R.R. Plywood Centre, Ahmedabad V. The Dy.CIT.,Circle-12, Ahmedabad

ITA 3349/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6558 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 1995-1996
• Appeal Filed On: 18-12-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAMIR TEKRIWA LA
• Assessee Lawyers: G S PATEL
• Keywords: Unexplained investment; Unexplained expenditure
• Section: 69C; 143(3); 133A; 69; 139

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M M/S R.R. PLYWOOD CENTRE, C/O NAGINDAS & MANEKLAL, CA, ANUPAM BLDG., NO.2, 2 ND FLOOR, SWASTIK CHAR RASTA, NAVRANGPURA, AHMEDABAD. VS. DY. CIT, CIRCLE-12, AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI G. S. PATEL, AR RESPONDENT BY:- SHRI SAMIR TEKRIWALA, SR.DR 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 CONFIRMED THE LEVY OF PENALTY OF RS.1,65,000/- U/S 271(1)(C). THE GROUNDS WHICH ARE PRESSED FOR ADJUDI CATION ARE GROUND NOS.2,4, & 5 AS UNDER :- (2) THE APPELLANTS SUBMIT THAT THE LD. CIT(A) HAS E RRED IN CONFIRMING THE PENALTY LEVIED U/S 271(1)(C) FOR FAILURE TO FUR NISH THE CORRECT AND COMPLETE PARTICULARS OF INCOME AND CONCEALED TH E PARTICULARS OF INCOME AND ALSO U/S 271(1)(C) READ WITH EXPLANATION 1 OF IT ACT WHICH IS NOT VALID IN LAW AS PER SECTION 271 OF IT ACT AND HENCE BE CANCELLED AS THE PENALTY IS NOT LEVIED FOR ANY ONE SPECIFIC DEFAULT AS REQUIRED U/S 271 OF IT ACT. ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 2 4. THE APPELLANTS SUBMIT THAT THE FACTS IN RESPECT OF UNDISCLOSED STOCK WERE DISCLOSED IN THE STATEMENT OF INCOME FILED WIT H THE RETURN U/S 139(1). AS SUCH, IT CANNOT BE ALLEGED THAT THE INAC CURATE PARTICULARS OF INCOME WERE FURNISHED OR THERE WAS CONCEALMENT O F INCOME BY THE APPELLANTS. AS SUCH THE LD. CIT(A) HAS ERRED IN CONFIRMING THE PENALTY LEVIED WHICH IS ILLEGAL AND HENCE BE CANCEL LED. 5. THE APPELLANTS SUBMIT THAT THE LD. CIT(A) HAS ER RED IN CONFIRMING THE PENALTY OF RS.1,65,000/- LEVIED BY THE AO U/S 2 71(1)(C) OF THE IT ACT WHICH IS ILLEGAL ON THE FOLLOWING GROUNDS:- (I) THE APPELLANTS SUBMIT THAT THE PENALTY ORDER IS BAS ED ON WRONG FACTS AND PRESUMPTIONS WHICH ARE NEITHER ARISING OU T OF FRESH ORDER OF THE AO DATED 13.08.2007 NOR ARISING OUT OF ORDER DATED 5.5.2006 OF HON. TRIBUNAL. AS SUCH IT IS ILLEGAL AN D BAD IN LAW. (II) THE APPELLANTS SUBMIT THAT THE OBSERVATIONS OF THE AO IN PARA 4 TO 6 OF THE PENALTY ORDER U/S 271(1)(C) ARE IRRELEV ANT AND INCORRECT AND NOT BASED ON FACTS AND FINDINGS OF TH E AO IN THE ORDER PASSED U/S 143(3) R.W.S. 255 OF IT ACT DATED 13.08.2007 AND ALSO NOT SUPPORTED BY THE FACTS AND FINDINGS RE CORDED BY HON. TRIBUNAL IN ITS ORDER DATED 5.5.2006. (III) THE APPELLANTS SUBMIT THAT THE CITATIONS NOTED BY T HE AO IN THE ORDER U/S 271(1)(C) ARE DISTINGUISHABLE ON FACTS AN D HENCE NOT APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLAN TS. 3. GROUND NO.5 IS ARGUMENTATIVE IN SUPPORT OF ARGUM ENT IN RESPECT OF GROUND NOS.2 & 4 WHICH ARE PRESSED AND HAVE A COMMO N ISSUE. 4. THE FACTS RELATING TO THE IMPOSITION OF PENALTY ARE THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF PLYWOOD, LAMINAT ED SHEETS AND HARDWARE ITEMS. A SURVEY U/S 133A WAS CARRIED OUT A T THE PREMISES OF THE ASSESSEE ON 20.01.1995. DURING THE COURSE OF SURVEY , ON PHYSICAL VERIFICATION, IT WAS FOUND THAT THERE WAS A STOCK O F RS.13,72,090/- AS ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 3 AGAINST STOCK OF RS.9,70,180/- AS PER BOOKS OF THE ASSESSEE FIRM. THE AUTHORISED OFFICER HAD RECORDED THE STATEMENT OF SH RI JAYANTILAL C. SHAH, PARTNER, AT THE TIME OF SURVEY, WHEREIN HE STATED T HAT STOCK VALUING RS.4,01,910/- WAS EXCESS BEING OVER AND ABOVE AND T HIS EXCESS STOCK WAS NOT RECORDED IN THE BOOKS AND WAS HIS UNACCOUNTED I NCOME WHICH HE WOULD DECLARE IN THE RETURN IN THE CURRENT YEAR. HO WEVER, THE ASSESSEE FILED HIS RETURN OF INCOME AT RS.3,48,266/- ONLY. T HE AO PROPOSED AN ADDITION OF RS.4,01,910/- WHICH WAS MADE U/S 69 BEI NG UNEXPLAINED INVESTMENT IN THE EXCESS STOCK SO FOUND DURING THE COURSE OF SURVEY. THE ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A), W HO DISMISSED THE SAME VIDE HIS ORDER DATED 7.9.1998. THE MATTER WAS TAKEN UP BEFORE THE TRIBUNAL WHICH VIDE ITS ORDER IN ITA NO.2272/AHD/19 98 DATED 5.5.2006 RESTORED THE MATTER BACK TO THE AO WITH A DIRECTION TO VERIFY WHETHER SUM OF RS.4,01,910/- WAS DECLARED IN THE BOOKS OF ACCOU NT AS CLAIMED BY THE ASSESSEE. THE TRIBUNAL IN THIS REGARD, IN THE ABOVE REFERRED ORDER, OBSERVED AS UNDER :- 6. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND PERUSED THE RECORD. THE ADMITTED FACTS OF THE CASE THAT THE EXCESS STOCK OF RS.4,01,910/- WAS FOUND AND SAME WAS ADMITTED BY TH E ASSESSEE AND INCORPORATED IN THE BOOKS OF ACCOUNT. IN SUCH A CIR CUMSTANCES, THE ITAT AHMEDABAD BENCHES IN ITA NOS.3448/A/97 FOR ASST. YE AR 1995-96 DTD.12.2.2005, ITA NOS. 1394/AHD/95 DATED 30/10/200 1 AND ITA NO.4248/AHD/95 DCIT VS. SURESH SCRAP (P) LTD. DTD.2 .11.2001 HAVE TAKEN A VIEW THAT THE TOTAL PROFIT SHOULD BE CURREN T YEAR PROFIT PLUS AMOUNT OF DISCLOSURE. FROM THE FACTS OF THE CASE, I T HAS BEEN NOTICED THAT THE ASSESSEE HAS NOT EFFECTIVELY DECLARED THE ADMIT TED STOCK AMOUNT FOR ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 4 TAXATION AS THE GP IN THE YEAR UNDER CONSIDERATION IS 9.54% AGAINST THE GP OF 9.63% SHOWN IN LAST YEAR. IT MEANS THAT ASSES SEE HAS SHOWN ONLY CURRENT YEAR PROFIT AND NOT THE AMOUNT OF INVESTMEN T IN UNDISCLOSED STOCK. IN VIEW OF ABOVE FACTS THE ALTERNATIVE GROUND RAISE D IN THE APPEAL IS NOT SUSTAINABLE. HOWEVER, WE NOTICED THAT CERTAIN CALCU LATION AND FACTS ARE REQUIRED TO BE EXAMINED FROM THE BOOKS OF ACCOUNTS AND RECORDS. SINCE SUCH BOOKS OF ACCOUNT AND RECORDS ARE NOT READILY A VAILABLE AT THIS STAGE. UNDER THE CIRCUMSTANCES, WE FIND APPROPRIATE TO SEN D BACK THIS MATTER TO THE FILE OF AO WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW KEEPING IN VIEW THE ABOVE OBSERVATION AND AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 5. AS A CONSEQUENCE OF THIS ORDER THE AO GAVE OPPOR TUNITY TO THE ASSESSEE TO SHOW WHETHER EXCESS STOCK OF RS.4,01,91 0/- WAS RECORDED IN THE BOOKS OF ACCOUNT BUT NO SUCH EVIDENCE WAS FURNI SHED BEFORE THE AO. THEREFORE, HE PROCEEDED TO ASSESS THE SAME INCOME O F RS.7,53,310/- AS ORIGINALLY ASSESSED. IN ADDITION HE INITIATED PENAL TY PROCEEDINGS U/S 271(1)(C). 6. IT SEEMS THAT THIS ORDER OF THE AO BECAME FINAL AS NO APPEAL WAS PREFERRED BY THE ASSESSEE. IN THE PENALTY PROCEED INGS, THE AO GAVE OPPORTUNITY TO THE ASSESSEE TO EXPLAIN. THE ASSESSE E SUBMITTED THE REPLY ON 9.4.2009 WHICH WAS DULY CONSIDERED BY THE AO. TH IS REPLY OF THE ASSESSEE IS REPRODUCED BELOW :- REPLY TO NOTICE U/S 271(1)(C) - IN THE ABOVE RESPECT, WE SUBMIT AS UNDER - 1. THE TIME LIMIT FOR PASSING THE ORDER U/S 271(1)( C) READ WITH SECTION 275(1)(A) IS OVER SINCE LONG AND HENCE THE PROVISIO NS OF SECTION 271(1)(C) ARE NOT APPLICABLE IN OUR CASE. ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 5 2. THERE IS NO SATISFACTION RECORDED IN THE ORIGINA L ORDER OR IN THE REVISED ORDER AS REQUIRED UNDER SECTION 271(1)(C) A ND AS SUCH, THE PENALTY CANNOT BE LEVIED IN SUCH A CASE. 3. WE SUBMIT THAT WE HAD DISCLOSED THE CASH OF RS.2 99297/- IN THE REGULAR RETURN FILED BY US ON 13.02.96 U/S 139(1) A ND ALSO WE HAD EXPLAINED THE FACTS FOR THE EXCESS STOCK OF RS.4019 10/- AS NOTED BY US IN THE STATEMENT OF INCOME FILED WITH THE RETURN OF INCOME. THUS THERE WAS NO CONCEALMENT OF INCOME U/S 271(1)(C). T HEREFORE, THE PROVISIONS OF SECTION 271(1)(C) ARE NOT APPLICABLE IN OUR CASE. 4. WE FURTHER SUBMIT THAT THE EXCESS STOCK OF RS.40 1910/- WAS INCLUDED BY THE AO AS UNEXPLAINED INVESTMENT IN STO CK U/S 69 OF IT ACT WHICH IS ILLEGAL AS THE STOCK IS NOT UNEXPLAINE D INVESTMENT BUT IT WAS UNEXPLAINED EXPENDITURE IN STOCK INCLUDIBLE U/S 69C OF THE ACT. WE FURTHER SUBMIT THAT AGAINST THE ADDITION OF RS.4 01910/-AS UNEXPLAINED EXPENDITURE U/S 69C THE PURCHASES IN TH AT RESPECT WILL HAVE TO BE DEDUCTED AGAINST THE SAME U/S 69C AS COS T OF PURCHASES NOT DEBITED IN THE BOOKS OF ACCOUNTS. THUS THE EFFE CT OF ADDITION WILL BE NIL. FOR THIS SUBMISSION, WE RELY ON 310 ITR 227 (GUJ). 5. WE ALSO REQUEST YOUR HONOUR TO KINDLY GO THROUGH THE SUBMISSIONS FILED BY US ON RECORD WITH THE AO AT THE TIME OF OR IGINAL ASSESSMENT PROCEEDINGS AND ARRIVE AT THE FRESH FINDING TO DECI DE AS TO WHETHER THE PROVISIONS OF SECTION 271(1)(C) ARE APPLICABLE IN OUR CASE. 6. IN SHORT IN ADDITION TO THE ABOVE SUBMISSIONS WE SUBMIT THAT AS WE HAVE DISCLOSED THE EXCESS CASH AND EXCESS STOCK IN THE BOOKS OF ACCOUNTS AND FILED THE REGULAR RETURN OF INCOME U/S 139(1) ON 13.2.96 AFTER THE SURVEY ON 20.1.95, THE PROVISIONS OF SECTION 271(1)(C) ARE NOT APPLICABLE IN OUR CASE. 7. THE AO WAS NOT SATISFIED WITH THE ABOVE EXPLANAT ION AND FOUND THAT - (1) EXCESS STOCK OF RS.4,01,910/- WAS INDEPENDENTLY TAXABLE U/S 69. THE GP DECLARED BY THE ASSESSEE ON RS.3,46,424/- FO R THE WHOLE YEAR WAS MUCH LOWER THAN THE FIGURE OF RS.4,01,910/ - WHICH WAS TO BE TAXED U/S 69. ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 6 (2) THE GP RATE FOR THE WHOLE YEAR WAS SHOWN AT 9.5 4% WHICH WAS LOWER THAN GP RATE OF 9.60% DECLARED IN THE IMMEDIA TELY PRECEDING YEAR. (3) IT IS APPARENT THAT BOOK RESULTS OF THE ASSESSE E WERE DOCTORED TO REDUCE THE TAXABLE INCOME. (4) IF FIGURES OF EXCESS STOCK IS NOT CONSIDERED TH EN THERE WILL BE A LOSS OF RS.2,18,616/-WHICH COULD REALLY BE NOT BELIEVED. (5) THE ASSESSEE DID NOT AVAIL THE OPPORTUNITY GIVE N BY THE TRIBUNAL TO SHOW AS TO WHETHER EXCESS STOCK IS RECORDED IN THE BOOKS OR DECLARED IN THE RETURN. (6) THE CLAIM THAT EXCESS STOCK HAS BEEN DECLARED A ND TAXED HAS NOT BEEN FOUND TO BE CORRECT. (7) NO NEW EVIDENCE HAS BEEN FILED IN THE PENALTY P ROCEEDINGS IN SPITE OF SPECIFIC REQUEST MADE BY THE AO. (8) IN SUPPORT OF HIS SATISFACTION TO LEVY THE PENA LTY LD. AO RELIED ON SEVERAL JUDGMENTS AS REFERRED TO BY HIM IN HIS PENA LTY ORDER. 8. THE LD. CIT(A) CONFIRMED THE LEVY OF PENALTY FOR THE FOLLOWING REASONS :- (1) THE ASSESSEE DID NOT COMPLY WITH THE DIRECTIONS GIVEN BY THE TRIBUNAL TO PRODUCE FRESH EVIDENCE BEFORE THE AO. (2) ASSESSEE DID NOT DISCLOSE ITS INCOME DETECTED D URING THE COURSE OF SURVEY. (3) THE STATEMENT OF THE ASSESSEE THAT EXCESS STOCK FOUND HAS BEEN TAXED HAS BEEN FOUND TO BE INCORRECT. (4) THE CLAIM OF THE ASSESSEE THAT EXCESS STOCK HAS BEEN SHOWN IN THE BOOKS OF ACCOUNTS WAS FOUND TO BE INCORRECT. 9. AGAINST ABOVE, THE LD. AR FOR THE ASSESSEE SUBMI TTED THAT (I) THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER IN PA RA 4 TO 6 OF THE ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 7 PENALTY ORDER ARE IRRELEVANT AND INCORRECT AND NOT BASED ON FACTS AND FINDINGS. (II) THE UNDISCLOSED STOCK WAS DISCLOSED IN THE STA TEMENT OF INCOME FILED WITH THE RETURN OF INCOME U/S 139 WHEREIN IN THE NOTE APPENDED TO THE COMPUTATION OF INCOME FOLLOWING REMARKS WERE MA DE BY THE ASSESSEE:- (2) AS PER SURVEY OPERATION ON 20.1.1995, THE TOTA L STOCK AS ON 20.1.95 WAS TAKEN WHICH CAME TO RS.13,72,092/-. OUR ACCOUNT ANT HAD PREPARED A LIST OF CLOSING STOCK WHICH SHOWED THE VALUE OF RS. 9700180/-. THUS THERE WAS A DIFFERENCE OF RS.401910/- WHICH WE COULD NOT EXPLAIN AT THAT TIME AND AS SUCH WE AGREED TO PAY TAX ON THE SAME. HOWEV ER, AFTERWARDS WHEN WE VERIFIED THE LIST OF STOCK PREPARED BY THE ACCOU NTANT, WE FOUND MANY MISTAKES IN THE SAID LIST. THEREFORE, WE ADOPTED RS .1372092/- AS THE CORRECT VALUATION OF STOCK ON 20.1.1995 AS PER BOOK S OF ACCOUNTS. HENCE AT THE END OF THE YEAR I.E. ON 31.3.1995, WE HAVE V ALUED THE CLOSING STOCK AT RS.1161713/- AS PER BOOKS OF ACCOUNTS. (III) THE LD. AR SUBMITTED THAT EXCESS STOCK WAS IN CORPORATED IN THE TRADING ACCOUNT OF THE TWO PERIODS AS UNDER :- PURCHASE & SALES A/C 1.4.95 TO 31.3.1995 TO OPENING STOCK 1199300 BY SALES 3632271 TO PURCHASES 2929256 BY CLOSING STOCK 1161714 TO HAVALA-SHOP EXPS. A/C 482135 TO GROSS PROFIT 183294 RS.4793985 RS.4793985 THE BIFURCATION OF THE ABOVE PURCHASE AND SALES A/C UPTO 20.1.1995 AND 31.3.1995 AS GIVEN BELOW WILL CLARIFY THE WHOL POSI TION THAT WE ARE ALREADY ACCOUNTED FOR THE CLOSING STOCK OF RS.13720 90/- FOUND AT THE TIME OF SURVEY. ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 8 PURCHASE & SALES A/C 1.4.1994 TO 20.1.1995 TO OPENING STOCK 1199300 BY SALES 2545195 TO PURCHASES 22953726 BY CLOSING STOCK 1372092 TO GROSS PROFIT 422615 RS.3917287 RS.3917287 PURCHASE & SALES A/C 21.1.1995 TO 31.3.1995 TO OPENING STOCK 1372092 BY SALES 1087075 TO PURCHASES 633883 BY CLOSING STOCK 1161713 TO GROSS PROFIT 242813 RS.2248788 RS.2248788 10. ON THE BASIS OF ABOVE TRADING ACCOUNT FOR THE W HOLE YEAR AS WELL AS IN PRE-SURVEY AND POST SURVEY PERIOD, THE LD. AR PO INTED OUT THAT ACTUALLY PHYSICAL STOCK OF RS.13,72,092/- FOUND AT THE TIME OF SURVEY WAS CONSIDERED IN THE TRADING ACCOUNT BETWEEN 1.4.1994 TO 21.1.1995 I.E PRE SURVEY PERIOD. THE SAME CLOSING STOCK WAS TREATED O PENING STOCK IN THE TRADING ACCOUNT MADE FOR POST SURVEY PERIOD. THE LD . AR FURTHER SUBMITTED THAT ONCE ASSESSEE HAS DECLARED THE EXCES S STOCK IN THE TRADING ACCOUNT THEN NO PENALTY U/S 271(1)(C) CAN BE LEVIED ON HIM. HE REFERRED TO THE DECISION OF HON. GUJARAT HIGH COURT IN THE CASE OF NEW SORATHIA ENGINEERING CO. VS. CIT (2006) 282 ITR 642 (GUJ) FO R THE PROPOSITION THAT THE AO SHOULD CLEARLY STATE IN THE PENALTY ORD ER WHETHER HE IS LEVYING PENALTY FOR CONCEALMENT OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. HE REFERRED TO THE DECISION OF HON. DELH I HIGH COURT IN THE CASE OF CIT VS.TEXTILES AND GENERAL TRADING CO. 244 ITR 876 (DEL) FOR ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 9 THE PROPOSITION THAT IF A NOTE IS FILED IN THE RETU RN OF INCOME ABOUT THE CORRECT FACTS THEN IT WILL NOT AMOUNT TO CONCEALMEN T OF INCOME AND PENALTY WILL NOT BE JUSTIFIED. HE THEN REFERRED TO THE DECISION OF AHMEDABAD BENCH IN THE CASE OF DCIT VS.GUJARAT MACH INERY MANUFACTURERS LTD. (2000) 67 TTJ (AHD) 466 FOR THE PROPOSITION THAT IF ASSESSEE SUBMITTED FULL DETAILS RELATING TO THE DIS PUTED ITEMS ALONG WITH RETURN AND FURNISHED AN EXPLANATION ALSO, THEN IT C ANNOT BE SAID THAT ASSESSEE CONCEALED THE PARTICULARS OF INCOME OR FUR NISHED INACCURATE PARTICULARS OF INCOME WHILE FILING RETURN OF INCOME . THE ASSESSEE DID NOT HOLD BACK ANY MATERIAL OR INFORMATION RELATING TO T HE CLAIM OF EXEMPTION MADE BY THE ASSESSEE WHILE FILING THE RETURN OF INC OME. HE THEN REFERRED TO THE DECISION OF HON. GUJARAT HIGH COURT IN THE C ASE OF KRISHNA TEXTILES VS. CIT (2009) 310 ITR 227 (GUJ) FOR THE PROPOSITIO N THAT IF AN ADDITION U/S 69C IS MADE, THEN ENTIRE EXPENDITURE TOWARDS IT HAD TO BE ALLOWED AS DEDUCTION U/S 37(1). PROVISO TO SECTION 69C HAD COM E INTO THE STATUTE W.E.F. APRIL 1, 1999 AND IS NOT APPLICABLE TO THE P RESENT ASST. YEAR I.E. ASST. YEAR 1995-96. HE FINALLY REFERRED TO THE DECI SION OF HON. SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD . 88 ITR 192 (SC) FOR THE PROPOSITION THAT IF TAXING PROVISION IS CAPABLE OF MORE MEANINGS THAN ONE, THEN COURT SHOULD ADOPT INTERPRETATION FAVOURA BLE TO THE ASSESSEE AND PARTICULARLY WHERE PROVISIONS RELATE TO THE IMPOSIT ION OF PENALTY. ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 10 11. AGAINST ABOVE, THE LD. DR SUBMITTED THAT THE AO HAS CLEARLY MENTIONED IN THE PENALTY ORDER THAT ASSESSEE HAS FA ILED TO FURNISH CURRENT AND COMPLETE PARTICULARS OF HIS INCOME AND CONCEALE D THE PARTICULARS OF INCOME ACCORDINGLY. THUS THERE IS A SATISFACTION AB OUT CONCEALMENT ABOUT THE PARTICULARS OF INCOME. IN ANY CASE THE LD. DR S UBMITTED THAT HON. SUPREME COURT IN THE CASE OF K.P. MADHUSUDAN VS. CI T (2001) 251 ITR 99 (SC) HELD THAT SPECIFIC REFERENCE TO EXPLANATION IS NOT NECESSARY. EXPLANATION TO SECTION 271(1)(C) IS A PART OF SECTI ON 271 AND THEREFORE NOTICE IS ISSUED U/S 271 THEN IT INCLUDES THE EXPLA NATION U/S 271(1)(C) ALSO. 12. THE LD. DR THEN SUBMITTED THAT ASSESSEE HAS IN FACT NOT DISCLOSED THE EXCESS STOCK IN THE RETURN. THE TRIBUNAL HAD AL SO OBSERVED THE SAME IN ITS ORDER DATED 5.5.2006. THE ASSESSEE HAS CLEARLY MANIPULATED THE BOOKS SO AS NOT TO SHOW THE EXCESS STOCK FOUND DURING THE COURSE OF SURVEY. WHEN CALLED FOR TO SHOW THAT SUCH EXCESS STOCK IS R ECORDED IN THE BOOKS THE ASSESSEE FAILED TO DO SO IN RESPECT OF THE DIRE CTION OF THE TRIBUNAL. IF IT IS PRESUMED THAT SUCH EXCESS STOCK IS INCLUDED IN G P DECLARED THEN SUCH GP WOULD BECOME VERY LOW AND IT WOULD CONVERT PROFI T INTO LOSS AS POINTED OUT ABOVE. THE LD. DR THEN REFERRED FOLLOWI NG JUDGMENTS IN SUPPORT OF HIS ARGUMENTS:- (1) LMP PRECISION ENGG. CO. LTD. VS. DCIT (ASST.) (2011 ) 330 ITR 93 (GUJ) (2) CIT VS. HARPRASAD & CO. LTD. (2010) 328 53 (DEL) (3) JYOTI LAXMAN KONKAR VS. CIT (2007) 292 ITR 163 (BOM ) ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 11 FOR THE PROPOSITION THAT IF DISCREPANCIES ARE FOUND IN THE STOCK DURING THE COURSE OF SURVEY AND THE SAME IS NOT DECLARED IN TH E RETURN THEN LEVY OF PENALTY WOULD BE JUSTIFIED. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE ADJUDICATING THE ISSUE, IT IS NECESS ARY TO SUMMARISE THE FACTS WHICH ARE NOT IN DISPUTE. DURING THE COURSE O F SURVEY EXCESS STOCK OF RS.4,01,910/- WAS FOUND WHICH WAS SO ADMITTED BY THE PARTNER AND HE HAD PROMISED TO PAY TAX THEREON. IN THE RETURN OF I NCOME SUCH EXCESS STOCK WAS NOT DECLARED, EXCEPT APPENDING NOTE TO TH E POINT THAT AT THE END OF THE YEAR ON 31.3.2005 CLOSING STOCK HAS BEEN TAK EN AT RS.11,61,713/- AND CORRECT VALUATION OF STOCK AS ON 20.1.1995 IS R S.13,72,092/- AS PER BOOKS OF ACCOUNT. THIS NOTE DOES NOT CLEARLY COMMIT WHETHER EXCESS STOCK OF RS.4,01,910/- WAS RECORDED IN THE BOOKS OF ACCOU NT AND IF YES IN WHAT MANNER? IT IS NOW ADMITTED POSITION THAT ASSESSEE D ID NOT DECLARE EXCESS STOCK OF RS.4,01,910/- AS ITS INCOME IN THE RETURN OF INCOME FILED BUT RELYING ON ITS NOTE BY WHICH ASSESSEE SOUGHT TO GIV E IMPRESSION THAT SUCH EXCESS STOCK HAS BEEN INCORPORATED IN THE BOOKS OF ACCOUNT. THE AO REQUIRED DURING THE COURSE OF ASSESSMENT PROCEEDING S TO SHOW AS TO WHETHER SUCH EXCESS STOCK WAS ACCOUNTED FOR BUT NO EXPLANATION WAS FURNISHED AND ACCORDINGLY THE AO PROPOSED THE ADDIT ION AND ENHANCED THE INCOME FROM RS.3,48,262/- TO RS.7,51,310/-. WHE N THE MATTER CAME ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 12 UP BEFORE THE TRIBUNAL IT WAS SUBMITTED BEFORE THE TRIBUNAL BY THE LD. AR AS UNDER :- 4. THE LD. AR SUBMITTED THAT THE ASSESSEE MAINTAIN S THE REGULAR BOOKS OF ACCOUNT AND THE BOOKS OF ACCOUNT ARE ACCEPTED AN D THE FIGURES OF PURCHASES, SALES AND CLOSING STOCK ARE ALSO ACCEPTE D. HE FURTHER SUBMITTED THAT THE GROSS PROFIT SHOWN BY THE ASSESS EE AT 9.54% ON SALES OF RS.36,32,271/- THIS YEAR AS AGAINST GP SHOWN AT 9.6 3% ON SALES OF RS.26.11.463/- IN EARLIER YEAR. THE LD. AR SUBMITTE D THAT STOCK OF RS.13,72,092/- FOUND AT THE TIME OF SURVEY WAS INCO RPORATED IN THE BOOKS OF ACCOUNT. HENCE, THE ADDITION OF RS.4,01,910/- IS UNWARRANTED AND AMOUNTS TO DOUBLE TAXATION. THUS A SUBMISSION WAS MADE THAT STOCK AT RS.13,72,0 92/- WAS INCORPORATED IN THE BOOKS. IN THE SET ASIDE PROCEED INGS WHEN THE AO ASKED THE ASSESSEE TO SHOW WHETHER EXCESS STOCK IS RECORDED IN THE BOOKS NO EVIDENCE WAS SUBMITTED BEFORE HIM. THE ASSESSEE MAINLY RELIED ON THE PRE-SURVEY TRADING ACCOUNT AND POST SURVEY TRADING ACCOUNT SUBMITTED BY HIM BEFORE THE AO IN THE ORIGINAL ASSESSMENT PROCEE DINGS BUT NO ENTRY AS SUCH OF THE EXCESS STOCK OF RS.4,01,910/- OR OF ACT UAL PHYSICAL STOCK OF RS.13,72,092/- IN THE BOOKS WAS SHOWN TO THE AO OR EVEN TO US. IF ASSESSEE WANTED TO INCORPORATE THE EXCESS STOCK OF RS.4,01,910/- IN THE BOOKS IT COULD HAVE PASSED GENERAL ENTRY DEBITING T HE STOCK AND CREDITING THE PROFIT AND LOSS ACCOUNT OR TO PARTNERS ACCOUNT. EVEN NO ENTRY OF RS.13,72,092/- WAS SHOWN. THE PRE-SURVEY AND POST S URVEY TRADING ACCOUNTS MADE BY THE ASSESSEE ARE ONLY AN ACCOUNTIN G JUGGLARY.THEY DO NOT REFLECT, IN REALITY, THAT EXCESS STOCK HAS BEEN DECLARED BY THE ASSESSEE. IN THE PRE-SURVEY TRADING ACCOUNT FOR THE PERIOD FR OM 1.4.1994 TO ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 13 20.1.1995, BY SHOWING CLOSING STOCK BY ACTUAL PHYSI CAL STOCK FOUND ON THAT DATE OF RS.13,72,092/- ASSESSEE IS SHOWING GP OF RS.4,22,615/- WHICH IS 16.8%. IT IS APPARENTLY COMMENSURATE TO WH AT ASSESSEE HAS SHOWN IN THE RETURN IN EARLIER YEARS. THE ASSESSEE HAS NOT INCORPORATED ANY OTHER GENERAL EXPENDITURE IN THIS PRE-SURVEY TR ADING ACCOUNT WHICH WERE FINALLY INCORPORATED IN WHOLE YEAR TRADING A CCOUNT, AT RS.4,82,135/-. THEREFORE, WITHOUT INCORPORATING THE ACTUAL GENERAL EXPENDITURE WHICH FORM PART OF THE TRADING ACCOUNT OF WHOLE YEAR, THE GP RATES CANNOT BE COMPARED. IN THIS REGARD THE WORKIN G DONE BY THE AO IN THE PENALTY ORDER FOR COMPARING GP RATES FOR THREE YEARS INCLUDING CURRENT ASST. YEAR AFTER, BY INCORPORATING ALL THE EXPENSES OF TRADING ACCOUNT, IS MUCH BETTER COMPARATIVE DATA. IN ASST. YEAR 1995-96 ASSESSEE HAS SHOWN GP RATE OF 9.54% WHEREAS IN THE IMMEDIATELY PRECEDI NG YEAR IT IS 9.63%. IF EXCESS STOCK OF RS.4,01,910/- IS EXCLUDED THEN T HERE WILL BE A LOSS. ON THE OTHER HAND TRADING ACCOUNT PREPARED BY THE ASSE SSEE BY EXCLUDING GENERAL EXPENDITURE ARE CLEARLY MISLEADING. THE EXC ESS STOCK FOUND DURING THE COURSE OF SURVEY SHOULD HAVE BEEN SEPARA TELY CREDITED IN THE TRADING ACCOUNT AND PROFITS EARNED BY THE ASSESSEE SHOULD BE SEPARATELY SHOWN ENABLING THE AO TO COMPARE THE GP RATES OF PR E AND POST SURVEY PERIOD. IN FACT THE AO HAS CONSIDERED THESE ASPECTS AND HAS PROPOSED THE ADDITION IN THE ORIGINAL ASSESSMENT PROCEEDINGS AS ACCORDING TO HIM EXCESS STOCK AT RS.4,01,910/- WAS NOT DECLARED BY T HE ASSESSEE EITHER IN ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 14 THE RETURN OR IN THE BOOKS OF ACCOUNTS. EVEN ON OUR ASKING DURING THE COURSE OF THIS PROCEEDING THE LD. AR COULD NOT SHO W WHETHER SUCH EXCESS STOCK IS INCORPORATED IN THE BOOKS OF ACCOUNT. WE, THEREFORE HOLD THAT ASSESSEE FAILED TO DECLARE THE EXCESS STOCK OF RS.4 ,01,910/- EITHER IN THE RETURN OF INCOME OR IN THE BOOKS OF ACCOUNT. THUS A SSESSEE IS GUILTY OF CONTUMACIOUS CONDUCT IN FILING THE RETURN OF INCOME . THE AUTHORITIES RELIED ON BY THE ASSESSEE ARE NO LONGER APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE DECISION OF HON. GUJARAT HIGH IN THE CASE OF NEW SORATHIA ENGINEERING CO. VS. CIT (SUPRA) COULD NOT BE APPLIED IN VIEW OF THE DECISION OF HON. SUPREME COURT IN THE CASE OF K .P. MADHUSUDAN VS. CIT. THE DECISION OF HON. DELHI HIGH COURT IN THE C ASE OF CIT VS. TEXTILES AND GENERAL TRADING CO. (SUPRA) IS PERTAIN ING TO ASST. YEAR 1987-88 AND DOES NOT RELATE TO CHANGES MADE AFTER 1 .4.1989. FURTHER IT IS NOT A CASE WHERE EXCESS STOCK AS IN THE PRESENT CAS E WAS FOUND. THE JUDGMENT OF AHMEDABAD BENCHES IN THE CASE OF DCIT V S. GUJARAT MACHINERY MANUFACTURERS LTD. (SUPRA) IS ALSO NOT AP PLICABLE TO THE PRESENT CASE AS THAT IS ALSO NOT A CASE OF SURVEY W HERE EXCESS STOCK WAS FOUND. THE DECISION IN THE CASE OF KRISHNA TEXTILES VS. CIT (SUPRA) ALSO CANNOT BE INVOKED BECAUSE WE ARE NOT DEALING WITH Q UANTUM ADDITION BUT ONLY IN RESPECT OF LEVY OF PENALTY. SIMILARLY THE D ECISION OF HON. SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD . (SUPRA) IS ALSO NOT ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 15 APPLICABLE TO THE FACTS OF THE PRESENT CASE AS ACCO RDING TO US THERE IS NO DISPUTE ABOUT ANY INTERPRETATION OF ANY PROVISION O F THE SECTION 271(1)(C). 14. ON THE OTHER HAND, THE JUDGMENT REFERRED TO BY LD. DR ARE CLEARLY ATTRACTED. IN THE CASE OF HARPRASAD & CO. LTD. (SUP RA) HON. DELHI HIGH COURT HELD THAT FINDING IN THE ASSESSMENT PROCEEDIN GS ARE RELEVANT IN THE PENALTY PROCEEDINGS AND IF THERE IS A FINDING THAT NO SERVICES ARE RENDERED FOR THE CLAIM OF COMMISSION THEN NOT ONLY THE PAYME NT OF COMMISSION WOULD BE DISALLOWED BUT PENALTY CAN ALSO BE LEVIED. ONCE IN THE QUANTUM PROCEEDINGS IN THE PRESENT CASE IT IS FOUND THAT TH E ASSESSEE HAS NOT DECLARED EXCESS STOCK OF RS.4,01,910/- IN THE RETUR N OF INCOME AND THIS FINDING HAS BECOME FINAL AND THERE IS NO SATISFACTO RY EXPLANATION FOR NOT DECLARING THE SAME IN THE RETURN THEN LEVY OF PENAL TY WOULD BE JUSTIFIED. 15. IN OUR CONSIDERED VIEW EXPLANATION-1 TO SECTION 271(1)(C) IS ALSO APPLICABLE IN THE PRESENT CASE. THE EXPLANATION OF THE ASSESSEE THAT IT HAS DECLARED THE EXCESS STOCK IN THE BOOKS WAS FOUND IN CORRECT. THE TRADING ACCOUNT FOR THE TWO PERIODS PRE AND POST SURVEY WER E FOUND MISLEADING AND INCORRECT INASMUCH AS THEY WERE NOT PREPARED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES BY SHOWING PROPER EXPENDITURE DEBITABLE TO TRADING ACCOUNT AS WAS DONE IN THE FINAL TRADING ACCOUNT FO R THE WHOLE YEAR AND FURTHER THAT SUCH EXCESS STOCK WAS NOT SHOWN SEPARA TELY WHICH WAS TAXABLE UNDER SECTION 69. ONCE EXPLANATION FURNISHE D BY THE ASSESSEE WAS ITA NO.3349/AHD/2009 ASST. YEAR 1995-96 16 NOT FOUND BONA FIDE AS ASSESSEE HAS WITHHELD THE MA TERIAL FACT INASMUCH AS HE COULD NOT SHOW HOW EXCESS STOCK OF RS.4,01,91 0/- IS RECORDED BY THE ASSESSEE EXPLANATION 1(B) TO SECTION 271(1)(C) IS CLEARLY ATTRACTED. ACCORDINGLY, WE CONFIRM THE ORDER OF LD. CIT(A) AND DISMISS THE APPEAL FILED BY THE ASSESSEE. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 7/6/11. SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 7/6/11. 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.3349/AHD/2009 ASST. YEAR 1995-96 17 1.DATE OF DICTATION 1/6/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 6/6/2011 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..