M/s. Kala Niketan(Bombaywala), Ahmedabad V. The ACIT., Circle-10, Ahmedabad

ITA 363/AHD/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9581 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-09-2010
• Assessment Year: 1995-1996
• Appeal Filed On: 19-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Assessee Lawyers: J P SHAH
• Keywords: Deemed to accrue or arise in india; Reassessment proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A, AHMEDABAD BEFORE SHRI BHAVNESH SAINI (JM) AND SHRI N.S. SAINI (AM) I.T.A. NO. 363/AHD/2007 (ASSESSMENT YEAR 1995-96) KALA NIKETAN (BOMBAYWALA) VS ACIT, CIR.10 B-1 TO 5, NOBLES AHMEDABAD NEHRU BRIDGE ASHRAM ROAD, AHMEDABAD PAN : AABFK7531M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JP SHAH RESPONDENT BY : RK DHANESTA O R D E R BHAVENSH SAINI : THIS APPEAL BY ASSESSEE IS DIRECTE D AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-XVI, A HMEDABAD DATED 07-12- 2006 FOR ASSESSMENT YEAR 1995-96 CHALLENGING THE L EVY OF PENALTY U/S 271(1)(C) OF THE I.T. ACT, 1961. 2. WE HAVE HEARD LEARNED REPRESENTATIVES OF BOTH TH E PARTIES, PERUSED THE FINDINGS OF AUTHORITIES BELOW AND CONSIDERED THE MA TERIAL AVAILABLE ON RECORD. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILE D ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 26-10-1995 DECLARIN G TOTAL INCOME AT RS.51,28,650. THE ASSESSMENT ORDER COMPLETED U/S 1 43(3) WAS SET ASIDE BY THE TRIBUNAL BY RESTORING THE SAME TO THE FILE OF THE A SSESSING OFFICER. THE ASSESSING OFFICER FRAMED THE ASSESSMENT AGAIN ON 07-09-1999 A ND DETERMINING THE TOTAL INCOME AT RS.76,02,700. THE MAIN ADDITION OF RS.24 ,05,825 WAS ON ACCOUNT OF INVESTMENT IN EXCESS STOCK WHICH, ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE COULD NOT EXPLAIN. THE ADDITION WAS CONFI RMED IN APPEAL. IN RESPONSE TO SHOW CAUSE NOTICE FOR LEVY OF PENALTY U/S 271(1) (C) THE ASSESSEE EXPLAINED THAT THE ADDITION IS MADE ON ACCOUNT OF VALUATION O F CLOSING STOCK AND NOT ON THE ITA NO.363/AHD/2007 2 BASIS OF QUANTITY OF CLOSING STOCK. IT WAS FURTHER CONTENDED THAT THE DETAILS OF PURCHASE AND CLOSING STOCK WITH QUANTITY IS PROVIDE D TO THE AO AND HENCE, NO PENALTY COULD BE LEVIED U/S 271(1)(C). THE, ASSESS ING OFFICER, NOT BEING SATISFIED WITH THE EXPLANATION, OBSERVED THAT A SURVEY U/S 13 3A WAS CONDUCTED AT THE PREMISES OF THE ASSESSEE DURING WHICH PHYSICAL VERI FICATION OF STOCK WAS UNDERTAKEN AND INVENTORY OF THE STOCK WAS PREPARED ON THE BASIS OF SALE PRICE SHOWN ON THE TAG ATTACHED TO EACH ITEM. THE TOTAL VALUE OF THE STOCK FOUND AS PER THE SALE PRICE MENTIONED ON THE TAG WAS RS.4,69 ,76,136. IN THE COURSE OF SURVEY THE ASSESSEE CLAIMED THAT STOCK FOUND ON PHY SICAL VERIFICATION INCLUDED DEFECTIVE GOODS WHICH COULD NOT BE SOLD AT THE TAGG ED PRICE. THE ASSESSEE FURTHER CONTENDED THAT DISCOUNT WAS ALLOWED TO THE CUSTOMERS ON THE TAGGED PRICE ON VARIOUS OCCASIONS. THE AO FURTHER OBSERVE D THAT SURVEY PARTY DETERMINED COST PRICE OF THE STOCK SINCE THE INVENT ORY WAS PREPARED ON THE BASIS OF SALE PRICE. FOR ARRIVING AT THE VALUE AT COST P RICE, THE ASSESSEE WAS GIVEN CREDIT FOR DEFECTIVE GOODS OF RS.15 LAKHS AND BENEF IT OF 4% ON ACCOUNT OF DISCOUNT TO THE CUSTOMERS. THEREAFTER, THE GP RATE OF 11.5% WAS DEDUCTED TO ARRIVE AT THE VALUE OF STOCK FOUND AT COST PRICE. THE GP RATE OF 11.5% WAS ADOPTED ON THE BASIS OF GP RATES OF THE PREVIOUS TW O YEARS WHICH WERE 11.78% AND 10.58% RESPECTIVELY. THE ASSESSEE ADMITTED THI S GP RATE AS CORRECT DURING THE SURVEY PROCEEDINGS. THE COMPUTATION OF STOCK F OUND AT THE PREMISES AT COST PRICE WAS WORKED OUT AT RS.3,86,36,526 AS UNDER: STOCK AS PER PHYSICAL INVENTORY ON THE BASIS OF SAL ES RS. 4,69,76,136 TAG PRICE LESS : DEFECTIVE GOODS RS. 15,00,000 ---------------------- RS. 4,54,76,136 LESS : DISCOUNT @4% RS. 18,19,045 ---------------------- RS. 4,36,57,091 LESS : G.P. @11.5% RS. 50,20,565 ---------------------- RS. 3,86,36,526 ============= ITA NO.363/AHD/2007 3 THE ASSESSING OFFICER OBSERVED THAT AS AGAINST THE ABOVE, THE STOCK AS PER BOOK OF ACCOUNT WAS WORKED OUT AT RS.2,48,51,498 DURING THE COURSE OF SURVEY; THUS GIVING A DIFFERENCE OF RS.1,37,85,028 WHICH, ACCORD ING TO THE ASSESSING OFFICER, IS EXCESS STOCK. THE ASSESSEE, IN THE COURSE OF RE-AS SESSMENT PROCEEDINGS, STATED THAT EXCESS STOCK OF RS.79 LAKHS WAS CONSIDE RED AND BY INCLUDING THIS STOCK, THE GROSS PROFIT RATE DECLARED WAS 22.1% AS AGAINST 11.5% DECLARED IN THE EARLIER YEAR. THE ASSESSEE HAD ALSO SUBMITTED THAT DISCOUNT ALLOWED ON TAGGED PRICE DURING THE FESTIVAL SALES AND CLEARANCE SALES WAS MUCH HIGHER AND AS PER HIS CONTENTION, IT WORKED OUT TO 14.96%. THE AO, T HEREFORE, AGAIN WORKED OUT EXCESS STOCK FOUND AT THE ITEM OF SURVEY BY ALLOWIN G DISCOUNT AT 14.96% AND ALSO BY TAKING INTO ACCOUNT THE OTHER MISTAKES POINTED O UT BY THE ASSESSEE. THE EXCESS STOCK WAS COMPUTED AT RS.1,03,21,220. THE A SSESSEE HAD INCLUDED EXCESS STOCK OF RS.79,15,395 IN THE CLOSING STOCK. THEREFORE, THE AO MADE ADDITION OF RS.24,05,805. THIS IS THE DIFFERENCE B ETWEEN THE EXCESS STOCK COMPUTED AT RS.1,03,21,220 AND THE STOCK INCLUDED B Y THE ASSESSEE IN THE CLOSING STOCK. THE AO HAS OBSERVED THAT THE ASSESS EE HAS NO EXPLANATION TO EXPLAIN THE EXCESS STOCK FOUND AT THE TIME OF SURVE Y. THE AO HAS OBSERVED THAT DURING THE COURSE OF SURVEY, ONE OF THE PARTNERS OF THE ASSESSEE, SHRI PANKAJ PARIKH ADMITTED THE EXCESS STOCK FOUND AND STATED T HAT THE ASSESSEE WAS READY TO PAY TAX THEREON AND THAT THERE WAS NO DISPUTE RE GARDING THE QUANTUM OF EXCESS STOCK FOUND AT THE TIME OF SURVEY. THE ADDI TION OF RS.24,05,805/- HAS BEEN UPHELD IN THE FIRST APPEAL AS THE UNDISCLOSED INVESTMENT U/S 69B. HE FURTHER OBSERVED THAT THE FACT OF EXCESS STOCK BEIN G RS.1,03,21,200 WAS WITHIN THE KNOWLEDGE OF THE ASSESSEE AND ONE OF THE PARTNE RS ADMITTED THE EXCESS STOCK FOUND IN HIS STATEMENT RECORDED DURING THE SU RVEY, YET THE ASSESSEE DISCLOSED A PART OF THE EXCESS STOCK AND EXCLUDED E XCESS STOCK TO THE EXTENT OF RS.24,05,805. THE ASSESSEE, THEREFORE, FURNISHED I NACCURATE PARTICULARS OF INCOME. WHILE HOLDING SO, HE HAS RELIED ON THE JUD GMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF WESTERN AUTOMOBILES, 112 ITR 12 AND ALSO ON THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF ITO V S SOMNATH OIL MILLS 214 ITR ITA NO.363/AHD/2007 4 32. ON THESE BASIS, THE ASSESSING OFFICER IMPOSED A PENALTY OF RS. 9,89,620 U/S 271(1)(C) OF THE ACT. 4. THE PENALTY ORDER WAS CHALLENGED BEFORE THE LD.C IT(A) AND IT WAS STATED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT DURING THE COURSE OF SURVEY BY ADOPTING SOME QUEER METHOD OF FINDING OUT THE STOCK IN TRADE AT COST PRICE, DIFFERENCE IN STOCK WAS COMPUTED AT RS.1,37,35,028. THE FIRST ASSESSMENT WAS SET-ASIDE BY THE I.T.A.T. AND THE AO FRAMED RE-ASSE SSMENT BY MAKING ADDITION OF RS.24,05,805 BY HOLDING THE EXCESS STOCK FOUND AT R S.1,03,21,220. THIS ADDITION WAS UPHELD IN THE FIRST APPEAL AND SECOND APPEAL IS PENDING BEFORE THE TRIBUNAL. WITH REGARD TO THE LEVY OF PENALTY, THE COUNSEL FOR THE ASSESSEE, BEFORE THE LD.CIT(A) HAS ARGUED AS FOLLOWS: (I) THIS IS NOT A CASE OF CONCEALING OF PARTICULARS BECAUSE THE ASSESSEE SHOWED THE UNDERVALUATION OF STOCK AS ON 18.01.1995 TO BE OF RS.79 LACS; WHEREAS THE ASSESSI NG OFFICER ESTIMATES THE UNDERVALUATION BY RS.1,03,21, 220/-. IT IS MUCH TOO WELL ESTABLISHED THAT CASES OF ESTIMATE OF INCOME BY ASSESSING OFFICER ARE NOT CASES OF CONCEA LMENT. WE DRAW YOUR KIND ATTENTION TO THE FOLLOWING OBSERV ATIONS OF THE GUJARAT HIGH COURT IN NAVNITLAL K. ZAVERI VS. C IT (1980) 125 ITR 385 AT 388 : IT MUST BE POINT OUT THAT TIM E AND AGAIN THE SUPREME COURT AND THE HIGH COURTS HAVE PO INTED OUT THAT IF THE VARIATION BETWEEN THE COURT AND THE HIGH COURTS HAVE POINTED OUT THAT IF THE VARIATION BETWE EN THE RETURNED INCOME AND ASSESSED INCOME ARISES BY VIRTU E OF ADDITIONS TO THE INCOME MADE EITHER BECAUSE OF DISALLOWANCE OR BECAUSE OF DEEMED INCOME ADDED OR BECAUSE OF THE ESTIMATE OF INCOME MADE BY THE ITO, THEN PENALTY IS NOT LEVIABLE. (II) THE DEPARTMENT CAME TO KNOW DURING THE COURSE OF SURVEY IN THE ACCOUNTING YEAR THAT THE STOCK HAD HIGHER VA LUE. NOW, FOR THE DEPARTMENT TO TAKE THE POSITION THAT IT CAM E TO KNOW OF THIS UNDERVALUATION DURING THE COURSE OF ASSESSM ENT PROCEEDINGS IS A CONTRADICTION OF FACTS AND THEREFO RE, ALSO NO PENALTY IS IMPOSABLE. THIS IS SUPPORTED BY KERALA HIGH CURT DECISION IN CIT VS SHRI PAWAN KUMAR DALMIA (1987) 1 68 ITR 1. ITA NO.363/AHD/2007 5 (III) IF THE ASSESSING OFFICER HAD APPLIED THE RATI O OF THE ABOVE TWO TRIBUNAL DECISIONS AS DIRECTED BY THE TRIBUNAL THEN THERE WOULD HAVE BEEN NO ADDITION; THROUGH IT IS A DIFFER ENT MATTER THAN THE ASSESSING OFFICER DID NOT FOLLOW THE DIREC TION OF THE TRIBUNAL TO APPLY ITS ABOVE TWO DECISIONS. (IV) THE ASSESSING OFFICER RECORDS IN THE ASSESSMEN T ORDER THAT THE ASSESSEE HAS COMMITTED THE OFFENCE OF FURNISHIN G INACCURATE PARTICULARS OF INCOME, ALSO GIVES 271(1) (C) NOTICE FOR THE SAME OFFENSE BUT IN PENALTY ORDER IS NOT SU RE AS TO WHICH OFFENCE IS COMMITTED AND THEREFORE, STATES TH AT THE ASSESSEE HAS CONCEALED ITS INCOME AND FURNISHED INACCURATE PARTICULARS OF ITS INCOME. THIS ORDER IS BAD FOR THIS REASON ALSO. 5. THE LEARNED CIT(A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND MATERIAL ON RECORD, CONFIRMED THE LEVY OF THE PENAL TY AND DISMISSED THE APPEAL OF THE ASSESSEE. HIS FINDINGS AT PARAGRAPHS 4 TO 10 O F THE IMPUGNED ORDER ARE REPRODUCED AS UNDER: 4. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF THE AO AND ARGUMENTS OF THE COUNSEL FOR THE APPELLANT. IN THI S CASE, DURING THE SURVEY, FINAL DISCREPANCY IN STOCK WAS DETERMINED A T RS.1,03,21,220/- BY THE AO. THIS DISCREPANCY WAS C OMPUTED BY ALLOWING VARIOUS MARGINS TO THE ASSESSEE LIKE, DISC OUNT ON CLEARANCE SALE, ETC. AND DEFECTIVE GOODS. THE ASSE SSEE DECLARED EXCESS STOCK OF RS.79 LACS IN THE RETURN OF INCOME FILED. IN THE REASSESSMENT PROCEEDINGS, THE AO MADE ADDITION OF B ALANCE STOCK OF RS.24,05,805/- WHICH HAS BEEN CONFIRMED IN THE F IRST APPEAL. THE FIRST ARGUMENT OF THE COUNSEL FOR THE APPELLANT THAT DIFFERENCE IN STOCK IS ON ACCOUNT OF ESTIMATE AND HENCE, IS NOT A CASE OF CONCEALMENT IS NOT CORRECT. DURING THE COURSE OF S URVEY, THE AO IS DUTY BOUND TO PREPARE INVENTORY OF STOCK FOUND AND DETERMINE ITS VALUE AT COST PRICE. THE SURVEY PARTY FOLLOWED A V ERY SOUND ACCOUNTING METHOD OF DETERMINING THE VALUE OF STOCK FOUND AT COST PRICE BASED ON THE PRICE MENTIONED ON THE TAGS AND THERE FROM REDUCING THE VALUE OF DEFECTIVE GOODS, DISCOUNTED A LLOWED DURING THE FESTIVAL SEASON AND CLEARANCE SALE AND FURTHER REDUCING THE G.P. RATE. THERE IS NO OTHER METHOD ADOPTED BY WHI CH THE VALUE OF STOCK AT COST PRICE FOUND DURING THE COURSE OF SURV EY CAN BE DETERMINED. THE EXCESS STOCK COMPUTED BY THE SURVE Y PARTY CERTAINLY IS NOT AN ESTIMATE. HENCE, THE FIRST ARG UMENT OF THE COUNSEL FOR THE APPELLANT IS REJECTED AND THE DECIS ION OF GUJARAT HIGH COURT IN THE CASE OF K. ZAVERI VS. CIT, 125 IT R 385 RELIED ITA NO.363/AHD/2007 6 UPON BY THE APPELLANT IS NOT APPLICABLE. IN THE CI TED CASE, THE ADDITION WAS MADE BY THE AO PURELY ON ESTIMATE BASI S WHEREAS IN THE PRESENT CASE, THE ADDITION IS MADE ON ACCOUNT O F EXCESS STOCK WHICH HAS BEEN WORKED OUT ON THE BASIS OF SOUND ACC OUNTING PRINCIPLES. 5. THERE IS NO FORCE IN THE ARGUMENTS OF THE COUNSE L THAT THE DEPARTMENT CAME TO KNOW ABOUT THE DISCREPANCY DURIN G THE SURVEY AND THE SAME CANNOT BE KNOWN DURING THE COURSE OF A SSESSMENT PROCEEDINGS. DURING THE SURVEY, THE SURVEY PARTY F OUND EXCESS STOCK OF RS.1,03,21,220/-. THE ASSESSEE WOULD NOT HAVE DISCLOSED THIS EXCESS STOCK HAD THE SURVEY NOT BEEN UNDERTAKE N. THE SURVEY CULMINATED THE IN THE ASSESSMENT. THUS, THE ARGUME NT OF THE COUNSEL THAT DISCREPANCY WAS NOT KNOWN DURING THE C OURSE OF ASSESSMENT PROCEEDINGS IS NOT CORRECT AND IS REJECT ED. THE DECISION OF KERALA HIGH COURT RELIED UPON BY THE CO UNSEL CITED AT 168 ITR, PAGE-1 IS NOT APPLICABLE AS IT IS ON DIFFE RENT FACTS. IN THE CITED CASE, THE ASSESSEE STATED THAT THE AMOUNT OF RS.1,50,000/-, RECOVERED FROM HIM BELONGED TO HIS UNCLE WHICH IS N OT THE CASE OF THE APPELLANT. 6. THE THIRD ARGUMENT OF THE COUNSEL THAT AO HAS NO T APPLIED THE RATIO OF TWO TRIBUNALS DECISIONS AS DIRECTED B Y THE I.T.A.T. IN CASE, HE HAD APPLIED THE RATIO OF THESE TWO DECISIO NS, NO ADDITION WOULD HAVE BEEN MADE. THIS ARGUMENT HAS ALSO NO FO RCE BECAUSE IN THE FIRST APPEAL, MY PREDECESSOR HAS CLEARLY HEL D THAT TWO TRIBUNALS DECISIONS ARE NOT APPLICABLE BECAUSE THE Y WERE RELATING TO THE BUILDER AND THE ADDITIONS WERE MADE U/S 69C. THIS ARGUMENT OF THE APPELLANT IS ALSO REJECTED. 7. THE LAST ARGUMENT OF THE COUNSEL THAT THE AO IN THE ASSESSMENT ORDER HAS RECORDED THAT THE ASSESSEE HAS COMMITTED OFFENCE OF FURNISHING INACCURATE PARTICULARS OF INC OME BUT IN THE PENALTY ORDER, HE IS NOT SURE AS TO WHICH OFFENCE I S COMMITTED AND HAS, THEREFORE, USED THE WORD, AND. THIS ARGUMEN T OF THE COUNSEL IS LACKING IN FORCE AND IS REJECTED. THE AO HAS CL EARLY STATED THAT THE ASSESSEE HAS CONCEALED ITS INCOME AND HAS ALSO FURNISHED INACCURATE PARTICULARS OF INCOME. THERE IS NOTHING WRONG IN THE FINDING GIVEN BY THE AO. 9. IN VIEW OF THE ABOVE DISCUSSION, THE ARGUMENTS O F THE COUNSEL FOR THE APPELLANT ARE REJECTED. THE APPELL ANT WAS VERY WELL AWARE OF THE EXCESS STOCK AMOUNTING TO RS.1,03,21,2 20/- DURING THE COURSE OF SURVEY. THIS WAS ADMITTED BY ONE OF THE PARTNERS WHO AGREED TO PAY TAX ON THE SAME. HOWEVER, INSPITE OF BEING FULLY AWARE OF THIS DISCREPANCY, THE ASSESSEE DISCLOSED E XCESS STOCK OF ITA NO.363/AHD/2007 7 RS.79,15,395/- BY FILING THE RETURN AS A PART OF TH E CLOSING STOCK. THUS, THE ASSESSEE KNOWINGLY DID NOT DISCLOSE EXCES S STOCK OF RS.24,05,825/- FOR WHICH IT IS LIABLE TO PENALTY U/ S 271(1)(C). THE PENALTY OF RS.9,89,620/- LEVIED BY THE AO IS CONFIR MED. 10. IN THE RESULT, THE APPEAL IS DISMISSED. 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND THE LD.DR RELIED U PON THE ORDERS OF AUTHORITIES BELOW. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERIA L AVAILABLE ON RECORD. THE PENALTY HAS BEEN IMPOSED WITH REGARD TO EXCESS STOCK FOUND BY THE SURVEY PARTY. THE VALUATION OF THE STOCK WAS MADE INITIAL LY WHICH WAS REDUCED TO CONSIDERABLE AMOUNT AND ULTIMATELY THE ASSESSEE ACC EPTED THE VALUATION OF THE CLOSING STOCK BY RS.79,15,395 AND IT WAS ALSO DISCL OSED BY INCLUDING THE SAME IN THE CLOSING STOCK. NO PENALTY HAS BEEN IMPOSED ON THAT AMOUNT. IT WOULD, THEREFORE, PROVE THAT THE REMAINING ADDITION OF RS. 24,05,825 WAS MADE ON ACCOUNT OF INVESTMENT IN EXCESS STOCK. THE EXCESS STOCK WAS FOUND NOT ON THE BASIS OF QUANTITY OF THE CLOSING STOCK BUT IT WAS N OTICED ONLY ON ACCOUNT OF VALUATION OF THE CLOSING STOCK. THE ASSESSEE HAS D ISCLOSED ALL THE PARTICULARS TO THE REVENUE AUTHORITIES WITH REGARD TO THE CLOSING STOCK AT THE STAGE OF SURVEY, ASSESSMENT AND THE REMAINING PROCEEDINGS. PHYSICAL VERIFICATION OF THE INVENTORY WAS PREPARED ON THE BASIS OF SALE PRICE S HOWN ON THE TAG ATTACHED TO EACH ITEM. THE ESTIMATED BENEFIT IS GIVEN TO THE A SSESSEE ON ACCOUNT OF DEFECTIVE GOODS AS WELL AS DISCOUNT GIVEN TO THE CU STOMERS. IT WOULD, THEREFORE, PROVE THAT DESPITE ASSESSEE DISCLOSING EXCESSIVE ST OCK AND INCLUDING THE SAME IN THE VALUATION OF THE CLOSING STOCK SOME ESTIMATE WAS MADE WITH REGARD TO THE REDUCTION IN THE COST PRICE OF THE ITEMS IN ORDER T O WORK OUT THE VALUATION OF THE CLOSING STOCK. NO PHYSICAL EXCESS STOCK WAS FOUND DURING THE COURSE OF SURVEY. THUS, ASSESSEE DISCLOSED ALL THE PARTICULARS OF VAL UATION OF THE CLOSING STOCK TO THE AUTHORITIES BELOW AND THEREFORE IT IS UNBELIEVA BLE THAT THE ASSESSEE, ON SUCH FACTS HAS CONCEALED THE PARTICULARS OF INCOME OR HA S FILED INACCURATE PARTICULARS ITA NO.363/AHD/2007 8 OF INCOME SHOWING UNDER VALUATION OF THE STOCK ON T HE BASIS OF WHICH PENALTY HAS BEEN IMPOSED. THE ASSESSEE RELIED UPON THE DECISIO N OF THE GUJARAT HIGH COURT IN THE CASE OF NAVNITLAL K ZAVERI VS CIT (1980) 125 ITR 388 BEFORE THE LD.CIT(A) IN WHICH IT WAS HELD THAT PENALTY IS NOT LEVIABLE B ECAUSE OF DISALLOWANCE OR BECAUSE OF DEEMED INCOME ADDED ON ESTIMATE BASIS. EVEN IF THE QUANTUM IS CONFIRMED BY THE TRIBUNAL, PENALTY PROCEEDINGS ARE DISTINCT AND INDEPENDENT PROCEEDINGS AND THE MATERIAL COULD BE EXAMINED AT T HE PENALTY STAGE ALSO. IF THE AMOUNT OF RS.24,05,805 ON ACCOUNT OF UNDERVALUATION OF THE CLOSING STOCK IS FURTHER ADDED, IT WOULD ENHANCE THE VALUATION OF TH E OPENING STOCK NEXT YEAR MEANING THEREBY SOME BENEFIT ON THE TAX WOULD BE AV AILABLE TO THE ASSESSEE IN THE NEXT YEAR. ON SUCH A MATTER, IF ADDITION IS MA DE ON ACCOUNT OF UNDERVALUATION OF THE CLOSING STOCK IN THE ASSESSME NT YEAR IN QUESTION AND BENEFIT IS GIVEN TO THE ASSESSEE IN NEXT YEAR, WE D O NOT FIND IT TO BE A FIT CASE FOR HOLDING THAT ASSESSEE HAS CONCEALED PARTICULARS OF INCOME OR FILED INACCURATE PARTICULARS OF INCOME. SINCE PART OF THE AMOUNT OF UNDER VALUATION OF THE CLOSING STOCK WAS ACCEPTED BY THE ASSESSEE AND INCLUDED IN THE VALUATION OF THE CLOSING STOCK WOULD PROVE THAT ASSESSEE DISCLOSED FULL FACT S AT THE ASSESSMENT STAGE ITSELF. THEREFORE, MERE FURTHER ADDITION LATER ON THE SAME WOULD NOT PROVE THAT ASSESSEE CONCEALED THE PARTICULARS OF INCOME. THE EXPLANATION OF THE ASSESSEE WAS NOT FOUND TO BE INCORRECT OR INACCURATE AND THA T THE EXPLANATION OF THE ASSESSEE WITH REGARD TO VALUATION OF THE CLOSING ST OCK WAS ALSO NOT FOUND TO BE FALSE. SINCE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FA LSE, THERE IS NO QUESTION OF INVITING THE PENALTY U/S 271(1)(C) OF THE ACT. A M ERE MAKING OF CLAIM WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO F URNISHING OF INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETRO PRODUCTS PVT LTD 322 ITR 1 58 (SC) HELD : A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) O F THE INCOME-TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF T HE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISH ED INACCURATE ITA NO.363/AHD/2007 9 PARTICULARS OF HIS INCOME. THE MEANING OF HE WORD PARTICULARS USED IN SECTION 271(1)(C) WOULD EMBRACE HE DETAILS OF THE CLAIM MADE. WHERE NO INFORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HEL D GUILTY OF FURNISHING INACCURATE PARTICULARS. IN ORDER TO EXP OSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISH ING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE THAT EVERYTHI NG WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE, BECAUSE THAT IS THE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICU LARS OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INAC CURATE, THE LIABILITY WOULD ARISE. TO ATTRACT PENALTY, THE DET AILS SUPPLIED IN THE RETURN MUST NOT BE ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIE D BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271(1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACC URATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTI CULARS. DECISION OF THE GUJARAT HIGH COURT AFFIRMED. 8. THE HONBLE SUPREME COURT IN THE CASE OF M/S RAJ ASTHAN SPINNING & WEAVING MILLS (2009)-TIOL-63-SC HELD THAT ON EVERY DEMAND PENALTY IS NOT AUTOMATIC. 9. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO POINTE D OUT THAT THE ASSESSING OFFICER WHILE INITIATING PENALTY PROCEEDINGS IN THE PENALTY ORDER NOTED THAT THEREFORE, I AM SATISFIED THAT THE ASSESSEE HAS CO NCEALED ITS INCOME AND DID FURNISH INACCURATE PARTICULARS OF IS INCOME THOUGH IT WAS WITHIN ITS KNOWLEDGE.(EMPHASIS OURS). THE LEARNED COUNSEL FO R THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF NEW SORATHIA ENGINEERING CO. VS CIT REPORTED IN 282 ITR 642, WHE REIN THE HONBLE COURT HAS CONSIDERED ITS EARLIER DECISION IN THE CASE OF MANU ENGINEERING WORKS 122 ITR 306 WHEREIN IT WAS NOTED THAT IT IS INCUMBENT UPON THE IAC TO COME TO A POSITIVE FINDING AS TO WHETHER THERE WAS CONCEALMENT OF INCO ME BY THE ASSESSEE OR ITA NO.363/AHD/2007 10 WHETHER ANY INACCURATE PARTICULARS OF SUCH INCOME H AD BEEN FURNISHED BY THE ASSESSEE AND THAT IN THE ABSENCE OF CLEAR CUT FINDI NG BY THE ACIT, PENALTY ORDER PASSED BY THE IAC WAS LIABLE TO BE STRUCK DOWN. THE HONBLE GUJARAT HIGH COURT FOLLOWING THE ABOVE DECISION DECIDED THE ISSU E IN FAVOUR OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED UP ON THE ORDER OF ITAT, AHMEDABAD D BENCH IN THE CASE OF KRISHNA DEVELOPE RS VS ITO IN ITA NOS 4447, 4448 & 4449/AHD/2007 ORDER DATED 23-07-2010 I N WHICH THE TRIBUNAL FOLLOWING THE ABOVE DECISION OF THE HONBLE GUJARAT HIGH COURT CANCELLED THE PENALTY. 10. CONSIDERING THE ABOVE DISCUSSION, IT IS CLEAR T HAT IN THIS CASE, THE ASSESSING OFFICER WHILE IMPOSING THE PENALTY HAD NO T GIVEN ANY CLEAR CUT FINDING WHETHER THE ASSESSEE HAS FURNISHED INACCURATE PARTI CULARS OF INCOME OR CONCEALED PARTICULARS OF INCOME. IN THE PENALTY OR DER, THE ASSESSING OFFICER HAS TAKEN BOTH THE ITEMS FOR THE PURPOSE OF IMPOSING TH E PENALTY AS NOTED ABOVE. IT WOULD, THEREFORE, SHOW THAT NO CONSIDERED FINDING I S GIVEN IN THE PENALTY ORDER WHETHER THE ASSESSEE CONCEALED PARTICULARS OF INCOM E OR FILED INACCURATE PARTICULARS OF INCOME. THEREFORE, THE ABOVE DECISI ON CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE WOULD APPLY TO THE CASE OF THE ASSESSEE. 11. IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE T HE ORDERS OF AUTHORITIES BELOW AND CANCEL THE PENALTY. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED ON THIS 07 TH DAY OF OCTOBER, 2010. SD/- SD/- (N.S. SAINI) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DT : 07 TH OCTOBER, 2010 PK/- ITA NO.363/AHD/2007 11 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-V, AHMEDABAD 4. THE CIT(A)-XVI, AHMEDABAD 5. THE DR, A-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, AHMEDABAD