Prabhat Solvent Extraction Inds. P. Ltd., RAJKOT-GUJARAT V. The Assistant Commissioner of Income Tax, Circle-1, RAJKOT-GUJARAT

ITA 285/RJT/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2971 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 15-12-2010
• Assessment Year: 1992-1993
• Appeal Filed On: 25-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JM SAHAY
• Assessee Lawyers: M P SARDA
• Keywords: Capital receipt; Set aside
• Section: 271(1)(c); 147; 148; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI D.T. GARASIA (JM) I.T.A. NO. 285/RJT/2007 (ASSESSMENT YEAR 1992-93) PRABHAT SOLVENT EXTRACTION INDUSTRIES VS THE ACIT, CIR.1 PVT LTD, STERLING APARTMENT RAJKOT JAWAHAR ROAD, RAJKOT PAN : AABP2904Q (APPELLANT) (RESPONDENT) I.T.A. NO. 376/RJT/2007 (ASSESSMENT YEAR 1992-93) ITO, WD.1(3) VS M/S PRABHAT SOLVENT EXTRACTION RAJKOT PVT LTD, RAJKOT (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MP SARDA REVENUE BY : SHRI JM SAHAY O R D E R A.L. GEHLOT : THESE CROSS APPEALS ARE DIRECTED AGAI NST THE ORDER DATED 20- 03-2007 PASSED BY THE CIT(A)-I, RAJKOT FOR THE ASSE SSMENT YEAR 1992-93 WHEREBY THE LD.CIT(A) PARTLY CONFIRMED THE PENALTY IMPOSED U/S 271(1)(C) OF THE ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT A SEARCH AN D SEIZURE OPERATION U/S 132 OF THE ACT WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE ON 28- 04-1995. THE ASSESSMENT FOR THE YEAR UNDER CONSIDE RATION HAS BEEN REOPENED U/S 147 OF THE ACT BY ISSUE OF NOTICE U/S 148 ON 25-03-1999. DURING THE RE-ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS CONFRONTED WITH THE ISSUE OF VALUE OF CLOSING STOCK AND AFTER CONSI DERING THE REPLY, THE ITA NO.285 & 376/RJT/2007 2 ASSESSING OFFICER CALCULATED THE AMOUNT OF ADDITION AT RS. 87,08,045 ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK OF RAPS EED REFINED OIL. THE ASSESSING OFFICER ALSO INITIATED PENALTY PROCEEDING S U/S 271(1)(C) OF THE ACT. THE ASSESSING OFFICER LEVIED PENALTY OF RS.51 LAKHS BEING 100% TAX SOUGHT TO BE EVADED ON THE GROUND THAT THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF VALUATION OF CLOSIN G STOCK STOOD CONFIRMED BY THE CIT(A). BEFORE THE CIT(A) IT WAS CONTENDED BY THE ASSESSEE THAT CLOSING STOCK FOR ASSESSMENT YEAR 1992-93 BECOMES O PENING STOCK FOR ASSESSMENT YEAR 1993-94. THE ASSESSEE FURTHER SUBM ITTED THAT THE ITAT HAS SET ASIDE THE ORIGINAL ASSESSMENT ORDER TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS REDUCED THE ADD ITION FROM RS.87.8 LAKHS TO RS.55.84 LAKHS WHILE FRAMING THE ASSESSMENT ON T HE DIRECTIONS OF THE ITAT. THE CIT(A) REJECTED ASSESSEES CONTENTION TH AT ITAT HAS SET ASIDE THE MATTER, THEREFORE, PENALTY SHOULD BE CANCELLED. THE CIT(A) WAS OF THE VIEW THAT THERE IS NO NEED TO DO SO FOR THE SIMPLE REASON THAT THE ITAT HAS CONFIRMED THE ORDER ON ALL ISSUES AND THE ONLY ISSU E TO BE CONSIDERED BY THE ASSESSING OFFICER WAS WITH REGARD TO THE QUANTI FICATION OF CONCEALMENT AS INASMUCH AS THE ITAT, IN ITS ORDER HAS HELD THAT THE ASSESSING OFFICER HAD NOT APPLIED THE EXACT MARKET RATE AND THERE WAS A HIGHER ADDITION BUT ADDITION WAS TO BE MADE IN ANY CASE. THE CIT(A), T HEREFORE, HELD THAT THERE IS NO NEED TO CANCEL THE PENALTY PROCEEDINGS AT THIS STAGE AND THUS, THE PROCEEDINGS CAN BE TAKEN TO THE LOGICAL END. T HE CIT(A) FURTHER HELD THAT WHERE ACTION OF THE ASSESSING OFFICER IS CONFI RMED IN PRINCIPLE HE DIRECTED THE ASSESSING OFFICER TO RE-COMPUTE THE PE NALTY KEEPING IN VIEW THE FINAL ADDITION MADE IN HIS ORDER DATED 22-11-20 06. SINCE BY THE ORDER OF THE CIT(A) THE PENALTY HAS BEEN CONFIRMED PARTLY , THE ASSESSEE IS IN APPEAL AND TO THE EXTENT THE CIT(A) REDUCED THE QUA NTUM OF PENALTY, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO.285 & 376/RJT/2007 3 3. THE LD.AR SUBMITTED THAT WHEN THE ORIGINAL ORDER HAS BEEN SET ASIDE BY THE ITAT, THE PENALTY ORDER IS ALSO LIABLE TO BE SET ASIDE. HE FURTHER SUBMITTED THAT THERE WAS NO QUANTITATIVE DIFFERENCE . ONLY DIFFERENCE WAS ON ACCOUNT OF VALUATION OF THE CLOSING STOCK AND FO R THAT DIFFERENCE, PENALTY U/S 271(1)(C) IS NOT APPLICABLE. THE LD.A ALSO REL IED UPON THE WRITTEN SUBMISSIONS WHICH HAVE BEEN PLACED ON RECORD. 4. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE OR DER OF CIT(A) AND SUBMITTED THAT THE ITAT HAS NOT SET ASIDE THE WHOLE ASSESSMENT ORDER. IT SENT BACK THE MATTER TO THE FILE OF THE ASSESSING O FFICER FOR QUANTIFICATION. THEREFORE, PENALTY INITIATED IN ORIGINAL PROCEEDING S IS IN ACCORDANCE WITH LAW. 5. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES, RECORD PERUSED. THE FINDINGS OF THE ITAT IN QUANTUM PROCE EDINGS IN ITA NO.80/RJT/2003 ORDER DATED 25 TH NOVEMBER, 2005, THE TRIBUNAL HELD AS FOLLOWS: 8. WE HAVE HEARD THE RIVAL CONTENTIONS. LOOKING T O THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT T HE AO AND THE CIT(A) HAVE HELD THAT THE ASSESSEE WAS SHOWING UNDERVALUATION OF THE CLOSING STOCK THOUGH THE MARK ET RATE PREVAILING WAS HIGHER. THIS FACT WAS ALSO ADMITTED BY MAHESH VADALIA, ONE OF THE DIRECTORS OF THE ASSESSEE-COMPA NY, IN HIS STATEMENT, THAT TOO ON OATH AND ON THE BASIS OF DOC UMENTS FOUND DURING THE COURSE OF SEARCH. THE ASSESSING O FFICER HAS EXAMINED THE RECORDS OF VARIOUS YEARS AND FOUND THA T IN THE ASSESSMENT YEAR 1992-93, THE ASSESSEE HAS VARIOUS V ALUED THE CLOSING STOCK OF EXPELLER RATE OIL SEED AT RS.1 8,000 AND RS.19,000 WHEREAS, THE MARKET RATE PREVAILING AT TH E CLOSE OF THE ACCOUNTING YEAR WAS BETWEEN RS.23,000 TO RS.27, 000 PER MT. THE ASSESSING OFFICER HAS REFERRED AND RELIED UPON THE MARKET RATE OF VARIOUS COMPANIES WHO ARE IN SIMILAR BUSINESS. BUT THE ASSESSEE HAS TAKEN THE VALUE OF EXPELLER OI L AT ITA NO.285 & 376/RJT/2007 4 RS.23,000 PER MT AS AGAINST THE PRICE OF RS.232,802 SHOWN BY JAGDISH EXPORT INDS. SIMILARLY THE VALUE OF RAP E-SEED EXPELLER REFINED OIL WAS SHOWN AT RS.25,000 AS AGAI NST RS.23,200 SHOWN BY MORVI VEGETABLE. SO, WE ARE OF T HE VIEW THAT THE ASSESSING OFFICER HAS ALSO TAKEN THE MARKE T VALUE AT HIGHER SIDE. THEREFORE, WE ARE OF THE VIEW THAT TH E ASSESSING OFFICER IS NOT JUSTIFIED IN TAKING THE MARKET VALUE OF FINISHED GOODS AT A HIGHER MARKET RATE OF THE COMPANIES WHIC H FETCHES MORE VALUE. MOREOVER, AS PER THE DECISION OF THE H ONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. BENGAL JU TE MILLS (SUPRA), CLOSING STOCK OF ONE YEAR IS SAME AS OPENI NG STOCK OF NEXT YEAR, REVALUATION OF OPENING STOCK OF NEXT YEA R HA TO BE MADE ON THE SAME BASIS WHERE REVALUATION OF CLOSING STOCK OF YEAR IS MADE. IN VIEW OF SUCH PROPOSITION, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS NOT APPLIED THE EXAC T MARKET RATE AND AS PER THE SUBMISSION OF THE ASSESSEE, THE UNDERVALUATION RESULTED INTO A HIGHER ADDITION OF R S.9,92,700. THEREFORE, WE REVERSE THE FINDING OF THE CIT(A) AND RESTORE THIS MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH. WE DO NOT HAVE FACTS AND FIGURES ON OUR OWN. THEREFORE, WE HAVE NO ALTERNATIVE BUT TO RESTORE TH E MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE MAR KET VALUE OF THE STOCK AT THE LOWER MARKET RATE AND ON A PARTICU LAR ASSESSMENT YEAR, AFTER GIVING DUE OPPORTUNITY TO TH E ASSESSEE. WE FIND THAT THE ITAT HAS REVERSED THE FINDINGS OF CIT(A) AND RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECI DE THE ISSUE AFRESH. THE ITAT WHILE SENDING BACK THE MATTER TO THE FILE OF A O, HAS DIRECTED THE ASSESSING OFFICER TO DECIDE THE MARKET VALUE OF THE STOCK AT THE LOWER MARKET RATE IN A PARTICULAR ASSESSMENT YEAR. THE Q UESTION TO BE EXAMINED HERE IS WHETHER UNDER THESE CIRCUMSTANCES, THE PENA LTY PROCEEDINGS INITIATED ORIGINALLY WILL STAND IN ACCORDANCE WITH LAW OR NOT. ON PLAIN READING OF SECTION 271(1)(C) OF THE ACT WE NOTICE T HAT IF THE ASSESSING OFFICER, IN THE COURSE OF ANY PROCEEDINGS UNDER THI S ACT IS SATISFIED THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOM E OR HAS FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, THE ASSESSIN G OFFICER MAY DIRECT ITA NO.285 & 376/RJT/2007 5 SUCH PERSON TO PAY BY WAY OF PENALTY AS PRESCRIBED. THE RECORDING OF THE SATISFACTION WHICH IS A PRE-REQUISITE CONDITION FOR INITIATING PROCEEDINGS U/S 271(1)(C) OF THE ACT. IT IS THE ASSESSING OFFICER WHO HAS TO FORM HIS OWN OPINION AND RECORD HIS SATISFACTION BEFORE INITIATI NG PENALTY PROCEEDINGS. MERELY BECAUSE THE PROCEEDINGS HAVE BEEN INITIATED, IT CANNOT BE ASSUMED THAT SUCH A SATISFACTION WAS ARRIVED AT ESPECIALLY WHEN WITH THE ABSENCE OF THE SAME BEING SPELT OUT BY THE ORDER OF THE ASSESS ING AUTHORITY. THE LEGAL POSITION IS WELL SETTLED IN VIEW OF THE APEX COURT JUDGMENT IN THE CASE OF CIT VS SV ANGIDY CHETTIAR 44 ITR 739 (SC) THAT POWE R TO IMPOSE PENALTY U/S 271 OF THE ACT DEPENDS UPON THE SATISFACTION OF THE INCOME-TAX OFFICER IN THE COURSE OF THE PROCEEDINGS UNDER THE ACT. IT CANNOT BE EXERCISED HE IS NOT SATISFIED AND HAS NOT RECORDED HIS SATISFACT ION ABOUT THE EXISTENCE OF THE CONDITION SPECIFIED IN CLAUSES (A), (B) AND (C) BEFORE THE PROCEEDINGS ARE CONCLUDED. WHEN THE QUANTUM MATTER IS SET ASID E, MAY BE FOR QUANTIFICATION OR OTHERWISE, THE SATISFACTION CANNO T SAID TO BE RECORDED UNLESS THE QUANTUM IS FINALIZED. THE JURISDICTIONA L HIGH COURT IN THE CASE OF RANCHHODBHAI HARIBHAI JADAV VS ACIT 238 ITR 949 (GUJ) HAS HELD THAT WHEN ASSESSMENT IS SET ASIDE, THE PENALTY PROCEEDIN GS DO NOT SURVIVE. THE HEAD NOTE OF THE SAID JUDGMENT IS REPRODUCED BE LOW: PENALTY FOR CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME FOR ANY ASSESSMENT YEAR CAN BE IN RESPECT OF INCOME WHICH WAS FOUND TO BE TAXAB LE FOR SUCH ASSESSMENT YEAR BUT WAS NOT DISCLOSED OR IN RE SPECT OF WHICH INACCURATE PARTICULARS WERE FURNISHED. LIKEW ISE, LEVY OF PENALTY FOR FAILURE TO FURNISH ESTIMATE OF ADVANCE TAX PAYABLE BY AN ASSESSEE UNDER SECTION 273(2)(B) OF THE INCOM E-TAX ACT, 1961, ALSO PRESUPPOSES THAT THERE EXISTED TAXABLE INCOME DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION IN RESPECT OF WHICH ADVANCE TAX WAS PAYABL E BY THE ASSESSEE. ONCE THE ORDER SETTING ASIDE THE ASSESSM ENT ORDER IN THE COURSE OF WHICH PENALTY PROCEEDINGS HAVE BEE N INITIATED HAS BECOME FINAL, THE PENALTY PROCEEDINGS INITIATED IN RESPECT OF SUCH PROCEEDINGS CANNOT SURVIVE TO BE DEALT WITH BY THE ITA NO.285 & 376/RJT/2007 6 ASSESSING OFFICER THEREAFTER. IF THE ORDER OF PENA LTY HAD BEEN MADE WHILE AN ORDER DETERMINING TAXABLE INCOME IS I N EXISTENCE, THE REMEDY OF THE ASSESSEE IS TO GET IT SET ASIDE IN APPROPRIATE PROCEEDINGS. WHEN IT IS BROUGHT TO NOT ICE THAT THERE IS NO ASSESSMENT OF INCOME IN THE HANDS OF TH E ASSESSEE OR THE SAME HAS BEEN SET ASIDE, THE PENALT IES TOO ARE LIABLE TO BE SET ASIDE. BUT IF NO ORDER IN THE PENALTY PROCEEDINGS HAS BEEN MADE BEFORE THE ORDER OF ASSES SMENT OF INCOME IN RESPECT OF WHICH SUCH PROCEEDINGS HAVE BEEN INITIATED IS SET ASIDE, PENALTY CANNOT BE LEVIED TH EREAFTER. IF THE ORDER SETTING ASIDE ASSESSMENT IS SUBJECTED TO FURT HER APPEAL, THERE MAY BE JUSTIFICATION FOR KEEPING THE PROCEEDI NGS FOR IMPOSING PENALTY PENDING UNTIL THE FINAL OUTCOME OF THE APPEAL AND THEN TO MAKE AN ORDER TO ACCORD WITH THE TAXABL E INCOME AS DETERMINED. IN SUCH A CASE THE LIMITATION PRESC RIBED UNDER SECTION 275 WILL BE WITH EFFECT FROM THE RECEIPT OF SUCH ORDER BY THE COMMISSIONER. THE PETITIONERS-ASSESSEES WERE PARTNERS OF A FIRM WHICH WAS ASSESSED AS A REGISTERED FIRM UNTIL ITS DISSOLU TION ON AUGUST 16, 1984. FOR THE ASSESSMENT YEAR 1988-89, THE ASSESSES DISCLOSED IN THEIR RETURN RECEIPTS REPRESE NTING THEIR SHARE AS A RESULT OF AN ARBITRATION AWARD IN A CASE RELATING TO THE DISSOLVED FIRM PENDING AT THE TIME OF DISSOLUTI ON, BUT CLAIMED IT WAS A CAPITAL RECEIPT. PROTECTIVE ASSES SMENTS WERE MADE ON EACH OF THE PARTNERS TREATING THE RECEIPT A S TAXABLE AND PENALTY PROCEEDINGS UNDER SECTIONS 271(1)((C) A ND 273(2)(B) WERE INITIATED. IN APPEALS BY THE PARTNE RS AS WELL AS THE FIRM, THE ASSESSMENT OF THE FIRM WAS UPHELD AND THOSE AGAINST THE PARTNERS WERE SET ASIDE. NO FURTHER PR OCEEDINGS AGAINST SETTING ASIDE OF THE ORDER IN THE CASE OF I NDIVIDUAL PARTNERS WERE CARRIED FURTHER BY THE REVENUE. ON A PPEAL BY THE FIRM AGAINST THE ORDER OF ASSESSMENT PASSED IN ITS CASE, THE TRIBUNAL AFFIRMED IT BY ORDER DATED JULY 9, 199 2. ON A REFERENCE, THE HIGH COURT, ON DECEMBER 21, 1995, HE LD THAT THE TRIBUNAL WAS NOT RIGHT IN HOLDING THAT THE SAID SUM OF RS.1,48,24,876, RECEIVED BY THE PARTNERS IN PURSUAN CE OF THE INTERIM AWARD AND THE FINAL AWARD BECAME TAXABLE IN THE HANDS OF FIRM WHICH STOOD DISSOLVED THROUGH DISSOLU TION DEED DATED AUGUST 16, 1984. PURSUANT TO THIS, THE TRIBU NAL PASSED THE ORDER UNDER SECTION 260 ON APRIL 8, 1996, SETTI NG ASIDE THE ASSESSMENT ORDER IN THE CASE OF THE FIRM ALSO. ON NOVEMBER 29, 1996, ORDERS WERE PASSED IN THE CASE FO EACH OF THE ITA NO.285 & 376/RJT/2007 7 PARTNERS LEVYING PENALTY OF VARIOUS SUMS UNDER SECT IONS 271(1)(C) AND 273(2)(B). ON WRIT PETITIONS : HELD, ALLOWING THE PETITIONS, THAT AS ON THE DATE ON WHICH THE PENALTY ORDERS WERE MADE THERE WERE NO SU BSISTING ASSESSMENT ORDERS EITHER AGAINST ANY PARTNER IN HIS INDIVIDUAL CAPACITY OR AGAINST THE FIRM FOR WHICH, AS PARTNERS , IF SO PERMISSIBLE UNDER LAW, THEY COULD BE SUBJECTED TO A NY PENALTY. THE ONLY GROUND WHICH WEIGHED WITH THE ASSESSING OF FICER TO LEVY PENALTY WAS THAT OTHERWISE HE WOULD LOSE HIS L IMITATION TO IMPOSE PENALTY WHICH ACCORDING TO HIM MIGHT BECOME IMPOSABLE IN CASE THE SUPREME COURT ON AN APPEAL UP SET THE DECISION OF THE COURT RENDERED IN THE CASE OF THE F IRM. THIS REASONING WAS UNSUSTAINABLE AND THE ORDERS OF PENAL TY WERE LIABLE TO BE QUASHED. 6. IN THE LIGHT OF ABOVE DISCUSSION WE FIND THAT IN THE CASE UNDER CONSIDERATION, THERE IS NO SATISFACTION OF THE ASSE SSING OFFICER RECORDED. THE ORIGINAL QUANTUM ORDER BASED ON WHICH THE PENAL TY PROCEEDINGS ARE INITIATED HAS ALSO BEEN SET ASIDE BY THE ITAT. IN THE LIGHT OF THAT WE ARE OF THE CONSIDERED VIEW THAT THE PENALTY INITIATED IN T HE ORIGINAL ASSESSMENT PROCEEDINGS AND LEVIED ON THE BASIS OF THE SATISFAC TION RECORDED IN THE ORIGINAL ASSESSMENT PROCEEDINGS WHICH HAVE BEEN SET ASIDE BY THE TRIBUNAL IS NOT IN ACCORDANCE WITH LAW. THEREFORE, THE PENALTY IMPOSED BY THE ASSESSING OFFICER IS HEREBY QUASHED. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23-12-2010. SD/- SD/- (D.T. GARASIA) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT, DT : 23 RD DECEMBER, 2010 ITA NO.285 & 376/RJT/2007 8 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-I, RAJKOT 4. THE CIT-I, RAJKOT 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT