M/s Durga Traders, Kurukshetra V. ITO, Kurukshetra

ITA 120/CHANDI/2003

• Counselvise Citation: 12021514 RSA 2003
• Duration Of Justice: 8 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 1991-1992
• Appeal Filed On: 07-03-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Assessee Lawyers: SUDHIR SEHGAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 120/CHD/2003 ASSESSMENT YEAR :1991-92 M/S DURGA TRADERS, V ITO, WARD-2, THANDRAN ROAD, KURUKSHETRA. ISMAILABAD. PAN: ------- (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SMT.JAISHREE SHARMA DATE OF HEARING : 22.11.2011 DATE OF PRONOUNCEMENT : 08.12.2011 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER DATED 30.12.2002 PASSED BY THE LD. CIT(A) U/ S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'THE ACT'). 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES, THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE PENALTY U/S 271(1)(C). 2. THAT THE LD. CIT(A) IS NOT CORRECT IN LAW IN HOLDING THAT MENSREA AND DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE IS NOT REQUIRED TO BE ESTABLISHED IN THE CASE OF CONCEALMENT OF INCOME UNDER THE IT ACT 1961. 3. THAT THE LD. CIT(A) FAILED TO CONSIDER ALL THE SUBMISSIONS MADE DURING THE PROCEEDINGS BEFORE 2 HIM, AND HAS RELIED MORE ON ASSESSMENT PROCEEDINGS RATHER THAN PENALTY PROCEEDINGS. 3. THE FACTS ARE THAT AN ADDITION OF RS.264570/- WA S MADE ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK BY THE AO VIDE ORDER DATED 27.1.1994. THE ASSESSEE PREFERR ED AN APPEAL AGAINST THE ORDER. THE LD. CIT(A) AFTER CONS IDERING EACH AND EVERY EXPLANATION OF THE ASSESSEE CONFIRME D THE ENTIRE ADDITION EXCEPT TO ALLOW A RELIEF OF RS.4380 /- ON ACCOUNT OF VALUATION OF RICE NAKKU. THE ASSESSEE P REFERRED AN APPEAL BEFORE THE ITAT AGAINST THE ORDER OF THE LD. CIT(A). THE HON'BLE ITAT ALSO ENDORSED THE ORDER OF THE LD. CIT(A). THE RELEVANT EXTRACTS FROM THE ORDER OF THE ITAT IS REPRODUCED BELOW : NOW THE DISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED TO HAVE VALUED THE CLOSING STOCK AT MARKET PRICE. BUT THERE IS NO EVIDENCE TO SUBSTANTIATE THE CLAIM OF THE ASSESSEE THAT ITEMS I N THE CLOSING STOCK WERE OF INFERIOR QUALITY I.E. WAN D, TIBAR, DOBAR, MUNGRA ETC. HOWEVER, THERE IS NO DISPUTE ABOUT THE COST OF CLOSING STOCK ADOPTED BY THE LOWER AUTHORITIES IN VALUING THE CLOSING STOCK. IN FACT, IN REGARD TO THE VALUATION OF CLOSING STOC K ADOPTED BY THE LOWER AUTHORITIES IN VALUING THE CLOSING STOCK. IN FACT IN REGARD TO VALUATION OF CLOSING STOCK OF NAKU RICE, THE COST PRICE WAS FOUN D TO BE HIGHER THAN THE MARKET PRICE AND THEREFORE, THE CIT(A) HAD RIGHTLY HELD THAT CLOSING STOCK OF T HE SAME SHOULD BE VALUED AT MARKET PRICE, THEREBY ALLOWING RELIEF OF RS.4380/-. NOW, IT IS WELL RECOGNIZED PRINCIPLE OF COMMERCIAL ACCOUNTING TO VALUE THE CLOSING STOCK EITHER AT COST PRICE OR MARKET PRICE, WHICHEVER IS LESS. VALUATION OF CLOSING STOCK HAS A DIRECT BEARING ON THE INCOME OF 3 THE ASSESSEE FOR A PARTICULAR ASSESSMENT YEAR. IF THE VALUATION OF CLOSING STOCK IS NOT CORRECT, THE SAME RESULTS IN REDUCING THE INCOME OF THE ASSESSEE. THEIR LORDSHIPS OF THE SUPREME COURT IN THE CASE OF CIT V BRITISH PAINTS INDIA LTD. 188 ITR 44, HAVE HELD THAT WHERE ACCOUNTS ARE PREPARED WITHOUT DISCLOSING THE REAL COST OF THE STOCK IN TRADE, IT IS THE DUTY OF THE AO TO DETERMINE THE TAXABLE INCOME BY MAKING SUCH COMPUTATION AS HE THINKS FIT. THE JUDGEMENT OF DELHI HIGH COURT IN T HE CASE OF CIT V CONTINENTAL DEVICES INDIA LTD. CITED SUPRA AND RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE IS DISTINGUISHABLE ON FACTS. IN THAT CASE, THE ADDITION WAS DELETED BY THE TRIBUNAL OC THE REASON THAT UNDER-VALUATION OF THE STOCK WAS DUE TO A CHANGE IN THE METHOD OF VALUATION OF THE CLOSING STOCK. BUT IN THIS CASE, UNDER-VALUATION OF THE CLOSING STOCK IS NOT ON ACCOUNT OF CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK. FINALLY IT IS OBSERVED BY THE LD. ITAT; HAVING REGARD TO THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE CONFIRM THE WELL REASONED ORDER OF THE CIT(A) IN UPHOLDING THE ADDITION OF RS.260190/- AND DISMISS THE FIRST THREE GROUNDS OF APPEAL. 4. THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE TO ATTEND OFFICE, ON 22.2.2002, IN THE CONTEXT OF PENA LTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. THE C.A. ATT ENDED THE PROCEEDINGS WITHOUT AUTHORIZATION AND HENCE THE AO IMPOSED A PENALTY OF RS.144852/-, VIDE HIS ORDER U/S 271(1) (C) OF THE ACT WHICH IS UNDER APPEAL. 5. IN THIS CONTEXT, IT IS PERTINENT TO REFER TO THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT DATED 09.02.2 011 WHEREBY IT HAS BEEN HELD BY REFERRING TO THE DECISI ON IN THE 4 CASE OF CIT V PEAREY LAL & SONS (EP) LTD. (2009) 30 8 ITR 438 THAT A FORMAL ORDER OF SATISFACTION WAS NOT REQUIRE D TO BE RECORDED, AS HELD BY THE TRIBUNAL, IN THE IMPUGNED ORDER. CONSEQUENTLY, THE HON'BLE JURISDICTIONAL HIGH COURT SET ASIDE THE ORDER PASSED BY THE TRIBUNAL AND REMANDED THE M ATTER BACK TO IT FOR FRESH ADJUDICATION ON MERIT IN ACCOR DANCE WITH LAW. THE RELEVANT PORTION OF THE DECISION IS AS UN DER: IT IS NOT DISPUTED THAT THE MATTER IS COVERED BY ORDER OF THIS COURT IN CIT V PEAREY LAL AND SONS (EP) LTD. (2009) 308 ITR 438 WHEREIN IT WAS HELD THAT A FORMAL ORDER OF SATISFACTION WAS NOT REQUIRED TO BE RECORDED, AS HELD BY THE TRIBUNAL IN THE IMPUGNED ORDER. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER OF THE TRIBUNAL AND REMAND THE MATTER TO IT FOR A FRESH DECISION ON MERITS IN ACCORDANCE WITH LAW. 6. IT IS MENTIONED THAT THE ORDER OF THE HON'BLE TR IBUNAL IN ITA 120/CHD/2003 DATED 11.06.2004 WAS THE SUBJECT M ATTER OF ADJUDICATION BEFORE THE HON'BLE JURISDICTIONAL H IGH COURT. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT V PEAREY LAL & SONS (SUPRA) HELD THAT ONLY REQUIREMEN T U/S 271(1)(C) OF THE ACT IS THAT DURING THE COURSE OF A SSESSMENT, THERE MUST BE EXISTENCE OF SATISFACTION FOR INITIAT ING PENALTY PROCEEDINGS AND THIS MUST BE EXPRESSLY REFLECTED IN THE ASSESSMENT ORDER. THERE IS NO PRESCRIBED FORMAT IN WHICH SUCH SATISFACTION IS TO BE RECORDED. 7. THE TRIBUNAL IN THE CASE OF DURGA TRADERS, ISMAI LABAD V ITO (SUPRA) DELETED THE PENALTY ON THE GROUND OF NO N- RECORDING OF SATISFACTION. THE RELEVANT FINDINGS O F THE 5 DECISION OF HON'BLE TRIBUNAL IN ASSESSEE'S OWN CASE IS REPRODUCED HEREUNDER : 11. A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT WHEREAS THE AO HAD RECORDED SATISFACTION IN REGARD TO INITIATIN OF PENALTY PROCEEDINGS FOR ADDITION OF RS.15,241/-, NO SUCH SATISFACTION WAS RECORDED IN RESPECT OF ADDITION OF RS.2,64,570/- (REDUCED TO RS.2,60,190/-). IN THE ABSENCE OF SUCH SATISFACTIO N RECORDED BY THE AO, THE PENALTY IMPOSED BY THE AO I S INVALID. FOLLOWING THE DECISION OF THE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT V MUNISH IRON STORE (SUPRA), WE HOLD THAT THE PENALTY U/S 271(1)(C) IN THIS CASE IS BAD IN LAW IN THE ABSENCE OF VALID INITIATI ON U/S 271(1)(C). 12. EVEN ON MERITS, TAKING THE TOTALITY OF THE FACT S AND CIRCUMSTANCES OF THE CASE REFERRED TO ELSEWHERE IN THIS ORDER, INTO CONSIDERATION, WE ARE OF THE VIEW THAT PENALTY U/S 271(1)(C) IN THIS CASE, IS NOT WARRANTE D. WE ACCORDINGLY, CANCEL THE LEVY OF PENALTY U/S 271(1)(C). 8. WE HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER DATED 27.01.1994, THE RELEVANT PART OF WHICH IS AS UNDER : PENALTY NOTICE U/S 271(1)(C) FOR CONCEALMENT OF INCOME OF RS.15241/- ON ACCOUNT OF BANK INTEREST EXCESS DEBITED AND LESS SHOWN AND OF RS.2,88,570/- ON ACCOUNT OF UNDER-VALUATION OF CLOSING STOCK OF DIFFERENT ITEMS OF RICE, BARDANA, CHILKA AND FAK HA S BEEN ISSUED SEPARATELY. 9. A BARE PERUSAL OF THE OBSERVATIONS RECORDED BY T HE AO BEFORE INITIATION OF PENALTY U/S 271(1)(C) CLEARLY REVEALS THAT SATISFACTION HAS DULY BEEN RECORDED, BY THE AO AND THE RATIO OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CAS E OF PEAREY LAL & SONS (SUPRA) IS APPLICABLE TO THIS CASE. THE REFORE, 6 PENALTY ORDER UNDER CONSIDERATION CANNOT BE QUASHED ON THE BASIS OF MANNER OF RECORDING OF SATISFACTION FOLLOW ING DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, IN ASSESSEE'S OWN CASE, AS REFERRED TO, IN THE CASE OF PEAREY LAL & SONS (SUPRA). 9.1 FURTHER, SUB-SECTION 1B TO SECTION 271(1) OF TH E ACT WAS INSERTED VIDE FINANCE ACT,2008 W.E.F. 01.04.1989 WH ICH CONTEMPLATED DEEMED SATISFACTION FOR THE PURPOSE OF SECTION 271(1)(C) OF THE ACT. THE RELEVANT PROVISIONS ARE REPRODUCED HEREUNDER: 271(1B) WHERE ANY AMOUNT IS ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OR LOSS OF AN ASSESSEE I N ANY ORDER OF ASSESSMENT OR RE-ASSESSMENT AND THE SAID ORDER CONTAINS A DIRECTION FOR INITIATION OF P ENALTY PROCEEDINGS UNDER CLAUSE (C) OF SUB-SECTION (1), SU CH AN ORDER OF ASSESSMENT OR RE-ASSESSMENT SHALL BE DEEMED TO CONSTITUTE SATISFACTION OF THE AO FOR INITIATION OF THE PENALTY PROCEEDINGS UNDER THE SAI D CLAUSE (C). 10. NOW, COMING TO THE MERIT OF THE IMPUGNED PENALT Y. A BARE PERUSAL OF THE FACTUAL POSITION OF THE CASE RE VEALS THAT THE IMPUGNED PENALTY HAS BEEN LEVIED BY THE AO AND UPHELD BY THE CIT(A), ON THE BASIS OF VALUATION OF STOCK. THE ASSESSEE HAS DULY DISCLOSED, IN THE RETURN OF INCOM E PARTICULARS OF THE STOCK AND VALUATION THEREOF. TH E AO MECHANICALLY APPRECIATED THE ISSUE IN QUESTION AND PROCEEDED TO LEVY THE IMPUGNED PENALTY, ON THE BASI S OF MERE CONFIRMATION OF ADDITION, BY THE LD. CIT(A), AS WEL L AS BY THE ITAT. IT IS SETTLED PROPOSITION OF LAW THAT LEVY O F PENALTY IS 7 NOT AUTOMATIC AND MANDATORY. THE PENALTY U/S 271(1) (C) CAN BE LEVIED IF THE CONDITIONS U/S 271(1)(C) AND EXPLA NATION (1) THEREUNDER ARE SATISFIED. IN THE PRESENT CASE, THE ASSESSEE FILED EXPLANATION WHICH WAS NOT ACCEPTED BY THE AO. THEREFORE, PENALTY LEVIED BY THE AO AND UPHELD BY T HE CIT(A), CANNOT BE SUSTAINED. 11. HAVING REGARD TO THE TRUE CONNOTATION AND APPRE CIATION OF THE LEGISLATIVE INTENTS AS EMBEDDED IN EXPLANATI ON 1 TO SECTION 271(1)(C), NO PENALTY CAN BE LEVIED IN VIEW OF SUCH FACTUAL POSITION OF THE CASE. THEREFORE, PENALTY U PHELD BY THE CIT(A) IS QUASHED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH DEC.,2011. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 8 TH DEC.,2011. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH