ACIT, Jaipur V. M/S GEM & GEMS, Jaipur

ITA 1095/JPR/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82746 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 15-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Assessee Lawyers: MADHUKAR GARG

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. ME ENA) ITA NO. 1095/JP/2011 ASSESSMENT YEARS : 2006-07 PAN : AABFG 7285 L THE ACIT VS. M/S. GEMS & GEMS CIRCLE- 5 5, BARDIYA COLONY JAIPUR JAIPUR (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI D.C. SHARMA ASSESSEE BY : SHRI MADHUKAR GARG DATE OF HEARING: 24-07-2014 DATE OF PRONOUNCEMENT: 28-08-2014 ORDER PER R.P. TOLANI, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST T HE ORDER OF THE LD. CIT(A)-III, JAIPUR DATED 07-09-2011 FOR THE ASS ESSMENT YEAR 2006-07 WHEREIN THE REVENUE HAS RAISED FOLLOWING SOLITAR Y GROUND:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN:- (I) DELETING THE PENALTY OF RS. 5,04,900/- IMPOSED BY AO U/S 271(1)( C) BY HOLDING THAT PENALT Y IS NOT LEVIABLE IN CASE OF ESTIMATED ADDITION WITHOUT APPRECIATING THE FACTS OF THE CASE. 2 2.1 THE BRIEF FACTS IN THIS CASE ARE THAT THE ASSES SEE IS A PARTNERSHIP FIRM DERIVING INCOME FROM PROCESSING AND SALE OF PRECIOU S AND SEMI PRECIOUS STONES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , AN ADDITION OF RS. 15 LACS WAS MADE BY THE AO TO THE INCOME OF THE ASSESS EE. THIS ADDITION WAS MADE ON ACCOUNT OF THE FACT THAT THE ASSESSEE HAS AGREED FOR ADDITION OF RS. 15 LACS TO THE TRADING RESULTS. DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS FURNISHED A LETTER DATED 13-12-208 IN WHICH IT WAS MENTIONED AS UNDER:- AFTER FURTHER MUTUAL DISCUSSION AND TO PUT AN END TO LITIGATION AS THE ASSESSEE DOES NOT WANT TO ENTER I NTO UNNECESSARY LITIGATION AND TO PURCHASE OF PEACE OF MIND THE ASSESSEE IS AGREEABLE FOR AN ADDITION OF RS. 15 LAC S IN TRADING RESULTS. THE ASSESSEE DOES NOT WANT TO ENHANCE IN C LOSING STOCK TO CAUSE OF UNNECESSARY CARRY FORWARDING AND ADJUST ING THE VALUE OF CLOSING STOCK. THE ASSESSEE IS AGREEING TO THE ADDITION TO PUT AN END TO THE MATTER AND TO PURCHASE PEACE O F MIND AS HE DOES NOT WANT TO ENTER INTO UNNECESSARY LITIGATION WITH THE DEPARTMENT. THUS IN VIEW OF ASSESSEE'S OFFER, THE AO REJECTED T HE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145(3) OF THE ACT AND MADE AN ADDITION OF RS. 15. 00 LACS. THE AO HOWEVER ISSUED PENALTY NOTICE TO THE ASSESSEE FO R WHICH THE ASSESSEE REPLIED THAT NEITHER THE INACCURATE PARTICULARS OF INCOME WERE FURNISHED NOR INCOME WAS CONCEALED. THE ADDITION WAS OFFERED TO B UY PEACE AND TO PUT AN END THE LITIGATION WITH THE DEPARTMENT. THE BONA FI DES OF THE ASSESSEE IS FURTHER ESTABLISHED BY THE FACT THAT IT DID NOT AVA IL OF ANY BENEFIT OF 3 SURRENDERED AMOUNT. THE AO HOWEVER IMPOSED THE PENA LTY FOR WHICH THE ASSESSEE IS IN FIRST APPEAL BEFORE THE LD. CIT(A) W HO DELETED THE PENALTY AFTER OBSERVING AS UNDER:- 2.3 I HAVE CAREFULLY CONSIDERED RELEVANT FACTS A ND CIRCUMSTANCES, IN THE LIGHT OF THE RIVAL STANDS OF THE AO AND LD. AR VIZ. THE ISSUE UNDER CONSIDERATION. FROM THE ABO VE, IT CAN BE SEEN THAT THE CONCEALMENT PENALTY WAS IMPOSED BY TH E AO, PRIMARILY, FOR THE REASONS AND FINDINGS DISCUSSED I N THE ASSESSMENT ORDER ONLY. THE ADDITION IN THE PRESENT CASE IS MADE TOWARDS THE VALUATION OF CLOSING STOCK OF EMERALD C UT STOCK, ON THE AGREED BASIS U/S 145(3) OF THE ACT. IN OTHER WO RDS THE IMPUGNED ADDITION WAS MADE ON ASSUMPTION OR GUESS B ASIS TOWARDS THE VALUATION OF THE CLOSING STOCK OF THE APPELLANT, WHILE REJECTING THE VALUATION OFFERED BY THE APPELL ANT, THEREOF. IN THIS REGARD, IT IS A SETTLED LAW THAT THE ASSESS MENT PROCEEDINGS AND THE PENALTY PROCEEDING IS DIFFERENT IN NATURE AND ALSO REQUIRES TO BE DEALT IN DIFFERENT MANNER. IN THE INSTANT CASE, IT IS TRUE THAT THE DISCREPANCIES OBSERVED, D URING ASSESSMENT PROCEEDINGS, WERE FOUND SUFFICIENT TO MA KE AN ADDITION U/S 145(3), ON SUCH ACCOUNTS. HOWEVER, FRO M THE PENALTY ORDER IT IS PERCEIVED THAT THE AO HAS NOT S PELT OUT ANY OTHER ADDITIONAL AND CONCRETE GROUNDS TO JUSTIFY TH E IMPOSITION OF PENALTY TOWARDS SUCH ADDITION, PER SE. IN THIS R EGARD THE RECENT JUDGMENT OF SUPREME COURT IN THE CASE OF REL IANCE PETRO PRODUCTS (P) LTD. (322 ITR 158) IS FOUND RELEVANT, WHEREIN IT HAS BEEN HELD THAT MERELY REJECTION OF ANY CLAIM MA DE BY THE ASSESSEE WILL NOT, AUTOMATICALLY, ENTAIL TO THE CON CEALMENT PENALTY, UNLESS SOME INACCURATE PARTICULARS ARE FIL ED IN THIS REGARD. MOREOVER, IN VIEW OF VARIOUS RELATED DECISI ONS, INCLUDING OF THE APEX COURT (IN THE CASE OF SANGRUR VANASPATI MILLS (303 ITR 53, P&H), SUBSEQUENTLY AFFIRMED BY H ON'BLE SUPREME COURT (308 ITR 18 (ST.) AND THE JURISDICTI ONAL HIGH COURT (IN THE CASE OF SHIV LAL TAK, 251 ITR 373, RA J.), IT IS HELD THAT NO CONCEALMENT PENALTY CAN BE IMPOSED IN A CAS E, WHERE THE ADDITION HAS BEEN MADE ON ESTIMATED BASIS. SINC E AS DISCUSSED ABOVE, IN THE INSTANT CASE THE QUANTUM AD DITION WAS 4 MADE U/S 145(3) OF THE ACT ON ESTIMATION BASIS, THE REFORE, IN MY CONSIDERED OPINION THE AOS ACTION OF IMPOSING PENA LTY U/S 271(1) (C ) OF THE ACT, ON SUCH ADDITION, IS NOT JU STIFIED AND ALSO CONTRARY TO THE SPIRIT OF THE RELEVANT LAW. IN VIEW OF THE ABOVE, THE PENALTY U/S 271(1) (C ) IS HEREBY CANCELLED. 2.2 AGGRIEVED, THE REVENUE IS BEFORE US WHEREIN TH E LD. DR RELIED ON THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF MAK D ATA (P) LTD. VS. CIT (2013) 358 ITR 593 FOR THE PROPOSITION THAT PENALTY U/S 271(1) OF THE ACT IS LEVIABLE IN THE CASE OF SURRENDER OF ADDITIONAL INCOME IF THE OFFER IS MADE BY THE ASSESSEE AFTER RECEIVING THE NOTICE FROM TH E AO ON DETECTION OF DISCREPANCIES. OUR ATTENTION IS INVITED TO THE ASSE SSMENT ORDER IN WHICH THE AO DETECTED THE DISCREPANCIES IN THE VALUATION OF T HE CLOSING STOCK OF EMERALD CUT STONE. THE ASSESSEE INSTEAD OF GIVING A NY PERTINENT EXPLANATION OFFERED THE SURRENDER OF INCOME OF RS. 15.00 LACS . THUS THE ASSESSEE'S CASE IS SQUARELY COVERED BY THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF MAK DATA (P) LTD. VS. CIT (SUPRA) IN WHICH THE ADDI TIONAL INCOME WAS OFFERED AFTER DETECTION OF THE DISCREPANCIES BY THE AO. THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE PENALTY AN D HOLDING THAT THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF RELIA NCE PETRO PRODUCTS (P) LTD. 322 ITR 158 WAS RELEVANT. THE RELIANCE OF OTHE R JUDGEMENTS CITED IN THE LD. CIT(A)S ORDER WHILE DELETING THE PENALTY HAVE NO RELEVANCE INASMUCH AS 5 THE JUDEGEMENT BY THE HON'BLE APEX COURT IN THE CAS E OF DATA (P) LTD. VS. CIT (SUPRA) IS SQUARELY APPLICABLE. THE LD. DR RELI ED ON THE ORDER OF THE AO. 2.3 THE LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT THE ADDITION WAS MADE ON THE BASIS OF ASSUMPTION BY REJECTING THE OFFER O F THE ASSESSEE. THE AO HAS NOT RELIED ON ANY ADDITIONAL MATERIALS OR COGENT RE ASONS FOR IMPOSITION OF PENALTY. THE JUDGEMENT OF RELIANCE PETRO PRODUCTS ( SUPRA) IS APPLICABLE TO ASSESSEE'S CASE. THE ASSESSEE MAINTAINS THE QUANTIT YWISE STOCK BUT QUALITYWISE DETAILS ARE NOT MAINTAINED. THE AO WAS NOT SATISFIED ABOUT THE VALUATION OF THE CLOSING STOCK AND WORKED OUT THE C LOSING STOCK AT RS. 17,28,233/- AGAINST THE VALUATION OF THE CLOSING ST OCK DECLARED BY THE ASSESSEE AT RS. 3,93,147/-. AFTER MUTUAL DISCUSSION S WITH THE AO AND TO PUT AN END TO THE LITIGATION, THE ASSESSEE AGREED FOR A DDITION OF RS. 15.00 LACS. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT CERTAI N DISCREPANCIES IN WORKING OUT THE CLOSING STOCK BY THE AO. THE ASSESSEE'S VAL UATION OF THE CLOSING STOCK WAS ON LOWER SIDE BECAUSE THE BETTER QUALITY STONES WERE SOLD AND THE INFERIOR QUALITY OF THE STONES WAS IN CLOSING STOCK AND THE VALUATION OF THE CLOSING STOCK WAS MUTUALLY AGREED BY THE PARTNERS W HO HAD EXPERIENCE AND EXPERTISE IN THIS LINE OF BUSINESS. THE LD. AR OF T HE ASSESSEE RELIED ON THE CASE LAWS AS MENTIONED IN THE WRITTEN SUBMISSION. 6 2.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. APROPOS THE ASSESSEE'S CONTENT ION THAT THERE ARE CERTAIN FACTUAL DISCREPANCIES WORKED OUT BY THE AO IN THE V ALUATION OF CLOSING STOCK. THIS PLEA WAS NEITHER RAISED BEFORE THE AO NOR BEFO RE THE LD. CIT(A) AS IT FINDS NO MENTION EITHER IN THE REPLY RELATING TO PE NALTY PROCEEDINGS BEFORE THE AO OR IN THE LD. CIT(A)S ORDER. THE LD. CIT(A) HAS DELETED THE PENALTY WITH THE OBSERVATION THAT THE ADDITION HAS BEEN MAD E ON ESTIMATE BASIS BY REJECTING THE BOOKS OF ACCOUNT. THE LD. CIT(A) HAS HELD THAT RELIANCE PLACED IN HIS CASE OF RELIANCE PETRO PRODUCTS (P) LTD. (S UPRA) IS APPLICABLE TO THE ASSESSEE'S CASE. APROPOS THE LD. CIT(A)S ORDER, TH E LD. DR HAS VEHEMENTLY RELIED ON THE RECENT JUDGEMENT OF HON'BLE APEX COUR T IN THE CASE OF DATA (P) LTD. VS. CIT (SUPRA) WHEREIN IT BEEN HELD AS UNDER: - (I) THE EXPLANATION THAT VOLUNTARILY OFFER WAS MADE TO BUY PEACE AND TO END THE LITIGATION IS NOT A VALID DEFE NCE IN PENALTY PROCEEDINGS U/S 271(1)(C ) OF THE ACT. (II) THE IMPOSITION OF PENALTY OR OTHERWISE WILL DE PEND UPON THE REPLY OF THE ASSESSEE ON MERITS AS TO HOW THE P ENALTY WAS NOT APPLICABLE. (III) ANY SURRENDER CONSEQUENT TO DETECTION OF SOME DISCREPANCY DOES NOT AMOUNT TO VOLUNTARY SURRENDER. 7 (IV) ONCE THERE IS A DIFFERENCE BETWEEN THE ASSESSE D AND RETURNED INCOME, THE PROVISION OF SECTION 271(1)( C ) OF EXPLANATION 1A OF THE ACT ARE SQUARELY APPLICABLE W HICH OBLIGES AN ONUS ON THE ASSESSEE TO FILE THE REPLY O N THE BASIS OF THE COGENT AND RELIABLE EVIDENCE AND PLEADINGS. (V) IF SUCH CRITERION ARE NOT MADE, A MERE ASSERTIO N THAT AMOUNT WAS SURRENDERED VOLUNTARILY CANNOT GIVE IMMU NITY FROM PENALTY PROCEEDINGS. 2.5 WE HAVE VERIFIED THE REPLY DATED 14-01-2009 OF THE ASSESSEE FURNISHED DURING THE COURSE OF PENALTY PROCEEDINGS. THE CONTE NTS OF THE REPLY CAN BE SUMMARIZED AS UNDER:- (I) THE PENALTY CANNOT BE LEVIED FOR AN ADDITION MA DE ON ESTIMATE BASIS. (II) RELIANCE IS PLACED OF HON'BLE JURISDICTIONAL H IGH COURT DECISION IN THE CASE OF SHIV LAL TAK VS. CIT, 251 ITR 373 WHEREIN IT HAS BEEN HELD THAT VARIATION IN GROSS PROFIT RATE DOES NOT AMOUNT TO CONCEALMENT OF INCOM E. (III) THE ASSESSEE HAD AGREED FOR AN ADDITION OF RS . 15.00 LACS TO BUY PEACE OF MIND AND TO PUT AN END T HE LITIGATION. 8 (IV) THE REPLY OF THE ASSESSEE DOES NOT COMPLY WITH THE PARAMETERS LAID DOWN IN THE CASE OF DATA (P) LTD. V S. CIT (SUPRA). THE EXPLANATION OF THE ASSESSEE FURTHER FI NDS FAULT ON FOLLOWING COUNTS. (A) THE ADDITION HAS BEEN MADE NOT ON THE BASIS OF FAIR VALUATION OF THE CLOSING STOCK WHICH IS MENTIONED B Y THE AO IN HIS ORDER AS UNDER:- HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDI NGS ON FURTHER ANALYSIS OF OPENING STOCK, PURCHASES AND SALES THE POSITION OF THE CLOSING STOCK OF EMERALD CUT WAS CA LCULATED AS UNDER:- QTY. RATE AMOUNT (I) 9288.44 CTS (OUT OF OPENING STOCK ) 522.00 1,7 0,125 (II) 532.26 CTS (OUT OF LAST PURCHASE) 1558.00 8 ,29,261 (III) 325.91 CTS (OUT OF LAST PURCHASE) 100.32 9,31,816 10,146.61 CTS 19,31,202 LESS EXPORT GROSS PROFIT RATE 10.15% 2,02,96 9 17,28,233 LESS ALREADY DECLARE STOCK 3,93,147 EXCESS STOCK 13,35,086 IN REPLY THERETO, THE ASSESSEE OFFERED THE AMOUNT O F RS. 15.00 LACS TO BE ADDED TO ITS INCOME. THE ASSESSEE NEITHER VIDE LETT ER DATED 13-12-2008 NOR IN REPLY TO PENALTY PROCEEDINGS IN ANY WAY ATTEMPTED T O GIVE ANY COGENT REASONS OR EVIDENCE IN SUPPORT OF ITS EXPLANATION. A SWEEPING REPLY HAS BEEN GIVEN THAT BETTER QUALITY OF GEMS STONES WERE SOLD DURING THE YEAR AND 9 INFERIOR QUALITY GEMS STONES REMAINED IN THE STOCK. THIS PLEA OF THE ASSESSEE DOES NOT FIND MENTION IN THE REPLY TO PENALTY PROCE EDINGS. BESIDES, IT HAS NO CORROBORATIVE MATERIAL. THE ASSESSEE FAILED TO OFFE R ANY DEFENCE AND COGENT REASONS. LOOKING AT THE ENTIRE CORRESPONDENCE, THE EFFECTIVE PLEA TAKEN BY THE ASSESSEE IS TO THE EFFECT THAT OFFER WAS VOLUNT ARY AND THE DIFFERENCE IN THE STOCK WAS NOT CARRIED FORWARD IN THE BOOKS. THUS IN OUR CONSIDERED VIEW AND LOOKING TO THE PRESENT FACTS AND CIRCUMSTANCES OF T HE CASE, THE CASE OF ASSESSEE IS SQUARELY COVERED BY THE DECISION OF HON 'BLE APEX COURT IN THE CASE OF MAK DATA (P) LTD. VS. CIT (SUPRA) WHICH HA S RIGHTLY BEEN RELIED ON BY THE LD. DR . THE LD. DR SUBMITTED THAT THE ORDER OF THE LD. CIT(A) IS WITHOUT CONSIDERATION OF MATERIAL FACTS AND ISSUE I NASMUCH AS THE ADDITION WAS PROPOSED NOT ON ANY ESTIMATE OR GUESSWORK BASIS WHICH IS EVIDENT FROM THE CALCULATION OF THE AO CITED ABOVE. IT IS SUBMI TTED THAT CASE LAW OF RELIANCE PETRO PRODUCTS (P) LTD. (SUPRA) HAS BEEN A PPLIED TO THE CASE OF THE ASSESSEE WITHOUT LOOKING AT THE FACT THAT IT IS NOT A REDUCTION OF ANY CLAIM BUT IT IS THE VALUATION OF THE CLOSING STOCK. THE QUALI TATIVE DETAILS WHEREOF ARE ADMITTED BY THE ASSESSEE TO HAVE NOT BEEN MAINTAINE D. THUS THE CORRECT STATEMENT OF THE VALUATION OF THE CLOSING STOCK WAS NOT FILED ALONGWITH RETURN. THUS, IN VIEW THEREOF, WE REVERSE THE ORDER OF THE LD. CIT(A) AND UPHOLD THE ORDER OF THE AO. 10 3.0 IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28-0 8-2014 SD/- SD/- (T.R. MEENA) (R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR DATED: 28 TH AUG. 2014 *MISHRA COPY FORWARDED TO:- 1. THE ACIT, CIRCLE- 5, JAIPUR 2. M/S. GEMS & GEMS, JAIPUR 3. THE LD. CIT 4. THE LD. CIT(A), JAIPUR 5..THE LD. DR 6.THE GUARD FILE (IT NO. 1095/JP/2011) BY ORDER AR ITAT, JAIPUR 11 12