Smt Rajasree Pratap Nair, Kollam V. Deputy Commissioner of Income Tax, Kollam

ITA 140/COCH/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58338 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 20-12-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 17-03-2009
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE T RIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A NO. 140 & 141/COCH/2009 ASSESSMENT YEAR: 2004-05 SMT. RAJASREE PRATAP NAIR, PROP: SURYA EXPORTS, KOCHUPILAMMOODDU, KOLLAM. [PAN:AAWPP 4670P] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, KOLLAM. (ASSESSEE-APPELLANT) (REVENUE-RESPOND ENT) ASSESSEE BY SHRI T.V.HARIHARAN BY SHRI G.SARANGI- ARS REVENUE BY MS. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 20/12/2011 DATE OF PRONOUNCEMENT 29/02/2012 O R D E R PER SANJAY ARORA, AM: THESE ARE A SET OF TWO APPEALS BY THE ASSESSEE, DI RECTED AGAINST THE ORDERS BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, KOCHI (C IT(A) FOR SHORT) OF EVEN DATE (I.E., 15-12-2008), AND THE ASSESSMENT YEAR (A.Y.) UNDER REFERENCE IS 2004-05. 2. THE FIRST APPEAL (IN ITA NO. 141/COCH/2009 ) IS IN RESPECT OF THE CONFIRMATION OF PENALTY LEVIED U/S. 271(1)(C) OF THE INCOME-TAX ACT , 1961 ('THE ACT', HEREINAFTER) IN RESPECT OF THE QUANTUM ADDITION OF ` 40,73,446/- WHICH STOOD SUSTAINED UP TO THE LEVEL O F THE HON'BLE JURISDICTIONAL HIGH COURT. THE SECOND APPEAL (IN ITA NO. 140/COCH/2009) CONTESTS THE REJECTION OF THE ASSESSEES APPLICATIO N MOVED U/S. 154 OF THE ACT IN RESPECT OF THE SAID ADDITION, CLAIMING IT TO BE A CASE OF DOUB LE ADDITION. I.T.A. NOS. 140 &141/COCH/2009 RAJASREE PRATAP NAIR VS. DCIT, KOLLAM 2 3. IT WOULD BE RELEVANT TO RECOUNT THE BASIS OF, AS WELL AS THE NATURE OF THE ADDITION MADE, WHICH WOULD BE RELEVANT IN DECIDING THE ISSUE S ARISING IN THE INSTANT APPEALS. THE ASSESSEE WAS OBSERVED TO HAVE MADE SALES OF CASHEW KERNELS TO ITS SISTER CONCERN AT 11638.18 KGS. FOR A SALE CONSIDERATION OF ` 161.82 LAKHS, I.E., AT AN AVERAGE SALE PRICE OF ` 139 PER KG. AS AGAINST THIS, THE ASSESSEES AVERAGE COST OF PRODUCTION WORKED OUT TO ` 174 PER KG. AS SUCH, IT HAD BOOKED LOSS (AT AN AVER AGE OF ` 35 PER KG.) ON THE SAID SALES, OR AT ` 40,73,335/-. THE ASSESSEE EXPLAINED THAT THERE WAS NO UNDER-SELLING, AS THE COST OF PRODUCTION BY ITSELF COULD NOT BE CONSIDERED AS A B ENCHMARK FOR THE SALE PRICE, WHICH IS DETERMINED INDEPENDENTLY; IN THE PRESENT CASE BEING THE RULING PRICE IN THE INTERNATIONAL MARKET, WHEREAT THE PROCESSED KERNELS WERE SOLD BY ITS SISTER CONCERN. IN FACT, THE COST OF PRODUCTION WAS ON THE HIGHER SIDE ON ACCOUNT OF LOW OUTPUT, WHILE THE FIXED COSTS HAD TO BE ABSORBED. FURTHER, THE KERNELS SOLD TO THE SIST ER CONCERN WERE OF AN INFERIOR QUALITY, I.E., VIS--VIS THAT WOULD OBTAIN ON AN AVERAGE, SO THAT THE SAME ARE NOT COMPARABLE. HOWEVER, HE WAS UNABLE TO SUBSTANTIATE HIS ARGUMENT S WITH ANY DEFINITE MATERIALS. THE SAID SALES TO THE SISTER CONCERN WERE, THUS, INFERR ED TO BE A CASE OF UNDER-SELLING, WITH A VIEW TO BENEFIT ITS SISTER CONCERN, ELIGIBLE FOR DE DUCTION U/S. 80HHC AND, ACCORDINGLY, THE ADDITION IN THE SUM OF ` 40.73 LAKHS WAS MADE VIDE ASSESSMENT U/S. 143(3) OF THE ACT DATED 30-11-2006. THE SAME STOOD SUSTAINED BY THE HIGHER APPELLATE AUTHORITIES, AND FOR THE SAME REASONS, ALSO RELYING ON THE DECISION IN T HE CASE OF PATEL CHEMICAL WORKS VS. CIT , 265 ITR 273 (GUJ.). PENALTY PROCEEDINGS U/S. 271( 1)(C) OF THE ACT WERE ALSO SIMULTANEOUSLY INITIATED FOR THE CONCEALMENT OF THE SAID INCOME. THE ASSESSEE MOVED AN APPLICATION U/S. 154 OF THE ACT DATED 11-01-2007, S TATING THAT HE HAD IN FACT CREDITED A SUM OF ` 40,73,446/- TO THE KERNEL TRADING ACCOUNT FOR THE RELEVANT YEAR AS INCOME BY WAY OF COST UNDER-RECOVERY RECOUPED. AS SUCH, TH E SAME (CREDIT) FORMED PART OF ITS DISCLOSED NET PROFIT (FOR THE YEAR) AND, ACCORDINGL Y, ASSESSED AS BUSINESS INCOME FOR THE RELEVANT ASSESSMENT YEAR. THE ADDITION OF ` 40.73 LAKHS EFFECTED TO THE RETURNED INCOME WAS, THEREFORE, NOT WARRANTED, AMOUNTING TO A DOUBL E ADDITION UNDER THE CIRCUMSTANCES AND, THEREFORE, A MISTAKE, PRAYING FOR ITS RECTIFIC ATION BY WAY OF DELETION. THE ASSESSEE HAVING ALSO SIMULTANEOUSLY PREFERRED AN APPEAL AGAI NST THE SAID ADDITION BEFORE THE FIRST I.T.A. NOS. 140 &141/COCH/2009 RAJASREE PRATAP NAIR VS. DCIT, KOLLAM 3 APPELLATE AUTHORITY, THE MATTER WAS REMITTED BACK B Y HIM TO THE FILE OF THE ASSESSING OFFICER (AO) TO VERIFY WHETHER THERE WAS ANY CORRES PONDING DEBIT IN THE ACCOUNT OF THE SISTER CONCERN, I.E., IN RESPECT OF THE SAID CREDIT TO THE PROFIT AND LOSS ACCOUNT (THROUGH THE `KERNEL TRADING ACCOUNT. HOWEVER, AS NO SUCH DEBIT WAS FOUND ON VERIFICATION, THE LD. CIT(A) REJECTED THE ASSESSEES CLAIM THAT THERE HAD BEEN A DOUBLE ADDITION. THE AO, ACCORDINGLY, REJECTED THE ASSESSEES CLAIM FOR RECT IFICATION ON THE GROUND THAT THERE WAS NO CASE OF A MISTAKE APPARENT FROM RECORD. FURTHER, TH E ADDITION HAVING BEEN CONFIRMED IN FIRST APPEAL, PENALTY U/S. 271(1)(C) WAS ALSO IMPOS ED AND CONFIRMED IN FIRST APPEAL. 4.1 BEFORE US, THE LD. AR SOUGHT TO ADVANCE THE AS SESSEES CASE BY ADVERTING TO THE DECISION IN THE CASE OF SRI RAMALINGA CHOODAMBIKAI MILLS LTD. VS. CIT (1955) 28 ITR 952 (MAD.), APPROVED BY THE APEX COURT IN THE CASE OF CIT VS.CALCUTTA DISCOUNT LTD. (1973) 91 ITR 8 (SC). HOWEVER, ON THE BENCH OBSERVI NG THAT THE QUANTUM ADDITION HAS SINCE ATTAINED FINALITY BY THE CONFIRMATION OF THE ADDITION BY THE HON'BLE JURISDICTIONAL HIGH COURT, IN WHOSE ORDER THE ORDERS BY THE LOWER APPELLATE AUTHORITIES AS WELL AS THE ASSESSING AUTHORITY STAND MERGED, SO THAT THE SAME COULD NOT BE CONSIDERED AS BEING A MISTAKE, MUCH LESS ONE APPARENT FROM RECORD, HE FAI RLY CONCEDED BY STATING THAT HE SHOULD LEAVE THE MATTER AT THAT. AS REGARDS THE LEVY OF P ENALTY, HOWEVER, HE WAS VEHEMENT IN HIS ARGUMENTS, PLACING RELIANCE ON A HOST OF CASE LAW, TO SOME OF WHICH WE REFER AS DILIP N. SHROFF V. JT. CIT (2007) 291 ITR 519 (SC); T. ASHOK PAI V. CIT (2007) 292 ITR 11 (SC); AND UNION OF INDIA V. RAJASTHAN SPINNING & WEAVING MILL S (2009) 224 CTR 1 (SC). THE MERE FACT OF THE ADDITION BEING CONFIRMED IN APPEAL WOULD NOT AUTOMATICALLY LEAD TO THE LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT. THE SAM E HAD TO BE CONSIDERED ON ITS OWN MERITS, AND IF THE EXPLANATION FURNISHED IS FOUND P LAUSIBLE, THERE WOULD BE NO LEVY OF PENALTY FOR CONCEALMENT OF INCOME. IN FACT, A SIMI LAR EXPLANATION FOUND ACCEPTANCE BY THIS TRIBUNAL IN THE CASE OF T.C. USHA VS. DY. CIT (IN I.T.A. NO. 38/COCH/2009 DATED 21- 10-2011 FOR AY 2005-06/ COPY PLACED ON RECORD). THE ASSESSEE IN THAT CASE HAD SOLD CASHEW KERNELS OF DIFFERENT SPECIFICATIONS/QUALITIE S, AND WHICH THEREFORE COULD NOT BE CONSIDERED AS HAVING BEEN SOLD FOR A UNIFORM PRICE. AS SUCH, THE INFERENCE AS TO UNDER- SELLING, DRAWN ON THE BASIS OF THE AVERAGE COST OF PRODUCTION, WOULD NOT BY ITSELF IMPLY I.T.A. NOS. 140 &141/COCH/2009 RAJASREE PRATAP NAIR VS. DCIT, KOLLAM 4 THAT THERE HAS BEEN IN FACT AN UNDER-SELLING OF THE RELEVANT GOODS, LEADING TO THE CONCLUSION OF FURNISHING INACCURATE PARTICULARS OR CONCEALMENT OF ANY PARTICULARS OF INCOME. THE ASSESSEES CASE, IT WAS SUBMITTED BY TH E LD. AR, WAS STATED TO BE STRONGER IN- AS-MUCH AS IT HAD ALREADY REFLECTED THE AMOUNT SO I NFERRED AS ITS INCOME IN ITS INCOME STATEMENT, OFFERING THE SAME TO TAX, AND WHICH HAS SINCE BEEN ACCEPTED BY THE REVENUE AUTHORITIES. THE REVENUES CONTENTION THAT THE SAME IS ONLY AN INCOME FROM OTHER SOURCES IS FACTUALLY INCORRECT, AND AMOUNTS TO NOT APPRECIA TING THE ASSESSEES CASE IN ITS PROPER PERSPECTIVE. FURTHER, THE FACT THAT THE SAID INCOME WAS NOT CLAIMED TOWARD COST OF GOODS SOLD BY THE ASSESSEES SISTER CONCERN, WHO MAY ALSO HAVE CLAIMED DEDUCTION U/S. 80HHC ON ITS SALE, IS WHOLLY IRRELEVANT IN THE MATTER. 4.2 THE LD. DR, ON THE OTHER HAND, WOULD SUBMIT TH AT NO DOUBT PENALTY PROCEEDINGS ARE SEPARATE PROCEEDINGS, YET, THE BASIS OF NON LEVY OF A PENALTY U/S. 271(1)(C) IS ONLY FURNISHING OF AN EXPLANATION, DULY SUBSTANTIATED, B Y THE ASSESSEE, AND WHICH IT HAS CLEARLY FAILED TO IN THE INSTANT CASE, PLACING RELIANCE ON THE DECISION IN THE CASE OF CIT V. ATUL MOHAN BINDAL (2009) 317 ITR 1 (SC). AS WOULD BE APPARENT, THER E IS A DIFFERENCE IN THE TWO FIGURES, I.E., THE INCOME OFFERED BY THE ASSESS EE ( ` 4073446/-), AND THAT DETERMINED BY THE AO TOWARDS UNDER-SELLING, OR ` 4073335/-. THE TWO ADDITIONS ARE SEPARATE AND DISTINCT, AND THE ASSESSEE IS TRYING TO CONFUSE THE TWO, AND GAIN MILEAGE ON THE BASIS OF ITS APPLICATION U/S. 154 OF THE ACT. THIS ASPECT OF TH E MATTER HAS ALSO BEEN EXAMINED BY THE REVENUE AUTHORITIES, FINDING NO CORRESPONDING DEBIT IN THE ACCOUNT OF THE SISTER CONCERN. TO ADVERT THERE-TO, IS, THUS, MISLEADING. IN REJOI NDER, IT WAS SUBMITTED BY THE LD. AR THAT THERE IS NO QUESTION OF THE INCOME OFFERED AS BEING A DIFFERENT INCOME; ITS NATURE BEING SPECIFIED IN THE CREDIT ENTRY ITSELF, I.E., `UNDER RECOVERY RECOUPED. THE MINOR DIFFERENCE IN THE WORKING OF THE TWO AMOUNTS HAS OCCURRED ONLY ON ACCOUNT OF ROUNDING OFF; THE ASSESSEE HAVING ADOPTED THE AVERAGE COST OF PRODUC TION AT ` 138/- AS AGAINST ` 139/- PER KG. BY THE AO, SO THAT THE ASSESSEES CLAIM IS FOR A HIGHER AMOUNT. HOW COULD, HE POSED, THE ASSESSEE ANTICIPATE THE EXACT AMOUNT TO THE LAS T RUPEE ? I.T.A. NOS. 140 &141/COCH/2009 RAJASREE PRATAP NAIR VS. DCIT, KOLLAM 5 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD, AS WELL AS THE CASE LAW CITED BY THE ASSESSEE. 5.1 THE LAW IN THE MATTER IS SETTLED BY THE APE X COURT PER A HOST OF DECISIONS. PENALTY PROCEEDINGS ARE SEPARATE, THOUGH THE LEVY IS SAVED ONLY WHERE THE ASSESSEE OFFERS AN EXPLANATION BONA FIDE , AND WHICH HE IS ABLE TO SUBSTANTIATE, WITH ALL TH E FACTS RELEVANT AND MATERIAL THERE-TO HAVING BEEN DISCLOSED BY HIM. WE MAY DEAL WITH THE ASSESSEES RELIANCE ON THE DECISION BY THE TRIBUNAL (COCHIN BENCH) IN T HE CASE OF T.C.USHA VS. DY.CIT, KOLLAM (SUPRA); THE TRIBUNAL IN THAT CASE HAVING FOUND TH E ASSESSEE TO HAVE FURNISHED A PLAUSIBLE EXPLANATION OF HAVING SOLD CASHEW KERNELS FOR A LOWER PRICE. WE DO NOT CONSIDER THE SAID DECISION AS APPLICABLE IN THE INS TANT CASE, WHERE THE ASSESSEE ADMITS TO AN UNDER-RECOVERY, FOR WHICH THERE IS NO PLAUSIBLE EXPLANATION, THROUGH CREDIT TO THE `KERNEL TRADING ACCOUNT. AT THE SAME TIME, ON THE OTHER HAND, WE ARE UNABLE TO APPRECIATE AS TO HOW IN VIEW THEREOF, PENALTY U/S. 271(1)(C) FOR FURNISHING INACCURATE PARTICULARS OF INCOME OR CONCEALMENT THEREOF, COULD HOLD. THE REASON IS SIMPLE; THE ASSESSEE THEREBY CORRECTING ITS RETURNED INCOME, EN HANCING IT TO THE EXTENT OF THE UNEXPLAINED DEFICIENCY THEREIN, DULY DISCLOSING ITS NATURE. THE ASSESSEES ACCOUNTS ARE AUDITED, DISCLOSING THE QUANTITATIVE BREAKUP OF THE ITEMS TRADED IN. THERE IS ADMITTEDLY NO CORRESPONDING QUANTITY QUA THE CREDIT FOR ` 40,73,446/- IN ITS ACCOUNTS, SO THAT IT IS CLEARLY BY WAY OF COST RECOUPED. FURTHER, THE CORRESPONDING DEBIT TO THE SAID CREDIT (ENTRY) FOR THE UNDER-RECOVERY RECOUPED, AS CLARIFIED BY THE LD. AR ON A QUERY IN ITS RESPECT DURING HEARING BY THE BENCH, IS TO THE PROPRIETORS CURREN T ACCOUNT. THE SAME IS THUS ONLY AN ADMISSION BY THE ASSESSEE OF BEING UNABLE TO EXPLAI N THE SAID UNDER RECOVERY, OR THE BASIS OF ITS CHARGE TO ITS SISTER CONCERN, ITS PRINCIPAL BUYER. HOWEVER, WHEN THE ASSESSEE HAS THEREBY INCREASED ITS INCOME TO THAT EXTENT, WHAT E XPLANATION, AND TOWARD WHAT, ONE MAY ASK, IS IT LIABLE TO FURNISH AN EXPLANATION TO THE ASSESSING AUTHORITY, WHO, FINDING THE SAME AS UNEXPLAINED, COULD ONLY INCREASE THE ASSESSEE'S INCOME TO THAT EXTENT. THE DEBIT MAY NOT BE TO THE ACCOUNT OF THE SISTER CONCERN, WHICH, IF SO, WOULD ESTABLISH THE SOURCE OF INCOME. SO HOWEVER, THE QUESTION IS: HOW COULD THE ASSESSEE BE MADE LIABLE FOR PENALTY ON ACCOUNT OF HIS INABILITY TO SPECIFY THE SOURCE O F HIS INCOME, VOLUNTARILY OFFERED ? ALSO, AGAIN, WHETHER ASSESSED AS BUSINESS INCOME OR AS IN COME FROM OTHER SOURCES, THE SAME IS I.T.A. NOS. 140 &141/COCH/2009 RAJASREE PRATAP NAIR VS. DCIT, KOLLAM 6 ONLY TOWARDS THE ASSESSEE'S INCOME FOR THE YEAR FRO M ITS CASHEW BUSINESS; IT IS BEING UNABLE TO EXPLAIN OR SUBSTANTIATE ITS LOWER BUSINES S RESULTS AS DISCLOSED, WITH THE CORRESPONDING BENEFIT (IN TERMS OF HIGHER INCOME), EXIGIBLE FOR A TAX REBATE U/S. 80HHC OF THE ACT, FLOWING TO THE SISTER CONCERN, AND WHIC H REASONS LEAD TO THE CONFIRMATION OF THE ADDITION MADE, AND WHICH ADMITTEDLY IS WITHOUT REFERENCE TO AND DE HORS THE SUO MOTU CREDIT BY THE ASSESSEE IN HIS ACCOUNTS FOR THE SAI D AMOUNT. WE, ACCORDINGLY, FIND NO BASIS FOR THE LEVY OF PENALTY; THE INCOME SOUGHT TO BE ADDED HAVING ALREADY BEEN INCLUDED BY THE ASSESSEE IN HIS RETURNED INCOME. NO DOUBT, N OT BOOKING THE SAME IN THE ACCOUNTS LEADS TO AN INCREASE IN THE REPORTED AND, PERHAPS, THE ASSESSED PROFITS OF THE SISTER CONCERN, WHICH WOULD OTHERWISE STAND DEFLATED/REDUCED BY THI S AMOUNT. HOWEVER, AGAIN, THAT ONLY GOES TO SHOW THAT THE DECLARED RESULTS BY THE TWO S ISTER CONCERNS ARE INCONSISTENT WITH EACH OTHER. THE REVENUE IS FULLY COMPETENT TO DRAW ANY REASONABLE INFERENCE IN THE CASE OF THE ASSESSEES SISTER CONCERN, BUT THAT WOULD NO T IN ANY MANNER DETRACT FROM THE FACT THAT ASSESSEES INCOME FOR THE YEAR HAS SUFFERED AN INCREASE, WHICH IT CLAIMS TO HAVE ALREADY BEEN GIVEN EFFECT TO THROUGH A CREDIT ENTRY , AND WHICH WE HAVE FOUND AS SO. NO CASE FOR THE CHARE OF PENALTY U/S. 271(1) (C) IS, T HEREFORE, MADE OUT. WE DECIDE ACCORDINGLY. 5.2 AS REGARDS THE ASSESSEES APPEAL IN RESPECT O F NON-ACCEPTANCE OF ITS APPLICATION U/S. 154, WE HAVE ALREADY CLARIFIED THAT THE QUANTUM ASS ESSMENT STANDS MADE DE HORS AND WITHOUT ANY REFERENCE TO THE CREDIT ENTRY ON THE BA SIS OF WHICH THE ASSESSEE MAKES OUT A CASE FOR A `MISTAKE. FURTHER, THE SAME STANDS ALSO CONFIRMED BY THE APPELLATE AUTHORITIES, INCLUDING BY THE HONBLE JURISDICTIONAL HIGH COURT, ON THAT BASIS. CLEARLY, THE ASSESSEE FAILED TO PROVE HIS BONA FIDES , I.E., QUA THE IMPUGNED SALE TRANSACTIONS, BUT FOR WHICH, GIVEN THE LAW, THE ADDITION COULD NOT HAVE BEEN MAD E, OR AT LEAST SUSTAINED. AS SUCH, NO CLAIM FOR THE SAME BEING MISTAKEN, MUCH LESS ONE AP PARENT FROM RECORD, COULD BE COUNTENANCED. WE DECIDE ACCORDINGLY. I.T.A. NOS. 140 &141/COCH/2009 RAJASREE PRATAP NAIR VS. DCIT, KOLLAM 7 6. IN THE RESULT, THE ASSESSEES APPEAL IN I. T.A. NO. 140/COCH/2009 IS DISMISSED, AND THAT IN I.T.A. NO. 141/COCH/2009 IS ALLOWED. SD/- SD/- 13/2 /2012 (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 29TH FEBRUARY, 2012 GJ COPY TO: 1. SMT. RAJASREE PRATAP NAIR, PROP: SURYA EXPORTS, KOCHUPILAMMOODDU, KOLLAM. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, KOLLAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, KO CHI 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE . BY ORDER (ASSISTANT REGISTRAR) ITAT, COCHIN BENCH