The ACIT, Circle-3, JAMNAGAR V. H.R. & Sons, JAMNAGAR

ITA 1018/RJT/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3009 (ITAT-RAJKOT)
• Duration Of Justice: 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2001-2002
• Appeal Filed On: 30-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI RAJ KUMAR
• Assessee Lawyers: J C RANPURA
• Keywords: Bogus purchase
• Section: 271(1)(c); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI D.T. GARASIA (JM) I.T.A. NO.1018/RJT/2010 (ASSESSMENT YEAR 2001-02) ACIT, CIR.3 VS H.R. & SONS JAMNAGAR GRAIN MARKET JAMNAGAR PAN : AABFH4042E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JAI RAJ KUMAR RESPONDENT BY : SHRI JC RANPURA O R D E R GARASIA : THIS APPEAL BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF CIT(A), JAMNAGAR FOR THE ASSESSMENT YEAR 2001-02 VIDE WHICH THE LD.CIT(A) HAS CANCELLED THE PENALTY OF RS.2,73,900 IMPOSED U/S 27 1(1)(C) OF THE ACT. 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E BUSINESS OF TRADING OF WET DATES AND OTHER FOOD GRAINS. IN A SURVEY CONDUC TED AT THE BUSINESS PREMISES OF THE ASSESSEE ON 14 / 15-03-2002 BOOKS, BILL FILE S, VOUCHER FILES AND OTHER DOCUMENTS WERE FOUND AND IMPOUNDED. IN THE ASSESSM ENT FOR THE YEAR UNDER CONSIDERATION THE ASSESSING OFFICER DETERMINED TOTA L INCOME AT RS.2,02,81,490 BY MAKING VARIOUS ADDITIONS / DISALLOWANCES AMOUNTING TO RS.1,69,68,834 TO THE RETURNED INCOME. ON APPEAL, THE LD.CIT(A) CONFIRME D THE FOLLOWING ADDITIONS: (I) ADDITION OF RS.8,13,737 OUT OF THE TOTAL ADDITI ON OF RS. 61,68,051 MADE ON ACCOUNT OF ALLEGED STOCK DISCREPANCY; (II) ADDITION OF RS. 22,08,804 MADE ON ACCOUNT OF I NFLATION IN VALUE DUE TO BOGUS PURCHASES. ITA NO.1018/RJT/2010 2 ON FURTHER APPEAL, THE TRIBUNAL CONFIRMED THE ADDIT ION OF RS.8,13,737 RETURNED BY THE CIT(A) ON ACCOUNT OF ALLEGED STOCK DISCREPANCY. THE IMPUGNED PENALTY IS AGAINST THIS ADDITION CONFIRMED BY THE ITAT. 3. THE ASSESSEE CHALLENGED THE PENALTY ORDER BEFORE THE CIT(A) AND SUBMITTED AS FOLLOWS: (A) THE AO LEVIED THE PENALTY ON THE RETAINED ADDI TION OF RS.8,13,737/-. THE SAME IS WORKED OUT TO RS.2,73,9 00/- BEING 100% OF TAX SOUGHT TO HAVE BEEN AVOIDED ON THE SAID RETAINED ADDITION. (B) BRIEFLY IT MAY KINDLY BE SEEN FROM THE FACTS ON RECORD THAT THE AC VIDE PAGE 14 TO 17 OF THE ASSESSMENT ORDER (COPY ATTACHED AT PAGE 10) WORKED OUT THE STOCK DIFFERENCE (SHORTAGE) OF 446724 KGS OUT OF THE SALES TO 18 PARTIES AND BY APPLYING AVER AGE PURCHASE PRICE OF RS.13.80 / KG MADE THE ADDITION OF R.561,6 8,051/- ON THE ALLEGED GROUND OF STOCK DISCREPANCY. HOWEVER, THE APPELLATE AUTHORITIES ESTIMATED THE SAME TO RS.8,13,737/-. I N RETAINING THE ADDITION LD.CIT(A) HELD THAT THE AVERAGE CONTENTS O F WET-DATES PER BAG IS TAKEN AT 31.5 KG BEING THE MIDWAY OF CLAIM O F THE APPELLANT THAT IT CONTAINS 33 KG / BAG AND THE AOS CLAIM THA T IT IS TO BE TAKEN AT 30 KG / BAG. TO BE MORE PRECISE, THE OBSERVATION OF LD.CIT(A) IN PARA 7.1 OF THE APPELLATE ORDER IS REPRODUCED AS UN DER: 7.1 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE ON BEHALF OF THE APPELLANT. SO FAR AS THE ITEM NOS 1 & 4 ARE CONCERNED THERE IS NO DISPUTE BETWEEN THE AO & THE APPELLANT. AS A BOUT OTHER 5 PARTIES THE ONLY DISPUTE TO BE SORTED OUT IS WHAT S HOULD BE THE AVERAGE QUANTITY OF DATES PER BAG. IN THEIR WORKIN G ONLY 17 BILLS HAVE BEEN TAKEN TO DETERMINE THE AVERAGE. THEREFOR E APPELLANTS CLAIM OF 33 KG PER BAG CAN NOT BE ACCEPTED IN VIEW OF THE OBJECTION OF AO WHICH IS FOUND TO BE QUITE RELEVANT & LOGICAL . THE AO SHOWED BY ANALYSIS OF A NUMBER OF BILLS THAT THE QUANTITY VARIED FROM 28 TO 32 KG PER BAG. THE AO INSISTED THAT THE AVERAGE QU ANTITY SHOULD BE TAKEN TO BE ABOUT 30 KG. CONSIDERING THE RIVAL CLAIMS I AM OF THE OPINION THAT QUANTITY PER BAG SHOULD BE TAKEN AS 31 .5 KG WHICH IS MIDWAY OF THE TWO CLAIMS. THEREFORE THE QUANTITY S OLD IN RESPECT OF 5 PARTIES WILL BE WORKED OUT ACCORDINGLY. AS ABOUT THE PRICE TO BE APPLIED FOR WORKING OUT THE AMOUNT OF ADDITION, IT IS TO BE NOTED THAT THE DISCREPANCY POINTS OUT THAT CERTAIN QUANTITY OF DATES SHOULD HAVE BEEN AVAILABLE WITH THE APPELLANT, BUT IN THE CLOSING STOCK (WHICH IS THE QUANTITY PHYSICALLY AVAILABLE AT THE YEAR END) IT WAS NOT ITA NO.1018/RJT/2010 3 AVAILABLE. THEREFORE, THE LOGICAL CONCLUSION IS THA T IT WAS SOLD OUTSIDE THE BOOKS. SINCE THE PURCHASE OF THIS QUAN TITY WAS ALREADY ACCOUNTED FOR, ITS SALE VALUE HA TO BE ADDED. ACCO RDINGLY THE AMOUNT HAS TO BE DETERMINED NOT ON THE BASIS OF PUR CHASE PRICE BUT SALE PRICE. THE AVERAGE SALE PRICE AS PER TABLE-1 (IN WHICH ABOUT 90% QUANTITY TRADED WAS CONSIDERED) ON PAGE 13 IS RS.11.62 PER KG. THEREFORE THIS RATE IS TO BE APPLIED FOR WORKI NG OUT THE AMOUNT OF ADDITION IN RESPECT OF DISCREPANCY OF STOCK. TH E REVISED WORKING FOR THE SEVEN PARTIES IN APPELLANTS SUBMISSIONS IS AS UNDER: SR.NO. NAME OF PARTY BAGS QTY (KGS) AS PER IT DIFFERENCE 1 HM TRADERS NA 26446 22941 3505 2 GOVIND TRADERS 15319 482548 273210 209338 3 HASMUKHRAI & CO 2120 66780 56475 10305 4 AJANTA TRADERS NA 51595 39349 12246 5 GIR COCONUT 9098 286587 219097 67490 6 CHANDRAMOHAN SURAJPRAKASH 1435 45202 26666 18536 7 DEVIDAYAL KAHANCHAND 1675 52762 0 55275 TOTAL 29647 997098 637738 376695 IN VIEW OF THE ABOVE THE DISCREPANCY THAT REMAINS I N THE STOCK IS ONLY 70029 KG (446724-376695). THE VALUE OF THIS Q UANTITY OF DATES AT AVERAGE SALE PRICE OF RS.11.62 WORKS OUT T O RS.813737. ACCORDINGLY THE ADDITION OF RS.61680-51 IS REDUCED TO RS.813737. THE BALANCE GETS DELETED. (C) THE ABOVE FINDING OF THE HONBLE CIT(A) SHOWS T HAT (I) QUANTITY OF PURCHASES ARE ALREADY ACCOUNTED FOR AND (II) THE RETENTION OF ADDITION IS ON ESTIMATES RATHER THAN O N FACTS OR EVIDENCES. IT MAY ALSO BE SUBMITTED THAT MERE FACT THAT THE ADDITIONS ARE SUSTAINED AT THE APPELLATE STAGE CANN OT LEAD TO CONCLUSION THAT THERE WAS ELEMENT OF CONCEALMENT OF INCOME OR THERE WAS NO FULL AND TRUE DISCLOSURE OF PARTICULAR S. THE APPELLANT HAD NEVER AGREED FOR ADDITION. RIGHT FROM THE STAG E OF ASSESSMENT PROCEEDINGS, AS ALSO THE APPELLATE PROCEEDINGS, AT NO STAGE THE APPELLANT HAD ADMITTED THAT ANY INCOME WAS CONCEALE D BY HIM OR THAT HE HAS NOT DISCLOSED ANY PARTICULARS OF HIS INCOME. ( D) DURING THE COURSE OF PENALTY PROCEEDINGS ALSO, T HE APPELLANT DENIED CHARGER OF CONCEALMENT OF PARTICULARS OF INC OME. THE APPELLANT HAS CONCEALED NOTHING. THE DEPARTMENT HA S NOWHERE ESTABLISHED THAT THE APPELLANT HAD CONCEALED ANY IN COME OR FURNISHED INACCURATE PARTICULARS OF INCOME. THE AO HAS NOT ITA NO.1018/RJT/2010 4 PROVED THAT EXPLANATION WAS FALSE. AS A MATTER OF F ACT, THE MAJOR ADDITIONS WERE DELETED BY THE LEARNED CIT(A) AND THE HONBLE ITAT. THE APPELLANT IS ENCLOSING THE COPIE S OF ORDERS PASSED BY THE CIT(A) AS ALSO HONBLE ITAT IN RESPEC T OF ASSESSMENT YEAR UNDER CONSIDERATION. (E) IN THIS REGARD IT IS SUBMITTED THAT NO PEAL PRO VIASIONS CAN BE INITIATED AND / OR NO PENALTY CAN BE LEVIED U/S 271 (1)(C) OF THE ACT IN RESPECT OF ADDITION MADE AND SUSTAINED ON ESTIMATE BASIS. IN THIS CONNECTION RELIANCE IS PLACED ON THE DECISIONS OF H ONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ARKAY SAREE MUEUM 187 ITR 147 (BOM) WHEREIN IT HAS BEEN HELD THAT MERE ADDITION TO INCOME ON ESTIMATED BASIS WOULD NOT CONSTITUTE BASIS FOR LEVY OF PENALTY U/S 271(1)(C) UNLESS THE REVENUE PROVES THE INGREDI ENTS OF CONCEALMENT OR THAT OF FURNISHING OF INACCURATE PAR TICULARS. RELIANCE IS ALSO PLACED ON THE FOLLOWING DECISIONS; (I) HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE C ASE OF CIT VS SANGRUR VANASPATI MILLS LTD. 303 ITR 53 (P&H) HELD THAT WHEN THE ADDITION OF INCOME IS BASED ON ESTIMATE, PENALTY IS NOT LEVIABLE. (II) HARIGOPAL SINGH VS. CIT (2002) 258 ITR 85 (P&H ) ADDITION MADE ON ESTIMATE BASIS DOES NOT LEAD TO THE CONCLUS ION THAT THE ASSESSEE EITHER CONCEALED THE PARTICULARS OF HI S INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME (III) HONBLE ITAT RAJKOT BENCH RAJKOT IN THE CASE OF M/S MONARCH FOODS PVT LTD VS ACIT IN ITA NO.57, 58 AND 59 (RJT/2003) IN IDENTICAL FACTS OF THE CASE DELETED T HE PENALTY. (F) IN VIEW OF THE ABOVE, THE AO WAS NOT JUSTIFIED IN LEVYING PENALTY OF RS.2,73,900/- U/S 271(1)(C) WHICH IS 100 % OF THE TAX ALLEGED, TO HAVE BEEN SOUGHT TO BE EVADED. PENALTY ORDER MAY, THEREFORE, BE CANCELLED. 4. THE LEARNED CIT(A) FINDING MERIT IN THE CONTENTI ONS OF THE AQSSESSEE HAS CANCELLED THE PENALTY WITH THE FOLLOWING OBSERVATIO NS: 5. I HAVE CAREFULLY CONSIDERED THE ISSUE. I FIND THAT ORIGINALLY AN ADDITION OF RS.1.69 CRORE WAS MADE TO THE RETURNED INCOME, WHICH WAS ON VARIOUS ACCOUNTS. SO FAR AS ADDITION ON ACCO UNT OF INFLATION IN PURCHASE PRICE OF WET DATES WAS CONCERNED, THE E NTIRE ADDITION WAS DELETED TILL THE LEVEL OF ITAT. THE ONLY ADDIT ION WHICH HAS BEEN ITA NO.1018/RJT/2010 5 FINALLY SUSTAINED IS OF RS.8,13,737, WHICH IS ON AC COUNT OF DISCREPANCY IN STOCK. EVEN THIS DISCREPANCY WAS OR IGINALLY WORKED OUT AT RS.61,68,051 BY THE AO. THE AO WORKED OUT T HE STOCK DIFFERENCE I.E. SHORTAGE OF 446724 KGS., OUT OF SAL ES TO 18 PARTIES APPLYING AN AVERAGE PRICE OF RS.13.80 KG. THIS ADD ITION WAS FINALLY ESTIMATED AT RS.8,13,L737 BY THE CIT(A) BY WORKING OUT SOME AVERAGE CONTENTS PER BAG, TAKING THIS AVERAGE AT RS .31.5 KG. WHICH WAS A FIGURE, MIDWAY THE CLAIM OF APPELLANT THAT IT CONTAINED ONLY 33 KGS. PER BAG. THE CIT(A) HAS STATED THAT THE AVERA GE QUANTITY HAD TO BE TAKEN INTO ACCOUNT BY ANALYSIS OF A NUMBER OF BILLS WHICH SHOWED THAT QUANTITY PER BAG VARIED BETWEEN 28 TO 3 1 KGS. PER BAG. AO WAS OF THE VIEW THAT AVERAGE QUANTITY SHOULD BE TAKEN TO BE ABOUT 30 KGS. PER BAG, WHILE THE LD.CIT(A) HAS STAT ED THAT CONSIDERING THE RIVAL CLAIMS, QUANTITY PER BAG SHOU LD BE TAKEN AS 31.5 KGS., WHICH IS MIDWAY BETWEEN THE TWO CLAIMS. THIS GOES TO SHOW THAT THE CLAIM IS BASED ON SOME NOTIONAL WEIGH T OF DATES PER BAG WHICH HAS BEEN WORKED OUT BY THE LD.CIT(A) AS W ELL AS AO ON ESTIMATE. IT WAS THE CLAIM OF THE APPELLANT THAT P ER BAG WERE HAVING 33 KGS. OF DATES WHILE THE CIT(A) FINALLY ESTIMATED 31.5 KGS. PER BAG. THEREFORE, ENTIRE ADDITION IS BASED ON SOME E STIMATE AND IT CANNOT BE SAID THAT THIS IS A CASE OF DEFINITE CONC EALMENT. IT IS ALSO SEEN THAT IF EXPLANATION OF THE APPELLANT IS DISBEL IEVED, IT CANNOT BE SAID TO BE TOTALLY FALSE BECAUSE THE SAME HAS BEEN PARTLY ACCEPTED. IT HAS BEEN HELD IN VARIOUS CASES, WHICH HAVE ALSO BEEN RELIED UPON BY THE LD.AR THAT WHEN INCOME IS WORKED OUT ON ESTI MATE, THEN PENALTY U/S 271(1)(C) SHOULD NOT BE LEVIED. AS IN THIS CASE, THE ADDITION THAT HAS BEEN SUSTAINED WAS BASICALLY WORK ED OUT ON ESTIMATE, IN VIEW OF JUDICIAL DECISIONS RELIED UPON BY THE APPELLANT THIS IS NOT A FIT CASE FOR LEVY OF PENALTY FOR CONC EALMENT AND THE SAME IS CANCELLED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. THE FACT OF THIS CASE IS THAT THE ASSESSING OFFICER HAS MADE THE ADD ITION OF RS. 61,68,051. THE MATTER WENT IN APPEAL AND THE CIT(A) RETAINED THE A DDITION OF RS. 8,13,737 OUT OF TOTAL ADDITION OF RS.61,68,051 MADE ON ACCOUNT OF A LLEGED STOCK DISCREPANCY. THE ADDITION OF RS. 8,13,737 WAS RETAINED ON ACCOUN T OF ALLEGED STOCK DISCREPANCY BY THE TRIBUNAL. THEREFORE, THE ASSESS ING OFFICER LEVIED THE IMPUGNED PENALTY. THE ASSESSING OFFICER WORKED OUT THE STOCK SHORTAGE OF 446724 KGS OUT OF SALES TO 18 PARTIES APPLYING AN A VERAGE PRICE OF RS.13.80 PER KG. THE ADDITION WAS FINALLY ESTIMATED AT RS.8,13, 737 BY THE CIT(A) BY WORKING OUT SOME AVERAGE CONTENTS PER BAG TAKING THE AVERAG E AT RS.31.5 KGS WHICH WAS ITA NO.1018/RJT/2010 6 A FIGURE MIDWAY THE CLAIM OF THE ASSESSE THAT IT CO NTAINED ONLY 33 KGS PER BAG WHEREAS THE CIT(A) OPINED THAT THE AVERAGE QUANTITY HAD TO BE TAKEN INTO ACCOUNT BY ANALYSIS OF A NUMBER OF BILLS WHICH SHOW ED THAT QUANTITY PER BAG VARIED BETWEEN 28 TO 31 KGS PER BAG. THEREFORE, AC CORDING TO THE CIT(A) THE QUANTITY PER BAG SHOULD BE TAKEN AS 31.5 KGS WHICH IS MIDWAY BETWEEN THE TWO CLAIMS. THIS WOULD AMPLY MAKE IT CLEAR THAT THE CL AIM IS BASED ON SOME NOTIONAL WEIGHT OF DATES PER BAG WHICH HAS BEEN WORKED OUT B Y THE LD.CIT(A) AS WELL AS THE AO ON ESTIMATE. IT HAS BEEN THE SETTLED POSITI ON THAT CONCEALMENT PENALTY IS NOT EXIGIBLE IN A CASE WHERE THE ADDITION IS MADE O N ESTIMATE BASIS. THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF RAVAIL S INGH 254 ITR 110 (P&H) HELD THAT PENALTY U/S 271(1)(C) WAS NOT LEVIABLE WH ERE THE ADDITION TO ASSESSEES INCOME WAS MADE ON THE BASIS OF ESTIMATE AND NOT ON CONCRETE EVIDENCE OF CONCEALMENT OF ANY TRANSACTION OR FURNISHING OF INA CCURATE PARTICULARS. THE OTHER JUDGMENTS RELIED UPON BY THE LEARNED COUNSEL SQUARE LY APPLY TO THE CASE ON HAND. IN THIS VIEW OF THIS WE DECLINE TO IN TERFERE IN THE ORDER OF THE LEARNED CIT(A) CANCELING THE PENALTY OF RS. 2,7 3,900 IMPOSED U/S 271(1)(C) OF THE ACT. THE ORDER OF CIT(A) IS UPHEL D AND THE APPEAL FILED BY THE REVENUE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03-12-2010. SD/- SD/- (A.L. GEHLOT) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT : 03 RD DECEMBER, 2010 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), JAMNAGAR 4. THE CIT, JAMNAGAR 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT