M/s. Natubhai Manibhai Patel & Co., Anand V. The Income tax Officer,Ward-2, Anand

ITA 2890/AHD/2009

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2118 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-04-2013
• Assessment Year: 1997-1998
• Appeal Filed On: 16-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SINGH
• Keywords: Rejection of books of accounts; Business income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD , .. , '# ' $ BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI T.R.MEENA, ACCOUNTANT MEMBER ./ I.T.A. NO.2890/AHD/2009 ( % & '& / ASSESSMENT YEAR : 1997-98) M/S.NATUBHAI MANIBHAI PATEL & CO. AT: KHAMBHOLAJ TAL.ANAND 388 330 % / VS. THE INCOME TAX OFFICER WARD-2 ANAND ./ ./ PAN/GIR NO. : AABFN 9294 J ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHREE ASEEM L.THAKKAR / RESPONDENT BY : SHRI D.K.SINGH, SR.D.R. / DATE OF HEARING : 08/04/2013 !'# / DATE OF PRONOUNCEMENT : 24 TH MAY 2013 $% / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FROM THE ORDER OF THE LD.CIT(APPEALS)-IV, BARODA DATED 20.08.2009 PASSED FOR A.Y.1997-98. THE MAIN GROUND CONTESTED BEFORE US I S REPRODUCED BELOW:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S)-IV, BARODA HAS ERRED IN NOT DELETING THE HEAVY PENALTY OF ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 2 - RS.4,29,260/- IMPOSED BY THE LEARNED INCOME-TAX OFF ICER, WARD-2, ANAND U/S.271(1)(C), WITHOUT ACCEPTING THE APPELLANTS DETAILED WRITTEN SUBMISSION SUPPORTED W ITH DOCUMENTARY EVIDENCES, IN ITS PROPER PERSPECTIVE. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG PENALTY ORDER PASSED U/S.271(1)(C) DATED 23.2.2009 AND THE ASSESS MENT ORDER PASSED U/S.143(3) R.W.S. 145|(3) & 144 OF THE IT AC T, DATED 27/03/2000 WERE THAT A SURVEY U/S.133A WAS CONDUCTE D ON 27.2.1997. IT WAS NOTICED DURING SURVEY THAT STOC K OF BIDDI-PATTI AS PER BOOKS OF ACCOUNTS WAS WORKED OUT BY THE ACCO UNTANT AND THE PARTNER AT 107152KGS. HOWEVER, AS PER PHYSICAL INV ENTORY PREPARED DURING THE COURSE OF SURVEY THE STOCK OF BIDDI-PAT TI WAS INVENTORISED AT 1,36,156 KGS. THUS, THE EXCESS OF STOCK OF BIDDI- PATTI WAS CALCULATED AT 29004 KGS. THE COST OF THE SAID EXCESS STOCK WAS WORKED OUT AT RS.10,73,148/-. DURING THE CO URSE OF SURVEY PROCEEDINGS, A STATEMENT OF ACCOUNTANT SHRI GIRISHB HAI H.PATEL WAS RECORDED U/S.131 OF IT ACT. THE SAID ACCOUNTANT VIDE AN ANSWER NO.11 OF THE STATEMENT HAD CONFIRMED THE DETECTION OF EXCESS STOCK OF 29004 KGS. RATHER, ONE SHRI BHARAT P ATEL, BROTHER OF THE PARTNER, PRESENT AT THAT TIME, HAS ALSO ENDORSED TH E STATEMENT OF THE ACCOUNTANT. LATER ON, A STATEMENT OF SHRI NATUBHAI MANIBHAI PATEL, MAIN PARTNER, OF THE FIRM WAS ALSO RECORDED, ON HIS RETURN, ON 11.3.1997 U/S.131 OF IT ACT. IN THE SAID STATEMEN T HE HAS MENTIONED THAT HE WOULD BE ABLE TO GIVE EXACT REASO N FOR THE EXCESS STOCK ONLY AFTER THE VERIFICATION OF THE BOOKS AND OTHER DOCUMENTS. ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 3 - DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS FURNISHED QUANTITATIVE DETAIL IN RESPECT OF PURCHASE, SALE AN D PROCESS OF TOBACCO UPTO THE DATE OF SURVEY, I.E. 27.2.1997. IT WAS EXPLAINED THAT THE SAID QUANTITATIVE DETAIL WAS PREPARED AFTE R VERIFYING THE BOOKS OF ACCOUNTS, BILL BOOKS AND DELIVERY MEMOS. THE DIFFERENCE AS PER THE SAID DETAIL WAS CLAIMED TO BE ONLY 1629 KGS. OF BIDDI- PATTI. FURTHER, IT WAS EXPLAINED THAT THE HUGE D IFFERENCE OF STOCK OF 29004 KGS. WAS ONLY DUE TO THE FACT THAT CERTAIN PU RCHASES AND SALES WERE NOT IN THE KNOWLEDGE OF THE ACCOUNTANT, HENCE HE HAD NOT INFORMED AT THE TIME OF SURVEY PROCEEDINGS. IT H AS ALSO BEEN POINTED OUT THAT THE ALLEGED STOCK DIFFERENCE WAS B ASED UPON DELIVERY MEMOS INSTEAD OF SALES BILLS. THE ASSESSE E HAD TAKEN AN ANOTHER RECOURSE TO EXPLAIN THE DISCREPANCY THAT A TRANSACTION WAS CONDUCTED WITH MAJALEES BIDI FACTORY. THE ASSESSE E WAS ASKED TO PRODUCE THE TRANSPORTATION DETAILS TO AUTHENTICATE THE CLAIM, BUT THE ASSESSEE HAD NOT PRODUCED ANY TRANSPORTATION DETAIL TO ESTABLISH THAT INDEED THE GOODS WERE DESPATCHED TO MAJALEES BIDI F ACTORY. THE AO HAS NOTED THAT EVEN DURING THE COURSE OF SURVEY PROCEEDINGS, THE ACCOUNTANT WAS ASKED TO STATE DETAILS OF ANY STOCK LYING IN THE PREMISES FOR WHICH BILLS HAVE BEEN ISSUED BUT COULD NOT DESPATCH AND VICE-VERSA. IN THE STATEMENT, THE ACCOUNTANT HAS CONFESSED THAT NO SUCH TRANSACTION WAS MADE, THEREFORE NO SUCH GOO DS ARE LYING IN THE PREMISES OR ELSEWHERE. FINALLY, THE EXCESS ST OCK AS DETECTED DURING THE COURSE OF SURVEY WAS TAXED AT RS.10,73,1 48/-. ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 4 - 3. IN FIRST APPEAL, WHEN THE MATTER WAS CARRIED BEFORE THE LD.CIT(A)-IV, BARODA VIDE AN ORDER DATED 31.7.2002 , THE FACTS OF THE CASE WERE CONSIDERED AND THEREUPON IT WAS HELD THAT ALTHOUGH THE ASSESSEE HAD TRIED TO RECONCILE THE STOCK BY ST ATING THAT SOME PURCHASES WERE NOT ENTERED IN THE BOOKS AND SOME SA LES WERE ALSO NOT ENTERED, BUT ACCORDING TO LD.CIT(A), THE SAID EXPLANATION HAS INDICATED THAT THE BOOKS OF ACCOUNTS WERE NOT RELIA BLE. IN THE RESULT, LD.CIT(A) HAS AFFIRMED THE ADDITION. 4. FINALLY, THE SAID QUANTUM ADDITION WAS CHALLENGE D BEFORE THE TRIBUNAL. THE ARGUMENT OF THE ASSESSEE WAS THAT THE DIFFERENCE IN STOCK WAS IN RESPECT OF TRANSACTION WITH MAJALEES B IDI FACTORY, SILLIGURI, ASSAM (STATE). DURING THE COURSE OF SUR VEY, STOCK WAS INVENTORISED, TAKING INTO ACCOUNT THE DELIVERY CHAL LANS PERTAINING TO THE SAID PARTY. THOSE SALES WERE ALREADY REFLECTED IN THE BOOKS OF ACCOUNTS. THE ASSESSEE WAS ASKED TO PRODUCE TRANSP ORTATION BILLS TO AUTHENTICATE THE CLAIM WHICH WAS NOT PRODUCED. RA THER, THE ACCOUNTANT FOR THE ASSESSEE HAD NOT REFERRED ANY SU CH TRANSACTION. THE RESPECTED COORDINATE BENCH BEING NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE HAS FINALLY DECIDED THE ISSUE IN FAVOUR OF THE REVENUE AS FOLLOWS:- ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 5 - 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED MA TERIAL AVAILABLE ON RECORD. AS THE FACTS EMERGE, IT IS EV IDENT THAT AT THE TIME OF SURVEY, ASSESSEES ACCOUNTANT AND PARTN ER SHRI BHARATBHAI PRESENT BOTH ACCEPTED THE FACT ABOUT EXC ESS STOCK AND DID NOT SAY A WORD ABOUT MBF OR ANY GOODS LYI NG WITH ASSESSEE AND BELONGING TO MBF. STATEMENTS ARE V OLUNTARY AND HAVE NOT BEEN RETRACTED, THEREFORE, THERE ARE T O BE RELIED ON. MERELY BECAUSE SUBSEQUENTLY A PARTNER COMES BA CK AND GIVES A STATEMENT, WHICH DOES NOT CHANGE THE STATEM ENT OF EARLIER TWO WITNESSES IN MATERIAL TERMS ADDITIONS C ANNOT BE DELETED. BESIDES, AO GAVE ASSESSEE NUMBER OF OPPOR TUNITIES TO PRODUCE TRANSPORT BILLS, WHICH WERE NOT PRODUCED . IN VIEW OF THE OBSERVATIONS OF AO AND CIT(A), WE SEE NO INF IRMITY IN THEIR ORDERS IN SUSTAINING ADDITION ON ACCOUNT OF E XCESS STOCK. BESIDES, REJECTION OF BOOKS OF ACCOUNTS ALSO CANNOT BE FOUND FAULT WITH AN ADDITION MADE IN THIS BEHALF IS ALSO UPHELD. 4.1. DURING THE PENALTY PROCEEDINGS, IT WAS FIRSTLY OBJECTED THAT THE PENALTY PROCEEDINGS INITIATED WERE BARRED BY LIMITA TION BECAUSE THE TRIBUNAL HAS PASSED THE ORDER ON 29.2.2008 AND THE PERIOD OF PASSING A PENALTY ORDER HAD ALREADY EXPIRED ON 31.1 2.2008. THAT OBJECTION OF THE ASSESSEE WAS OVERRULED BY THE AO F OR THE REASON THAT THE ORDER OF THE TRIBUNAL WAS RECEIVED AT THE OFFICE OF THE COMMISSIONER BARODA IN THE MONTH OF AUGUST-2008, HE NCE THE TIME LIMIT WOULD EXPIRE ON 28.2.2009. IT IS WORTH TO ME NTION THAT THE ASSESSEE HAS RECEIVED THE ORDER OF THE TRIBUNAL IN THE MONTH OF JUNE- 2008. UNDISPUTEDLY, THE IMPUGNED ORDER U/S.271(1) (C) WAS PASSED ON 23.02.2009, I.E. BEFORE THE EXPIRY OF THE TIME L IMIT PRESCRIBED IN THE ACT. THEREFORE, THIS OBJECTION IS HEREBY REJEC TED. ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 6 - 4.2. REGARDING THE MAIN ISSUE OF QUANTUM ADDITION, THE AO HAS HELD THAT THE ASSESSEE HAD ATTEMPTED TO MANIPULATE THE A CCOUNTS AND THE INCOME WAS DELIBERATELY CONCEALED. A MINIMUM PENA LTY @ 100% OF THE TAX SOUGHT TO BE EVADED OF RS.4,29,260/- WAS IMPOSED. BEING AGGRIEVED, THE ASSESSEE HAD GONE IN APPEAL BEFORE C IT(A) CHALLENGING THE LEVY OF PENALTY. IT WAS PLEADED THAT AT THE TIME OF SURVEY CONDUCTED ON 27.2.1997 NONE OF THE PARTNER W AS PRESENT. ONLY A STATEMENT OF THE ACCOUNTANT WAS RECORDED. W HEN THE PARTNER RETURNED FROM OUTSTATION, HIS STATEMENT WAS ALSO RE CORDED, IN WHICH HE HAS STATED THAT ONLY AFTER VERIFYING ALL THE STA TEMENT THE RECONCILIATION OF THE STOCK WOULD BE PRODUCED. THE ASSESSEE HAD FURNISHED THE QUANTITATIVE DETAILS OF THE STOCK AND THEREUPON CALCULATED THE DIFFERENCE OF ONLY 1629KGS. OF BIDD I-PATTI. MERELY ON THE BASIS OF THE STATEMENT OF THE ACCOUNTANT, SI NCE THE IMPUGNED ADDITION WAS MADE, THEREFORE FOLLOWING FEW CASE-LAW S HAVE BEEN CITED IN SUPPORT OF THE LEGAL CONTENTION THAT MEREL Y A STATEMENT IS NOT A SUFFICIENT REASON FOR MAKING AN ADDITION. (I) PULLAGODE RUBBNER PODUCE CO.LTD. VS. STATE OF KERALA (1973) 91 ITR 18(SC). (II) KRSIHNALAL SHICHAND RAI VS. CIT (1973) 88 ITR 293 (III) CIT VS. CRESTIAN MICA INDUSTRIES LTD. (1977), 109 ITR 324. (IV) SATISHCHANDRA VS. CIT (1977) 106 ITR 64. ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 7 - 4.3. HOWEVER, LD.CIT(A) WAS NOT CONVINCED AND HE HA S MENTIONED THAT THE CASE-LAWS CITED WERE MISPLACED. THE ASSES SEE HAS ALSO CITED FEW DECISIONS CHALLENGING THE LEVY OF PENALTY VIZ :- UNION OF INDIA VS. RAJASTHAN SPINNING AND WEAVING MILLS (2009) 22 4 CTR 1 (SC) AND UNION OF INDIA & ORS. VS. DHARMENDRA TEXTILE P ROCESSORS & ORS. (2008) 306 ITR 277 (SC). IT HAS ALSO BEEN ARG UED THAT IN THE CASE OF NATIONAL TEXTILES VS. CIT (2001) 249 ITR 1 25(GUJ.) AND CIT VS. R.K.AGRAWAL 104 TAXATION PAGE 260, IT WAS H ELD THAT WHERE AN ASSESSEE GIVES AN EXPLANATION AND THAT EXPLANATI ON ALTHOUGH UNPROVED BUT NOT DISPROVED, PENALTY FOR CONCEALMENT CANNOT BE IMPOSED. HOWEVER, LD.CIT(A) WAS NOT CONVINCED AND MENTIONED THAT THE IMPUGNED ADDITION WAS NOT MERELY IN RESPEC T OF DISCREPANCY IN STOCK BUT DURING THE COURSE OF SURVEY, IT WAS AL SO DETECTED THAT THE ASSESSEE HAD MADE EXCESS PAYMENT FOR PURCHASE OF B IDDI-PATTI. PLACING RELIANCE ON DHARMENDRA TEXTILE PROCESSORS & ORS.(SUPRA), HE HAS HELD THAT THE PENALTY PROVISIONS ARE STRICTL Y TO BE APPLIED AND THE ASSESSEE HAS NOT TRULY EXPLAINED THE DISCREPANC Y DETECTED AT THE TIME OF SURVEY, THEREFORE CORRECTLY PENALISED U/S.2 71(1)(C) OF IT ACT. 5. FROM THE SIDE OF THE APPELLANT, LD.AR MR.ASEEM T HAKKAR APPEARED. THE MAIN ARGUMENT WAS THAT THE IMPUGNED ADDITION WAS MERELY MADE ON THE BASIS OF A STATEMENT OF ACCOUNTA NT. HE HAS THEREFORE PLEADED THAT IN THE LIGHT OF SEVERAL DECI SIONS AS CITED BEFORE ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 8 - LD.CIT(A), MERELY ON THE BASIS OF A STATEMENT NO AD DITION SHOULD HAVE BEEN MADE AND IF AT ALL THE IMPUGNED ADDITION HAD BEEN MADE, ATLEAST DURING PENALTY PROCEEDING THIS ARGUMENT SHO ULD BE JUDICIOUSLY CONSIDERED. HIS NEXT PLANK OF ARGUMEN T WAS THAT THE ACCOUNTANT WAS NOT AWARE ABOUT THE CORRECT POSITION OF STOCK, HENCE THE STATEMENT OF THE ACCOUNTANT SHOULD NOT HAVE BEE N TAKEN INTO ACCOUNT BY THE REVENUE AUTHORITIES. HIS THIRD PLAN K OF ARGUMENT WAS THAT THE ASSESSEE HAS FURNISHED A RECONCILIATIO N ACCORDING TO WHICH THE DIFFERENCE WAS ONLY 1629 KGS. OF BIDDI-PA TTI AND THAT RECONCILIATION WAS NOT REJECTED BY THE AO, HENCE WH ILE LEVYING THE PENALTY, THE AO SHOULD HAVE CONSIDERED THAT RECONC ILIATION, SO AS TO FIND OUT WHETHER IT WAS TOTALLY UNTRUE OR NOT. H E HAS ALSO POINTED OUT SOME DISCREPANCY THAT THE SURVEY PARTY HAD TAKE N THE SALES OF 276418 KGS. ON THE BASIS OF DELIVERY MEMOS. THIS Q UANTITY OF SALES WAS ALREADY INCLUSIVE OF AN EARLIER SALES WHICH WAS RECORDED IN THE PAST IN A.Y. 1996-97 AND THAT FACT WAS VERY MUCH EX PLAINED TO THE AO VIDE A REPLY DATED 16.1.2009 BUT THAT REPLY WAS NOT CONTRADICTED BY THE AO WHILE LEVYING THE PENALTY. SINCE SOME O F THE FACTS WERE REQUIRED FOR PROPER CONSIDERATION DURING PENALTY PR OCEEDINGS, THEREFORE THE PENALTY WAS WRONGLY IMPOSED. HE HAS PLEADED THAT THE FINDINGS GIVEN IN ASSESSMENT PROCEEDINGS ARE NOT FI NAL AND CONCLUSIVE FOR IMPOSITION OF PENALTY U/S.271(1)(C). FOR THIS LEGAL PROPOSITION, RELIANCE IS PLACED ON SOMNATH OIL MILL S 214 ITR 32, ANANTHARAM VEERASINGHAIAH & CO. VS. CIT (1980) 123 ITR ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 9 - 457(SC) AND CIT VS. S. KHADER KHAN SON (2012) 25 T AXMAN.COM 413(SC). 6. FROM THE SIDE OF THE REVENUE, LD.SR.DR MR.D.K.SI NGH APPEARED AND VEHEMENTLY OPPOSED THE ARGUMENTS OF LD .AR. HE HAS FURNISHED ARGUMENTS IN WRITING AND THE RELEVANT POR TION IS EXTRACTED BELOW:- THE CONTROVERSY INVOLVED IN THIS APPEAL IS THAT WH ETHER PENALTY U/S.271(1)(C) OF THE ACT IS IMPOSABLE OR NO T IN THIS CASE. IN PLAIN AND SIMPLE WORDS THIS PENALTY IS AN EXTRA LIABILITY IMPOSABLE UPON THOSE ASSESSEES WHO, BY ON E OR THE OTHER METHOD, DELIBERATELY (IN MOST OF THE CASES), NEGLIGENTLY OR BY WAY OF MISINTERPRETATION OF THE PROVISIONS OF THE ACT (IN FEW CASES), DECLARE THEIR TAXABLE INCOME LESS THAN THEIR ACTUAL TAXABLE INCOME. PENALTY IS ALSO IMPOSABLE IF THE D ECLARED LOSS IS MORE THAN ACTUAL LOSS. THE REASON BEHIND INCORP ORATING SECTION 271(1)(C) IS TO ENFORCE VOLUNTARY PAYMENT O F THE CORRECT TAX ON TRUE TAXABLE INCOME AND THE SECTION ACTS AS A DETERRENT MECHANISM AGAINST EVASION OR EVEN AVOIDAN CE OF TAX LIABILITY. 3. AFTER CAREFULLY READING AND INTERPRETING THE PR OVISIONS OF SECTION 271(1)(C) ALONGWITH THE EXPLANATION 1, ONE CAN HARDLY FIND A CASE WHERE THERE IS DIFFERENCE BETWEEN ASSES SED TAXABLE INCOME AND RETURNED TAXABLE INCOME AND THE ASSESSEE IS NOT LIABLE FOR PENALTY U/S.271(1)(C). (I) IF THE CASE OF ASSESSEE IS COVERED BY MAIN PRO VISION OF SECTION 271(1)(C), I.E. HE IS FOUND TO HAVE CONCEAL ED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE P ARTICULARS OF SUCH INCOME, THERE CAN BE NO DIFFERENCE OF OPINI ON ABOUT ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 10 - HIS LIABILITY FOR PENALTY UNDER SECTION 271(1)(C). THE ONLY DISPUTE CAN BE WHETHER THE ASSESSEE HAS CONCEALED T HE PARTICULARS OF HIS INCOME OR NOT OR WHETHER HE HAS FURNISHED INACCURATE PARTICULARS OF SUCH INCOME OR NOT. IN T HE ABSENCE OF THE EXPLANATION 1 THERE COULD BE A LOT OF DEBATE IN THIS REGARD THAT IS WHETHER ASSESSEE HAS COMMITTED THE D EFAULT OR NOT, WHETHER THE DEFAULT IS DELIBERATE OR UNINTENTI ONAL, WHETHER THE DEFAULT IS ESTABLISHED OR NOT. (II) HOWEVER EXPLANATION 1(A) CURTAILS THE DISPUTE / LITIGATION IN TWO WAYS, BY MAKING A STATUTORY REQUIREMENT OF E XPLANATION FROM THE ASSESSEE IN RESPECT OF FACTS MATERIAL TO C OMPUTATION OF HIS TOTAL INCOME. FIRSTLY IF THE ASSESSEE FAILS TO OFFER AN EXPLANATION THE MATTER ENDS SO FAR AS LEVY OF PENAL TY IS CONCERNED AS ASSESSEES FAILURE MAKES HIM LIABLE FO R PENALTY U/S.271(1)(C). SECONDLY, IF THE EXPLANATION, THOUG H OFFERED, IS FOUND TO BE FALSE, THEN ALSO THE AO REACHES TO AN I NFERENCE TO IMPOSED PENALTY. HOWEVER, IF THE AO IS NOT ABLE TO FIND THAT EXPLANATION IS FALSE, THEN EXPLANATION 1(B) COMES I NTO OPERATION. THE EXPLANATION 1(A) IS HELPFUL TO A.O. ONLY FOR THE PURPOSE OF COMING TO A CONCLUSION THAT ASSESSEE IS LIABLE FOR PENALTY. IF THE ASSESSEE OFFERS AN EXPLANATION BU T THAT EXPLANATION IS FOUND BY THE AUTHORITY, IMPOSING PEN ALTY, TO BE FALSE, ASSESSEE BECOMES LIABLE FOR PENALTY. HOWEVE R, IF IT CAN NOT BE SAID WITH CERTAINTY THAT EXPLANATION GIVEN B Y ASSESSEE IS FALSE THEN QUESTION WHETHER ASSESSEE IS LIABLE FOR PENALTY OR NOT REMAINS UNANSWERED. IN FACT PROVISIONS OF EXPL ANATION 1(A) ARE ONLY IN SUPPORT OF LEVY OF PENALTY AND THE ASSESSEE CANNOT DERIVE ANY SUPPORT, FROM THESE PROVISIONS, F OR HIS EXONERATION. IN THE ABSENCE OF CLAUSE (B) OF EXPLA NATION 1, IF THE ASSESSEE OFFERS AN EXPLANATION WHICH THE REVENU E AUTHORITY CA NOT FIND UP TO BE FALSE, ASSESSEES ONUS MAY BE SAID TO HAVE BEEN DISCHARGED BUT NOT IN THE PRESENCE OF CLAUSE ( B) OF EXPLANATION 1. ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 11 - (III) EXPLANATION 1(B), RULES OUT ALMOST ANY ROOM FOR DISPUTE / LITIGATION EXCEPT IN A SITUATION WHERE ASSESSEE HAS MADE A LEGAL CLAIM WHICH IS NOT ACCEPTED AS CORRECT AND TH E CLAIM IS PATENTLY NOT INCORRECT. IN THAT SITUATION ALSO THE BURDEN IS ON THE ASSESSEE TO PROVE THAT WHILE MAKING THE CLAIM ( WHICH WA DISALLOWED RESULTING IN ENHANCEMENT IN ASSESSEES T AXABLE INCOME OR REDUCTION IN THIS LOSS) HIS INTENTION WAS BONAFIDE AND ALSO TO PROVE THAT ALL FACTS MATERIAL TO COMPUT ATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM. IF ASSESS EE CAN PASS THE RIGOURS OF THE PROVISIONS OF EXPLANATION 1 (B), WELL HE CAN BE BAILED OUT OF HIS LIABILITY FOR PENALTY U/S.271( 1)(C). HOWEVER ONE SHOULD NOT FORGET THAT TEST UNDER EXPLA NATION 1(B) IS FOR ASSESSEE AND NOT FOR THE A.O. IS THE EV ALUATOR OF ASSESSEES TEST. (IV) FOR EXONERATION FROM THE DEFAULT RENDERING HI M LIABLE FOR PENALTY U/S.271(1)(C), PROVISION OF EXPLANATION 1(B ) CAN ONLY HELP THE ASSESSEE IF ASSESSEE CAN SUBSTANTIATE HIS EXPLANATION AND ALSO PROVE THAT EXPLANATION IS BONAFIDE AND FUR THER PROVE THAT ALL THE FACTS RELATING TO THE SAME AND MATERIA L TO COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSE D BY HIM. 6.1. LD.DR HAS ALSO PLACED RELIANCE ON DHARMENDRA T EXTILE PROCESSORS & ORS. (2008) 306 ITR 277 (SC) AND ZOOM COMMUNICATIONS (2010)327 ITR 510. IN THE LIGHT O F THE SAID DECISION, LD.DR HAS CONTESTED THAT FOR IMPOSITION O F PENALTY U/S.271(1)(C), THE AO IS NOT REQUIRED TO PROVE ANYT HING AGAINST THE ASSESSEE EXCEPT THE ASSESSEES FILING OF INCORRECT TOTAL INCOME THAT HAD RESULTED INTO EVASION OF TAX. BY PENALISING T HE PERSON WHO HAS FURNISHED INCORRECT INCOME, THE REVENUE DEPARTMENT IN A WAY RENDERED JUSTICE TOWARDS THOSE WHO HAVE HONESTLY FI LED THE RETURN OF ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 12 - INCOME, HE HAS CONCLUDED. CERTAIN OTHER CASE-LA WS CITED ARE K.P.MADHUSUDHANAN VS. CIT 251 ITR 99(SC), ITO VS.R .K.BROTHERS (2003)87 ITD 649 (ALL.), SOMNATH OIL MILLS 214 ITR 32 (GUJ.). 6.2. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE EXAMINED THE FACTS OF THE CASE IN THE LIGHT OF THE ORDERS OF THE REVENUE DEPARTMENT AND AN ORDER OF THE RESPECTED CO -ORDINATE BENCH DELIVERED WHILE DECIDING THE QUANTUM ADDITION . AT FIRST, IT IS WORTH TO MENTION THAT THE PENALTY PROCEEDINGS ARE N OT AN AUTOMATIC WAY OF IMPOSITION OF PENALTY. IT IS NOT CORRECT TO ARGUE THAT THE AO IS NOT REQUIRED TO PROVE ANYTHING AGAINST THE ASSES SEE. THIS ARGUMENT OF LD.DR CANNOT BE UNIVERSALLY ACCEPTED BE CAUSE THE REVENUE DEPARTMENT IS REQUIRED TO DETECT AS ALSO ES TABLISH THE WRONG DOING OF A TAX-PAYER. THEREFORE, DURING THE ASSESSMENT PROCEEDINGS ON DETECTION OF SOME WRONG COMMITTED BY A TAXPAYER, AN ADDITION IS REQUIRED TO BE MADE; WHICH ULTIMAT ELY RESULT INTO LEVY OF PENALTY. THEREFORE, UPTO THIS STAGE, THE A O HAS TO PROVE THE WRONG DOINGS OF A TAXPAYER THROUGH INVESTIGATION. FURTHER, LD.DR HAS ALSO ARGUED THAT FILING OF INCORRECT INCOME RES ULTS INTO EVASION OF TAX. THIS ARGUMENT CAN ALSO NOT BE ACCEPTED UNIVER SALLY. DURING ASSESSMENT PROCEEDING, IT MAY BE POSSIBLE THAT THE ASSESSEE HAS NOT PROPERLY EXPLAINED HIS STAND AND THUS RESULTED INTO AN ADDITION, BUT AS FAR AS THE PENALTY PROCEEDINGS ARE CONCERNED, SE VERAL COURTS HAVE HELD THAT THESE ARE INDEPENDENT TO THE ASSESSMENT P ROCEEDINGS. IN ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 13 - THIS REGARD, FEW CASE-LAWS HAVE BEEN CITED FROM THE SIDE OF THE APPELLANT. KEEPING THIS LEGAL PROPOSITION IN MIND THAT ALTHOUGH IN ASSESSMENT PROCEEDINGS THE QUANTUM ADDITION HAS BEE N FINALISED BY THE TRIBUNAL STILL THAT FINDING CANNOT BE SAID TO B E CONCLUSIVE FOR IMPOSITION OF PENALTY. 6.3. KEEPING THE ABOVE DISCUSSION IN MIND AS AL SO THE TOTALITY OF THE CIRCUMSTANCES OF THE CASE, WE HAVE NOTED THAT T HE ASSESSEE HAD OFFERED AN EXPLANATION, RELEVANT PORTION IS REPRODU CED BELOW:- 2. PHYSICAL STOCK AS WELL AS STOCK AS PER BOOKS WERE TAKEN. WHILE TAKING THE STOCK AS PER BOOKS, THE AUTHORISED OFFICER, THROUGH MISTAKE, CONSIDERED ONLY SALES ON THE BASIS OF DELIVERY VOUCHERS (AND NOT ACTUAL SALES DURING THE YEAR), AND THEREBY TAKEN THE SALES AT KILO 2,76,418/-. ZEROX COPY OF INVENTORY MENTIONING GOODS DISPATCHED AS PER DELIVE RY MEMO INVENTORISED AS B-12 AND B-13 TREATED AS GOODS SOLD ALONGWITH DETAILED LIST PREPARED BY THE ASSESSEE EN TRY-WISE IS ENCLOSED HEREWITH. 3. IN FACT, AND AS PER DOCUMENTARY EVIDENCES PRODU CED BEFORE THE LEARNED A.O. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS AND WHICH ARE ALREADY ON RECORD, SALES OF KG. 10,45 6 + 12,524 + 10,491 = TOTAL KG.33,471 WHICH IS INCLUDED IN TOTAL SALES OF KG.2,76,418/- HAS BEEN ALREADY SOLD IN EAR LIER YEAR I.E. ASSTT.YR. 1996-97. ZEROX COPY OF COMPLETE PAR TY-WISE SALES IN ASSTT.YR. 1996-97 IS ENCLOSED HEREWITH. 4.THE SAID GOODS OF KG.33,471 IS A PART OF KG.60,66 0 SOLD TO MAJLIS BIDI FACTORY OF SILIGURI, TO WHOM THE BILL W AS ISSUED ON 8.11.95 (A.Y. 96-97) FOR A TOTAL KG. OF 60,660 AMOU NTING TO ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 14 - RS.22,29,255/- WHICH IS DULY CREDITED IN SALES OF A SST.YR. 1996- 97). ZEROX COPY OF SALE BILL DT. 8.11.95 IS ENCLOS ED HEREWITH. 5. IN SUPPORT, ZEROX COPIES OF ACCOUNTS AND CONTRA ACCOUNTS OF THE SAID MAJLIS BIDI FACTORY FOR THE ASST.YR. 1996- 97 AND 1997- 98, ZEROX COPIES OF TRANSPORT VOUCHERS IN RESPECT O F GOODS DISPATCHED TO SAID PARTY ARE ENCLOSED HEREWITH. 6. THE ABOVE CLEAR-CUT FACTS OF THE CASE MAKE IT A MPLE CLEAR THAT, THE BASE OF SURVEY AND CONSIDERING THE SALES ON THE BASIS OF DELIVER VOUCHERS WAS ITSELF BAD-IN-LAW, WHICH UL TIMATELY RESULTED IN DOUBLE TAXATION OF RS.12,30,059/- (33,4 71 KG. X RS.36.75 PER KG.) I.E. SAME YEAR, IS AGAIN CO NSIDERED AS SALES OF THE YEAR UNDER REVIEW ON THE BASIS OF DELI VERY VOUCHERS. 6.4. IN SUPPORT OF THE ABOVE EXPLANATION, THE ASSES SEE HAS PLACED BEFORE US THE DETAILS OF THE GOODS DESPATCHED, DELI VERY MEMOS AND CERTAIN CERTIFICATES OF MAJALEES BIDI FACTORY ALONG WITH THE STATEMENT OF ACCOUNT. WE ARE OF THE CONSIDERED OPI NION THAT WHILE IMPOSING THE PENALTY THE AO IS REQUIRED TO EXAMINE THE AFORESAID EXPLANATION OF THE ASSESSEE TO ASCERTAIN WHETHER IT WAS TOTALLY A FALSE OR AN UNTRUE EXPLANATION AS PRESCRIBED UNDER EXPLAN ATION-1(A) TO SECTION 271(1)(C). EVEN THE LD.DR MR.SINGH HAS NOT RULED OUT THE IMPORTANCE OF THE SAID EXPLANATION, BUT HE HAS ARGU ED THAT THE AO IS NOT REQUIRED TO PROVE THE FALSITY OF THE EXPLANATIO N OFFERED. IN OUR HUMBLE UNDERSTANDING, THIS EXPLANATION PRESCRIBES T HAT WHERE IN RESPECT OF ANY FACTS MATERIAL IF A PERSON OFFERS AN EXPLANATION WHICH ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 15 - IS FOUND BY THE AO TO BE FALSE, THEN THE AMOUNT SO ADDED RE SULTS INTO A LEVY OF PENALTY. THEREFORE, THE AO IS TO FI ND OUT THE TRUTHNESS OF AN EXPLANATION. SIDE BY SIDE, THE STATUTE HAS A LSO ADDED EXPLANATION-1(B) TO SECTION 271(1)(C). THIS PART OF THE EXPLANATION PRESCRIBES THAT WHERE IN RESPECT OF ANY FACTS MATER IAL A PERSON OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE OR FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE , THEN THE SAID FAILURE RESULTS INTO LEVY OF PENALTY. MEANING THEREBY AN ASSESSEE HAS TO PROVE TO THE SATISFACTION OF THE AO HIS BONA FIDE. AT THIS JUN CTURE, LET US CONSIDER A SITUATION WHERE AN ASSESSEE HAD OFFERED AN EXPLANATION DULY SUBSTANTIATED BY CERTAIN EVIDENCES TO ESTABLIS H HIS BONA FIDE. THEREFORE, IN THIS MANNER, THE ONUS, AT FIRST, HAS BEEN DISCHARGED BY THE ASSESSEE AS CASTED UPON HIM BY EXPLANATION-1(B) OF IT ACT. THE NEXT STEP IS THAT THE AO HAS TO INVESTIGATE ALL THO SE EVIDENCES AND THE ONUS THEREAFTER SHIFTS UPON THE AO TO DISPROVE THE CLAIM OF BONA FIDE OF THE ASSESSEE. THE PROCEEDINGS DO NOT STOP AT THAT JUNCTURE. THE AO IS EXPECTED TO COMMUNICATE HIS REASONING FOR REJECTION OF THE SAID EXPLANATION OF THE ASSESSEE. AGAIN IF THE ASSESSEE IS NOT SATISFIED WITH THE REJECTION OF THE AO, THEN THE ON US SHIFTS UPON THE ASSESSEE TO PLACE ON RECORD SUBSTANTIAL EVIDENCE IN SUPPORT OF HIS TRUTHNESS. MEANING THEREBY THE ONUS OF PROVING AND DISPROVING KEEPS ON SHIFTING AS THE PROCEEDINGS ARE ADVANCED . WE ARE THEREFORE, IN THIS CASE, REFERRING THE ISSUE OF LEV Y OF PENALTY BACK TO THE STAGE OF THE AO TO VERIFY WHETHER THE ASSESSEE S EXPLANATION WAS ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 16 - ALTOGETHER FALSE BEING NOT SUBSTANTIATED BY AUTHENT IC EVIDENCES. THE ASSESSEE IS REQUIRED TO CORROBORATE HIS EXPLANATION WITH THE SUPPORT OF LEGITIMATE EVIDENCES. WE MAY LIKE TO CLARIFY THA T BY REVERTING BACK THE ISSUE OF LEVY OF CONCEALMENT PENALTY, THE QUANTUM PROCEEDINGS BEING FINALISED AND SET AT REST BY THIS TRIBUNAL, THUS SHALL HAVE NO EFFECT ON THE FINALITY OF THE QUANT UM ADDITION. 6.5. BEFORE WE PART WITH, AN ANOTHER ARGUMENT OF LD .AR MR.THAKKAR IS ALSO REQUIRED DELIBERATION. HE HAS ARGUED THAT A STATEMENT RECORDED DURING SURVEY HAS NO EVIDENTIARY VALUE. IN FACT, THIS ARGUMENT HAS NO FORCE AT THIS STAGE OF PENALTY PROCEEDINGS. THE QUESTION OF EVIDENTIARY VALUE OF STATEMENT OF THE S AID ACCOUNTANT HAS ALREADY BEEN EXAMINED AND CONSIDERED BY VARIOUS AUTHORITIES DURING QUANTUM PROCEEDINGS. THIS ARGUMENT WAS REL EVANT AT THAT POINT OF TIME WHEN ON THE BASIS OF THE STATEMENT TH E QUESTION OF QUANTUM ADDITION WAS DECIDED, BUT NOT AT THE TIME O F PENALTY PROCEEDINGS. WE THEREFORE REJECT THIS PART OF THE ARGUMENT. 7. IN THE RESULT, WE HEREBY RESTORE THE QUESTION OF LEVY OF PENALTY BACK TO THE STAGE OF THE AO WITH CERTAIN DIRECTIONS AS NARRATED HEREINABOVE TO BE DECIDED AFRESH, NEEDLESS TO SAY A FTER PROVIDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. SIDE BY SIDE, WE ALSO INSTRUCT THIS APPELLANT TO APPEAR BEFORE THE A O SUO MOTU WITHIN 30 DAYS ON RECEIPT OF THIS ORDER OF THE TRIBUNAL WI TH NECESSARY ITA NO.2890/AHD /2009 M/S.NATUBHAI MANIBHAI PATEL VS. ITO ASST.YEAR - 1997-98 - 17 - DETAILS AND EVIDENCES, SO THAT THE ISSUE OF LEVY OF PENALTY SHOULD GET DECIDED EARLIEST POSSIBLE BEING ALREADY AN OLD MATT ER. 8. IN THE RESULT, ASSESSEES APPEAL MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES ONLY. SD/- SD/- ( &..'# ) ( ' ' ( ) $ )* $ ( T.R. MEENA ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 24/ 5 /2013 &.., .*../ T.C. NAIR, SR. PS ') * +,- .'-' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. , -. / / CONCERNED CIT 4. / () / THE CIT(A)-IV, BARODA 5. 234 **-., -.#, 5'$,$ / DR, ITAT, AHMEDABAD 6. 467 8 / GUARD FILE. ')% / BY ORDER, 2 * //TRUE COPY// // 0 ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DIRECT-DICTATION ON COMPUTER DATED 17.5.2 013 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20.5.2013 & 22,5,13 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 D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 27.5.13 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 27.5.13 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER