Appeal details
RSA Number
315620514 RSA 2008
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 8 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
17-09-2010
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
01-09-2010
Assessment Year
2003-2004
Appeal Filed On
08-09-2008
Judgement Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI MUKUL KR. SHRAWAT, JM AND D.C.AGRAWAL , AM MAMTA SILK MILLS (P) LTD., K- 1286, SURAT TEXTILE MARKET, RING ROAD, SURAT. VS. INCOME-TAX OFFICER, WARD 1(3), SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI HARDIK VORA, A.R. RESPONDENT BY:- SHRI R. K. DHANESTA, D.R. O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A) WHEREIN HE HAS PARTLY CONFIRMED THE PENALTY. 2. THE AO HAD LEVIED PENALTY OF RS.4,55,422/- WHERE AS THE LD. CIT(A) CONFIRMED THE PENALTY OF RS.1,72,923/-. 3. THE FACTS OF THE CASE ARE THAT THE AO PROPOSED F OLLOWING ADDITIONS:- 1) LOW G.P. RATIO RS.12,39,242/- 2) STOCK OF COLOUR CHEMICAL RS.7,58,570/- ------------------ RS.19,97,812/- THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROCESSING OF CLOTH. THE AO FOUND THAT THE GP DECLARED IS AT 7.25%. THIS WAS CONSIDERED LOW. ITA NO.3156/AHD/2008 ASST. YEAR :2003-04 ITA NO.3156/AHD/2008 ASST. YEAR 2003-04 2 THE AO THEN ENHANCED THE GP RATE BY 1.5% RESULTING IN ADDITION OF RS.12,39,242/-. IN RESPECT OF CLOSING STOCK THE AO FOUND THAT ASSESSEE HAS NOT MAINTAINED DAY TO DAY RECORD OF CONSUMPTION OF COLOUR AND CHEMICALS WHEREAS ASSESSEE FURNISHED REPLY THAT IT HAS NUMERO US ITEMS INVOLVED IN THE MANUFACTURING ACTIVITIES, THEREFORE, IT HAS FOR CONVENIENCE TAKEN PHYSICAL QUANTITY OF STOCK AT THE END OF THE YEAR. THE AO WAS OF THE VIEW THAT CERTAIN PURCHASES MADE 4-5 DAYS BEFORE THE END OF MARCH, ARE NOT REFLECTED IN THE CLOSING STOCK AND SUCH DISCREPANCI ES ARE NOT EXPLAINED. THE AO HAD GIVEN A CHART OF PURCHASES MADE FROM 21. 03.2003 TO 31 ST MARCH, 2003 OF VARIOUS ITEMS OF COLOURS AND CHEMICA LS WHOSE VALUE AS PER PURCHASE VOUCHERS WAS RS.10,81,710/- WHEREAS AT THE END OF THE YEAR, THE VALUE HAS BEEN TAKEN AT RS.3,23.140/-. THUS HE FOUND A DIFFERENCE OF RS.7,58,570/- THE STOCK RELATING TO WHICH COULD NOT HAVE BEEN CONSUMED AND, THEREFORE, STOCK WAS UNDER-STATED TO THIS EXTE NT. HE ACCORDINGLY, PROPOSED AN ADDITION OF RS.7,58,570/- ON ACCOUNT OF UNDER-STATEMENT OF STOCK OF COLOUR AND CHEMICALS AND OF RS.12,39,242/- ON ACCOUNT OF LOW GP. THE INCOME WAS FINALLY COMPUTED AS PER NORMAL P ROVISIONS OF THE ACT AT RS.NIL AFTER ALLOWING SET OFF OF UNABSORBED DEPRECIATION AND UNABSORBED BUSINESS LOSS. THEREFORE, THE AO ASSESSE D THE INCOME UNDER SECTION 115JA AT RS.3,81,871/-. 4. THE LD. CIT(A) HELD THAT ADDITION OF RS.7,58,570 /- IS TELESCOPED UNDER ADDITION OF RS.12,39,242/- AND ACCORDINGLY AL LOWED THE RELIEF OF RS.7,58,570/-. THE TRIBUNAL REDUCED THE GP RATE FRO M 1.5% TO 1% AND SUSTAINED THE ADDITION TO THAT EXTENT. 5. IN PENALTY PROCEEDINGS THE AO REFERRED TO THE AD DITION MADE BY THE AO IN THE ASSESSMENT ORDER AND ON THAT BASIS HE LEV IED THE PENALTY ON ADDITION OF RS.12,39,242/-. IN THIS REGARD THE AO O BSERVED AS UNDER :- ITA NO.3156/AHD/2008 ASST. YEAR 2003-04 3 THE AO MADE SEPARATE ADDITION ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK OF WIP, HOWEVER, LD. CIT HAS GIVEN TE LESCOPIC BENEFIT TO THE ASSESSEE AND RESTRICTED THE ADDITION TO THE EXTENT OF LOW GP AMOUNTING TO RS.12,39,242/- BUT THE SUPPRESSION ON ACCOUNT OF UN DER VALUATION OF WIP HAS BEEN UPHELD BY THE LD. CIT(A), ACCORDINGLY, THE RELEVANT PORTION OF THE SAID ADDITION IS ALSO REPRODUCED ABOVE. SINCE T HE ASSESSEE COMPANY HAS NOT MADE ANY SUBMISSION ON THE ABOVE CONFIRMED ISSUES BY THE LD. CIT(A), NO FURTHER COMMENT HAVE BEEN MADE. THE AO H AS DISCUSSED ALL FACTS AT LENGTH AND PROVED THAT THE ASSESSEE HAS FI LED INACCURATE PARTICULARS OF INCOME. 4. IN VIEW OF ABOVE DISCUSSION, I AM SATISFIED THAT THE ASSESSEE COMPANY HAS FILED INACCURATE PARTICULARS OF ITS INC OME AND RENDERED ITSELF FOR PENALTY U/S 271(1)(C) R.W. EXPLANATION 1 THERET O OF THE IT ACT. THE WORKING OF THE LEVIABLE PENALTY IS AS UNDER : TOTAL INCOME FOR WHICH PARTICULARS OF INCOME WERE CONCEALED RS.12,39,242/- TAX SOUGHT TO BE EVADED RS.4,55,422/- MINIMUM PENALTY LEVIABLE RS.4,55,422/- MAXIMUM PENALTY LEVIABLE RS.13,66,266/- 5. AGAINST THE MAXIMUM LEVIABLE PENALTY OF RS.13,66 ,266/- AND MINIMUM RS.4,55,422/-, I CONSIDER IT JUSTIFIABLE TO LEVY MINIMUM PENALTY OF RS.4,55,422/- (RUPEES FOUR LACS FIFTY FIVE THOUS AND FOUR HUNDRED TWENTY TWO ONLY). THE ASSESSEE IS DIRECTED TO PAY THE SAID PENALTY AMOUNT AS PER THE DEMAND NOTICE ENCLOSED. 6. THE LD. CIT(A) REDUCED THE PENALTY IN RESPECT OF ADDITION OF CLOSING STOCK AMOUNTING TO RS.7,58,570/-. THIS ORDER OF THE LD. CIT(A) WAS PASSED ON 7.7.2008 WHEREAS THE ORDER OF THE TRIBUNA L IN QUANTUM PROCEEDINGS WAS PASSED ON 23 RD APRIL, 2010. THUS THE LD. CIT(A) DID NOT HAVE THE BENEFIT OF THE ORDER OF THE TRIBUNAL IN QU ANTUM PROCEEDINGS WHILE DECIDING PENALTY UNDER SECTION 271(1)(C). ITA NO.3156/AHD/2008 ASST. YEAR 2003-04 4 7. BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT PENALTY IN RESPECT OF GP CANNOT BE MADE AS NO CONCEALMENT HAS BEEN FOUND. THE AO HAS NOT FOUND ANY SUPPRESSION OF FACTS WHEREAS THE LD. DR SUBMITTED THAT THERE WAS SUPPRESSION OF CLOSING STOCK. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE AO WHILE LEVYING PENALTY HAS NOT CORRECTLY INVOKED THE SATISFACTION REQUIRED UNDER S ECTION 271(1)(C). HE HAS SIMPLY QUOTED THE ENTIRE ASSESSMENT ORDER AND T HEREAFTER FELT HIMSELF SATISFIED ON THE BASIS OF THE ASSESSMENT ORDER AND PROCEEDED TO LEVY THE PENALTY. IN OUR CONSIDERED VIEW THIS APPROACH IS NO T LEGALLY CORRECT. NOT ONLY WHILE INITIATING PENALTY PROCEEDINGS IN ASSESS MENT PROCEEDINGS THE AO HAS TO SATISFY ABOUT A PRIMA FACIE CASE OF PENAL TY BUT ALSO WHILE LEVYING PENALTY UNDER SECTION 271(1)(C) HE HAS TO E XPRESS SATISFACTION THAT IT IS A FIT CASE FOR LEVY OF PENALTY EITHER IN THE MAIN PROVISIONS OR UNDER EXPLANATION OR UNDER BOTH. MERELY REFERRING TO THE ASSESSMENT ORDER AS SUCH AND THEREAFTER MECHANICALLY FEELING HIMSELF SA TISFIED FOR LEVY OF PENALTY IS NOT PROPER. 9. NOTWITHSTANDING, WE ARE OF THE CONSIDERED VIEW T HAT THERE IS NO MATERIAL WITH THE AO TO HOLD THAT GP ADDITION IS WA RRANTED ON ACCOUNT OF CERTAIN UNDER STATEMENT OF FACTS OR NON-DISCLOSURE OF ANY INFORMATION OF MATERIAL FACT BY THE ASSESSEE. ESTIMATE OF INCOME C AN BE BOTH WAYS ONE IS WHERE AO REJECTS THE BOOKS OF ACCOUNT BUT DOES N OT FIND ANY MATERIAL SHOWING UNDERSTATEMENT OF INCOME. HE FINDS DEFECTS IN THE MAINTENANCE OF ACCOUNT AND ACCORDINGLY INVOKES PROVISIONS OF SE CTION 145(3) AND THEREAFTER PROCEEDS TO ESTIMATE THE INCOME AS PROVI DED UNDER SECTION 144. IN THIS SITUATION THERE IS NOTHING NEGATIVE FOUND A GAINST THE ASSESSEE. SO FAR AS CARRYING ON OF BUSINESS AND DECLARATION OF I NCOME THEREFROM IS ITA NO.3156/AHD/2008 ASST. YEAR 2003-04 5 CONCERNED. WHAT IS FOUND WRONG IS THE DEFECTS IN TH E MAINTENANCE OF ACCOUNTS BUT NOT SOMETHING WHICH CAN BE CALLED WITH HOLDING OF ANY MATERIAL FACT. THE TRIBUNAL, DELHI BENCH IN MODEL F OOTWEAR P. LTD. VS. ITO (2009) 319 ITR (AT) 0051(DEL) HAS HELD THAT FIN DING OF WITHHOLDING MATERIAL FACT IS NECESSARY FOR LEVY OF PENALTY. IF THERE IS NO SUCH FINDING THEN PENALTY UNDER SECTION 271(1)(C) CANNOT BE LEVI ED EVEN THOUGH BOOKS HAVE BEEN REJECTED AND PROFITS HAVE BEEN ESTIMATED. ON THE OTHER HAND, SECOND SITUATION IS THAT IN ADDITION TO FINDING DEF ECTS IN THE BOOKS OF ACCOUNT AO ALSO FINDS EVIDENCE OF WITHHOLDING MATER IAL FACT OR MANIPULATION IN RECORDING PROFITS OR EVIDENCE FROM EXTERNAL SOURCES ABOUT UNDER STATEMENT OF PROFITS. THEN NOT ONLY PROFITS C AN BE ESTIMATED BUT IT WOULD BE A CASE OF LEVY OF PENALTY. THUS IN ADDITIO N TO FINDING DEFECTS IN THE BOOKS OF ACCOUNT AO MUST GIVE A FINDING ABOUT W ITHHOLDING OF MATERIAL FACT WHILE ESTIMATING INCOME. IN THAT CASE LEVY OF PENALTY WOULD BE JUSTIFIED. BUT IN THE PRESENT CASE THERE IS NO S UCH FINDING AND GP HAS BEEN ESTIMATED SIMPLICITOR. IN VIEW OF THIS PENALTY UNDER SECTION 271(1)(C) CANNOT BE LEVIED. OUR VIEW IS SUPPORTED B Y THE DECISION OF HON. ALLAHABAD HIGH COURT IN CIT VS. NADIR ALI & CO. (1 977) 106 ITR 151 (ALL) AND THAT OF HON. PUNJAB & HARYANA HIGH COURT IN HARGOPAL SINGH VS. CIT (2002) 258 ITR 85 (P & H). 10. THE ONLY OTHER POINT SURVIVES HERE IS THAT THE LD. CIT(A) HAD TELESCOPED THE ADDITION ON ACCOUNT OF UNDERSTATEMEN T OF CLOSING STOCK IN THE GP ADDITION WHICH APPARENTLY WAS NOT CHALLENGED BEFORE THE TRIBUNAL. THEREFORE, THE ADDITION ON ACCOUNT OF CLOSING STOCK WOULD NOT SURVIVE INDEPENDENTLY AND WHAT FINALLY SURVIVES IS ADDITION ON ACCOUNT OF GP RATE. THEREFORE, LEVY OF PENALTY CAN BE CONSIDERED ONLY I N RESPECT OF GP ADDITION AND NOT IN RESPECT OF ADDITION ON ACCOUNT OF CLOSING STOCK. IF REVENUE COULD HAVE CHALLENGED THE TELESCOPING ALLOW ED BY THE LD. CIT(A) ITA NO.3156/AHD/2008 ASST. YEAR 2003-04 6 IN QUANTUM PROCEEDINGS AND THE TRIBUNAL HAD INDEPEN DENTLY UPHELD THAT ADDITION ON ACCOUNT OF CLOSING STOCK EVEN WHERE IT ALLOWS TELESCOPING THEN IT WOULD HAVE BEEN A DIFFERENT MATTER AND ONE COULD CONSIDER THE LEVY OF PENALTY ON ACCOUNT OF CLOSING STOCK ADDITIO N. SINCE IT IS NOT THAT CASE, WE DECLINE TO CONSIDER LEVY OF PENALTY IN RES PECT OF ADDITION ON ACCOUNT OF CLOSING STOCK. ONCE THE PARTICULAR ADDIT ION DOES NOT SURVIVE QUESTION OF CONSIDERING OF LEVY PENALTY IN RESPECT OF THAT ADDITION DOES NOT ARISE. ACCORDINGLY THE PENALTY SUSTAINED BY THE LD. CIT(A) IS CANCELLED AND THE APPEAL FILED BY THE ASSESSEE IS A LLOWED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 17/9/10. SD/- SD/- (MUKUL KR.SHRAWAT) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT ME MBER AHMEDABAD, DATED : 17/9/10. 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 ITA NO.3156/AHD/2008 ASST. YEAR 2003-04 7 1.DATE OF DICTATION 1/9/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 16/9/2010 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..
Mehul