER SECTION 143(3) A T TOTAL INCOME OF RS.48,62,830/-. IN THIS ASSESSMENT ORDER, THE AO MADE ADDITION OF R S.70,25,316/- UNDER VARIOUS HEADS. SUBSEQUENTLY, IN RESPECT OF 14 ITEMS, THE AO LEVIED THE PENALTY UNDER SECTION 271(1)(C), VIDE ORDER DATED 20.03.2009, AS MENTIONE D IN THE PENALTY ORDER. AS PER THIS PENALTY ORDER, THE ASSESSEE HAS CONCEALED ITS PARTI CULARS OF INCOME TO THE EXTENT OF ITA NO.3052-AHD-09 & C.O.286-AHD-09 2 RS.70,25,316/- FOR WHICH PENALTY OF RS.25,81,803/- IS LEVIED BEING 100% OF TAX SOUGHT TO BE EVADED ON CONCEALED INCOME OF RS.70,25,316/-. 3. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE PENALTY IN RESPECT OF SEVEN ITEMS AND CONFIRMED THE PENALTY IN RESPECT OF SIX ITEMS. IN RESPECT OF ONE ITEM, NAMELY, ADDITION OF RS.4,72,878/- ON ACCOUNT OF UNEXPLAINED STOCK OF CHEMICALS, THE AO LEVIED THE PENALTY OF RS.1,73,783/-. OUT OF THIS, THE LD. CIT(A) CONFIRMED THE PENALTY TO THE EXTENT OF RS.1,39,025/- AND DELETED THE BALANCE PENALTY OF RS.34,758/-. 4. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUND: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE PENALTY LEVIED BY THE AO OF R S.6,26,774/- (INCLUDED IN THE TOTAL PENALTY LEVIED OF RS.25,81,803/-) U/S.271(1)( C) OF THE ACT FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME ON ACCOUNT OF EXCE SSIVE CLAIM OF DEPRECIATION ON THE NEW MACHINERY PURCHASED UNDER TUF SCHEME. 5. THE ASSESSEE HAS ALSO FILED THE CROSS OBJECTION AGAINST CONFIRMING THE PENALTY IN RESPECT OF FOLLOWING FOUR ITEMS. A. DIFFERENCE IN RECONCILIATION OF STOCK RS. 32,786/- B. UNACCOUNTED SALES OF RAW MATERIALS RS.12,69,03 6/- C. UNEXPLAINED STOCK OF CHEMICALS RS. 94,580 /- D. EXPENSES NOT PERTAINING TO THIS YEAR RS. 25,200/- 6. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THE REVENUES APPEAL ARE THAT IN THE ASSESSMENT ORDER, THE AO LEVIED THE PENALTY IN RESPECT OF DISALLOWANCE OF EXCESS DEPRECIATION CLAIM AMOUNTING TO RS.17,90,783/- ON N EW MACHINERY PURCHASED UNDER TUF SCHEME. ON THIS DISALLOWANCE OF DEPRECIATION, T HE PENALTY LEVIED BY THE AO IS RS.6,58,113/-. ON APPEAL IN THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE PENALTY ON THE GROUND THAT THE ASSESSEE WAS GRANTED A LOAN FRO M BANK FOR PURCHASE OF NEW MACHINERY UNDER TUF SCHEME AND THEREBY THE ASSESSEE WAS UNDER A BONA FIDE BELIEF THAT THEY ARE ELIGIBLE FOR HIGHER RATE OF DEPRECIAT ION ON THE SAID MACHINERY. AGGRIEVED WITH THIS, THE REVENUE IS IN APPEAL. ITA NO.3052-AHD-09 & C.O.286-AHD-09 3 7. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF T HE REVENUE, SHRI S.K.MEENA, SR.D.R. APPEARED AND CONTENDED THAT THE VIEW TAKEN BY THE LD. CIT(A), IN THIS REGARD, CANCELLING THE PENALTY IS NOT ACCEPTABLE ON THE FOL LOWING GROUNDS: I) THE LD, CIT(A) HAS NOT APPRECIATED THAT THE M ACHINERY PURCHASED FOR TEXTURISING OF YARN IS NOT COVERED UNDER BLOCK II(6 ) OF APPENDIX 1 OF RULE 1962 AND THEREBY THE DEPRECIATION CLAIMED AT HIGHER RATE ON TEXTURISING MACHINE PURCHASED UNDER TUF SCHEME WAS NOT ELIGIBLE TO THE ASSESSES WHICH WAS RIGHTLY DISALLOWED BY THE AO. II) THE LD. CIT(A) HAS NOT APPRECIATED THAT THE H ON. ITAT HAS CONFIRMED THE QUANTUM ADDITION MADE BY THE AO IN RESPECT OF EXCES S CLAIM OF DEPRECIATION ON THE MACHINERY PURCHASED UNDER TUF VIDE THEIR ORDER NO. 3891/AHD/2007 DTD. 5.6.2009. III) THE LD. CIT(A) HAS NOT APPRECIATED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE AUDITED U/S. 44AB OF THE ACT BY AN APP ROVED C.A. WHO IS WELL CONVERSANT WITH THE CLAIM OF DEPRECIATION ON MACHIN ERY PURCHASED UNDER TUF AND THE ASSESSEE COULD NOT HAVE CLAIMED HIGHER RATE OF DEPRECIATION IN ITS RETURN OF INCOME, BUT THE ASSESSEE HAD CLAIMED SUCH HIGHER RATE OF DEPRECIATION CONSCIOUSLY AND DELIBERATELY WITH AN INTENTION TO R EDUCE ITS TAX INCIDENCE TO THE SAID EXTENT. IV) THE LD. CIT (A) HAS NOT APPRECIATED THAT AS P ER RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF B. A. BALASUBR AMANIAM, AFTER INSERTION OF EXPLANATION TO SECTION 271(L)(C) W.E.F.01.04.197 C AND AGAIN BY AMENDMENT W.E.F.10.09.1986 WHERE IN RESPECT OF AN\ FACTS MATE RIAL TO THE COMPUTATION OF TOTAL INCOME ANY PERSON FAILS T.( OFFER EXPLANATION OR IF ANY EXPLANATION IS FILED WHICH IS FOUND TO BE FALSE OR WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO PROVE ITS BONAFIDE, THAT ALL FACTS RELATING THERETO AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED THEN THE AMOUNT ADDED OR DISALLOWED SHALL BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEER CONCEALED WITHIN THE MEANING OF SECTION 271(L)(C) OF THE ACT. V) RELIANCE IS PLACED ON THE DECISION OF HON. SUPR EME COURT IN THE CASE OF UNION OF INDIA AND OTHERS V/S. DHARMENDRA TEXTILE P ROCESSORS REPORTED IN 306 ITR 277 WHEREIN THE HON. COURT BEHELD THAT WHERE TH ERE IS EVASION OF TAX, IT IS A CIVIL LIABILITY ATTRACTING THE PROVISIONS OF SECT ION 271(1)(C) OF THE ACT R.W. THE EXPLANATION BELOW THE SECTION WHICH HAS BEEN ENACTED BY THE LEG ISLATION TO PROVIDE A REMEDY FOR THE LOSS OF REVENUE. 8. ON THE OTHER HAND, SHRI R.N.VEPARI, A.R., APPEAR ING ON BEHALF OF THE ASSESSEE, VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). T HE COUNSEL OF THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT-VS- RELIANCE PETRO- ITA NO.3052-AHD-09 & C.O.286-AHD-09 4 PRODUCTS PVT. LTD. REPORTED IN 322 ITR 158 (SC) AND CONTENDED THAT THE VIEW TAKEN BY THE LD. CIT(A) BE UPHELD. 9. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD. ( SUPRA ) HAS HELD AS UNDER: A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C)OF T HE INCOME-TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, THERE H AS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY , THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS INCOME. THE MEANING OF THE WORD 'PARTICULARS' USED IN SECTION 271(1)(C) MOULD EMBRA CE THE DETAILS OF THE CLAIM MADE. WHERE NO INFORMATION GIVEN IN THE RETURN IS F OUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF F URNISHING INACCURATE PARTI- CULARS. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY PROVISION CAN NOT BE INVOKED.' BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORRECT CLAI M TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE THA T EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE, BECAUSE THAT IS THE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INC OME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILITY WOULD ARI SE. TO ATTRACT PENALTY, THE DETAILS SUPPLIED IN THE RETURN MUST NOT BE ACCURATE , NOT EXACT OR CORRECT, NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FA LSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271(1)(C). A MER E MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOU NT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. S UCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTI CULARS. 9.1 FROM THE PERUSAL OF THE ABOVE, IT CAN BE SEEN T HAT THE HONBLE SUPREME COURT, IN THE AFORESAID JUDGMENT, HAS HELD THAT MAKING AN INCORRECT CLAIM, BY NO STRETCH OF IMAGINATION, TANTAMOUNT TO FURNISHING INACCURATE PA RTICULARS OF INCOME. IN THAT CASE THE ASSESSEE CLAIMED DEDUCTION OF INTEREST UNDER SE CTION 36(1)(III), THE PART OF WHICH WAS DISALLOWED U/S. 14A OF THE I.T.ACT, FOR WHICH P ENALTY UNDER SECTION 271(1)(C) WAS LEVIED. THE SAID PENALTY WAS CANCELLED AND THE HON BLE SUPREME COURT UPHELD THE CANCELLATION OF PENALTY. THIS JUDGEMENT OF THE HON BLE SUPREME COURT IS SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE AT H AND. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE VIEW TAKEN BY THE LD. CIT(A) IN CA NCELLING THE PENALTY ON DISALLOWANCE OF DEPRECIATION. RESULTANTLY, THE APPEAL OF THE REV ENUE IS DISMISSED. ITA NO.3052-AHD-09 & C.O.286-AHD-09 5 10. NOW WE TAKE UP THE CROSS OBJECTION OF THE ASSES SEE IN RESPECT OF CONFIRMATION OF PENALTY OF RS.12,049/- ON ADDITION OF RS.32,786/ - I.E. DIFFERENCE IN RECONCILIATION OF STOCK. THE COUNSEL OF THE ASSESSEE POINTED OUT THAT THIS AMOUNT WAS REDUCED BY THE TRIBUNAL IN QUANTUM APPEAL. THE RELEVANT DISCUSSION IS CONTAINED IN PARA NOS. 12 TO 14. THE COUNSEL OF THE ASSESSEE EXPLAINED THAT ADDI TION ONLY TO THE EXTENT OF RS.28,466/- WAS CONFIRMED AS THERE IS NEGATIVE CASH BALANCE IN WEAVING DIVISION. HE FURTHER POINTED OUT THAT THIS ADDITION RELATES TO D IFFERENCE IN RECONCILIATION OF CASH FOUND AT THE ASSESSEES PREMISES AT THE TIME OF SUR VEY. HE FURTHER POINTED OUT THAT THE ASSESSEE HAS VARIOUS DIVISIONS LIKE WEAVING, TEXTUR ISING, ETC. LOCATED AT DIFFERENT PLACES AND FOR EACH OF SUCH DIVISION IT MAINTAINED A SEPAR ATE CASH BOOK. HOWEVER, ALTHOUGH SEPARATE CASH BOOKS WERE MAINTAINED, THE CASH IN ON E DEPARTMENT WOULD BE AVAILABLE FOR USE IN ANOTHER DEPARTMENT. IT IS NOT DISPUTED T HAT WHILE THERE WAS NEGATIVE BALANCE OF RS.28,466/- IN WEAVING DIVISION, IT HAD POSITIVE CASH BALANCE OF RS.1,68,559/- WITH HLC DIVISION. THE LD. COUNSEL FURTHER SUBMITTED THA T THE ASSESSEES CONTENTION WAS THAT THIS AMOUNT BEING AVAILABLE THE EXPENDITURE WA S MADE. THIS WAS REJECTED ON THE ONLY GROUND THAT NO TRANSFER ENTRY HAD BEEN MADE. T HAT WAS SO, BECAUSE SUCH TRANSFER ENTRIES ARE NOT GENERALLY MADE BETWEEN THE DEPARTME NTS OF SAME ENTITY. 10.1 CONTINUING HIS ARGUMENT, THE COUNSEL OF THE AS SESSEE POINTED OUT THAT THE EXPLANATION GIVEN BY THE ASSESSEE WAS A PLAUSIBLE E XPLANATION AS THERE WERE NO DIFFERENT PERSONS WHO PASSED SUCH ENTRIES; THERE WE RE ONLY TWO DEPARTMENTS OF THE SAME ASSESSEE. IN THAT VIEW OF THE MATTER, THE EXPL ANATION CANNOT BE CONSIDERED TO BE FALSE AND IS REQUIRED TO BE ACCEPTED AT LEAST FOR T HE PURPOSE OF NOT LEVYING THE PENALTY FOR CONCEALMENT UNDER SECTION 271(1)(C). 11. ON THE OTHER HAND, THE LD. D.R. VEHEMENTLY SUPP ORTED THE ORDER OF THE LD. CIT(A). THE LD. DR POINTED OUT THAT THIS ADDITION H AS BEEN CONFIRMED BY THE ITAT TO THE EXTENT OF RS.28,466/-. IN THE ASSESSMENT ORDER, THE AO HAS STATED THAT EXPLANATION OF THE ASSESSEE CANNOT BE ACCEPTED BECAUSE NEGATIVE CASH BALANCE OF RS.28,466/- IS NOT EXPLAINED. WITH REGARD TO NON-ACCEPTANCE OF EXPLANA TION OF THE ASSESSEE, THE LD. D.R. POINTED OUT THAT THE SAID EXPLANATION WAS RIGHTLY N OT ACCEPTED BECAUSE IF CASH BALANCE OF HLC DIVISION WAS UTILISED, THEN CORRESPONDING EN TRY SHOULD HAVE BEEN MADE IN CASH ITA NO.3052-AHD-09 & C.O.286-AHD-09 6 BOOK SHOWING TRANSFER OF CASH TO WEAVING DIVISION. SINCE NO SUCH ENTRY WAS MADE, UNEXPLAINED EXPENDITURE WAS RIGHTLY CONSIDERED AS C ONCEALED INCOME. 12. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT EXP LANATION OF THE ASSESSEE HAS BEEN REJECTED ON THE GROUND THAT NO ENTRY OF CASH BALANC E OF HLC DIVISION CLAIM TO BE UTILISED HAVE BEEN MADE IN THE CASH BOOK SHOWING TR ANSFER OF CASH TO WEAVING DIVISION. WE FIND FORCE IN THE SUBMISSIONS OF THE LD. DR THAT IF CASH BALANCE OF HLC DIVISION WAS UTILISED, THEN CORRESPONDING ENTRY SHO ULD HAVE BEEN MADE IN CASH BOOK SHOWING TRANSFER OF CASH TO WEAVING DIVISION, AS SE PARATE CASH BOOKS ARE MAINTAINED FOR EACH DIVISION. THEREFORE, ON THIS ADDITION, PEN ALTY CONFIRMED BY THE LD. CIT(A) IS UPHELD. 13. THE SECOND POINT ON WHICH THE PENALTY IS LEVIED RELATES TO ADDITION MADE BY THE AO OF RS.13,44,156/-. THIS ADDITION IS DISCUSSED BY THE AO IN PARA 8 OF THE ASSESSMENT ORDER. AS PER THE AO, THE STOCK OF RAW M ATERIALS, AS PER BOOKS ON THE DATE OF SURVEY, AMOUNTED TO 21,468.252 KG. THE AO ASSUME D THAT COST WAS 12,69,030/- AND THE ASSESSEE MUST HAVE EARNED RS.13,44,156/- INCLUD ING PROFIT. THE TRIBUNAL CONFIRMED RS.12,69,030/- OUT OF THE AFORESAID ADDIT ION IN PARA 18 TO 20 OF ITS ORDER. 14. THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THA T THE SURVEY PARTY DID NOT RECORD THE RAW MATERIAL IN PROCESS AS IT WAS NOT POSSIBLE TO COUNT THE MATERIAL ON MACHINE. THE ASSESSEE ALWAYS SHOWED SUCH YARN ON MACHINE AS ITS RAW MATERIAL. NO MATERIAL WAS BROUGHT ON RECORD BY THE AO REGARDING SALE OF S TOCK BY THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNTS. THIS STOCK WAS DULY PROCESSED AN D SOLD IN THE REGULAR BUSINESS AND REFLECTED IN THE REGULAR BOOKS. THE TRIBUNAL DID NO T ACCEPT THE PLEA OF THE ASSESSEE AND CONFIRMED THE ADDITION. 15. CONTINUING HIS ARGUMENT, THE LD. COUNSEL DREW A TTENTION OF THE BENCH TO THE SUBMISSIONS MADE AND EVIDENCE FURNISHED IN THE PAPE R BOOK. HE ALSO DREW ATTENTION OF THE BENCH TO PARA (III) AT PAGE 4 AND 5 OF THE PAPE R BOOK WHEREIN IT HAS BEEN POINTED OUT THAT IT IS NOT POSSIBLE TO BELIEVE THAT WHEN SU RVEY TAKES PLACE, THERE WOULD BE NO ITA NO.3052-AHD-09 & C.O.286-AHD-09 7 STOCK ON MACHINE AND STOCK WOULD BE ONLY ON HAND. W HATEVER THE ASSESSEE HAS SHOWN AS STOCK WAS SOLD IN SUBSEQUENT MONTHS AND ACCOUNTE D FOR IN THE BOOKS. THE LD. COUNSEL AGAIN DREW THE ATTENTION OF THE BENCH TO TH E SUBMISSIONS MADE BEFORE THE CIT(A) IN THE COURSE OF QUANTUM PROCEEDINGS WHICH A RE MENTIONED IN PARA (VIII) AT PAGE 57 TO 59 OF THE PAPER BOOK. THE LD. COUNSEL FU RTHER SUBMITTED THAT THE SPECIAL AUDITORS HAVE IN FACT GIVEN AN AMBIGUOUS FINDING. H AVING ACCEPTED THE FACT THAT THEY HAVE VERIFIED SUBSIDIARY RECORDS MAINTAINED FOR RAW MATERIAL AND FINISHED GOODS AND CONSIDERED EXPLANATION GIVEN BY THE ASSESSEE, THEY HAVE STATED WE ARE OF THE OPINION THAT THE ASSESSEES CLAIM IS ACCEPTED. IT IS PRACTI CALLY NOT POSSIBLE THAT THE COMPANY WITH SUCH A MAGNITUDE AND ANNUAL TURNOVER OF RS.23. 10 CRORES CANNOT HAVE ANY RAW MATERIAL AT ANY GIVEN TIME. FROM THE OBSERVATION OF THE SPECIAL AUDITORS, IT IS CLEAR THAT THEY HAVE ACCEPTED THE FACTS AS STATED BY THE ASSESSEE BUT WITHOUT ANY REASON, THEY HAVE SUGGESTED FOR ADDITION. IT MEANS THAT ASSESSEE S EXPLANATION IS PLAUSIBLE AND NO ADDITION SHOULD HAVE BEEN MADE BY THE AO AND ALSO T HE PENALTY. 16. ON THE OTHER HAND, THE LD. D.R. VEHEMENTLY SUPP ORTED THE ORDER OF THE LD. CIT(A) CONFIRMING THE PENALTY LEVIED BY THE AO ON T HE ADDITION OF RS.12,69,030/-. THE LD. D.R. DREW OUR ATTENTION TO PARA 20 OF THE D ECISION OF THE TRIBUNAL IN QUANTUM APPEAL IN ITA NO.3891/A/2007 WHEREIN THE BENCH, VID E ORDER DATED 05.06.2009 FOR THE ASSESSMENT YEAR 2003-04 HAS CONFIRMED THE ADDIT ION TO THE EXTENT OF RS.12,69,030/-. IN THIS PARA, THE TRIBUNAL HAS OBSE RVED THAT THE A.R. EVEN DID NOT RECONCILE THE SHORTAGE EXCEPT TAKING THE PLEA THAT THERE HAD TO BE CERTAIN RAW MATERIALS AS STOCK-IN-PROCESS. NO EVIDENCE WAS BROUGHT TO THE NOTICE OF THE TRIBUNAL BY WAY OF AUDITED BALANCE-SHEET TO PROVE THAT THE ASSESSEE WA S HAVING THE STOCK-IN-PROCESS CONTINUOUSLY. ON THIS BASIS, HE POINTED OUT THAT PE NALTY ON THIS ADDITION OF RS.12,69,030/- CONFIRMED BY THE LD. CIT(A) BE UPHEL D. THIS IS EVIDENT FROM THE FOLLOWING OBSERVATIONS OF THE TRIBUNAL IN PARA 20 O F ITS ORDER. THIS APPROACH OF THE AO, IN OUR OPINION, IS NOT PRO PER UNTIL AND UNLESS HE BRINGS EVIDENCE ON RECORD THAT THE ASSESSEE HAS CONVERTED THIS RAW MATERIAL INTO THE FINISHED PRODUCT AND SOLD THE SAM E OUTSIDE THE BOOKS. THE ADDITION, IN OUR OPINION, SHOULD BE RESTRICTED ONLY TO THE COST OF THE RAW MATERIAL I.E. RS.12,69,030/- WHICH WAS FOUND TO BE SHORT AS POINTED OUT BY THE SPECIAL AUDITOR ALSO. ITA NO.3052-AHD-09 & C.O.286-AHD-09 8 16.1 THE COUNSEL OF THE ASSESSEE POINTED OUT THAT I N QUANTUM APPEAL, THE TRIBUNAL HAS ACCEPTED THAT THE ASSESSEE HAS NOT CONVERTED TH E ALLEGED RAW MATERIALS, FOUND TO BE SHORT, INTO FINISHED PRODUCT AND SOLD THE SAME OUTS IDE THE BOOKS OF ACCOUNTS. HE SUBMITTED THAT THIS FINDING OF THE TRIBUNAL ALONE I S SUFFICIENT TO CANCEL THE PENALTY UNDER SECTION 271(1)(C) IN RESPECT OF THIS ADDITION , WHICH HAS BEEN MADE BY REJECTING THE EXPLANATION OF THE ASSESSEE. FURTHER, THE EXPLA NATION OF THE ASSESSEE IS NOT FOUND FALSE BY ANY OF THE DEPARTMENTAL AUTHORITIES BELOW. 17. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN RESPECT OF SHORTAGE OF RAW MATERIALS, THE ASSESSEE FURNISHED THE EXPLANATION BEFORE THE A UTHORITIES BELOW. THIS HAS BEEN REJECTED ONLY ON THE GROUND THAT IN THE AUDITED BAL ANCE-SHEET, THE STOCK-IN-PROCESS WAS NOT SHOWN. IN THE PENALTY PROCEEDINGS, WHEN IT IS E STABLISHED THAT TAXPAYERS EXPLANATION IS BONA FIDE , PENALTY IS NOT LEVIABLE. IN RESPECT OF THIS ADDIT ION, NEITHER IN THE ASSESSMENT ORDER NOR IN THE PENALTY PROCEEDINGS , IT IS FOUND THAT EXPLANATION OF THE ASSESSEE IS NOT BONA FIDE . ON THIS GROUND, WE CANCEL THE PENALTY CONFIRMED B Y THE LD. CIT(A) IN RESPECT OF THIS ADDITION. 18. THE THIRD POINT RELATES TO PENALTY ON RS.94,580 /-. IN PARA 9 OF THE ASSESSMENT ORDER, THE AO HAS MADE ADDITION OF RS.4,72,878/- BY WORKING OUT THE VALUATION OF 3150 KG. CHEMICALS AT RS.150.12 PER KG. THE ITAT PA RTLY ACCEPTED THE ABOVE IN PARA 21 TO 25 OF ITS ORDER. THE TRIBUNAL DID NOT ACCEPT THE STAND OF THE ASSESSEE FULLY BUT IT ACCEPTED THAT THE VALUATION WAS DONE AT A VERY HIGH FIGURE AND RESTRICTED ADDITION TO RS.94,580/- ONLY. 19. THE LD. COUNSEL OF THE ASSESSEE REFERRED TO PAR A XIV AT PAGES 59 TO 61 OF THE PAPER BOOK, WHEREIN THE ASSESSEES CASE HAS BEEN DE ALT WITH. HE POINTED OUT THAT THE ASSESSEE HAD ALSO GIVEN COMPLETE DETAILS OF CHEMICA L ACCOUNT IN PAGES 106 TO 117 AND IN VIEW OF THE DETAILS AND EXPLANATION GIVEN, THE A DDITION OUGHT TO HAVE BEEN DELETED FULLY. MOREOVER, LD. COUNSEL CONTENDED THAT THERE I S NO CASE FOR PENALTY. ITA NO.3052-AHD-09 & C.O.286-AHD-09 9 20. ON THE OTHER HAND, THE LD. D.R. VEHEMENTLY SUPP ORTED THE ORDER OF THE LD. CIT(A) CONFIRMING THE PENALTY LEVIED BY THE AO ON T HE ADDITION OF RS.94,580/-. 21. HAVING HEARD BOTH THE SIDES ON THIS ISSUE, WE H AVE CAREFULLY GONE THROUGH THE REASONING GIVEN BY THE TRIBUNAL IN QUANTUM APPEAL I N PARA 25 OF ITS ORDER. THE FACT IS THAT THE ASSESSEE HAS PURCHASED THE CHEMICAL OUTSID E THE BOOKS OF ACCOUNTS AND CONSUMED THE SAME. KEEPING IN VIEW THIS FINDING REC ORDED BY THE TRIBUNAL IN QUANTUM APPEAL, WE ARE OF THE VIEW THAT THE PENALTY ON THIS ADDITION IS RIGHTLY CONFIRMED BY THE LD. CIT(A). WE, THEREFORE, DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE LD. CIT(A) CONFIRMING THE PENALTY ON THIS ADDITION. 22. THE LAST POINT RELATES TO PENALTY OF RS.9,261/- ON EXPENSES NOT PERTAINING TO THE ASSESSMENT YEAR AMOUNTING TO RS.25,200/-. THE AO, I N PARA 12 OF THE ASSESSMENT ORDER, HAS DEALT WITH THE ABOVE PENALTY. THE LD. CO UNSEL POINTED OUT THAT IT IS TRUE THAT THE SALARY OF EARLIER YEAR HAS BEEN DEBITED IN THIS YEAR OF MR. MAHESH MAVANI. THE CLAIM WAS MADE BECAUSE THE EXPENDITURE WAS IN FACT INCURRED. ONCE THE EXPENDITURE WAS INCURRED, THE ASSESSEE WOULD BECOME ENTITLED TO CLAIM OF DEDUCTION AND HAS MADE CLAIM ACCORDINGLY. IT IS A GENUINE CLAIM AND GENUIN ENESS IS NOT DISPUTED BUT FOR THE FACT THAT IT DID NOT PERTAIN TO THIS YEAR. THE LD. COUNSEL FURTHER SUBMITTED THAT IN VIEW OF THE JUDGEMENT OF SUPREME COURT IN CASE OF RELIAN CE PETROCHEMICALS LTD. REPORTED IN 322 ITR 158, THIS AMOUNT IS REQUIRED TO BE DELET ED. 23. ON THE OTHER HAND, THE LD. D.R. VEHEMENTLY SUPP ORTED THE ORDER OF THE LD. CIT(A) CONFIRMING THE PENALTY LEVIED BY THE AO ON T HE ADDITION OF RS.25,200/- WHICH IS CONFIRMED BY THE TRIBUNAL IN QUANTUM APPEAL. 24. RIVAL SUBMISSIONS WERE CONSIDERED. THIS ADDITIO N WAS MADE IN RESPECT OF EXPENDITURE PERTAINING TO LAST YEAR DEBITED IN THIS YEAR. THIS DISALLOWANCE HAS BEEN MADE ONLY ON THE GROUND THAT THIS EXPENDITURE PERTA INS TO EARLIER YEAR. SINCE THIS EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, IN OUR ITA NO.3052-AHD-09 & C.O.286-AHD-09 10 CONSIDERED OPINION, NO PENALTY UNDER SECTION 271(1) (C) IS LEVIABLE ON THIS ADDITION. WE, THEREFORE, CANCEL THE PENALTY LEVIED BY THE AO ON THIS ADDITION OF RS.25,200/-. 25. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED WHEREAS THE CROSS OBJECTION FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE COURT ON 12.08.2011 SD/- SD/- (R.C.SHARMA) (T.K. SHARM A) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 12/08/2011 COPY OF THE ORDER IS FORWARDED TO:- (1) THE ASSESSEE (2) THE DEPARTMENT. (3) CIT (A.) CONCERNED. (4) CIT CONCERNED. (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AH MEDABAD. TALUKDAR/ SR. P.S.