Varia Pratik Engineeing, Ahmedabad V. The ACIT.,Circle-6, Ahmedabad

ITA 1070/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6046 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-06-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 07-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C
• Assessee Lawyers: A C SHAH
• Keywords: Question of law; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER DATE OF HEARING :04/06/2010 DRAFTED ON: 04/0 6/2010 ITA NO.1070/AHD/2010 ASSESSMENT YEAR : 2006-07 M/S.VARIA PRATIK ENGINEERING PLOT NO.614, PHASE-IV GIDC ESTATE VATVA AHMEDABAD-382 445 VS. THE ACIT CIRCLE-6 AHMEDABAD PAN/GIR NO. : AACFV 8089 Q (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI A.C. SHAH RESPONDENT BY: SHRI M.C. PANDIT, SR. D.R. O R D E R PER SHRI MUKUL SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-XVI, AHMEDAB AD DATED 06/07/2009 AND THE SOLITARY SUBSTANTIAL GROUND WHI CH HAS BEEN ARGUED BEFORE US IS GROUND NO.1; REPRODUCED BELOW:- 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING PEN ALTY OF RS.78,800 UNDER SEC. 271(1)(C) IN AS MUCH AS THE AS SESSEE HAS NOT COMMITTED THE DEFAULT AS CONTEMPLATED UNDER SEC.271 (1)(C). 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG PENALTY ORDER PASSED U/S. 271(1)(C) OF THE I.T.ACT, 1961 AS WELL AS FROM THE ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT, 1961 DATE D 19/12/2008 WERE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF ROLLING MILL I TA NO.1070/AHD/2010 M/S.VARIA PRATIK ENGINEERING VS. ACIT ASST.YEAR - 2006-2007 - 2 - MACHINERIES. IT WAS NOTICED THAT THE ASSESSEE HAS DECLARED A CLOSING STOCK OF RS.2,34,10,500/- OF RAW-MATERIAL ONLY. A QUERY WAS RAISED THAT WHY THERE WAS NO STOCK OF FINISHED GOODS. AS PER A SSESSING OFFICER, IT WAS NOT BELIEVABLE THAT THERE WAS NO STOCK OF FINIS HED OR SEMI-FINISHED GOODS, THOUGH IN THE SUBSEQUENT MONTHS SALES HAVE BEEN EXECUTED. IN HIS OPINION, THE STOCK AS ON 31/03/2006 WOULD CERTA INLY HAD SOME SEMI- FINISHED AND FINISHED GOODS. THEREFORE, FOR THE P URPOSE OF DETERMINING THE MANUFACTURING COST OF FINISHED/SEMI-FINISHED GO ODS, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF PRODUCTION, OVERHEA D EXPENSES, ETC. AFTER GIVING THE DETAILS OF OVERHEAD EXPENDITURE ON PRODU CTION, IT WAS ALSO EXPLAINED BY THE ASSESSEE THAT THE RAW-MATERIAL PUR CHASED USUALLY TAKES 2 TO 3 MONTHS IN THE FACTORY BEFORE THE PROCESS OF AS SEMBLING STARTS. THEREFORE, THE PURCHASES MADE IN THE MOTH OF MARCH REMAINED IN THE FORM OF RAW-MATERIAL ONLY. HOWEVER, THE ASSESSIN G OFFICER WAS NOT CONVINCED AND IN HIS OPINION, THE ASSESSEE HAS NOT CONSIDERED CERTAIN PRODUCTION EXPENSES. IN HIS OPINION, THE MANUFACT URING EXPENSES SHOWN BY THE ASSESSEE AT 4.75% WERE NOT CORRECT. HE HAS HELD THAT LOOKING TO THE FACTS OF THE CASE THE MANUFACTURING EXPENSES WO ULD BE AT 6%. HE HAS FURTHER ESTIMATED THAT LOOKING INTO THE NATURE OF THE MANUFACTURING ACTIVITY, THE STOCK OF FINISHED AND SEMI-FINISHED G OODS COULD NOT BE LESS THAN 1/3 RD OF THE STOCK SHOWN BY THE ASSESSEE. THEREFORE, IN HIS OPINION, THE STOCK OF FINISHED AND SEMI-FINISHED GOODS WAS A T RS.78,03,500/-. THEREAFTER, HE HAS COME TO THE CONCLUSION THAT THE MANUFACTURING EXPENSES AS SHOWN BY THE ASSESSEE WERE OF THE WIDE RANGE AND IT COULD ONLY BE AT THE AVERAGE OF 3%; WHICH WAS CALCULATED ON THE FINISHED AND SEMI-FINISHED STOCK AS DETERMINED BY HIM; AT RS.2,3 4,105/-. WITH THIS BACKGROUND AND CALCULATIONS THE ASSESSING OFFICER HAS FINALLY ARRIVED AT I TA NO.1070/AHD/2010 M/S.VARIA PRATIK ENGINEERING VS. ACIT ASST.YEAR - 2006-2007 - 3 - THE CONCLUSION THAT THE ASSESSEE HAS NOT CONSIDERED THE MANUFACTURING EXPENSES TO THE TUNE OF RS.2,34,105/- IN THE CLOSIN G STOCK WHICH ACCORDING TO HIM, WAS UNDERVALUED BY THE SAID AMOUN T. IN THE RESULT, AN ADDITION OF RS.2,34,105/- WAS MADE ON ACCOUNT OF UN DERVALUATION OF THE STOCK. THE SAID ADDITION WAS AGREED BY THE ASSESSE E. WHILE IMPOSING THE PENALTY, THE ASSESSING OFFICER DISCUSSED THOSE FACTS AND THEREAFTER CAME TO THE CONCLUSION THAT THE QUANTUM ADDITION WA S AFFIRMED AND MERELY BEING AGREED UPON COULD NOT BE A SOUND BASIS FOR NOT LEVYING THE CONCEALMENT PENALTY. IN HIS OPINION, THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME, THEREFORE, SUBJEC T TO LEVY OF PENALTY BY RELYING UPON A DECISION OF HON'BLE RAJASTHAN HIGH C OURT IN THE CASE OF BADRI PRASAD OM PRAKASH VS. CIT REPORTED AS 163 IT R 440(RAJ.) A PENALTY OF RS.78,800/- WAS IMPOSED. THE MATTER WA S CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. THE LEARNED CIT(APPEALS) HAS EXAMINED THOSE VERY FACTS IN DETAIL. HE HAS CITED FEW CASE LAWS AND THEREAFTER DRAWN AN ANALOGY THAT IN A SITUATION THAT WHEN AN INDIVIDUAL HAS NOT SHOWN ANY HOUSEHOLD WITHDRAWALS AND THOSE EXPENSES ARE BEING ESTIMATED BY THE ASSESSING OFFICER, THEN SUCH AN ESTIMATION IF A GREED UPON IS CLEARLY A CASE OF FURNISHING OF INACCURATE PARTICUL ARS OF INCOME. FURTHER DRAWING AN ANOTHER ANALOGY FROM AN EXAMPLE OF A CASE OF A SURVEY OPERATION HE HAS ARRIVED AT THE CONCLUSION T HAT THE LEVY OF PENALTY DEPENDS UPON THE NATURE OF ESTIMATION AND I N THE PRESENT CASE SINCE THE ASSESSEE HAS NOT FURNISHED INACCURAT E PARTICULARS, THEREFORE, WORK-IN-PROGRESS WAS CALCULATED BY THE A SSESSING OFFICER I TA NO.1070/AHD/2010 M/S.VARIA PRATIK ENGINEERING VS. ACIT ASST.YEAR - 2006-2007 - 4 - WHICH WAS RIGHTLY SUBJECTED TO CONCEALMENT. THE AC TION OF THE ASSESSING OFFICER WAS AFFIRMED. BEING AGGRIEVED N OW THIS ASSESSEE IS IN APPEAL BEFORE US. 4. FROM THE SIDE OF REVENUE MR.M.C.PANDIT, LEARNED DEPARTMENTAL REPRESENTATIVE APPEARED AND FROM THE S IDE OF ASSESSEE MR.A.C. SHAH LEARNED AUTHORISED REPRESENTA TIVE OF THE ASSESSEE APPEARED. 5. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE CAREFULLY PERUSED THE MATERIAL PLACED BEFORE US IN THE LINE O F FEW CASE LAWS CITED FROM THE EITHER SIDE. THE FIRST QUESTION WHI CH IS THE SUBJECT MATTER OF ARGUMENT WAS WHETHER OR NOT A PENALTY COU LD BE IMPOSED IN A SITUATION WHEN THE ADDITION IS BASED UPON CERT AIN CALCULATION ON ESTIMATE BASIS. THE LEARNED AUTHORISED REPRESEN TATIVE OF THE ASSESSEE VEHEMENTLY ARGUED THAT THIS IS NOT A CASE WHERE AN UNACCOUNTED STOCK WAS FOUND IN POSSESSION OF THE AS SESSEE. RATHER A CASE HAS BEEN BUILT UP BY THE ASSESSING OFFICER O N THE PRESUMPTION THAT ONLY THE RAW-MATERIAL WOULD NOT HAVE BEEN THE PART AND PARCEL OF THE CLOSING STOCK, BUT THE CLOSING STOCK MIGHT H AVE CONSISTED SOME PORTION OF FINISHED AND SEMI-FINISHED GOODS. THEREAFTER, THE ENTIRE CALCULATION WAS BASED UPON THE PRESUMPTION O F MANUFACTURING EXPENSES AND POSSIBILITY OF PRESENCE OF STOCK OF F INISHED GOODS AND SEMI-FINISHED GOODS. TO ARRIVE AT THE FIGURE OF IM PUGNED ADDITION, EVEN THE ASSESSING OFFICER HAS ADOPTED ON ESTIMATE 1/3 RD OF THE STOCK I TA NO.1070/AHD/2010 M/S.VARIA PRATIK ENGINEERING VS. ACIT ASST.YEAR - 2006-2007 - 5 - SHOWN BY THE ASSESSEE. HE HAS FURTHER PROCEEDED T O ESTIMATE THE MANUFACTURING EXPENSES @ 3% ON THE ALLEGED UNFINISH ED STOCK. THEREFORE, THE ENTIRE EXERCISE WAS NOTHING BUT PURE LY ON AN ESTIMATION. ON THE OTHER HAND, FROM THE SIDE OF TH E REVENUE, THE LEARNED DEPARTMENTAL REPRESENTATIVES CONTENTION IN SUPPORT OF THE ASSESSING OFFICERS ACTION WAS THAT SINCE THE ASSES SEE HAS FAILED TO SHOW ANY WORK-IN-PROGRESS, THEREFORE, THE ASSESSING OFFICER HAD NO OPTION BUT TO UNDERTAKE SUCH EXERCISE. BE THAT AS IT WAS; NOW THE QUESTION IS THAT ONCE THE MANUFACTURING EXPENSES HA VE BEEN DETERMINED ON CERTAIN CALCULATIONS WHICH WERE PRECI SELY BASED UPON CERTAIN HYPOTHESIS, THEN WHETHER SUCH AN ADDITION W HICH RESULTED INTO AN UNDERVALUATION OF CLOSING STOCK COULD BE A GOOD REASON FOR TREATING THE SAID AMOUNT AS CONCEALED INCOME OF THE ASSESSEE. IN THIS CONTEXT, WE HAVE EXAMINED FEW CASE LAWS; NAMEL Y THE CASE OF CIT VS. RELIANCE PETROPRODUCTS PVT.LTD. REPORTED AS (2010)322 ITR 158 (SC), WHEREIN THE HON'BLE SUPREME COURT HAS OPI NED THAT A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF TH E I.T.ACT, 1961 SUGGESTS THAT IN ORDER TO IMPOSE A PENALTY, THERE H AS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. IT WAS ALSO OPINED THAT THE ASSESSEE MUST HAVE FURNISHED I NACCURATE PARTICULARS OF INCOME. IN ORDER TO EXPOSE THE ASSE SSEE TO PENALTY, UNLESS THE CASE IS DIRECTLY COVERED BY THE PROVISIO NS, THE PENALTY CANNOT BE INVOKED, HELD BY THE APEX COURT. THE CO URT HAS SAID THAT BY NO STRETCH OF IMAGINATION AND AN INCORRECT CLAIM SHOULD TANTAMOUNT TO FURNISH INACCURATE PARTICULARS. WHER E THERE IS NO I TA NO.1070/AHD/2010 M/S.VARIA PRATIK ENGINEERING VS. ACIT ASST.YEAR - 2006-2007 - 6 - FINDING THAT FALSE DETAILS HAVE BEEN FURNISHED, THE RE IS NO QUESTION OF INVITING THE PENALTY U/S. 271(1)(C) OF THE I.T.ACT, 1961. THE APPELLANT HAS ALSO PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SURESH CHANDRA MITTAL REPORTED AS 251 ITR 09 (SC) FOR THE PROPOSITION TH AT BY FILING A REVISED RETURN AND SHOWING HIGHER INCOME, THE ASSES SEE HAS EVENTUALLY OFFERED THE ADDITIONAL INCOME TO BUY PE ACE OF MIND AND ALSO TO AVOID LITIGATION. IT WAS OPINED THAT O NCE IT WAS HELD THAT THE DEPARTMENT HAD NOT DISCHARGED ITS BURDEN OF PRO VING THE CONCEALMENT AND HAD SIMPLY RESTED ITS CONCLUSION ON THE ACT BEING VOLUNTARILY DONE BY THE ASSESSEE IN GOOD FAITH WOU LD NOT BE ENOUGH FOR LEVY OF PENALTY. ON REFERENCE, THE HON'BLE HIG H COURT HAS ALSO AFFIRMED THE VIEW OF THE TRIBUNAL WHICH WAS FURTHER AFFIRMED BY THE HON'BLE SUPREME COURT BY HOLDING THAT NO INTERFEREN CE WITH THE ORDER OF THE HIGH COURT WAS CALLED FOR. THE LEARNE D AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS ALSO PLACED RELI ANCE ON A DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS . NAVNITLAL POCHALAL REPORTED AS 213 ITR 69 (GUJ.) FOR THE PROP OSITION THAT IN CASE REVENUE HAS NOT DISCHARGED THE BURDEN OF PROVI NG THAT THE AMOUNT REPRESENTED AS CONCEALED INCOME, THE PENALTY COULD NOT BE IMPOSED. FROM THE SIDE OF THE REVENUE A DECISION O F HON'BLE RAJASTHAN HIGH COURT PRONOUNCED IN THE CASE OF BADR I PRASAD OM PRAKASH VS. CIT REPORTED AS 163 ITR 440 (RAJ.) WAS CITED FOR THE PROPOSITION THAT ON EXAMINATION OF ACCOUNTS OF THE ASSESSEE, THERE WAS A DISCOVERY OF SPECULATIVE TRANSACTION WHICH WA S SHOWN AS A I TA NO.1070/AHD/2010 M/S.VARIA PRATIK ENGINEERING VS. ACIT ASST.YEAR - 2006-2007 - 7 - LOSS AND SUBSEQUENTLY RETURN WAS REVISED SO IT WAS HELD THAT AFTER RAISING CERTAIN QUERIES THE ASSESSEE HAS DISCLOSED THE FACTS AND ADMITTED THE INACCURATE PARTICULARS BY SUBSEQUENTLY FILING A REVISED RETURN CANNOT ESCAPE THE LIABILITY FOR PENALTY MERE LY BY FILING SUCH REVISED RETURN. IN THAT CASE, THE TRIBUNAL HAS FO UND THAT THE ASSESSEE WAS GUILTY OF CONCEALMENT OF THE PARTICULARS OF INC OME WITH REGARD TO LOSS IN SPECULATION AND NOT WITH REGARD TO EXCES S DEBIT OF BONUS ACCOUNT. THEREFORE, THE HON'BLE COURT HAS HELD TH AT THE ASSESSEE WAS FOUND GUILTY IN FURNISHING INACCURATE PARTICULA RS, THEREFORE, NO QUESTION OF LAW HAD ARISEN FOR REFERENCE AND THE IM POSITION OF PENALTY WAS NOT DISTURBED. THE DISTINCTION IS AP PARENT AS FAR AS PRESENTLY THE FACTS OF THE CASE ARE CONCERNED. WH ATEVER WERE THE PARTICULARS AVAILABLE BEFORE THE ASSESSING OFFICER, THE SAME WERE MADE THE BASIS FOR ESTIMATION OF MANUFACTURING EXPE NSES BUT NOTHING WAS FOUND UNTRUE/INACCURATE AS FAR AS THOSE VERY PARTICULARS FURNISHED BY THE ASSESSEE WERE CONCERNED. RATHER TH E ASSESSING OFFICER HAS PROCEEDED WITH A HYPOTHESIS AND NOT ON THE FIRM GROUND AS DISCUSSED SUPRA. THEREFORE, KEEPING IN MIND THE ENTIRETY OF THE CIRCUMSTANCES OF THE CASE PARTICULARLY WHEN THE ALL EGED ADDITION WAS BASED UPON CERTAIN AVERAGE PERCENTAGE, IN OUR CONSI DERED OPINION, SUCH AN ADDITION IS NOT A FIT CASE FOR TREATING THE ASSESSEE A DEFAULTER OF CONCEALMENT OF INCOME. WE, THEREFORE, CONCLUDE THAT THE ASSESSING OFFICER AS WELL AS LEARNED CIT(APPEALS) H AS ERRED IN TREATING THE APPELLANT AS A DEFAULTER OF CONCEALMEN T OF INCOME, I TA NO.1070/AHD/2010 M/S.VARIA PRATIK ENGINEERING VS. ACIT ASST.YEAR - 2006-2007 - 8 - THEREFORE, THE VIEW EXPRESSED BY THEM IS HEREBY RE VERSED AND DIRECT TO DELETE THE PENALTY. AS A RESULT, GROUND IS AL LOWED. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 11/ 06 /2010. SD/- SD/- ( A.N. PAHUJA ) ( MUKUL SHRAWA T ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 11/ 06 /2010 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XVI, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD