The ACIT, Valsad Circle, Valsad V. Maxima Systems Ltd., Valsad

ITA 2226/AHD/2010

• Counselvise Citation: 222620514 RSA 2010
• Duration Of Justice: 2 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 01-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y P VERMA
• Assessee Lawyers: K N BHATT
• Keywords: Deemed to accrue or arise in india
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE SHRI D. K. TYAGI, JM AND SHRI A. MOHAN ALAN KAMONY, AM) ITA NO.2226/AHD/2010: AY -2006-07 THE A. C. I. T., VALSAD CIRCLE, SURYAPRAKSSH CHAMBERS, DHARAMPUR ROAD, VALSAD VS M/S. MAXIMA SYSTEMS LTD., B-1, YASH KAMAL, TITHAL ROAD, VALSAD P. A. NO. AABCM 5861 H (APPELLANT) (RESPONDENT) APPELLANT BY SHRI Y. P. VERMA, SR. DR RESPONDENT BY SHRI K. N. BHATT, AR DATE OF HEARING: 20-11-2012 DATE OF PRONOUNCEMENT: 26-12-2012 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL IS PREFERRED BY THE REVENUE AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A ), VALSAD IN APPEAL NO.CIT(A)/VLS/81/09-10 DATED 23-04-2010, FOR THE ASSESSMENT YEAR 2006-07, PASSED U/S 271(1)(C) READ WITH SECTION 250 OF THE INCOME TAX ACT, 1961. 2. THE REVENUE HAS RAISED THREE GROUNDS WHEREIN TH E CRUX OF THE ISSUE IS THAT THE LEARNED CIT(A) HAS ERRED IN LAW A ND ON FACTS IN DELETING PENALTY OF RS.2,51,600/- LEVIED U/S 271 (1 ) (C) OF THE ACT, 1961. 3. BRIEF FACTS: -THE ASSESSEE IS ENGAGED IN THE BUS INESS OF MANUFACTURING AND TRADING IN STEEL FURNITURE AND ST ORAGE SYSTEM AND DEVELOPMENT, MAINTENANCE AND TRADING IN SOFTWARE ET C. FILED ITS RETURN ITA NO.2226/AHD/2010 (AY: 2006-07) THE ACIT, VALSAD CIRCLE VS M/S. MAXIMA SYSTEMS LTD. 2 OF INCOME ON 3012-2006 AND FINALLY ORDER U/S 143(3) OF THE ACT WAS PASSED ON 31-12-2008 WHEREIN THE LEARNED AO MADE AN ADDITION OF RS.7,42,930/- U/S 69B OF THE ACT AS UNEXPLAINED INV ESTMENT BEING THE DISCREPANCY IN STOCK FOUND AT THE TIME OF SURVEY. DURING THE COURSE OF SURVEY CARRIED OUT ON THE BUSINESS PREMISES OF T HE ASSESSEE ON 13-3-2006 U/S 133A OF THE ACT IT WAS OBSERVED BY TH E LEARNED AO THAT THERE WAS A DISCREPANCY IN THE QUANTITY OF SEMI-FIN ISHED STOCK WITH RESPECT TO THE STOCK DISCLOSED IN THE BOOKS OF ACCO UNT AND PHYSICAL STOCK. SUBSEQUENTLY THE VALUE OF SEMI-FINISHED STOC K WAS DETERMINED FROM THE INFORMATION GATHERED FROM THE ASSESSEE AT RS.7,42,930/-. IT WAS FURTHER OBSERVED THAT THE ASSESSEE WAS NOT MAIN TAINED PROPER STOCK RECORDS FOR WHICH IT WAS EXPLAINED THAT DUE T O PRACTICAL DIFFICULTIES AND NATURE OF BUSINESS IT WAS NOT POSS IBLE TO MAINTAIN ACCURATE STOCK RECORDS FOR SEMI-FINISHED GOODS. IN THE PENALTY PROCEEDINGS, THE LEARNED AO RELYING ON THE DECISION OF THE CASE OF (I) K.P. MADHUSAN VS CIT, 251 ITR 99 (SC) AND (II) DHAR MENDRA TEXTILE PROCESSORS VS CIT, 306 ITR 277 (SC) LEVIED PENALTY OF RS.2,51,600/- BY HOLDING AS UNDER IN PARA 4, 5 AND 6 OF THE PENAL TY ORDER PASSED ON 30-06-2009: 4. FROM THE FACTS OF THE CASE IT IS CLEAR THAT THE UNDERSTATEMENT OF STOCK WHICH WAS DETECTED DURING T HE COURSE OF SURVEY PROCEEDINGS, WHICH RESULTED IN THE CONCEA LMENT OF INCOME, WAS ESTABLISHED DURING THE COURSE OF ASSESS MENT PROCEEDINGS ON THE DEFINITE FINDINGS. IN VIEW OF TH E FACTS AND CIRCUMSTANCES OF THE CASE, THE CASE LAWS RELIED UPO N BY THE ASSESSEE ALSO IS TOTALLY DISTINGUISHABLE AND HOLDS NO RELEVANT. THE CASE LAW RELIED UPON BY THE ASSESSEE MAINLY DEA LS WITH THE ITA NO.2226/AHD/2010 (AY: 2006-07) THE ACIT, VALSAD CIRCLE VS M/S. MAXIMA SYSTEMS LTD. 3 FINDINGS OF THE TRIBUNAL ABOUT THE OMISSION ON THE PART OF THE ASSESSEE THEREBY DELETING THE QUANTUM ADDITION WHER E AS IN THE INSTANT CASE A DELIBERATED ATTEMPT TO CONCEAL T HE PARTICULARS OF INCOME BY WAY OF FURNISHING INACCURATE PARTICULA RS OF INCOME WAS ESTABLISHED DURING THE COURSE OF ASSESSMENT PRO CEEDINGS. THE ASSESSEE HAS NOT BROUGHT ANY FRESH EVIDENCE ON RECORD TO PROVE THAT IT WAS NOT DELIBERATE ACT OF THE ASSESSE E WHICH RESULTED IN UNDERSTATEMENT OF THE STOCK. THE FACT T HAT THE ASSESSEE DID NOT FILE APPEAL AGAINST THE ASSESSMENT ORDER ALSO GOES TO ESTABLISH FURNISHING OF INACCURATE PARTICUL ARS OF INCOME CONCLUSIVELY. IT IS ALSO PERTINENT TO NOTE THAT WIT H THE INTRODUCTION OF EXPLANATION 1 BELOW SECTION 271 (1) ( C), THE RE VENUE IS NOT REQUIRED TO PROVE MENS-REA ON THE PART OF THE ASSES SEE [K. P. MADHUSAN VS. CIT 251 ITR 99 (SC)]. AGAIN IN THE LAT EST ORDER IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS, 306 ITR 277 (SC), IT HAS BEEN HELD THAT PENALTY U/S 271 (1) ( C) IS A CIVIL LIABILITY TO REMEDY THE LOSS OF REVENUE AND HENCE THE REVENUE IS NOT REQUIRED TO ESTABLISH MENS-REA ON THE PART OF DEFAU LTER. 5. IN THE LIGHT OF THE ABOVE DISCUSSED FACTS AND CIRCUMSTANCES OF THE CASE IT IS CLEAR THAT THE ASSE SSEE NEITHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOR DUR ING THE COURSE OF PENALTY PROCEEDINGS COULD ESTABLISH THAT THERE WAS NO CONCEALMENT OF INCOME ON THE PART OF THE ASSESSEE. THEREFORE, THE ASSESSEE HAS RENDERED HIMSELF LIABLE FOR THE PE NALTY U/S 271 (1) (C) OF THE I. T. ACT FOR FURNISHING INACCUR ATE PARTICULARS THEREBY CONCEALING THE PARTICULARS OF HIS INCOME, F OR WHICH I AM FULLY SATISFIED. 6. THE TAX SOUGHT TO BE EVADED ON THE CONCEALED INC OME WORKS OUT TO RS.251600/- AND ACCORDINGLY MINIMUM AN D MAXIMUM PENALTY IMPOSABLE COMES TO RS.251600/- AND RS.7,54,800/- RESPECTIVELY. HOWEVER, ON CAREFUL CON SIDERATION OF FACTS AND CIRCUMSTANCES OF THE CASE, A MINIMUM P ENALTY AT RS.2,51,600/- BEING 100% OF THE TAX SOUGHT TO BE EV ADED IS HEREBY IMPOSED. THE ASSESSEE IS DIRECTED TO PAY THE SAME AS PER THE NOTICE OF DEMAND AND CHALLAN ISSUED SEPARAT ELY. ITA NO.2226/AHD/2010 (AY: 2006-07) THE ACIT, VALSAD CIRCLE VS M/S. MAXIMA SYSTEMS LTD. 4 4. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE AND THE OBSERVATIONS MADE BY THE LEARNED A O DELETED THE PENALTY. RELEVANT PORTION OF THE ORDER OF THE LEARN ED CIT(A) IS REPRODUCED HEREIN UNDER FOR REFERENCE: 4. SUBMISSION BY A. R.: IN RESPECT OF GROUND NO.1, IN THE DETAILED SUBMISSIONS FILED BY THE AR OF THE APPELLA NT, IT HAS BEEN CONTENDED BY THE APPELLANT THAT THE PENALTY LE VIED U/S. 271 (1) ( C ) IS BAD IN LAW IN VIEW OF THE DETAILED SUBMISSIONS FILED BY THE APPELLANT, AND THE SAME MAY BE DELETED . THE APPELLANT HAS ALSO PLACED HIS RELIANCE ON THE FOLLO WING JUDICIAL PRONOUNCEMENTS: UNION OF INDIA & OTHERS VS DHARMENDRA TEXTILE PROCE SSORS & ORS. KANAY SOFTWARE INDIA (P LTD. VS DCIT ACIT VS VIP INDUSTRIES LTD. 5. CONCLUSION: I HAVE CAREFULLY CONSIDERED THE FACT S AND SUBMISSIONS OF THE APPELLANT AND ALSO GONE THROUGH THE ORDER BY THE AO. I FIND THAT THE AO HAS DISCUSSED THIS IS SUE IN DETAIL IN HIS ORDER. I FIND CONSIDERABLE FORCE IN THE SUBM ISSIONS MADE BY THE APPELLANT. I ALSO FIND THAT THE FACTS OF THE CASE LAWS CITED BY THE APPELLANT ARE IDENTICAL TO THE FACTS O THE A SSESSEES CASE. THEREFORE, THE PENALTY LEVIED U/S. 271 (1) (C ) IS DELETED. THIS GROUND IS THEREFORE DECIDED IN FAVOUR OF THE A SSESSEE. 5. THE LEARNED DR RELIED ON THE ORDER OF THE LEARNE D AO. ON THE OTHER HAND THE LEARNED AR SUPPORTED THE ORDER OF TH E LEARNED CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND CAREFULLY CONSIDERED THE MA TERIALS PRODUCED BEFORE US. IT IS EVIDENT FROM THE FACTS THAT DURING THE COURSE OF SURVEY ITA NO.2226/AHD/2010 (AY: 2006-07) THE ACIT, VALSAD CIRCLE VS M/S. MAXIMA SYSTEMS LTD. 5 CONDUCTED ON 23-02-2006 WHEREIN PHYSICAL VERIFICATI ON OF INVENTORY WAS CARRIED OUT; THERE WAS A DISCREPANCY IN SEMI-FI NISHED STOCK IN TERMS OF ACTUAL STOCK RECORDED IN THE BOOKS OF ACCO UNT. THE ACTUAL PHYSICAL STOCK OF SEMI-FINISHED GOODS WAS FOUND TO BE MORE THAN THE STOCK RECORDED IN THE STOCK REGISTER. BASED ON THE MATERIALS GATHERED FROM THE ASSESSEE SUCH AS, BILLS, VOUCHERS ETC., TH E LEARNED AO HAD DETERMINED THE VALUE US SUCH STOCK TO BE RS.7,42,93 0/-. IT IS ALSO EVIDENT THAT AS ON THE DATE OF SURVEY THE ASSESSEE HAS NOT UP-DATED ITS BOOKS WITH RESPECT TO ITS STOCK IN HAND OF SEMI -FINISHED GOODS. IT WAS ALSO OBSERVED BY THE LEARNED AO THAT THE RECORD KEEPING OF THE STOCK WAS NOT PROPER. THE ASSESSEE ALSO CONFESSED T HAT THE PROPER DETAILS OF SEMI-FINISHED GOODS COULD NOT BE MAINTAI NED BECAUSE OF THE COMPLEX NATURE OF MANUFACTURING ACTIVITIES. THE ASSESSEE ALSO COULD NOT RECONCILE ITS STOCK REGISTER WITH THE PHY SICAL QUANTITY VERIFIED DURING THE COURSE OF SURVEY. THEREFORE, THE LEARNED AO WAS OF THE OPINION THAT THESE STOCKS ARE EXCESS STOCKS FOUND D URING THE COURSE OF SURVEY AND THE SOURCE OF INVESTMENT IN THE STOCK S IS UNEXPLAINED AND, THEREFORE, IT WAS TREATED AS DEEMED INCOME IN THE YEAR IN WHICH SUCH DISCREPANCY WAS FOUND OUT AND ADDED TO THE INC OME OF THE ASSESSEE U/S 69/69B OF THE ACT. THE LEARNED AR HAD ARGUED THAT THE ASSESSEE HAD AGREED FOR THE ADDITION BEFORE THE LEA RNED AO ONLY TO BUY PEACE FROM THE DEPARTMENT AS IT WAS A FUTILE EX ERCISE TO ACCURATELY RECONCILE THE STOCK OF SEMI-FINISHED GOO DS. THE DEGREE AND STAGE OF COMPLETION OF A PARTICULAR ITEM/PRODUC T WAS HIGHLY SUBJECTIVE AND IT WOULD BE NOT POSSIBLE TO ARRIVE A T A SATISFACTORY ITA NO.2226/AHD/2010 (AY: 2006-07) THE ACIT, VALSAD CIRCLE VS M/S. MAXIMA SYSTEMS LTD. 6 EXPLANATION. AFTER LOOKING INTO THE FACTS OF THIS C ASE, WE FIND THAT THE ENTIRE ADDITION AROSE BECAUSE OF NO PROPER MAINTENA NCE OF STOCK REGISTER WITH RESPECT TO SEMI-FINISHED GOODS. FURTH ER, THE ASSESSEE HAD SHOWN A TURNOVER OF RS.5,34,26,655/- WHEREIN TH ERE IS A STOCK DISCREPANCY FOR AN AMOUNT OF RS.7,42,930/- WHICH IS QUITE NEGLIGIBLE. MOREOVER THE EXCESS OF STOCK WILL FURTHER FORM A PA RT OF THE OPENING STOCK IN THE SUBSEQUENT YEAR AND THEREBY THE REVENU E WILL NOT BE AT A LOSS. FURTHER WE DO NOT SEE ANY INTENTION ON THE PART OF THE ASSESSEE TO SHIFT ITS PROFIT TO THE SUBSEQUENT YEAR . THE ENTIRE DISCREPANCY HAS OCCURRED DUE TO THE INHERENT NATURE OF THE MANUFACTURING PROCESS WHERE PRODUCTION RECORDS COUL D NOT BE ECONOMICALLY MAINTAINED. THE RAW MATERIALS ARE ALSO NOT PRECIOUS MATERIALS OF HIGH VALUE WHERE MAINTENANCE OF STOCK RECORDS OF SEMI FINISHED GOODS ACCURATELY IS ESSENTIAL IN ORDER TO PROJECT THE TRUE STATE OF AFFAIRS OF THE BUSINESS. FROM THESE FACTS AND C IRCUMSTANCE OF THE CASE, WE DO NOT FIND THAT THE ASSESSEE HAD ATTEMPTE D TO CONCEAL ITS INCOME OR FURNISH INACCURATE PARTICULARS OF INCOME IN ORDER TO INVOKE PROVISIONS OF SECTION 271 (1) (C) OF THE ACT. THERE FORE WE ARE OF THE VIEW THAT THOUGH THIS CASE MAY BE A FIT CASE FOR MA KING ADDITION THIS IS NOT A CASE FIT FOR LEVY OF PENALTY. ACCORDINGLY, WE DELETE THE PENALTY LEVIED BY THE LEARNED AO AND CONFIRM THE ORDER OF T HE LEARNED CIT(A). THUS, THE APPEAL IS DECIDED IN FAVOUR OF THE ASSESS EE AND AGAINST THE REVENUE. ITA NO.2226/AHD/2010 (AY: 2006-07) THE ACIT, VALSAD CIRCLE VS M/S. MAXIMA SYSTEMS LTD. 7 7. IN THE RESULT, THE APPEAL THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 26-12-2012 SD/- SD/- (D. K. TYAGI) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANTA LAKSHMIKANTA LAKSHMIKANTA LAKSHMIKANTA DEKA/ DEKA/ DEKA/ DEKA/ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITA T, AHMEDABAD 1. DATE OF DICTATION: 20-12-12/21-12-12 (DIRECT ON COMPUTER) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 21-12-12 OTHER MEMBER: 21-12-12 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S. /P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. 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 ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: