M/s. Integra India Group Company Ltd., Baroda V. The ACIT., Circle-1(2), Baroda

ITA 1737/AHD/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9832 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 1997-1998
• Appeal Filed On: 24-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Keywords: Gross profit estimation; Rejection of books of accounts; Gift; Business income; Onus to prove
• Section: 43B; 143(3); 142(1); 145

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M INTEGRA INDIA GROUP COMPANY LTD. (FORMERLY KNOWN AS INTEGRA HINDUSTAN CONTROL LTD.), INTEGRA HOUSE 7-A, RAJPATH SOCIETY, OLD PADRA ROAD, BARODA 390 020. VS. DY. CIT, CIR.192), AAYAKAR BHAVAN, RACE COURSE, BARODA. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI SANJAY R. SHAH, AR RESPONDENT BY:- SHRI K. M. MAHESH, SR. D.R. O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS :- (1) THE LD. CIT(A) HAS ERRED IN CONFIRMING THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT DESPITE THE FACT THAT (A) PROPER SATISFACTION TO INITIATE PENALTY PROCEEDINGS WAS NOT ARRIVED AT BY THE LD. AO. (B) THE LD. AO DID NOT SPECIFY THE CHARGE ON THE APPELL ANT AS TO WHETHER IT HAD CONCEALED THE PARTICULARS OF ITS INCOME OR HAD FURN ISHED INACCURATE PARTICULARS OF ITS INCOME WHILE INITIATING THE PENA LTY PROCEEDINGS. (2) THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FA CT THAT THE APPELLANT HAD OFFERED BONA FIDE EXPLANATION FOR THE FALL IN GROSS PROFIT RATIO WHICH IS THE SUBJECT MATTER OF LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. ITA NO.1737/AHD/2010 ASST. YEAR :1997-98 ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 2 (3) THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE REJECT ION OF RETURNED INCOME ITSELF REFLECTS CONCEALMENT OF INCO ME. (4) THE LD. CIT(A) HAS FURTHER ERRED IN NOT APPRECIATIN G THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE OR THE NA TURE OF ADDITION MADE (AN AD HOC ADDITION ON ACCOUNT OF LOW GROSS PROFIT) IN THE ORDER PASSED U/S 143(3) OF THE ACT. 2. THE GROUNDS RELATING TO SATISFACTION FOR INITIAT ION OF PENALTY PROCEEDINGS ARE NOT PRESSED BY THE LD. AR DURING TH E COURSE OF HEARING AND HENCE RELATED GROUNDS ARE TREATED AS REJECTED. 3. THE ONLY ISSUE SURVIVES FOR ADJUDICATION IS LEVY OF PENALTY OF RS.3,61,000/- UNDER SECTION 271(1)(C). IN THIS CASE THE ASSESSEE FILED RETURN OF INCOME SHOWING LOSS OF RS.18,61,550/-. TH E BRIEF FACTS OF THE CASE ARE MENTIONED BY THE AO IN THE PENALTY ORDER W ITH WHICH THERE IS NO DISPUTE - THE AO OBSERVED THAT THE ASSESSEE IS ENGAGED IN MA NUFACTURING OF RELAY DOMINO PANEL AND AUDIO FREQUENCY TRACK CIRCUITS BEI NG USED IN RAILWAY SIGNALING IN ADDITION TO THE TRADING ACTIVITIES OF RELATED ITEMS. THE TURNOVER DURING THE YEAR WAS RS.1.97 CRORES AS AGAI NST 2.25 CRORES OF LAST YEAR AND THE ASSESSEE HAS SHOWN GROSS PROFIT @ 18% AS AGAINST 44% OF LAST YEAR AND 31% IN ASST. YEAR 1995-96. THE AO ALS O NOTED THAT THE ASSESSEE HAS NOT ACCOUNTED FOR THE ELEMENT OF EXCIS E DUTY PERTAINING TO THE FINISHED GOODS VALUED AT RS.2,50,658/- AS ON 31 .3.1997 AND AS SUCH THE VALUE IN THE TRADING ACCOUNT IS LESSER TO THAT EXTENT. BESIDES, THE ASSESSEE HAS TAKEN THE VALUE OF WORK AND CONTRACT I N PROGRESS I.E. WIP AS ON 31.3.97 MORE OR LESS ON ESTIMATED BASIS FOR WHIC H NO DETAILS HAVE BEEN FURNISHED, THOUGH THE ASSESSEE WAS SPECIFICALLY ASK ED TO FURNISH THE DETAILS OF WIP AS WELL AS THE LAST DATE OF MEASUREM ENT ON THE BASIS OF WHICH, FINAL BILL WAS SUBMITTED PRIOR TO 31.3.1997 TO ASCERTAIN WHETHER ALL THE DIRECT AND INDIRECT COST HAVE BEEN INCLUDED IN WIP. IN VIEW OF THE ABOVE, THE AO WAS OF THE VIEW THAT THE BOOK RESULTS SHOWN BY THE ASSESSEE WILL NOT GIVE THE CORRECT INCOME OF THE ASSESSEE AN D ACCORDINGLY HE REJECTED THE BOOKS OF ACCOUNTS AND BASED ON THE PAS T RECORDS AND THE ASSESSEES SUBMISSION, HE ADOPTED THE GROSS PROFIT RATIO OF 25% AS AGAINST 18% SHOWN BY THE ASSESSEE RESULTING IN NET ADDITION OF RS.20,28,862/-. ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 3 AFTER MAKING ADDITION OF RS.20,28,862/- TOTAL INCOM E WAS WORKED OUT AT RS.5,14,448/- AND AFTER ALLOWING UNABSORBED BUSINES S LOSS BROUGHT FORWARD FROM EARLIER YEARS TOTAL INCOME WAS COMPUTE D AT NIL. THE AO PROPOSED FOLLOWING COMPUTATION OF INCOME:- NET PROFIT AS PER STATEMENT (-) RS.15,26,041 ADD: DISALLOWABLES AS PER STT. 1 DEPRN.AS PER STT. RS.18,78,772 2 DISALLOWANCE U/S 43B RS.30,767 3 RULE 6D DISALLOWANCE RS.476/- 4 ENTERTAINMENT EXPENDITURE RS.1,613/- RS.19,11,628/- (+) RS.3,85,587/- ADD: DISALLOWABLES AS PER ASST.ORDER 1. GP ADDITION AS DISCUSSED IN PARA 2 RS.20,28,86 2/- 2. OUT OF MISCELLANEOUS EXPS. AS PER PARA 3 RS.52,138/- 3. OUT OF STAFF WELFARE EXPS. AS PER PARA 4 RS.10,027/- 4. ON ACCOUNT OF LEAVE ENCASHMENT AS PER PARA 5 RS.1,12,397/- RS.22,03,424/- RS.25,89,011 LESS: DEDUCTIONS/ALLOWABLES AS PER STT. RS.20,74,563/- TOTAL INCOME RS.5,14,448/- LESS: UNABSORBED BUSINESS LOSS B/F OF ASST. YEAR 1996-97 RS.1,75,592/- RS.1,75,592/- UNABSORBED BUSINESS LOSS B/F RS..3,38,856/- FOR ASST. YEAR 1995-96 RS.21,25,985/- SET OFF TO THE EXTENT OF RS.3,38,856/- RS.3,38,856/- RS.3,38,856/- TOTAL INCOME RS.NIL WHILE REJECTING THE BOOKS, THE AO NOTED THAT ASSESS EE HAS VALUED THE FINISHED GOODS EXCLUDING EXCISE DUTY. HE ALSO NOTED THAT VALUE OF WORK IN PROGRESS SHOWN AT RS.22,14,477/- HAS NOT BEEN SUBST ANTIATED. IN THIS REGARD THE AO NOTED AS UNDER :- BESIDE THIS, IT ALSO NOTED THAT THE ASSESSEE HAS T AKEN THE VALUE OF WORK AND CONTRACT IN PROGRESS I.E. WIP AS ON 31.3.1997 M ORE OR LESS ON ESTIMATED BASIS. THE AMOUNT SHOWN IS FOR RS.22,14,4 77/- AS AGAINST A SUM OF RS.26,08,617/- IN THE IMMEDIATELY PRECEDING ASST . YEAR. NO DETAILS FOR THE SAME ARE FURNISHED BY THE ASSESSEE ALTHOUGH THE ASSESSEES AUTHORISED REPRESENTATIVES HAVE CONCEDED THAT THE SAME IS VALU ED AT LOWER OF COST OR REALIZABLE VALUE. IN THIS REGARD, THE ASSESSEE WAS SPECIFICALLY ASKED TO ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 4 FURNISH THE DETAILS OF WIP AS WELL AS ASKED TO FURN ISH THE LAST DATE OF MEASUREMENT ON THE BASIS OF WHICH FINAL BILL IS SUB MITTED PRIOR TO 31.3.1997 SO AS TO ASCERTAIN THAT ALL THE DIRECT AN D INDIRECT COST INCURRED THEREAFTER RIGHT FROM THE BEGINNING UPTO 31.3.1997 COULD BE WORKED OUT AND ACCORDINGLY TAKEN AS WIP AS ON 31.3.1997. THERE FORE, IN VIEW OF THE ABOVE AS WELL AS FURTHER TAKING INTO CONSIDERATION THE OVERALL FACTS OF THE CASE, IT IS HELD THAT THE BOOKS RESULTS SHOWN BY TH E ASSESSEE DOES NOT DEDUCE THE CORRECT INCOME OF THE ASSESSEE. THEREFOR E, IN VIEW OF THE SAME BY INVOKING THE PROVISIONS OF SECTION 145(2) OF THE I.T. ACT, THE BOOKS RESULTS ARE REJECTED. WHEN THE MATTER WENT BEFORE THE LD. CIT(A) HE CONFI RMED THE APPLICATION OF GP RATE OF 25%. IN THIS REGARD LD. CIT(A) HAD OB SERVED IN THE QUANTUM APPEAL AS UNDER :- WITH REGARD TO THE REJECTION OF BOOK RESULTS, IT I S SEEN THAT THE APPELLANT HAS NOT FURNISHED THE DETAILS OF WORKING OF WIP THO UGH THE AO HAS SPECIFICALLY ASKED FOR THE SAME. IT IS IMMATERIAL W HETHER THE NOTES TO THE ACCOUNTS INDICATE THAT THE COST OF WIP INCLUDE MATE RIAL COST, LABOUR COST AND APPROPRIATE FACTORY OVERHEADS. IT IS THE AO WHO HAS TO EXAMINE WHETHER THIS HAS BEEN ACTUALLY DONE OR NOT AS HE HA S TO CALCULATE THE CORRECT TOTAL INCOME. ONLY BECAUSE THE AUDITORS HAV E PUT THE ABOVE NOTE, THE APPELLANT CANNOT SAY THAT IT IS IMMATERIAL WHET HER THE DETAILS WERE FURNISHED BEFORE THE AO OR NOT. NON-FURNISHING OF T HE DETAILS OF WORKING OF THE COST OF WIP BEFORE THE AO, FOR WHICH NO EXPL ANATION HAS BEEN SUBMITTED, ITSELF CAN BE THE BASIS FOR REJECTION OF BOOK RESULTS AS IT IS AN IMPORTANT CALCULATION THROUGH WHICH THE PROFIT CAN BE VARIED. IN VIEW OF THE ABOVE, I HOLD THAT THE AO HAS RIGHTLY REJECTED THE BOOK RESULTS. FURTHER, THE SUBMISSION OF THE APPELLANT THAT THE B OOK RESULTS HAVE BEEN ACCEPTED IN THE EARLIER TWO YEARS DOES NOT AFFECT T HE CASE OF THE APPELLANT AS ALL THE ASST. YEARS ARE DIFFERENT AND WHILE VERI FYING THE CORRECTNESS OF BOOK RESULTS IN A PARTICULAR YEAR, THE FACTS OF THA T YEAR ONLY ARE REQUIRED TO BE CONSIDERED. IN THIS VIEW OF THE MATTER, THE D ECISIONS CITED BY THE APPELLANT WILL NOT BE RELEVANT AS THESE ARE BASED O N THE PECULIAR FACTS OF THESE CASES. COMING TO THE GROSS PROFIT RATIO ADOPT ED BY THE AO @ 25%, I FIND THAT IT IS PERFECTLY JUSTIFIED IN VIEW OF THE PAST RECORDS OF THE APPELLANT AND THE SUBMISSIONS OF THE APPELLANT BEFORE THE AO. I, THEREFORE, CONFIRM THE ADDITION MADE BY THE AO. ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 5 THE ASSESSEE CONTESTED THE QUANTUM ADDITION BEFORE THE TRIBUNAL WHICH ALSO CONFIRMED THE APPLICATION OF SECTION 145(3) FO R REJECTING THE BOOKS BUT REDUCED THE GP RATE TO 21%. THE TRIBUNAL OBSERV ED AS UNDER :- AFTER GOING THROUGH THE FACTS OF THE CASE, IT IS N OTED THAT THE GP RATE IN ASSESSMENT YEAR 1995-96 WAS 31% AND IN THIS YEAR TH ERE IS LOSS OF TRADING SALES AMOUNTED TO RS.12,19,321/- DUE TO THI S REASON, THERE IS A FALL IN GP RATE AT 18% HAS SHOWN BY THE ASSESSEE. W E FEEL THAT FALL IN GP RATE IS ON A HIGHER SIDE AND EVEN THE ESTIMATION MA DE BY THE LOWER AUTHORITIES AT 25% IS ALSO ON HIGHER SIDES. ACCORDI NGLY, WE FAIRLY ESTIMATE THE GROSS PROFIT AT 21% WHICH WILL MEET THE ENDS OF JUSTICE. ACCORDINGLY, AO IS DIRECTED TO RE-COMPUTE THE INCOME AFTER APPLY ING THE GP AT 21% TO THE TOTAL SALES OF THE ASSESSEE. AS REGARDS TO THE OTHER TWO GROUNDS, WHICH ARE ON ACCOUNT OF DISALLOWANCE OF MISCELLANEOUS EXP ENSES AND DISALLOWANCE OF STAFF WELFARE EXPENDITURE AT RS.52, 138/- AND RS.10,027/- RESPECTIVELY, AS WE HAVE ALREADY ESTIMATED GP RATE WHICH WILL COVER THESE DISALLOWANCES. HENCE NO SEPARATE ADDITION CAN BE MA DE. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, THE ASSESSEES APPEAL IS P ARTLY ALLOWED. IN PENALTY PROCEEDINGS ASSESSEE FURNISHED THE REPLY WHICH IS ENCLOSED BY HIM ON PAGES 41-42 TO 48 OF THE PAPER BOOK. WE HAVE PERUSED THIS REPLY AND IT DOES NOT EXPLAIN WHY ASSESSEE DID NOT FURNIS H BEFORE THE AO/CIT(A)/ITAT THE BASIS ON WHICH IT HAS WORKED OUT THE WORK IN PROGRESS OF RS.22,14,477/-. WE ALSO ASKED THE LD. A R TO SHOW TO US AS TO WHETHER IT HAS GIVEN TO THE AO/CIT(A)/OR THE TRIBUN AL IN QUANTUM PROCEEDINGS, OR EVEN IN PENALTY PROCEEDINGS, THE BA SIS ON WHICH IT HAS WORKED THE WIP ON THAT FIGURE. HOWEVER, WE WERE NOT PROVIDED WITH ANY ANSWER OR DOCUMENT TO SHOW AS TO HOW THE ASSESSEE H AS WORKED OUT THE FIGURE OF WIP. THE AO AFTER CONSIDERING THE REPLY O F THE ASSESSEE HELD THAT ONUS CAST ON ASSESSEE BY VIRTUE OF EXPLANATION 1(B) TO SECTION 271(1)(C) HAS NOT BEEN DISCHARGED. HE ACCORDINGLY L EVIED PENALTY OF RS.3,61,000/-. ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 6 4. THE LD. CIT(A) CONFIRMED THE PENALTY, THE REASON S GIVEN BY HIM ARE (1) THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF W ORK IN PROGRESS THOUGH THE AO HAS SPECIFICALLY ASKED FOR THE SAME. ON LEGA L POSITION OF LEVY OF PENALTY LD. CIT(A) RELIED ON FOLLOWING PROPOSITIONS :- I) WHEREVER THERE IS A DIFFERENCE BETWEEN RETURNED AND ASSESSED INCOME, THERE IS AN INFERENCE OF CONCEALME NT AS A RULE OF LAW. II) THAT THE RESPONSIBILITY OF REBUTTAL OF SUCH INFEREN CE IS ON THE ASSESSEE. III) THAT THE ASSESSEE IS EXPECTED TO OFFER AN EXPLANATI ON. ABSENCE OF EXPLANATION BY ITSELF WILL MERIT PENALTY . IV) THAT IN THE EXPLANATION WHEREVER OFFERED THE ASSESS EE WILL HAVE TO PROVE THAT THE FAILURE TO RETURN THE CORREC T INCOME WAS NOT ON ACCOUNT OF ANY FRAUD OR NEGLECT ON HIS P ART. IN OTHER WORDS, IT HAS TO BE SUBSTANTIATED BY THE ASSE SSEE THAT THE EXPLANATION OFFERED IS BONA FIDE AND ALL MATERI AL FACTS HAVE BEEN DISCLOSED BY HIM. V) THAT IF THE ASSESSEE FAILS TO PROVE SO, HE SHALL BE DEEMED TO HAVE CONCEALED THE INCOME OR FURNISHED INACCURAT E PARTICULARS OF INCOME OR A DELIBERATE FAILURE TO FU RNISH ACCURATE PARTICULARS ON THE PART OF THE ASSESSEE. VI) THAT IT IS NO LONGER NECESSARY FOR THE DEPARTMENT T O GO FURTHER AND ESTABLISH THAT THERE IS A CONSCIOUS CONCEALMENT OF PARTICULARS OF INCOME OR A DELIBERAT E FAILURE TO FURNISH ACCURATE PARTICULARS ON THE PART OF THE ASSESSEE. THE LD. CIT(A) ALSO RELIED ON THE DECISION OF HON. KERALA HIGH COURT IN CIT VS. TJ MATHAI 269 ITR 492 (KER) FOR THE PROPOSI TION THAT REJECTION OF RETURNED INCOME ITSELF REFLECTS CONCEALMENT. ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 7 5. BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT AO HAS FINALLY ESTIMATED THE INCOME BY APPLYING GP RATE OF 25% AND THE TRIBUNAL HAS REDUCED THAT GP TO 21%. THE PENALTY U/S 271(1)(C) CANNOT BE LEVIED WHERE INCOME IS ESTIMATED. THE LD. AR RELIED ON THE FOLLOWING JUDGMENTS IN SUPPORT OF HIS ARGUMENT:- HARIGOPAL SINGH VS. CIT (2002) 258 ITR 0085 (P & H) NAVJIVAN OIL MILLS VS. CIT (2001)252 ITR 417 (GUJ) CIT VS. AJAIB SINGH & CO. (2002) 253 ITR 630 (P & H ) SHIV LAL TAX VS. CIT (2001) 251 ITR 373 (RAJ) HOWEVER, THERE IS NO REPLY GIVEN TO US BY LD. AR AS TO WHY ASSESSEE FAILED TO FURNISH THE BASIS FOR WORKING OF WIP. 6. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE ASS ESSEE HAS WITHHELD VITAL INFORMATION FROM AO INASMUCH AS HE DID NOT PR OVIDE ANY BASIS FOR WORKING OF WIP. IF IT IS LEFT TO THE SWEET WILL OF THE ASSESSEE TO VALUE WIP OR DOING STOCK AT ANY FIGURE, AND EVEN WHEN ASKED T O SUBMIT THE DETAILS, THE ASSESSEE DOES NOT FURNISH DETAILS, THEN IT IS W ITHHOLDING OF MATERIAL FACTS NECESSARY FOR ASSESSMENT AND, THEREFORE, CASE IS COVERED BY EXPLANATION 1(B) TO SECTION 271(1)(C). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD TO WHICH THE PARTIES HAVE DRAWN OUR ATTEN TION. THE UNDISPUTED FACTS ARE THAT AO HAD CALLED FOR THE BASIS FOR VALU ATION OF CLOSING STOCK AND BASIS OF VALUATION OF WORK IN PROGRESS. EXCISE DUTY WAS FOUND EXCLUDED FROM VALUATION OF CLOSING STOCK. BUT THE B ASIS FOR CALCULATING WORK IN PROGRESS AT RS.22,14,477/- WAS NOT FURNISHE D. THE BOOKS WERE REJECTED AND PROFITS WERE ESTIMATED AT 25% AS AGAIN ST GP OF 18% SHOWN BY THE ASSESSEE. FINALLY GP WAS REDUCED TO 21% BY T HE TRIBUNAL. IT RESULTED IN AN ADDITION OF RS.8,37,668/- ON WHICH T HE AO WORKED OUT MINIMUM PENALTY U/S 271(1)(C) AT RS.3,61,000/-. ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 8 8. THE ALTERNATIVE ARGUMENT OF THE LD. AR IS THAT F INALLY THE ASSESSED INCOME IS NIL AND, THEREFORE, TAX SOUGHT TO BE EVAD ED IS NIL. EVEN RETURNED INCOME WAS A LOSS AND, THEREFORE, THERE WA S NO TAX THEREON. ONCE RETURNED INCOME IS NIL AND ASSESSED TAX IS NIL THEN THERE IS NO TAX SOUGHT TO BE EVADED AND, THEREFORE, NO PENALTY CAN BE LEVIED. HE REFERRED TO THE DECISION OF THIS TRIBUNAL IN ITA NO.3929/AHD /2007 FOR ASST. YEAR 1995-96 IN THE CASE OF MAXIMA SYSTEMS LTD. VS. ACIT PRONOUNCED ON 11/6/2010 FOR THE PROPOSITION THAT WHERE RETURNED I NCOME IS NIL, ASSESSED TAX IS NIL, AND TAX SOUGHT TO BE EVADED ALSO IS NIL , THEN NO PENALTY CAN BE LEVIED. 9. THE LD. DR ON THE OTHER HAND SUBMITTED THAT CASE OF THE ASSESSEE IS COVERED BY CLAUSE (A) TO EXPLANATION-4 AND NOT BY C LAUSE (C) OF THAT EXPLANATION TO SECTION 271(1)(C). THEREFORE, THE AB OVE JUDGMENT OF THE TRIBUNAL IN MAXIMA SYSTEMS LTD. (SUPRA) WOULD NOT B E APPLICABLE. THERE ARE TWO ISSUES INVOLVED IN THIS APPEAL ONE IS WHET HER PENALTY UNDER SECTION 271(1)(C) CAN NEVER BE LEVIED IF INCOME IS ESTIMATED BY APPLYING GP RATE AND THE SECOND IS WHERE THERE IS NO TAX SOU GHT TO BE EVADED WITHIN THE MEANING OF EXPLANATION 4 TO SECTION 271( 1)(C) WHETHER PENALTY CAN BE LEVIED OR NOT. 10. REGARDING THE FIRST ISSUE WE ARE OF THE VIEW TH AT IT IS NOT A LAW THAT PENALTY CAN NEVER BE LEVIED IF INCOME IS ESTIMATED. THERE ARE ALWAYS TWO SITUATIONS WHEN AO RESORTS TO ESTIMATION ONE IS WH ERE AO FINDS MATERIAL AGAINST THE ASSESSEE ABOUT SUPPRESSION OF INCOME BU T EXACT QUANTITY OF ADDITION CANNOT BE WORKED OUT ON THE BASIS OF MATER IAL SO FOUND AGAINST THE ASSESSEE AND, THEREFORE, HE RESORTS TO ESTIMATI ON. THE SECOND SITUATION IS WHERE BOOKS ARE SIMPLY REJECTED FOR VARIOUS DEFE CTS FOUND THEREIN IN ACCORDANCE WITH SECTION 145 OF THE ACT AND AO RESOR TS TO ESTIMATION. IN ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 9 THE SECOND SITUATION NO CASE OF PENALTY AS SUCH CAN BE MADE OUT UNLESS THE CASE FALLS WITHIN THE MEANING OF EXPLANATION-1. THE RE ARE NUMEROUS AUTHORITIES IN SUPPORT OF THE ABOVE PROPOSITIONS. (I) IN HARIGOPAL SINGH VS. CIT (SUPRA) THE AO HAD E STIMATED THE SALES AND THE GP PART OF WHICH WAS CONFIRMED BY THE TRIBU NAL. HON. HIGH COURT FINALLY HELD THAT PENALTY UNDER SUCH SITUATIO N CANNOT BE LEVIED. WE NOTICE THAT THERE IS NO FINDING ABOUT ANY NON-COMPL IANCE BY THE ASSESSEE OR WITHHOLDING OF ANY MATERIAL FACT FROM THE AO. (II) IN SHIV LAL TAK VS. CIT (SUPRA) IT WAS FOUND THAT PENALTY WAS NOT LEVIABLE IN VIEW OF PROVISO (II) TO SECTION 271(1) (C) WHEREIN IT IS PROVIDED THAT WHERE DIFFERENCE BETWEEN THE ASSESSED INCOME AND THE RETURNED INCOME DOES NOT ARISE ON ACCOUNT OF GROSS OR WILLFUL NEGLIGENCE ON THE PART OF THE ASSESSEE NO PENALTY IS LEVIABLE. THUS IN THE PROVISO TO EXPLANATION-1 AS APPLICABLE IN ASST. YEAR 1978-79, IT WAS CONSIDERED NECESSARY FOR THE AO TO SHOW THAT ADDITION TO THE T OTAL INCOME HAD ARISEN ON ACCOUNT OF GROSS OR WILLFUL NEGLIGENCE ON THE PA RT OF THE ASSESSEE, IF IT CANNOT BE SHOWN, THEN NO PENALTY COULD BE LEVIABLE. (III) IN NAVJIVAN OIL MILLS VS. CIT (SUPRA) RETURNE D INCOME WAS FOUND LESS THAN 80% OF THE ASSESSED INCOME. ACCORDINGLY E XPLANATION TO SECTION 271(1)(C) WAS INVOKED BY RAISING PRESUMPTION OF CON CEALMENT. IN THIS CASE BOOKS OF ACCOUNTS WERE SEIZED AND THE AO ESTIM ATED TURNOVER AND MADE ADDITIONS BASED ON SUCH ESTIMATES. THE HON. GU JARAT HIGH COURT HELD THAT PRESUMPTION RAISED BY THE EXPLANATION IS REBUTTABLE AND ONUS WHICH IS TO BE ON THE REVENUE BY THE MAIN PROVISION IS SHIFTED TO THE ASSESSEE. THE ONUS CAN BE DISCHARGED ON THE BASIS O F PREPONDERANCE OF PROBABILITIES. THE HON. HIGH COURT HELD THAT FAILUR E TO GIVE CORRECT ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 10 INCOME COULD NOT BE ASCRIBED TO THE ASSESSEE ON ACC OUNT OF ANY FRAUD OR ANY GROSS OR WILLFUL NEGLECT. IN THIS CASE PENALTY LEVIED WAS RS.10,400/- AND THE HON. HIGH COURT HELD THAT ONUS IS DISCHARGE D BY THE ASSESSEE. (IV) IN CIT VS. AJAIB SINGH & CO. 253 ITR 630 (SUPR A) THE HON. PUNJAB & HARYANA HIGH COURT HELD THAT DISALLOWANCE OF EXPE NDITURE DOES NOT MEAN THAT ASSESSEE HAS FURNISHED INACCURATE PARTICU LARS OF INCOME. ADDITION TO INCOME WAS BASED ON ESTIMATE BY DISALLO WING EXPENDITURE. HON. HIGH COURT HELD THAT FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) THE CONCEALMENT MUST BE DELIBERATE. THUS THIS AUTHORITY RELATED TO THAT PROVISION OF SECTION 271(1)(C) WHERE ONUS WAS ON TH E AO TO PROVE THAT CONCEALMENT OF INCOME WAS DELIBERATE. IN ADDITION TO THESE AUTHORITIES REFERRED BY THE LD . AR, THERE ARE SEVERAL OTHERS WHICH ALSO HOLD THE ABOVE VIEW THAT PENALTY CANNOT BE LEVIED IF ADDITION IS MADE ON ESTIMATE BASIS. (I) HON. GAUHATI HIGH COURT IN CIT VS. CHHAGANLAL S HANKARLAL (1975) 100 ITR 464 (GAU) HELD THAT WHERE BOOK RESULTS ARE REJECTED AND ADDITIONS ARE MADE ON ESTIMATE BASIS, EXPLANATION C ANNOT BE STRAIGHTWAY INVOKED FOR LEVYING PENALTY. (II) HON. ALLAHABAD HIGH COURT IN CIT VS. NADIR ALI & CO. (1977) 106 ITR 151 (ALL) HELD THAT WHERE INCOME IS ESTIMATED B Y ADOPTION OF A HIGHER RATE OF PROFIT NO PENALTY CAN BE IMPOSED. (III) IN CIT VS. HARNAM SINGH & CO. (1977) 106 ITR 532 (ALL) IT WAS HELD THAT WHERE PROFITS ARE ESTIMATED BY APPLYING A FLAT RATE PENALTY CANNOT BE IMPOSED. ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 11 (IV) IN CIT VS. M.M. RICE MILLS (2002) 253 ITR 17 ( P & H) ADDITION WAS MADE ON THE GROUND OF DEFECTS IN METHOD OF ACCO UNT BUT NO EVIDENCE OF CONCEALMENT OF INCOME WAS FOUND. ADDITIONS WERE MADE UNDER PROVISO TO SECTION 145(1) OF THE ACT BY ADOPTING THE VIEW T HAT GROSS PROFITS SHOWN IN THE BOOKS WERE TOO LOW AND THERE WERE DEFECTS IN THE METHOD OF ACCOUNTING EMPLOYED. IT WAS HELD THAT IT WOULD NOT AUTOMATICALLY LEAD TO THE CONCLUSION THAT THERE WAS FAILURE TO RETURN THE CORRECT INCOME BY FRAUD OR GROSS OR WILLFUL NEGLECT. (V) HON. MADHYA PRADESH HIGH COURT IN CIT VS. SHIVN ARAYAN JAMNALAL & CO. (1998) 232 ITR 311 (MP) HELD THAT WHERE THE A SSESSEE HAD PLACED BEFORE THE AO WHATEVER THE BOOKS OF ACCOUNT IT HAD MAINTAINED AND IT IS NOT FOUND THAT IT HAS WITHHELD OR CONCEALED ANY MAT ERIAL OR MADE ANY DELIBERATE ATTEMPT TO DEFRAUD THE REVENUE THAN PENA LTY UNDER SECTION 271(1)(C) COULD NOT BE LEVIED. (VI) HON. MADRAS HIGH COURT IN ADDL. CIT VS. T.K. P ERUMAL SWAMY (1984) 150 ITR 600 (MAD) HELD THAT WHERE RETURN FOR RELEVANT YEAR WAS BASED ON ESTIMATED PROFITS OR AND ITO ADOPTED HIGHE R FIGURE BY ESTIMATE, LEVY OF PENALTY WAS NOT JUSTIFIED. 11. THE OTHER VIEW POINT IS THAT MERELY BECAUSE ADD ITIONS ARE MADE ON ESTIMATE BASIS IT CAN NEVER BE HELD THAT PENALTY CA NNOT BE LEVIED. 11.1 HON. PATNA HIGH COURT IN CIT VS. MD. WARASAT H USSAIN (1988) 171 ITR 405 (PAT) OBSERVED THAT ASSESSMENT BY ESTIMATE IS ONE OF THE KNOWN PROCESS FOR TAXING INCOME. WHERE ASSESSEE CONCEALS RELEVANT MATERIAL/EVIDENCE, THE REVENUE HAS NO OPTION BUT TO MAKE THE ASSESSMENT BY ESTIMATE. AN ASSESSMENT BY ESTIMATE IS AS MUCH L EGAL AS ANY OTHER ASSESSMENT. THEREFORE, EVEN IN A BEST JUDGMENT ASSE SSMENT, THE FIGURE SO ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 12 ASSESSED MUST BE HELD TO THE INCOME OF THE ASSESSEE . SUCH ASSESSMENT WOULD NOT AFFECT THE LEVY OF PENALTY. THERE WERE TW O ADDITIONS IN THIS CASE ONE WAS ON ACCOUNT OF CASH CREDIT AND THE OTHER WAS ON ACCOUNT OF CAPITAL GAINS. IN RESPECT OF CASH CREDIT HON. HIGH COURT HE LD THAT ASSESSEE HAD A PLAUSIBLE EXPLANATION BUT IN RESPECT OF CAPITAL GAI NS HON. HIGH COURT NOTICED THAT ASSESSEE DID NOT PRODUCE THE SALE DEED WITH REGARD TO THE TRANSACTION IN QUESTION AND THERE WAS NO OTHER EVID ENCE REGARDING THE SALE OF THE PROPERTY. ACCORDINGLY PENALTY ON THIS PART O F INCOME WAS CONFIRMED. 11.2 IN DR. (MRS.) K. D. ARORA VS. CIT (1986) 162 ITR 481 (PAT) HON. PATNA HIGH COURT CONFIRMED THE LEVY OF PENALTY IN R ESPECT OF AMOUNT OF GIFTS SHOWN BY THE ASSESSEE IN PART-IV OF THE RETUR N AS RECEIVED BY HER MINOR SON BY HOLDING THAT ASSESSEE DID NOT FURNISH ANY MATERIAL FACT TO PROVE THE GIFTS. 11.3 IN CIT VS. SWARUP COLD STORAGE & GENERAL MILL (1982) 136 ITR 435 (ALL) HON. ALLAHABAD HIGH COURT FOUND THAT ASSE SSEE DID NOT PRODUCE THE BOOKS OF ACCOUNT AND INCOME WAS ASSESSED ON EST IMATE BASIS. THUS THE DIFFERENCE BETWEEN THE RETURN INCOME AND INCOME ASSESSED AROSE DUE TO THE ESTIMATE. THE ONUS LYING ON THE ASSESSEE TO PROVE THAT OMISSION TO RETURN CORRECT INCOME WAS NOT DUE TO ANY FRAUD OR W ILLFUL NEGLECT, WAS NOT DISCHARGED AND, THEREFORE, LEVY OF PENALTY WAS VALI D. IT WAS HELD THAT EXPLANATION TO SECTION 271(1)(C) AFTER AMENDMENT IN 1964 WILL APPLY EVEN IF THE DIFFERENCE BETWEEN THE RETURNED INCOME AND A SSESSED INCOME IS DUE TO THE ESTIMATE. IN THIS CASE ITO HAD CALLED FOR TH E BOOKS OF ACCOUNTS WHICH WERE NOT PRODUCED AND ASSESSMENT WAS MADE EX PARTE. 11.4 HON. MADRAS HIGH COURT IN CIT VS. E.V. RAJAN ( 1985) 151 ITR 189 (MAD) CONFIRMED THE LEVY OF PENALTY WHERE IT WA S FOUND THAT ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 13 ADDITIONS WERE MADE BY ESTIMATE THOUGH ON THE BASIS OF ENTRIES IN AN ANAMAT BOOK. 11.5 HON. PATNA HIGH COURT IN CIT VS. STANDARD MERC ANTILE CO. (1987) 166 ITR 39 (PAT) FOUND THAT ASSESSEE DID NOT PRODUC E BOOKS OF ACCOUNTS RELEASED BY SALES-TAX DEPARTMENT. THE ADDITIONS WER E MADE ON ESTIMATE BASIS. HON. HIGH COURT CONFIRMED THE LEVY OF PENALT Y. IT WAS HELD THAT THE ADDITION MADE BY ESTIMATE REPRESENTED CONCEALED INC OME WHEN ASSESSEE DID NOT PRODUCE THE BOOKS OF ACCOUNT. 11.6 IN CIT VS. M. N. CHATTERJEE (1988) 170 ITR 87 (PAT) IT WAS HELD THAT ONCE EXPLANATION TO SECTION 271(1)(C) BECOMES OPERATIVE THREE LEGAL PRESUMPTIONS ARE RAISED AGAINST THE ASSESSEE, THE F IRST IS THAT THE AMOUNT OF ASSESSED INCOME IS A CORRECT INCOME AND IT IS IN FACT THE INCOME OF THE ASSESSEE HIMSELF. THE SECOND PRESUMPTION IS THAT TH E FAILURE TO RETURN THE CORRECT INCOME WAS DUE TO CONCEALMENT OF THE PARTIC ULARS OF HIS INCOME ON HIS PART. THE THIRD PRESUMPTION IS THAT FAILURE OF ASSESSEE WAS DUE TO FURNISHING OF INACCURATE PARTICULARS OF HIS INCOME. ALTHOUGH ALL THE THREE PRESUMPTIONS ARE REBUTTABLE BUT THE INITIAL BURDEN OF DISCHARGING THE ONUS TO REBUT HIS PRESUMPTION WOULD BE ON THE ASSESSEE. ONCE THE ASSESSEE REBUTS THE PRESUMPTION HE WILL BE OUT OF THE MISCHI EFS OF EXPLANATION UNLESS THE DEPARTMENT SHOWS THAT IT IS THE ASSESSEE WHO HAS IN FACT CONCEALED PARTICULARS OF INCOME OR FURNISHED INACCU RATE PARTICULARS THEREOF. THE DISCHARGE OF BURDEN BY THE OTHER PARTI ES IS LIKE ANY ORDINARY BURDEN OF PROOF IN ANY JUDICIAL PROCEEDINGS TO BE A CCEPTED OR REJECTED UPON PREPONDERANCE OF EVIDENCE. SUCH BURDEN CAN BE DISCHARGED ON THE BASIS OF MATERIAL AVAILABLE ON RECORD ALSO. IN THAT CASE ASSESSEE HAD ADMITTED HIGHER FIGURE OF SALES BEFORE SALES TAX AU THORITY AS COMPARED TO WHAT WAS SHOWN BEFORE THE INCOME-TAX AUTHORITIES AN D THERE WAS NO ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 14 EXPLANATION WORTH THE NAME ABOUT THE DIFFERENCE. TH US THERE WAS AN OBVIOUS CONCEALMENT. FURTHER ESTIMATE OF INCOME WAS BASED UPON ASSESSEES OWN PERCENTAGE OF INCOME FROM THE RECORD OF EARLIER YEARS. IT WAS HELD BY HON. COURT THAT IF THE RATE OF SALES WA S HIGHER IN EARLIER YEARS THE INCOME-TAX AUTHORITIES WERE FULLY JUSTIFIED IN HOLDING THAT INCOME COULD NOT BE LOWER IN A SUBSEQUENT YEAR IF FACTS HA VE NOT CHANGED. 11.7 IN CIT VS. T.J. MATHAI 269 ITR 492 (KER) ON WH ICH LD. DR HAS RELIED UPON, THE FACTS WERE THAT ASSESSEE FILED RET URN SHOWING NIL INCOME WHEREAS INCOME WAS ASSESSED AT RS.3,85,725/-. THE A O LEVIED THE PENALTY FOR CONCEALMENT WHICH WAS CANCELLED BY LD. CIT(A) A ND HIS ORDER WAS UPHELD BY THE TRIBUNAL. HON. HIGH COURT HELD THAT E XPLANATION TO SECTION 271(1)(C) ATTRACTED IN SUCH CASE AND THE BURDEN SHI FTED ON THE ASSESSEE, WAS NOT DISCHARGED. 11.8 HON. GUJARAT HIGH COURT IN CIT VS. CHANDRA VIL AS HOTEL (2007) 291 ITR 202 (GUJ) HELD THAT WHERE IF ASSESSEE FAILS TO DISCHARGE THE BURDEN CAST UPON HIM TO SHOW THAT HIS ACTION WAS BO NA FIDE, THE EXPLANATION WOULD NOT PROVIDE ANY PROTECTION AND PE NALTY PROCEEDINGS WOULD BE VALID. IN THAT CASE THE INCOME WAS ESTIMAT ED AND GROSS PROFIT RATE WAS APPLIED. THE ADDITION TO THE TOTAL INCOME WAS MADE BY ADDING 20% OR MORE TO THE RETURNED INCOME. THE ASSESSEE WA S MAINTAINING BOOKS OF ACCOUNT IN THE SAME MANNER PERSISTENTLY FOR SEVE RAL YEARS AND WERE NOT FOUND RELIABLE. 11.9 IN ADDL. CIT VS. SMT. CHANDRAKANTA & ANR. (199 4) 205 ITR 607 (M.P.) WHERE ASSESSEE WAS NOT MAINTAINING THE BOOKS OF ACCOUNTS AN INCOME WAS ESTIMATED, LEVY OF PENALTY ON ASSESSED I NCOME ON ESTIMATE BASIS WAS HELD VALID. ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 15 20. THUS ON THE BASIS OF ABOVE AUTHORITIES FOLLOWIN G PRINCIPLES CAN BE CULLED OUT IN RESPECT OF LEVY OF PENALTY WHERE AN A DDITION IS MADE ON ESTIMATE BASIS. (1) WHERE ADDITION IS MADE ON ESTIMATE BASIS EXPLAN ATION-1 TO SECTION 271(109C) IS ATTRACTED AND BURDEN IS SHIFTED TO THE ASSESSEE TO DISCHARGE THE BURDEN THAT ADDITION SO MADE DID NOT REPRESENT ANY CONCEALED INCOME OR ADDITION IN RESPECT OF WHICH HE HAS FURNISHED IN ACCURATE PARTICULARS OF INCOME BY SHOWING THAT EXPLANATION GIVEN BY HIM WAS BONA FIDE HE HAS NOT SUPPRESSED ANY MATERIAL FACT, AND HAS SUBSTANTI ATED HIS EXPLANATION. (2) ON THE CLAIM MADE BY THE ASSESSEE THAT HE HAS S UBSTANTIATED HIS EXPLANATION OR HIS EXPLANATION IS BONA FIDE OR HE H AS NOT SUPPRESSED ANY MATERIAL FACT, THE AO HAS TO SHOW THAT SUCH CLAIM I S FACTUALLY OR LEGALLY NOT CORRECT. THIS CAN BE SHOWN BY EITHER MATERIAL O N RECORD OR MATERIAL SUBSEQUENTLY BROUGHT ON RECORD BY THE AO OR BY THE ASSESSEE AVAILABLE AT THE TIME OF ASSESSMENT. (3) DISCHARGE OF BURDEN OF PROOF LYING ON THE PARTI ES IS OF THE SAME NATURE AS IS PRESCRIBED FOR JUDICIAL PROCEEDINGS. (4) WHERE AO FINDS THAT THERE IS SUPPRESSION OF FAC TS AND THERE IS NO REASONABLE EXPLANATION FOR NOT SUBMITTING THE NECES SARY FACTS THE BURDEN LYING ON THE ASSESSEE BY VIRTUE OF EXPLANATION-1 TO SECTION 271(1)(C) IS NOT DISCHARGED. (5) THUS IN A CASE WHERE AO SPECIFICALLY CALLS FOR BOOKS OF ACCOUNT ON ANY PARTICULAR MATERIAL FACT AND ASSESSEE DOES NOT SUBMIT HIS BOOKS OF ACCOUNT OR DOES NOT GIVE ANY PLAUSIBLE OR ACCEPTABL E EXPLANATION THEN HE WOULD BE GUILTY OF NOT FURNISHING MATERIAL FACT BEF ORE THE AO. ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 16 (6) WHERE ADDITION IS MADE PURELY ON ESTIMATE BASIS BY REJECTING EXPLANATION FURNISHED BY THE ASSESSEE THEN EVEN IF EXPLANATION TO SECTION 271(1)(C) IS ATTRACTED PENALTY UNDER SECTION 271(1) (C) CANNOT BE LEVIED IF APPARENTLY THERE IS NO ALLEGATION OF EXPLANATION NO T BEING BONA FIDE OR SUPPRESSION OF ANY MATERIAL FACT. (7) WHERE ASSESSEE SUBMITS ALL THE FACTS WHICH ARE AVAILABLE IN HIS POSSESSION WHICH CAN BE REASONABLY ACCEPTED TO BE I N HIS POSSESSION AND CONTROL AND FOR OTHERS WHICH HE IS NOT ABLE TO PROD UCE BEFORE THE AO, THERE IS A REASONABLE EXPLANATION WHICH CAN BE HELD TO BE SATISFACTORY NO PENALTY CAN BE LEVIED AS THE BURDEN LYING ON THE AS SESSEE BY VIRTUE OF EXPLANATION CAN BE SAID TO BE DISCHARGED AND ADDITI ON SO MADE CANNOT BE DEEMED TO BE ASSESSEES CONCEALED INCOME OR INCOME FOR WHICH HE HAS FURNISHED INACCURATE PARTICULARS. 21. WHEN WE APPLY THE ABOVE PRINCIPLES TO THE FACTS OF THE PRESENT CASE, THE AO HAS RIGHT FROM THE ASSESSMENT STAGE IN SISTED ON PRODUCTION OF THE BASIS FOR WORKING OUT THE FIGURE OF WIP BUT ASSESSEE NEITHER SUBMITTED SUCH BASIS NOR GAVE ANY EXPLANATION AS TO WHY HE IS UNABLE TO FURNISH SUCH BASIS. IN OUR CONSIDERED VIEW HOW THE ASSESSEE HAS VALUED THE CLOSING STOCK OR WORK IN PROGRESS OR THE BASIS ON WHICH HE HAS ARRIVED AT A PARTICULAR FIGURE OF CLOSING STOCK OR WIP IS A RELEVANT MATERIAL FACT FOR THE PURPOSE OF ASSESSMENT. IT AFFECTS THE PROFIT CH ARGEABLE TO TAX FOR THE ASSESSMENT YEAR IN QUESTION. IF ASSESSEE FURNISHES ANY FIGURE IN THE INGREDIENTS IN TRADING/MANUFACTURING ACCOUNT SUCH A S OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK WITHOUT SUBSTANT IATING THEM THEN HE WOULD BE GUILTY OF SUPPRESSING MATERIAL FACT UNLESS THERE IS A REASONABLE EXPLANATION FOR NOT FURNISHING SUCH MATERIAL FACT B EFORE THE AO. THE ASSESSEE IS A LIMITED COMPANY. IT HAS CLAIMED THAT ACCOUNTS ARE AUDITED, ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 17 THEREFORE, IT IS NOT EXPECTED THAT ASSESSEE WOULD B E ADOPTING ANY ARBITRARY FIGURE FOR CLOSING STOCK OR WIP. THE FIGURE OF WIP IS AN ODD FIGURE BEING RS.22,14,477/-. IT MUST HAVE BEEN ARRIVED AT ON CER TAIN BASIS BY WORKING OUT THE COST OF THE MATERIAL, LABOUR INPUT AND OTHE R OVER-HEAD. IF THE ASSESSEE DOES NOT FURNISH THE DETAILS OF SUCH INPUT S WHICH GOES TO MAKE THE VALUE OF WIP TAKEN IN THE CLOSING STOCK THERE I S A CLEAR SUPPRESSION OF FACTS TO THE EXTENT OF GROSS AND WILLFUL NEGLIGENCE . ACCORDINGLY BURDEN CAST BY EXPLANATION 1(B) TO SECTION 271 IS NOT HELD DISCHARGED AND, THEREFORE, PENALTY IS CLEARLY ATTRACTED. 22. THE SECOND LINE OF ARGUMENT TAKEN BY THE ASSESS EE IS THAT ASSESSED TAX IS ZERO AND SO IS RETURNED TAX. HENCE HENCE TAX SOUGHT TO BE EVADED IS NIL, THE LEVY OF PENALTY IS NOT WORKABLE AND, THERE FORE, NO PENALTY SHOULD BE LEVIED. IN OUR CONSIDERED VIEW THERE IS NO MERIT IN THIS ARGUMENT. FOR THE SAKE OF CONVENIENCE WE REPRODUCE EXPLANATION -4 TO SECTION 271(1)(C) AS UNDER :- EXPLANATION-4 TO SECTION 271(1) FOR THE PURPOSES OF CLAUSE (III) OF THIS SUB-SEC TION, THE EXPRESSION THE AMOUNT OF TAX SOUGHT TO BE EVADE D- [(A) IN ANY CASE WHERE THE AMOUNT OF INCOME IN RESP ECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED HAS THE EFFECT OF REDUCING THE LOSS DECLARED IN THE RETURN OR CONVERT ING THAT LOSS INTO INCOME, MEANS THE TAX THAT WOULD HAVE BEEN CHARGEABLE ON THE INCOME I N RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED HAD SUCH INCOME BEEN THE TOTAL INCOME] (B) IN ANY CASE TO WHICH EXPLANATION 3 APPLIES, M EANS THE TAX ON THE TOTAL INCOME ASSESSED [AS REDUCED BY THE AMOUNT OF ADVANCE TAX, TAX DEDUCTED AT SOURCE, TAX COLLECTED AT SOURCE AND SELF-ASSESSMENT TAX PAID BE FORE THE ISSUE OF NOTICE UNDER SECTION 148] (C) IN ANY OTHER ASSESSEE, MEANS THE DIFFERENCE BETWEEN THE TAX ON THE TOTAL INCOME ASSESSED AND THE TAX THAT WOULD HAVE BEEN CHARGEABL E HAD SUCH TOTAL INCOME BEEN REDUCED BY THE AMOUNT OF INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED.] ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 18 EXPLANATION 4(A) APPLIES WHERE THE ADDITION TO THE TOTAL INCOME REDUCED THE LOSS OR CONVERTS THE LOSS INTO INCOME THEN TAX SOUGHT TO BE EVADED WOULD BE EQUAL TO TAX CHARGED ON THE ADDITION SO MA DE. EXPLANATION 4(B) APPLIES TO A SITUATION WHERE ASSESSEE DOES NOT FURN ISH RETURN OF INCOME AS REQUIRED FROM HIM UNDER SECTION 153(1), 139, 142(1) OR 148(1) THEN TAX SOUGHT TO BE EVADED WOULD BE EQUAL TAX ON INCOME AS SESSED AS REDUCED BY PREPAID TAXES. EXPLANATION-4(C) APPLIES IN RESIDUA RY CASES WHERE CLAUSE (A) AND (B) TO EXPLANATION 4 ARE NOT APPLICABLE. TH US WHERE EXPLANATION 4 IS INVOKED AND IT IS FOUND THAT ASSESSEES CASE IS COVERED UNDER EXPLANATION 4(A), THEN ONE NEED NOT GO TO EXPLANATI ON 4(C). THERE IS NO OPTION THAT OUT OF THE THREE CLAUSES IN EXPLANATION -4 WHATEVER IS FAVOURABLE TO THE ASSESSEE SHOULD BE INVOKED. ONE H AS TO GO SERIAL WISE AND FIND OUT AS TO WHETHER IN THE FACTS OF THE PART ICULAR CASE IF CLAUSE (A) IS APPLICABLE IT SHOULD BE FORTHWITH APPLIED. THEREAFT ER, IF CLAUSE (A) IS NOT APPLICABLE ONE SHOULD APPLY CLAUSE (B) AND WHERE NO NE OF THE TWO CLAUSES ARE APPLICABLE THEN ONE GOES TO RESIDUARY CLAUSE (C ). IT IS NOT THAT, WHATEVER CLAUSE IS SUITABLE TO THE ASSESSEE, SHOULD BE PICKED UP AND APPLIED. IN THE PRESENT CASE RETURNED INCOME IS LOS S OF RS.18,65,550/- AND ADDITION SO MADE BY THE AO HAS RESULTED INTO TOTAL INCOME OF RS.5,14,448/- WHICH WAS REDUCED TO NIL BY SET OFF O F UNABSORBED LOSS BROUGHT FORWARD FROM EARLIER YEARS. FURTHER WE NOTI CE THAT THERE IS NO SUCH GROUND TAKEN BY THE ASSESSEE THAT IN ITS CASE EXPLANATION 4(C) IS APPLICABLE EXCEPT RAISING THIS ISSUE IN THE ARGUMEN T. WE ALSO NOTICE THAT FOR INVOKING EXPLANATION 4(C) FACTS ARE REQUIRED TO BE INVESTIGATED INASMUCH AS NO WORKING OF TAXES BY VIRTUE OF THIS E XPLANATION HAS BEEN GIVEN. NOTWITHSTANDING WE HAVE HELD THAT EXPLANATIO N 4(C) IS NOT APPLICABLE IN THE CASE OF ASSESSEE. THE AO IS CORRE CT IN WORKING CONCEALMENT ON ADDITION OF RS.8,37,668 WHICH HAS EF FECT OF REDUCING THE ITA NO.1737/AHD/2010 ASST. YEAR 1997-78 19 DECLARED LOSS. WE CONFIRM THE ORDER OF LD. CIT(A) A ND DISMISS THE APPEAL FILED BY THE ASSESSEE. 23. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER WAS PRONOUNCED IN OPEN COURT ON 30/9/10. SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT ME MBER AHMEDABAD, DATED : 30/9/10. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 24 /9/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 27/9/2010 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..