M/s Gayathri Exports, V. ACIT,

ITA 82/BANG/2013

• Counselvise Citation: 8221114 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 22-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K BIJU
• Keywords: Business income; Income from undisclosed sources; Principle of natural justice; Proportionate interest; Additional evidence; Initiation of penalty proceedings
• Section: 133(6); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH C, BANGALORE BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER ITA NOS.82 & 83(BANG) 2013 (ASSESSMENT YEARS : 2009-10) M/S GAYATHRI EXPORTS, ATTUR NORTH, KARKALA-576 117. APPELLANT PAN NO.AEHPK9834K VS THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), MANGALORE R ESPONDENT ASSESSEE BY : SMT SHEETAL, ADVOCATE REVENUE BY : SHRI M.K.BIJU, JCIT DATE OF HEARING : 01-09-2014 DATE OF PRONOUNCEMENT : 12-09-2014 PER SHRI ABRAHAM P GEORGE, AM: THESE ARE APPEALS FILED BY THE ASSESSEE AGAINST OR DERS DATED 19-10- 2012 OF CIT(A),MYSORE, FIRST ONE ASSAILING THE QUAN TUM ADDITION MADE IN THE ASSESSMENT AND SECOND ONE ASSAILING THE LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE IT ACT, 1961 ( IN SHORT THE AC), 2. FIRST WE TAKE UP APPEAL AGAINST QUANTUM ADDITIO N; 2.1 FACTS APROPOS ARE THAT ASSESSEE WAS ENGAGED IN PROCESSING OF RAW CASHEW NUTS AND PRODUCING EDIBLE CASHEW KERNEL AS A LSO TRADING IN CASHEW KERNELS. IT HAD FILED ITS RETURN FOR THE IMPUGNED ASSESSMENT YEAR, ITA NOS.82 & 83(BANG)2013 2 DECLARING INCOME OF RS.1,82,62,775/-. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS LEARNED AO NOTED THAT ASSESSEE HAD PROC ESSED 58,22,563 KG OF RAW CASHEW NUTS DURING THE RELEVANT PREVIOUS YEAR. APPLYING THE YIELD OF 22.70% MENTIONED BY THE ASSESSEE, LEARNED AO WORKED OUT THE QUANTITY OF CASHEW KERNELS PRODUCED BY THE ASSESSEE AS 13,21,72 1 KG. ASSESSEE HAD MEASURED THE MANUFACTURE IN NUMBER OF PACKED TINS A ND HAD REPORTED THAT 1,16,943 TINS OF CASHEW KERNELS WERE PRODUCED. AS PER THE ASSESSEE EACH TIN CONTAINED 11.34 KG OF KERNELS. THIS IN TERMS O F WEIGHT CAME TO 13,21,597/-KILOGRAMS. AS TO THE ODD FIGURE 11.34 K G PER TIN, EXPLANATION WAS THAT IT TRANSLATED TO 25 POUNDS, WHICH WAS THE MEASURE FOLLOWED IN INTERNATIONAL MARKET. 3. ASSESSING OFFICER THEREUPON, VERIFIED THE SALES BILLS AND FOUND THAT THE VERSION GIVEN BY THE ASSESSEE WAS CORRECT INSOF AR AS IT RELATED TO EXPORTS AND SALES TO ARMED FORCES. HOWEVER, SALES IN INDIA WERE MADE IN TINS HAVING BOTH 11.34 KG AND 10 KG. WHEN AO SOUGHT EXP LANATION ON THIS ASSESSEE VIDE ITS LETTER DATED 05-12-2011 STATED TH AT SALE OF 31,178 TINS WERE OF TEN KILOGRAM WEIGHT EACH THOUGH IN THE STOC K REGISTER IT WAS MENTIONED AS TINS OF 11.34 KG. ASSESSING OFFICER M ADE FURTHER VERIFICATION AND FOUND THAT ACTUAL NUMBER OF TINS HAVING CASHEW KERNELS OF 10KG EACH CAME TO 38,185. ACCORDINGLY, HE REWORKED QUANTITY PARTICULARS OF STOCK AND PRODUCTION AS UNDER; ITA NOS.82 & 83(BANG)2013 3 CASHEW KERNELS NUMBER IS TINS IN KGS A OPENING STOCK AT 11.34KGS 11,696 X 11. 34 1,32,632.64 B PURCHASED DURING THE PREVIOUS YEAR @ 11.34 KG/TIN 11,433 1,29,650.22 @ 10 KG/TIN 1007 10,070,00 12,440 1,39,720.22 C QUANTITY MANUFACTURED DRG.THE PREVIOUS YEAR AT 11.34 KS PER TIN 1,1 6,543 13,21,597.62 TOTAL STOCK AVAILABLE 1,40,679 15,93,950.48 D LESS: 1 EXPORT SALES 70,000 7,93,800.00 2.SALES TO ARMED FORCES 16,327 1,85,148.18 3. LOCAL SALES OF 11.34 KG 1,900 21,546.00 TINS 4. LOCAL SALES OF 38,185 3,81,850.00 10 KG TINS TOTAL SALES 1 ,26,412 13,82,344.18 E CLOSING STOCK 14,267 2,11,606.3 0 FOR THE CLOSING STOCK OF 2,11,606.30 KGS AO APPLIED THE RATE OF RS.207.23 PER KG TO ARRIVE AT A VALUE OF RS.4,38,51,174/-. R ATE OF RS.207.23 PER KG WAS TAKEN FROM ASSESSEES OWN VALUE OF RS.2350/PER TIN OF 11.34 KG. SINCE ASSESSEE HAD VALUED THE CLOSING STOCK OF KERN ELS AT RS.3,35,27,450/-, THE AO MADE AN ADDITION FOR THE DIFFERENCE OF RS.1, 03,23,724/-. 4. ASSESSEE HAD DURING THE RELEVANT PREVIOUS YEAR GIVEN AN ADVANCE OF RS.23,80,000/- TO ONE SMT B.PRIYAMVADA KAMATH AN D RS.10,22,118 TO ONE SMT.VASUNDHARA KAMATH. AO REQUIRED THE ASSESSEE TO EXPLAIN WHY PROPORTIONATE INTEREST OUT OF THE CLAIM OF INTEREST EXPENDITURE SHOULD NOT BE ITA NOS.82 & 83(BANG)2013 4 MADE. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE, I T SEEMS OFFERED A DISALLOWANCE OF RS.2,44,413/- TAKING A PRO-RATA INT EREST RATE OF 11.75@. 5. ASSESSEE MOVED IN APPEAL BEFORE THE CIT(A0 ASSA ILING THE ABOVE ADDITIONS. VIS--VIS THE ADDITION FOR CLOSING STOC K THE SUBMISSIONS MADE BY THE ASSESSEES REPRESENTATIVE BEFORE THE CIT(A) ARE SUMMARIZED HEREUNDER; (I) SOME OF THE PERSONS WHOM NOTICES WERE ISSUED U /S133(6) HAD THEMSELVES STATED THAT PURCHASES WERE MADE BY THEM IN TINS OF 10 KGS. HOWEVER, ASSESSEE HAS IN ITS BOOKS, INCLUDING STOCK REGISTER MENTIONED THE QUANTITY IN TINS ONLY. ALL RATES WERE FOR TIN AND N OT FOR KILOGRAM. (II) ASSESEEE WAS SHOWING A STABLE GROSS PROFIT R ATIO FOR PREVIOUS YEARS ENDING 31-03-2006,31-03-2007 AND 31-03-2008, AND THESE COMPARED WELL WITH THE RATE FOR THE RELEVANT PREVIO US YEAR. (III) QUANTITY OF SALES WERE ASCERTAINED FROM PURC HASERS, WHEREAS QUANTITIES MENTIONED IN STOCK REGISTER WERE IGNORED . (IV) AO HAD TAKEN A WRONG PRESUMPTION THAT EXCESS CLOSING STOCK WORKED OUT BY HIM REPRESENTED UNACCOUNTED INCOME OR SUPPRESSION OF INCOME. (V) LETTER DATED 13-12-2011 FILED BY THE ASSESSEE, ACCEPTING THE PROPOSED ADDITION WAS DRAFTED WITHOUT PROPER APPLIC ATION OF FACTS. VIS--VIS THE ADDITION MADE FOR INTEREST, THE ARGUM ENT TAKEN BY THE ASSESSEE BEFORE THE LEARNED CIT(A) WERE AS UNDER; (I) ASSESSEE HAD HUGE OWN FUNDS, WHICH DID NOT EN TAIL ANY INTEREST OUTGO AND THERE WAS NOTHING TO SHOW THAT ANY BORROW ED FUNDS WERE USED ITA NOS.82 & 83(BANG)2013 5 FOR GIVING LOANS TO SMT.B.PRIYAMVADA KAMATH AND SMT .B.VASUNDHARA KAMATH; (II) NO NEXUS WAS ESTABLISHED BETWEEN INTEREST BEA RING FUNDS AND THE ADVANCES GIVEN. (III) THE OFFER FOR DISALLOWING INTEREST 11.75% WA S MADE BY THE AUTHORIZED REPRESENTATIVE WITHOUT CONSULTING THE AS SESSEE 6. HOWEVER, THE CIT(A) WAS NOT IMPRESSED BY ANY OF THE ABOVE ARGUMENTS. ACCORDING TO HIM ASSESSEE WAS EFFECTIVEL Y SAYING THAT IF THE STOCK WAS TINKERED WITH THE MISMATCH WILL DISAPPEAR . FURTHER, ACCORDING TO HIM BOTH THE ADDITIONS WERE ADMITTED BY THE ASSE SSEE. HE THUS, DISMISSED THE APPEAL. 7. NOW BEFORE US, ASSESSEE HAS FILED AN APPLICATIO N FOR ADMITTING ADDITIONAL EVIDENCE. LEARNED AR OF THE ASSESSEE SUB MITTED THAT THE ADDITIONAL EVIDENCE WAS ONLY A MONTH-WISE WORKING O F THE STOCK MOVEMENT, DIVIDING THE STOCK IN 10 KG TINS AND 11.34 KG TINS. ACCORDING TO HER THIS WAS A CRUCIAL MATERIAL WHICH WILL HELP THE TRIBUNAL IN DECIDING ON THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. 8. ON MERITS, LEARNED AR STATED THAT AUDIT REPORT IN FORM 3CD MENTIONED QUANTITIES IN TINS. ASSESSEE HAD NEVER G IVEN A BREAK-UP IN KILOGRAMS. ACCORDING TO HER, THE AO WENT BY A WRON G PREMISE THAT THE OPENING STOCK 11696 TINS WERE OF 11.34 KG KERNEL. LIKEWISE THE YIELD OF 22.70% WAS ALSO WORKED OUT CONSIDERING EVERY TIN TO BE OF 11.34 KG. AO ITA NOS.82 & 83(BANG)2013 6 HAD MADE A REVERSE WORKING, APPLYING A MISTAKEN YIE LD RATIO MENTIONED BY THE ASSESSEE AND ARRIVED AT A HIGHER PRODUCTION THA N WHAT WAS THERE. IF THE CLOSING STOCK OF 2,11,606.30 KGS (14267 TINS) W ORKED OUT BY THE AO IS TAKEN AS CORRECT, IT WOULD MEAN PACKING OF 14.83 KG S OF KERNEL IN A TIN, WHICH WAS IMPOSSIBLE. ASSESSEE, AS PER THE LEARNE D AR WAS FOLLOWING A CONSISTENT METHOD OF VALUATION OF STOCK AND THIS SH OULD NOT HAVE BEEN DISTURBED BY THE AO. RELIANCE WAS PLACED ON THE DEC ISIONS OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS SRI DEVI ENTERPRISES 192 ITR 165. 9. AS FOR THE ADDITION MADE ON ACCOUNT OF INTEREST LEARNED AR SUBMITTED THAT OWN FUNDS OF THE ASSESSEE WERE MUCH MORE THAN LOANS GIVEN, AS CLEAR FROM ITS BALANCE SHEET AS ON 31-03- 2009. 10. PER CONTRA, LEARNED DR STRONGLY OBJECTED TO TH E ADDITIONAL EVIDENCE SOUGHT TO BE FILED BY THE ASSESSEE. AS PER THE LEARNED DR, ASSESSEE WAS GIVEN AMPLE OPPORTUNITY BY THE LOWER AUTHORITIE S AND WAS NOW ATTEMPTING A RE-WORKING TO JUSTIFY ITS STOCK BY BIF URCATING ITS STOCK MOVEMENT TO 11.34 KG AND 10 KG INDISCRIMINATELY. AS PER LEARNED DR, IT WAS THE ASSESSEE WHO WAS ATTEMPTING A REVERSE WORKI NG. FURTHER, AS PER THE LEARNED DR, BOTH THE ADDITIONS WERE ACCEPTED BY THE ASSESSEE BEFORE THE AO AND ASSESSEE COULD NOT NOW TURN BACK AND SAY THAT THE ADDITIONS WERE NOT JUSTIFIED. 11. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. FIRST TAKING UP THE ISSUE OF ADDITIONAL EVIDENCE, W E FIND THAT WHAT HAS BEEN ITA NOS.82 & 83(BANG)2013 7 BROUGHT IN THE GUISE OF SUCH EVIDENCE IS A MONTH-WI SE BREAK-UP OF THE STOCK MOVEMENT. ASSESSEE HAS ITSELF ADMITTED THAT IT WAS MAINTAINING A STOCK REGISTER WITH QUANTITIES MENTIONED IN TIN NUM BERS AND HAD NEVER MADE ANY BIFURCATION BASED ON KILOGRAMS HEREIN. NO THING STOPPED THE ASSESSEE FROM BRINGING SUCH A WORK-OUT BEFORE THE A O OR THE CIT(A). WHAT IS BEING ATTEMPTED BY THE ASSESSEE IS A TYPE O F REVERSE ENGINEERING, WHEREBY IT IS TRYING TO JUSTIFY ITS CLAIM OF CLOSIN G STOCK BY MAKING A BIFURCATION WHICH FITS ITS PURPOSE. IN OUR OPINIO N, NO SUBSTANTIAL CAUSE HAS BEEN SHOWN BY THE ASSESSEE FOR ADMITTING SUCH E VIDENCE. AMPLE OPPORTUNITIES WERE GIVEN BY THE LOWER AUTHORITIES T O ADDUCE EVIDENCE. HENCE, WE ARE NOT INCLINED TO ADMIT THE ADDITIONAL EVIDENCE FILED. 12. COMING TO MERITS, AO HAD ISSUED NOTICES TO VAR IOUS PURCHASERS OF KERNELS FROM ASSESSEE IN INDIA, AND THEY HAD STATED THAT THE PURCHASES WERE MADE IN 10 KG TINS. THIS POSITION HAS NOT BEE N ASSAILED BY THE ASSESSEE. ASSESSEE ITSELF HAD CLARIFIED IN LETTER DATED 05-12-2011 THAT SALES OF 37,178 TINS WERE OF 10 KGS EACH, WHICH IT CORRECTED LATER TO 38185 ITEMS, BASED ON A VERIFICATION OF THE STOCK REGISTE R. THE WORK OUT DONE BY THE AO REPRODUCED BY US AT PARA-THREE ABOVE HAS COR RECTLY RECORDED THE PURCHASES AND SALES, BASED ON BOOKS PRODUCED BY THE ASSESEE AND ADMISSIONS MADE. THE ONLY ITEM ON WHICH THERE CAN BE ANY POSSIBILITY OF ERROR IS THE OPENING STOCK. ALL 11696 TINS IN THE OPENING STOCK HAS BEEN PRESUMED AS OF 11.34 KG EACH VIZ 132632.64 KGS. PR ODUCTION OF 13,21,597.22 KGS FOR THE YEAR HAS BEEN WORKED BASE D ON THE YIELD OF ITA NOS.82 & 83(BANG)2013 8 22.70% SHOWN BY THE ASSESSEE. HENCE, THIS CANNOT BE FAULTED. IN OTHER WORDS, THE ONLY ITEM IN WHICH, ASSESSEE CAN BE AGGR IEVED IS THE WEIGHT OF OPENING STOCK QUANTITY OF 11696 TINS. EVEN IF WE P RESUME THAT EVERY ONE OF THESE TIN WAS OF 10KG THE OPENING QUANTITY WILL NOT BE LESS THAN 1,16,960 KG. THE MAXIMUM DIFFERENCE THAT COULD BE THERE COUL D BE ONLY (1,32,632.64)-(1,16,960.00) I.E 15672.64 KGS. IF WE REDUCE IT FROM THE CLOSING STOCK OF 2,11,606.30KGS WORKED OUT BY THE A O, THE FIGURE WILL BE 1,95,933.66 KG. AT THE RATE OF RS.207.23 PER KG T HE VALUE THEREOF WILL BE RS.4,06,03,332.36. AS AGAINST THIS CLOSING STOCK V ALUE ADOPTED BY THE ASSESSEE WAS RS.3,35,27,450/- LEAVING A DIFFERENCE OF RS.70,75,882.36.THERE CAN THUS BE NO DOUBT THAT ASS ESSEE HAD SUPPRESSED CLOSING STOCK WORTH RS.70,75,882.36 AT THE LEAST. 13. AS FOR THE CLAIM OF THE ASSESSEE THAT AO OUGHT NOT HAVE ATTEMPTED CONVERSION OF TINS TO KILOGRAMS, SINCE IT HAD ALONG SHOWN ITS STOCK MOVEMENT IN TINS WE ARE UNABLE TO APPRECIATE. PURCHASE OF RAW CASHEW WAS MADE BY THE ASSESSEE IN KILOGRAMS. THE STANDARD OF MEASURE UNLESS UNIFORMLY ADOPTED, THERE WILL BE NO MEANING IN A STOCK REGISTER. WHEN RAW MATERIALS ARE PURCHASED BY WEIGHT, STOCK M OVEMENT ALSO HAS TO BE WEIGHT. AN ASSESSEE CANNOT CHANGE PRODUCTION T O TINS, WHICH IS NOT A STANDARD MEASURE OF QUANTITY BY WEIGHT. QUANTITY PER TIN CAN VARY ACCORDING TO THE TIN SIZE. ASSESSEE CANNOT SAY TH AT AN UNSCIENTIFIC METHOD OF STOCK RECORDING ADOPTED BY IT SHOULD BE ACCEPTED JUST FOR THE SAKE OF CONSISTENCY. IT IS ONLY A METHOD OF CONVENIENCE, TH ROUGH WHICH, BY ITA NOS.82 & 83(BANG)2013 9 BIFURCATING THE TINS INTO DIFFERENT WEIGHT CATEGORI ES, IT CAN JUSTIFY THE STOCK THAT IT WANTS. 14. NEVERTHELESS, IN THE CIRCUMSTANCES OF THE CASE WE DIRECT THAT THE ADDITION MADE ON STOCK BE LIMITED TO RS.70,75,882.3 6 AS MENTIONED BY US AT PARA 12 ABOVE. GROUND 1 OF THE ASSESSEE IS PART LY ALLOWED. ORDERED ACCORDINGLY. 15. VIS-AVIS THE ADDITION MADE FOR INTEREST, THE B ALANCE SHEET AS ON 31-03-2009 OF THE ASSESSEE PLACED AT PB PAGE-54 SHO W PARTNERS CAPITAL AT RS.3,77,48,105/-. AS AGAINST THIS THE INTEREST FR EE ADVANCES GIVEN BY THE ASSESSEE CAME TO RS.34,02,118/- ONLY. WHEN MIXED K ITTY OF FUNDS ARE AVAILABLE, IT IS FOR THE AO TO SHOW THAT THE ADVANC ES WERE GIVEN FROM INTEREST BEARING FUNDS. HERE THE AO HAD SIMPLY WEN T BY AN OFFER MADE BY THE ASSESSEE, WITHOUT CONSIDERING THE OWN FUNDS AVA ILABLE WITH IT. WE ARE THEREFORE, OF THE OPINION THAT THIS ISSUE REQUIRES A FRESH LOOK BY THE AO. WE THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITI ES BELOW ON THE ISSUE OF ADDITION FOR INTEREST AND REMIT IT BACK TO THE FILE OF THE AO FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. GROUND NUMBER 3 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 16. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE AGAI NST LEVY OF PENALTY. 17. AO ON THE ADDITION MADE FOR DIFFERENCE IN CLO SING STOCK ISSUED A NOTICE TO THE ASSESSEE REQUIRING IT TO EXPLAIN WHY A PENALTY UNDER SECTION 271(1)(C ) SHOULD NOT BE LEVIED. REPLY OF THE ASSE SSEE THAT MISTAKE WAS DUE ITA NOS.82 & 83(BANG)2013 10 TO ARITHMETICAL ERROR WAS NOT ACCEPTED. HE LEVIED A PENALTY AT 100% OF THE TAX SOUGHT TO BE AVOIDED WITH THE FOLLOWING OBSERVA TIONS. THE CLAIM OF THE ASSESSEE THAT THE MISTAKE IS ONL Y AN ARITHMETICAL ERROR CANNOT BE ACCEPTED. IN THE ASS ESSEES CASE, THE MANUFACTURED GOODS ARE RECORDED IN TERMS OF KILOGRAM/POUNDS AND BASED ON THE YIELD OF THE FIRM AS CALCULATED BY THEM GIVES THE QUANTITY OF GOODS MANUFACTURED. SALES IS A FUNCTION OF STOCK AVAILA BLE AND GOODS MANUFACTURED OUT OF RAW MATERIAL CONSUMED. G OODS SOLD ARE RECORDED IN TERMS OF WEIGHT BEING KILOGRAM OR POUNDS DEPENDING ON THE MARKET. HOWEVER, AS PER TH E BOOKS OF THE ASSESSEE, SALES ARE RECORDED IN TERMS OF NUMBER OF TINS DISPATCHED. THE TINS EXPORTED BY TH E ASSESSEE AND SOLD TO THE INDIAN ARMY WEIGHS 11.34 K GS (25 POUNDS). WHEREAS THE SALES MADE WITHIN THE COU NTRY WEIGHT ONLY 10 KGS. SINCE THE SALES ARE RECORDED IN TERMS OF NUMBER OF TINS, THE ASSESSEE HAS RECORDED ALL TH E SALES IN NUMBER OF TINS. THE ASSESSEE HAS FAILED TO RECOR D THE CORRECT QUANTITY OF SALES IN HIS BOOK OF ACCOUNTS. AS A RESULT THERE IS A DEFICIT OF 1.4 KGS IN RESPECT OF EACH TIN SOLD WITHIN THE COUNTRY AND SHOULD BE AVAILABLE WITH THE ASSESE AS CLOSING STOCK. HENCE, THERE IS A DIFFERENCE IN THE QUANTUM OF CLOSING STOCK SHOWN BY THE ASSESSEE IN I TS RETURNS OF INCOME. THE ABOVE FATS WERE ALSO CONFIRM ED BY THE INVESTIGATION UNDERTAKEN BY THIS OFFICE BY CALL ING FOR INFORMATION U/S 133(6) OF THE IT ACT, 1961 FROM THE ASSESSEES PURCHASERS. 4.7 WHEN THESE EVIDENCES WERE CONFRONTED TO THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE ITA NOS.82 & 83(BANG)2013 11 ASSESSEE VIDE ITS LETTER DATED 13.12.2011 ACCEPTED THE FACT THAT THERE WAS A MISTAKE IN THE DETAILS OF QUANTITA TIVE STATEMENT FURNISHED BY IT. 4.8 THE ASSESSEE IN HIS REPLY HAS MERELY STATED TH AT THERE WAS A ARITHMETICAL MISTAKE IN FURNISHING QUAN TITATIVE DETAILS OF SALES. THE ASSESSEE HAS ALSO NOT SUBSTA NTIATED HIS CLAIM WITH ANY LEGITIMATE SUPPORTING EVIDENTIAR Y MATERIAL AND THE EXPLANATION REMAINED TO BE PROVED AS BONA-FIDE. 5. THE ASSESSEE IN HIS WRITTEN REPLY HAS STATED TH AT THE MISTAKE WAS A BONA-FIDE MISTAKE AND THERE IS NO INT ENTION OF CONCEALMENT OF INCOME. THE HONBLE SUPREME COUR T IN THE CASE OF UNION OF INDIA VS DHARMENDRA TEXTILES PROCESSORS 295 ITR 244 HAS HELD THAT PENALTY UNDER SECTION 271(1)(C ) IS CIVIL LIABILITY AND FOR ATTRA CTING SUCH CIVIL LIABILITY, WILLFUL CONCEALMENT IS NOT AN ESSE NTIAL INGREDIENT AS IS CASE IN MATTER OF PROSECUTION UNDE R SECTION 276C. 18. ASSESSEES APPEAL BEFORE THE CIT(A) WAS NOT SU CCESSFUL. ACCORDING TO THE LEARNED CIT(A), SUPPRESSION OF STO CK WAS NOT ONLY ADMITTED BY THE ASSESSEE, BUT ALSO DEMONSTRATED BY THE AO. 19. NOW BEFORE US LEARNED AR SUBMITTED THAT QUANT ITY OF CLOSING STOCK WAS ARRIVED AT BY THE AO BASED ON CERTAIN PRE SUMPTIONS. ACCORDING TO HER, ASSESSEE HAD NO INTENTION TO CONCEAL AY INC OME NOR HAD IT FURNISHED ANY INACCURATE PARTICULARS. AS PER LEARN ED AR LEVY OF PENALTY ITA NOS.82 & 83(BANG)2013 12 WAS UNFAIR. PER CONTRA, LEARNED DR SUPPORTED THE O RDERS OF THE AUTHORITIES BELOW. 20. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVA L CONTENTIONS. WORK-OUT OF THE CLOSING STOCK DONE BY THE AO HAS BE EN REPRODUCED AT PARA THREE ABOVE. PRODUCTION FOR THE YEAR HAS BEEN ARR IVED AT APPLYING THE YIELD OF 22.70% ON TOTAL PROCESSED QUANTITY VIZ.5822563 K G OF RAW CASHEW. AO HAS ASSIDUOUSLY WORKED OUT THE QUANTITY SOLD IN KI LOGRAM BY GOING THROUGH EACH AND EVERY INVOICE OF THE ASSESSEE. I N OTHER WORDS, ASSESSEE MADE THE AO SWEAT, TO COMPILE THE CORRECT QUANTITY OF PRODUCTION, SALE AND CLOSING STOCK, WHILE ALL ALONG IT GAVE ONLY WORKING S BASED ON TIN NUMBERS. EVEN IF WE CONSIDER THE WHOLE OF THE OPENING STOCK OF 11696 TINS AS CONSISTING OF 11.34 KGS, THE CLOSING STOCK WAS GROS SLY UNDERSTATED BY HE ASSESEE. IT IS NOT A QUESTION OF ANY ARITHMETICAL MISTAKE. ASSESSEE AGREED TO THE ADDITION, FINDING NO OTHER WAY BEFORE IT. F URNISHING INSUFFICIENT PARTICULARS, IN A MANNER CALCULATED TO PUT THE REVE NUE AT A DISADVANTAGE AND GAIN OUT OF IT, IS NOTHING BUT FURNISHING INACC URATE PARTICULARS. GIVING A BREAK-UP OF NUMBER OF TINS WITH DIFFERENT QUANTIT IES, SO AS TO FIT ITS VALUATION OF CLOSING STOCK, IS NOTHING BUT AN AFTER THOUGHT. IN OUR OPINION, IT WAS ONLY AN EFFORT TO SUPPRESS THE INCOME WHICH IT OTHERWISE HAD. 22. ON THE ASPECT OF LEVY OF PENALTY UNDER SECTION 271(1)(C ), HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS MAN JUNATHA COTTON AND GINNING FACTORY 359ITR 565, AFTER ANALYSING THE LAW LAID DOWN BY HON ITA NOS.82 & 83(BANG)2013 13 APEX COURT THROUGH VARIOUS JUDGMENTS, INCLUDING THA T OF UNION OF INDIA VS DHARMENDRA TEXTILE PROCESSORS AND OTHERS 306ITR277, HELD AS UNDER AT PARAS 63 TO 64 OF IT JUDGMENT. 63. IN THE LIGHT OF WHAT IS STATED ABOVE, WHAT EME RGES IS AS UNDER: A) PENALTY UNDER SECTION 271(1)(C) IS A CIVIL LIABI LITY. B) MENS REA IS NOT AN ESSENTIAL ELEMENT FOR IMPOSIN G PENALTY FOR BREACH OF CIVIL OBLIGATIONS OR LIABILITIES. C) WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIE NT FOR ATTRACTING CIVIL LIABILITY. D) EXISTENCE OF CONDITIONS STIPULATED IN SECTION 27 1(1)(C) IS A SINE QUA NON FOR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271 . E) THE EXISTENCE OF SUCH CONDITIONS SHOULD BE DISCE RNIBLE FROM THE ASSESSMENT ORDER OR ORDER OF THE APPELLARE AUTHORIT Y OR REVISIONAL AUTHORITY. F) EVER IF THERE IS NO SPECIFIC FINDING REGARDING T HE EXISTENCE OF THE CORDRTIONS MENTIONED IN SECTION 271(1)(C), AT LEAST THE FACTS SET OUT IN EXPLANATION 1(A) & (B) IT SHOULD BE DISCERNIBLE FROM THE SAID ORDER WH ICH WOULD BY A LEGAL FICTION CONSTITUTE CONCEALMENT BECAUSE OF DEEMING PROVISION . ITA NOS.82 & 83(BANG)2013 14 G) EVEN IF THESE CONDITIONS DO NOT EXIST IN THE ASS ESSMENT ORDER PASSED, AT LEAST, A DIRECTION TO INITIATE PROCEEDINGS UNDER SE CTION 271(L)(C) IS A SINE QUA NON FOR THE ASSESSMENT OFFICER TO INITIATE THE PROC EEDINGS BECAUSE OF THE DEEMING PROVISION CONTAINED IN SECTION 1(B). H) THE SAID DEEMING PROVISIONS ARE NOT APPLICABLE T O THE ORDERS PASSED BY THE COMMISSIONER OF APPEALS AND THE COMMISSIONER. I) THE IMPOSITION OF PENALTY IS NOT AUTOMATIC. J) IMPOSITION OF PENALTY EVEN IF THE TAX LIABILITY IS ADMITTED IS NOT AUTOMATIC. K) EVEN IF THE ASSESSEE HAS NOT CHALLENGED THE ORDE R OF ASSESSMENT LEVYING TAX AND INTEREST AND HAS PAID TAX AND INTEREST THAT BY ITSELF WOULD NOT BE SUFFICIENT FOR THE AUTHORITIES EITHER TO INITIATE P ENALTY PROCEEDINGS OR IMPOSE PENALTY, UNLESS IT IS DISCERNIBLE FROM THE ASSESSME NT ORDER THAT, IT IS ON ACCOUNT OF SUCH UNEARTHING OR ENQUIRY CONCLUDED BY AUTHORITIES IT HAS RESULTED IN PAYMENT OF SUCH TAX OR SUCH TAX LIABILI TY CAME TO BE ADMITTED AND IF NOT IT WOULD HAVE ESCAPED FROM TAX NET AND AS OP INED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. 1) ONLY WHEN NO EXPLANATION IS OFFERED OR THE EXPLA NATION OFFERED IS FOUND TO BE FALSE OR WHEN THE ASSESSEE FAILS TO PROVE THAT T HE EXPLANATION OFFERED IS NOT BONAFIDE, AN ORDER IMPOSING PENALTY COULD BE PA SSED. ITA NOS.82 & 83(BANG)2013 15 M) IF THE EXPLANATION OFFERED, EVEN THOUGH NOT SUBS TANTIATED BY THE ASSESSEE, BUT IS FOUND TO BE BONAFIDE AND ALL FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCL OSED BY HIM, NO PENALTY COULD BE IMPOSED. N) THE DIRECTION REFERRED TO IN EXPLANATION IB TO S ECTION 271 OF THE ACT SHOULD BE CLEAR AND WITHOUT ANY AMBIGUITV. O) IF THE ASSESSING OFFICER HAS NOT RECORDED ANY SA TISFACTION OR HAS NOT ISSUED ANY DIRECTION TO INITIATE PENALTY PROCEEDING S, IN APPEAL, IF THE APPELLATE AUTHORITY RECORDS SATISFACTION, THEN THE PENALTY PROCEEDINGS HAVE TO BE INITIATED BY THE APPELLATE AUTHORITY AND NOT THE ASSESSING AUTHORITY. P) NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPECI FICALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1)(C), I.E., WHETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INCORRECT PARTICULARS OF INCOME Q) SENDING PRINTED FORM WHERE ALL THE GROUND MENTIO NED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIREMENT OF LAW. R) THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HA S TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDE D. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED TO THE ASS ESSEE. S) TAKING UP OF PENALTY PROCEEDINGS ON ONE LIMB AND FINDING THE ASSESSEE GUILTY OF ANOTHER LIMB IS BAD IN LAW. ITA NOS.82 & 83(BANG)2013 16 T) THE PENALTY PROCEEDINGS ARE DISTINCT FROM THE AS SESSMENT PROCEEDINGS. THE PROCEEDINGS FOR IMPOSITION OF PENALTY THOUGH EMANAT E FROM PROCEEDINGS OF ASSESSMENT, IT IS INDEPENDENT AND SEPARATE ASPECT O F THE PROCEEDINGS. U) THE FINDINGS RECORDED IN THE ASSESSMENT PROCEEDI NGS IN SO FAR AS 'CONCEALMENT OF INCOME' AND 'FURNISHING OF INCORREC T PARTICULARS' WOULD NOT OPERATE AS RES JUDICATA IN THE PENALTY PROCEEDINGS. IT IS OPEN TO THE ASSESSEE TO CONTEST THE SAID PROCEEDINGS ON MERITS. HOWEVE R, THE VALIDITY OF THE ASSESSMENT OR REASSESSMENT IN PURSUANCE OF WHICH PE NALTY IS LEVIED, CANNOT BE THE SUBJECT MATTER OF PENALTY PROCEEDINGS. THE ASSESSMENT OR REASSESSMENT CANNOT BE DECLARED AS INVALID IN THE P ENALTY PROCEEDINGS. 23. NOW APPLYING THE TESTS LAID DOWN BY THEIR LORD SHIPS TO THE FACTS HERE, WHAT WE FIND IS THAT I) ASSESSEE NEVER MAINTAINED A STOCK REGISTER WHER EBY QUANTITIES IN ANY STANDARD UNITS OF WEIGHTS WERE RECORDED; II) NON-MAINTENANCE OF STOCK RECORDS IN A STANDARD MANNER HELPED THE ASSESSEE TO SHOW A CLOSING STOCK VALUE OF ITS C HOICE, THEREBY SUBSTANTIALLY DEPRESSING THE PROFITS. III) ASSESSEE HAD JUGGLED WITH PER TIN WEIGHT, SO AS TO JUSTIFY ITS CLOSING STOCK VALUATION. IV) ASSESSEE HAD ADMITTED TO THE DISCREPANCY IN ST OCK VALUATION ONLY WHEN AO MADE A LOGICAL WORK-OUT SHOWING HOW ASSESSE E HAD GIVEN MUCH LOWER QUANTITIES IN CLOSING STOCK, THAN THERE ACTUA LLY WAS V) ASSESSEE COULD NOT SHOW THAT THE CLOSING STOCK VALUATION WAS DUE TO ANY BONAFIDE ERROR. VI) ASSESSEE ALL ALONG TRIED TO JUSTIFY AN UNSCIEN TIFIC METHOD OF STOCK KEEPING, IN THE NAME OF CONSISTENCY. IN OTHER WORD S, IT SAYS I HAVE BEEN DOING THIS FOR LONG, HENCE, I SHALL BE ALLOWED TO C ONTINUE WITH THIS, WITHOUT REMORSE. ITA NOS.82 & 83(BANG)2013 17 24. CONSIDERING THE ABOVE, WE ARE OF THE OPINION T HAT ASSESSEE HAD CONCEALED ITS TRUE INCOME AND LEVY OF PENALTY WAS J USTIFIED. HOWEVER, WE HAVE IN THE QUANTUM APPEAL FILED BY THE ASSESSEE, R EDUCED THE ADDITION DUE TO STOCK VALUATION TO RS.70,75,882,36 AGAINST RS.1, 03,23,724/- CONSIDERED BY THE AO. HENCE, THE PENALTY LEVIABLE HAS TO BE RE-WORKED. AO IS DIRECTED TO RE-WORK THE PENALTY. BUT FOR THE QUANTI FICATION ASPECT AGAINST PENALTY ORDER IS SUSTAINED. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO.82 /BANG/2013 IS PARTLY ALLOWED, WHEREAS ITS APPEAL IN ITA NO.83/BAN G/2013 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12-09-2014. SD/- (RAJPAL YADAV) SD/- (ABRAHAM P GEORGE) JUDICIAL MEMBER AC C OUNTANT MEMBER BANGALORE: D A T E D : 12-09-2014 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE