Goyal Jewellers, Ahmedabad V. The Income tax Officer,Ward-10(2), Ahmedabad

ITA 1720/AHD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0370 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-09-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 25-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH SENIOR
• Keywords: Set aside
• Section: 271(1)(c); 69C; 143(3); 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' (BEFORE SHRI P K BANSAL AND MAHAVIR SINGH) ITA NO.1720/AHD/2009 (ASSESSMENT YEAR: 2004-05) GOYAL JEWELLERS, 11, SAPPHIRE COMPLEX, NEAR CARGO MOTORS, C G ROAD, AHMEDABAD PAN: AADFG 9811 E V/S THE INCOME-TAX OFFICER, WARD-10(2), AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY :- SHRI SAKAR SHARMA RESPONDENT BY:- SMT. NEETA SHAH, SENIOR DR O R D E R PER P K BANSAL (ACCOUNTANT MEMBER) : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT( A) DATED 20- 02-2009, BY WHICH THE CIT(A) HAS SUSTAINED PENALTY IMPOSED ON THE ASSESSEE U/S 271(1)(C) OF THE INCOME-TAX ACT, 1 961 [THE ACT FOR SHORT] AMOUNTING TO RS.6,59,781/-. 2 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E SUBMITTED THE RETURN ON 01-11-2004 AT AN INCOME OF RS.97,736/-. ASSESSMENT WAS COMPLETED U/S 143(3) AT AN INCOME OF RS.18,39,110/- VIDE ORDER DATED 28/12/2006 MAKING A N ADDITION OF RS.18,57,520/- ON ACCOUNT OF DIFFERENCE IN THE S TOCK FOUND DURING THE COURSE OF SURVEY AT THE BUSINESS PREMISE S OF THE ASSESSEE ON 12/12/2003. DURING THE COURSE OF SURVE Y CARRIED OUT IN THE CASE OF THE ASSESSEE ON 12/12/2003, THE ASSE SSEE AGREED TO 2 PAY TAX ON THE AMOUNT EQUIVALENT TO THE SHORTAGE IN STOCK WHILE COMPLETING THE ACCOUNTS U/S 44A. THE ASSESSEE CREDI TED THE FOLLOWING AMOUNTS IN THE P&L ACCOUNT BEING DISCREPA NCIES NOTICED IN THE COURSE OF SURVEY:- - SHORTAGE IN STOCK AMOUNTING TO RS.10,57,045/- - DIFFERENCE IN STOCK RS.06,39,957/- THE ASSESSEE HAS ALSO DEBITED TO THE P&L ACCOUNT BU T AT THE SAME TIME, COST OF SUCH STOCK WAS DEBITED TO THE P& L ACCOUNT BECAUSE PROFIT COMPONENT EMBEDDED IN SUCH STOCK WAS FORMING PART OF THE SALES MADE BY THE ASSESSEE AND ALSO IN THE CLOSING STOCK VALUED AT THE YEAR END. THIS WAS DONE BY THE ASSESSEE ON THE ADVICE OF THE TAX AUDITORS WHO HAD CARRIED OUT AUDIT U/S 44AB OF THE ACT. THE ASSESSEE HAD A BONA FIDE BELIE F ON THE ADVICE GIVEN BY THE TAX AUDITORS. THE ASSESSEE EXPL AINED DURING THE COURSE OF ASSESSMENT THE REASONS FOR THE SHORTA GE OF SOME ITEMS OF JEWELLERY AND EXCESS IN OTHER ITEMS BY STA TING THAT THE ASSESSEE HAD MAINLY DEALT WITH THE CUSTOMERS COMING FROM THE RURAL AREAS AND VILLAGES, ETC. AND ACCORDINGLY SOLD THE JEWELLERY IN EXCHANGE OF THE OLD JEWELLERY TAKEN FROM SUCH CU STOMERS. FOR THESE TRANSACTIONS, NEITHER BILLS WERE ISSUED NOR A NY RECORD WAS KEPT. IT WAS STATED THAT UNDER THESE CIRCUMSTANCES THERE WAS VARIATION IN THE ITEMS OF JEWELLERY. THE EXCESS QUA NTITY WAS EXTRACTED FROM THE CUSTOMERS BY INDICATING HIGHER C OMPONENT OF IMPURITY IN THE SILVER TAKEN FROM THEM IN EXCHANGE OF THE NEW JEWELLERY SOLD TO THEM. THE AO DID NOT AGREE. THE A SSESSEE THEREFORE TOOK THE ADVICE FROM ANOTHER TAX CONSULTA NT WHO BROUGHT TO THE KNOWLEDGE OF THE ASSESSEE THAT IN VI EW OF THE 3 PROVISIONS OF SECTION 69C BEING AMENDED WITH EFFECT FROM 1-4- 1999, THE ASSESSEE SHOULD NOT HAVE CREDITED THE COS T OF SUCH STOCK VARIATION FOUND DURING THE COURSE OF SURVEY. ACCORDINGLY THE ASSESSEE RE-WORKED OUT THE VALUE IN STOCK AT RS .18,57,520/- AND PAID TAXES THEREON BEFORE COMPLETION OF THE ASS ESSMENT WITH THE UNDERSTANDING THAT NO PENALTY U/S 271(1)(C) WIL L BE IMPOSED ON THE ASSESSEE. THE AO HOWEVER INITIATED PENALTY P ROCEEDINGS U/S 271(1)(C). THE ASSESSEE CONTENDED THAT THERE WA S INADVERTENT AND BONA FIDE ERROR ON THE PART OF THE ASSESSEE ON THE ADVICE OF THE TAX AUDITORS. THE PROVISIONS OF SECTION 69C WER E AMENDED SUBSEQUENTLY, ALTHOUGH APPLICABLE, WERE AMENDED WIT H EFFECT FROM 1-4-1999 FOR WHICH THE ASSESSEE WAS NOT AWARE AND THEREFORE NO PENALTY SHOULD BE IMPOSED. THE AO IMPO SED THE PENALTY U/S 271(1)(C) BY OBSERVING AS UNDER:- THEREFORE, I HEREBY LEVY PENALTY OF RS.659781/- FO R CONCEALMENT OF INCOME / FURNISH INACCURATE PARTICULARS OF INCOME U /S 271(1)(C) OF THE I.T. ACT. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE PENALTY IMPOSED BY THE AO. 3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND, PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE CASE LAWS AS C ITED BEFORE US. SECTION 271(1)(C) READS AS UNDER: 271.(1) IF THE ASSESSING OFFICER OR THE COMMISSIONE R (APPEALS) [OR THE COMMISSIONER] IN THE COURSE OF AN Y PROCEEDINGS UNDER THIS ACT, IS SATISFIED THAT ANY P ERSON - (A) .. (B) .. 4 (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, OR (D) .. HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY, - EXPLANATION 1- WHERE IN RESPECT OF ANY FACTS MATERI AL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, - (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) OR THE COMMISSIONER TO BE FA LSE OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND [FAILS TO PROVE THAT SUCH EXPLA NATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SA ME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAV E BEEN DISCLOSED BY HIM], THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FO R THE PURPOSES OF CLAUSE (C) OF THIS SUB-SECTION BE DEEME D TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULAR S HAVE BEEN CONCEALED. AS PER THE PROVISIONS OF SECTION 271(1)(C) THE PENA LTY UNDER THIS SECTION IS LEVIABLE IF THE AO IS SATISFIED IN THE COURSE OF ANY PROCEEDING UNDER THIS ACT THAT ANY PERSON HAS CONCEALED THE PARTICUL ARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. TH E PENALTY PROCEEDINGS AND THE ASSESSMENT PROCEEDINGS BOTH ARE DIFFERENT. EXPLANATION 1 TO SECTION 271(1)(C) IN RESPECT OF ANY FACT RELATING T O THE COMPUTATION OF TOTAL INCOME STATES THAT THE AMOUNT ADDED OR DISALL OWED IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE SHALL BE DEEMED TO BE T HE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. THIS DEEM ING PROVISION FOR CONCEALMENT IS NOT ABSOLUTE ONE. 5 EXPLANATION 1 TO SECTION 271(1)(C) PROVIDES THAT AN AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OF A PERSO N FALLING UNDER CLAUSE (A) OR (B) OF EXPLANATION 1 SHALL, FOR THE PURPOSE OF SECTION 271(1)(C), BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAD BEEN CONCEALED. EXPLANATION 1 REFERS TO TWO SITUATIONS I N WHICH PRESUMPTION OF CONCEALMENT CREATED BY EXPLANATION 1 IS AVAILABLE. THE FIRST SITUATION IS WHERE THE ASSESSEE, IN RESPECT OF ANY FACTS MATERIA L TO THE COMPUTATION OF HIS TOTAL INCOME, FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE AO OR THE COMMISSIONER TO BE FALSE. THE SECOND SITUATION IS WHERE THE ASSESSEE, IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME, OFFERS AN EXPLANAT ION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND ALSO FAILS TO PROVE THAT S UCH EXPLANATION WAS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE COMPUTA TION OF TOTAL INCOME HAVE BEEN DISCLOSED BY HIM. THE PRESUMPTION AVAILABLE UN DER EXPLANATION 1 CANNOT BE DRAWN UNLESS THE CASE OF THE ASSESSEE FAL LS UNDER EITHER OF THE CLAUSES, VIZ., CLAUSE (A) OR CLAUSE (B). THE PRESUMPTION UNDER EXPLANATION 1 IS REBUTTABLE A ND NOT CONCLUSIVE. THE ASSESSEE CAN SUBMIT THE EXPLANATION AS THE ONUS SHIFTED ON THE ASSESSEE TO PROVE THAT HE HAS NOT CONCEALED THE PAR TICULARS OF THE INCOME. THE ASSESSEE IN THIS CASE HAS DULY SUBMITTED THE EX PLANATION. NO COGENT MATERIAL OR EVIDENCE WAS BROUGHT TO OUR KNOWLEDGE W HICH MAY PROVE THAT THE REVENUE HAS DETECTED THE CONCEALMENT OR THE EXP LANATION SUBMITTED BY THE ASSESSEE WAS FALSE ONE. EVEN THERE IS NO MAT ERIAL WHICH MAY PROVE THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE ITS EXPLANATION. MERELY THE ADDITION HAS BEEN MADE IN THE ASSESSMENT IN OUR OPI NION THE ASSESSEE CAN NOT BE ENTRUSTED WITH THE PENALTY BY SIMPLY INVOKIN G EXPLANATION 1. 4 THE EXPLANATION SUBMITTED BY THE ASSESSEE, IN OU R OPINION, PROVED THAT THE ASSESSEE HAS DISCHARGED HIS ONUS AN D HAS REBUTTED THE 6 PRESUMPTIONS AVAILABLE TO THE REVENUE UNDER EXPLANA TION 1 TO SECTION 271(1)(C). THIS EXPLANATION GIVEN BY THE ASSESSEE C ANNOT BE REGARDED TO BE A FALSE EXPLANATION UNTIL AND UNLESS, IN OUR OPI NION, THE REVENUE PROVES THAT THE EXPLANATION GIVEN BY THE ASSESSEE I S FALSE. IN OUR OPINION, NO PENALTY U/S 271(1)(C) CAN BE IMPOSED ON THE ASSE SSEE. 5 IN THE CASE OF NATIONAL TEXTILES V CIT 249 ITR 125 (GUJ) THE QUESTION BEFORE THE HONBLE GUJARAT HIGH COURT WAS ABOUT THE LEVY OF PENALTY U/S 271(1)(C) IN RESPECT OF THE ADDITION MA DE U/S 68 BY RECOURSE TO EXPLANATION 1 BELOW SECTION 271(1)(C). IN THIS C ASE THE HONBLE GUJARAT HIGH COURT WHILE HOLDING THE IMPOSITION OF PENALTY WAS NOT JUSTIFIED OBSERVED:- IN ORDER TO JUSTIFY THE LEVY OF PENALTY, TWO FACTO RS MUST CO-EXIST, (I) THERE MUST BE SOME MATERIAL OR CIRCUMSTANCES LEADIN G TO THE REASONABLE CONCLUSION THAT THE AMOUNT DOES REPRESEN T THE ASSESSEES INCOME. IT IS NOT ENOUGH FOR THE PURPOSE OF PENALTY THAT THE AMOUNT HAS BEEN ASSESSED AS INCOME, AND (II) THE CIRCUMSTA NCES MUST SHOW THAT THERE WAS ANIMUS, I.E., CONSCIOUS CONCEALMENT OR ACT OF FURNISHING OF INACCURATE PARTICULARS ON THE PART OF THE ASSESS EE. EXPLANATION 1 TO SECTION 271(1)(C) HAS NO BEARING ON FACTOR NO.1 BUT HAS A BEARING ONLY ON FACTOR NO.2. THE EXPLANATION DOES NOT MAKE THE ASSESSMENT ORDER CONCLUSIVE EVIDENCE THAT THE AMOUNT ASSESSED WAS IN FACT THE INCOME OF THE ASSESSEE. NO PENALTY CAN BE IMPOSED IF THE F ACTS AND CIRCUMSTANCES ARE EQUALLY CONSISTENT WITH THE HYPOT HESIS THAT THE AMOUNT DOES NOT REPRESENT CONCEALED INCOME WITH THE HYPOTHESIS THAT IT DOES. IF THE ASSESSEE GIVES AN EXPLANATION WHIC H IS UNPROVED BUT NOT DISPROVED, I.E., IT IS NOT ACCEPTED BUT CIRCUMSTANC ES DO NOT LEAD TO THE REASONABLE AND POSITIVE INFERENCE THAT THE ASSESSEE S CASE IS FALSE, THE EXPLANATION CANNOT HELP THE DEPARTMENT BECAUSE THER E WILL BE NO MATERIAL TO SHOW THAT THE AMOUNT IN QUESTION WAS TH E INCOME OF THE ASSESSEE. ALTERNATIVELY, TREATING THE EXPLANATION A S DEALING WITH BOTH THE INGREDIENTS (I) AND (II) ABOVE, WHERE THE CIRCU MSTANCES DO NOT LEAD TO THE REASONABLE AND POSITIVE INFERENCE THAT THE A SSESSEES EXPLANATION IS FALSE, THE ASSESSEE MUST BE HELD TO HAVE PROVED THAT THERE WAS NO MENS REA OR GUILTY MIND ON HIS PART. E VEN IN THIS VIEW OF THE MATTER THE EXPLANATION ALONE CAN NOT JUSTIFY LE VY OF PENALTY. ABSENCE OF PROOF ACCEPTABLE TO THE DEPARTMENT CANNO T BE EQUATED WITH FRAUD OR WILLFUL DEFAULT. 7 THE AO IS NOT SURE WHETHER THE ASSESSEE HAS FURNISH ED INACCURATE PARTICULARS OR CONCEALED THE PARTICULARS OF ITS INC OME. ACCORDINGLY HE HAS NOT IMPOSED THE SPECIFIC CHARGE. THE CASE OF THE ASSESSEE IS DULY COVERED BY THE DEC ISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF NEW SORATHIA ENGINEERING CO. V CIT (2006) 282 ITR 642 (GUJ) , IN WHICH IT HAS BEEN HELD AS UNDER:- IT IS INCUMBENT UPON THE ASSESSING OFFICER TO STAT E WHETHER PENALTY WAS BEING LEVIED FOR CONCEALMENT OF PARTICULARS OF INCOME BY THE ASSESSEE OR WHETHER ANY INACCURATE PARTICULARS OF I NCOME HAD BEEN FURNISHED BY THE ASSESSEE. WHERE THE TRIBUNAL FAILS TO TAKE INTO CONSIDERATION AND DEAL WITH THE DECISION OF THE JURISDICTIONAL HIGH COURT IT WOULD CONSTITUTE AN ERROR IN LAW WHICH GOES TO THE VERY BASIS OF THE CONTROVE RSY INVOLVED. AN ADDITION OF RS.61,000 WAS MADE TO THE INCOME OF THE ASSESSEE IN THE ASSESSMENT YEAR 1981-82. PENALTY WAS IMPOSED. T HE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISSIONE R (APPEALS) WHO UPHELD THE PENALTY BY OBSERVING . . . THEREFORE, R S.61,000 CLEARLY IS INCOME WHICH IS CONCEALED OR IN WHICH INACCURATE PA RTICULARS OF INCOME HAVE BEEN FURNISHED. THE ASSESSEE, THEREFOR E, FILED SECOND APPEAL BEFORE THE TRIBUNAL BUT DID NOT SUCCEED. ONE OF THE CONTENTIONS RAISED BEFORE THE TRIBUNAL WAS BASED ON A DECISION OF THE COURT IN THE CASE OF CIT V. MANU ENGINEERING WORKS [1980] 122 IT R 306 (GUJ). IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE PE NALTY COULD NOT BE SUSTAINED IN THE ABSENCE OF A CLEAR-CUT FINDING BY THE ASSESSING OFFICER. THE TRIBUNAL DID NOT DEAL WITH THE CONTENT ION AND UPHELD THE ORDER OF PENALTY. ON A REFERENCE: HELD, THAT THE PENALTY ORDER AND THE ORDER OF THE C OMMISSIONER (APPEALS) SHOWED THAT NO CLEAR-CUT FINDING HAD BEEN REACHED. THE TRIBUNAL HAD FAILED TO APPRECIATE THIS LEGAL ISSUE. THE RATIO IN CIT V. MANU ENGINEERING WORKS [1980] 122 ITR 306 (GUJ) WAS APPLICABLE AND THE ORDER OF PENALTY COULD NOT BE UPHELD BY THE TRIBUNAL. THE ORDER WAS INVALID. 8 CIT V. MANU ENGINEERING WORKS [1980] 122 ITR 306 (G UJ) FOLLOWED. A. M. SHAH AND CO. V. CIT [1999] 238 ITR 415 (GUJ) AND CIT V. VINAYCHAND HARILAL [1979] 120 ITR 752 (GUJ) REFERRE D TO. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT, WE SET ASIDE THE ORDER O F THE CIT(A) AND DELETE THE PENALTY IMPOSED U/S 271(1)(C) OF THE ACT. 6 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09-10-2009 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (P K BANSAL) ACCOUNTANT MEMBER DATE : 09-10-2009 COPY OF THE ORDER FORWARDED TO : 1. GOYAL JEWELLERS, 11, SAPPHIRE COMPLEX, NEAR CARG O MOTORS, C G ROAD, AHMEDABAD OR GOYAL JEWELLERS, C/O RAVI PRAKASH AGRAWAL, C-61, AK ASH TOWERS, NEAR JUDGES BUNGALOWS, BODAKDEV, AHMEDABAD 2. THE ITO, WARD-10(2), AHMEDABAD 3. THE CIT CONCERNED 4. THE CIT(A)-XVI, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY.R/A R, ITAT, AHMEDABAD