The ACIT, Circle-2, Bhavnagar V. M/s. Arti, Bhavnagar

ITSSA 56/AHD/2007

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 9211 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-06-2010
• Assessment Year: misc
• Appeal Filed On: 16-03-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: M K PATEL
• Keywords: Wrong claim; Difference of opinion; Block assessment
• Section: 132; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' [BEFORE S/SHRI T K SHARMA,JM & A N PAHUJA,AM] IT(SS)A NO.56/AHD/2007 (BLOCK PERIOD ENDING 21.1.99) ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2, BHAVNAGAR V/S M/S. ARTI SHIV BUILDING, DIWANPARA ROAD, BHAVNAGAR [PAN: AAFFA0236M ] [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI K.M.MAHESH, DR ASSESSEE BY:- SHRI M.K.PATEL, AR ( )/ ORDER A.N. PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATE D 12-12- 2006 OF THE LD. C.I.T.(A)-XVIII, AHMEDABAD ,RAISES THE FOLLOWING GROUNDS :- 1. THE LD. C.I.T.(A) ERRED ON FACTS AND IN LAW IN CANC ELING THE PENALTY LEVIED U/S. 158BFA(2) OF THE IT.ACT, AMOUNTING TO R S.2,88,140/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 3. IT IS, THEREFORE ,PRAYED THAT THE ORDER OF THE ASSE SSING OFFICER MAY BE RESTORED TO THE ABOVE EXTENT 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT A SEARCH U/S. 132 OF THE INCOME-TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE FIRM ON 21-1-1999 . IN PURSUANCE TO SEARCH A NOTICE UNDER SECTION 158BC WAS ISSUED ON 8-3-1999. IN RESPONSE, THE ASSESSEE SUBMITTED BLOCK RETURN DECLARING NIL INCOME ON 30-1 1-2000. DURING THE COURSE OF SEARCH, EXCESS STOCK WAS FOUND AND INVENTORISED AS PER ANNEXURE Z-1 TO Z-4 AND THE PHYSICAL STOCK WAS EVALUATED AT RS.91,91,5 28/- WHEREAS THE STOCK AS PER BOOKS WAS FOUND TO BE RS.54,71,614/- AS ON 21. 1.1999.TO A QUERY BY THE IT(SS) NO.56AHD/07 2 ASSESSING OFFICER[AO IN SHORT] DURING THE COURSE OF BLOCK ASSESSMENT PROCEEDINGS, THE ASSESSEE EXPLAINED VIDE REPLY DATE D 15-01-2001 THAT WHILE WORKING OUT THE ESTIMATED STOCK, GROSS PROFIT RATE AS PER THE BOOKS WAS TAKEN AT 21.50%. IT WAS CONTENDED THAT SINCE WORKING OF STOC K AS ON THE DATE OF SEARCH COVERED BY THE PERIOD FOR WHICH RETURN WAS NOT YET DUE, THERE WAS NO QUESTION OF ANY BLOCK ASSESSMENT . IT WAS EXPLAINED THAT A DETA ILED STATEMENT OF SHRI ARUN P. SHAH WAS RECORDED ON 21-1-1999,WHEN SHRI ARUN SHAH IN REPLY TO QUESTION NOS.3 & 4 ADMITTED THAT THEIR STOCK WAS NOT LYING ANYWHE RE ELSE AND FURTHER STATED THAT NOBODY ELSES STOCK WAS LYING WITH THEM. IT WAS FUR THER SUBMITTED IN REPLY TO QUESTION NOS.6 & 7 THAT THERE WERE NO INSTANCES REG ARDING BILLS HAVING BEEN RECEIVED WITHOUT RECEIPT OF GOODS NOR ANY SALES HAD BEEN EFFECTED AND SUBSEQUENTLY GOODS HAD BEEN RETURNED. IN HIS SUBSEQ UENT STATEMENT RECORDED ON 21-1-1999 U/S 132(4) OF THE ACT, SHRI ARUN SHAH STATED THAT STOCK AS PER THE BOOKS WORKED OUT AT RS.54,71,614/- WHILE WORKING O F PHYSICAL STOCK TO THE TUNE OF RS.91,91,528/- WAS CORRECT. AFTER CONSIDERING TH E REPLY OF THE ASSESSEE , THE A.O. WORKED OUT EXCESS STOCK OF RS.14,78,338/- ON P AGES 4 & 5 OF THE ASSESSMENT ORDER AND ADDED THE AMOUNT BY WAY OF UNA CCOUNTED INVESTMENT IN THE F.Y. 1998-99. INTER ALIA, PENALTY PROCEEDINGS U/S 158BFA(2) WERE ALSO INITIATED. 3. ON APPEAL, THE LD. C.I.T.(A) VIDE HIS ORDER DAT ED 17-7-2002 REDUCED THE ADDITION TO RS.6,36,220/-. ON FURTHER APPEAL, THE I .T.A.T. GRANTED FURTHER RELIEF OF RS.1,50,000/- TO THE ASSESSEE AND SUSTAINED ADDITIO N ON ACCOUNT OF EXCESS STOCK OF RS.4,80,230/- . THEREAFTER, IN RESPONSE T O A SHOWCAUSE NOTICE ISSUED BY THE AO BEFORE LEVY OF PENALTY , THE ASSESSEE REPLIE D THAT DIFFERENCE IN STOCK FOUND DURING THE COURSE OF SEARCH COULD NOT BE TREATED AS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS THEREOF. SINCE THE PHYSICAL STOCK VALUED BY THE DEPARTMENT INCLUDED OUTDATED AND OLD FASHIONED GOODS ,HAVING PRACTICALLY ZERO VALUE OR VERY LOW VALUE BELOW COST WHILE G.P. RATE OF 21.40% AS DECLARED IN THE BOOKS FOR THE IMMEDIATE PREVIOUS YEAR WAS DED UCTED FROM THE VALUATION OF THE STOCK, ADOPTING TAG PRICE WHILE THE ASSESSEE WA S VALUING THE STOCK AT COST IT(SS) NO.56AHD/07 3 PRICE DIRECTLY, IT WAS CONTENDED THAT THE DIFFERENC E WAS WORKED OUT PURELY ON ESTIMATES . THEREFORE, THERE WAS NO GROUND FOR LEVY OF PENALTY. HOWEVER, THE A.O DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT ADDITIONS HAD BEEN CONFIRMED BY THE I.T.A.T. AND IN ABSENCE O F THE ACTION U/S. 132 OF THE ACT CARRIED OUT BY THE DEPARTMENT, THE MISTAKE WOUL D NOT HAVE COME TO THE KNOWLEDGE OF DEPARTMENT. ACCORDINGLY, THE A.O. LEV IED PENALTY @ 100% OF TAX SOUGHT TO BE EVADED ON THE EXCESS STOCK OF RS.4,80 ,230/-. 4. ON APPEAL, LD. C.I.T. (A) CANCELLED THE PEN ALTY ON THE GROUND THAT THE ADDITION BY WAY OF UNDISCLOSED INCOME WAS MADE ON E STIMATE OF VALUE OF STOCK. 5. THE REVENUE IS NOW IN APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED THE FINDINGS O F THE AO WHILE RELYING UPON DECISIONS IN THE CASE OF AM SHAH & CO. VS. CIT,238 ITR 415(GUJ), YAMUNA RESTAURANT VS. CIT,201 ITR 99(GUJ) AND CIT VS. NAML ABHAI BHANABHAI, 163 ITR- 189(GUJ). ON THE OTHER HAND , THE LD. A.R. ON BEHAL F OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LD. CIT(A) WHILE RELYING UPON D ECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF C.I.T. VS NAVJIVAN OIL MILLS,252 ITR 417(GUJ). 6. WE HAVE HEARD BOTH THE PARTIES AND GO NE THOUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON BY BOTH THE SIDES . UNDISPUTEDLY, THE EXCESS STOCK HAS NOT BEEN DETERMINED ON THE BASIS OF ANY S EIZED DOCUMENTS WHILE VALUATION MADE BY THE ASSESSEE DID NOT SHOW ANY EXC ESS STOCK . ON THE OTHER HAND, THE VALUATION OF PHYSICAL STOCK MADE BY THE AUTHORISED OFFICER DURING THE COURSE OF SEARCH AND FOLLOWED BY THE AO WHILE WOR KING OUT EXCESS STOCK, WAS ON THE BASIS OF TAG PRICE AND THE AO DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE THAT STOCK WAS VALUED BY THEM AT THE COST PRICE AT THE YEAR END OR THAT SOME OF THE STOCK WAS OUTDATED OR OLD FASHIONED. E VEN THE PLEA THAT TAG PRICE WAS HIGHER BY 55% OF THE COST WAS NOT ACCEPTED. ON APPEAL THE LD. CIT(A) ACCEPTED THE PLEA OF THE ASSESSEE THAT TAG PRICE WA S HIGHER BY 35% OF THE COST IT(SS) NO.56AHD/07 4 AND ACCORDINGLY, REDUCED THE ADDITION TO RS.6,36,23 0/-. ON FURTHER APPEAL, THE ITAT REDUCED THE ADDITION TO RS. 4,80,230,CONSIDERI NG THE FACTORS LIKE DISCOUNT ALLOWED BY THE ASSESSEE AND SALE OF OLD STOCK AT R EDUCED RATES ETC. AS POINTED OUT BY THE LD. CIT(A) IN THE IMPUGNED ORDER, THE UNDISCLOSED INCOME WAS DETERMINED ONLY ON ESTIMATED VALUATION OF STOCK. MOREOVER, THE VALUATION OF PHYSICAL STOCK WAS MADE BY THE AO, ADOPTING TAG PRI CE WHILE THE ASSESSEE WAS FOLLOWING COST METHOD IN VALUING THE STOCK AT THE YEAR END. THERE IS NO REASON IN THE ORDER OF THE AO AS TO WHY COST METHOD WAS NOT A DOPTED WHILE VALUING PHYSICAL STOCK. APPARENTLY, EXCESS STOCK HAD BEEN W ORKED OUT ONLY ON ESTIMATES WITHOUT ANY REFERENCE TO SEIZED MATERIAL. IT IS WE LL SETTLED THAT ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE SEPARATE AN D DISTINCT AND AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF ANANTHRAMAN VE ERASINGHAIAH & CO. VS. CIT - 123 ITR 457; THE FINDING IN THE ASSESSMENT PR OCEEDINGS CANNOT BE REGARDED AS CONCLUSIVE FOR THE PURPOSES OF THE PENA LTY PROCEEDINGS. IT IS, THEREFORE, NECESSARY TO REAPPRECIATE AND RECONSIDER THE MATTER SO AS TO FIND OUT AS TO WHETHER THE ADDITION MADE IN THE QUANTUM PROC EEDINGS ACTUALLY REPRESENTS THE CONCEALMENT ON THE PART OF THE ASSESSEE AND WHE THER IT IS A FIT CASE TO IMPOSE THE PENALTY. THE ISSUE AS TO WHETHER OR NOT THE ASSESSEE HAD EXCESS STOCK IS HIGHLY DEBATABLE IN THE ABSENCE OF ANY SE IZED MATERIAL AND ESPECIALLY WHEN THERE IS NO ALLEGATION OF PURCHASE OR SALE OUT SIDE THE BOOKS OF ACCOUNTS. THE EXPLANATION GIVEN BY THE ASSESSEE IN SUPPORT OF THEIR CLAIM FOR VALUATION OF STOCK IN ACCORDANCE WITH REGULAR METHOD OF ACCOUNT ING FOLLOWED BY THEM, WAS NOT FOUND TO BE FALSE. IT IS WELL SETTLED THAT THE CRITERION AND YARDSTICKS FOR THE PURPOSE OF IMPOSING PENALTY ARE DIFFERENT THAN THOS E APPLIED FOR MAKING OR CONFIRMING THE ADDITIONS. WHEN THE ASSESSEE HAS MAD E A PARTICULAR CLAIM AND HAS ALSO FURNISHED ALL THE MATERIAL FACTS RELEVANT THERETO, THE DISALLOWANCE OF SUCH CLAIM CANNOT AUTOMATICALLY LEAD TO THE CONCLUSION T HAT THERE WAS CONCEALMENT ON THE PART OF THE ASSESSEE ,WARRANTING LEVY OF PENALT Y U/S 158BFA(2) OF THE ACT . WHAT IS TO BE SEEN IS WHETHER THE SAID CLAIM MADE B Y THE ASSESSEE WAS BONA- FIDE AND WHETHER ALL THE MATERIAL FACTS RELEVANT TH ERETO HAVE BEEN FURNISHED AND ONCE IT IS SO ESTABLISHED, THE ASSESSEE CANNOT BE H ELD LIABLE FOR PENALTY U/S IT(SS) NO.56AHD/07 5 158BFA(2) OF THE ACT ON THE UNDISCLOSED INCOME DET ERMINED BY THE AO. A MERE REJECTION OF THE CLAIM OF THE ASSESSEE BY RELYING O N DIFFERENT INTERPRETATIONS DOES NOT AMOUNT TO CONCEALMENT OF THE PARTICULARS OF INC OME OR FURNISHING INACCURATE PARTICULARS OF INCOME, BY THE ASSESSEE. THE PROVISI ONS OF SEC. 271(1)(C) OF THE ACT ARE NOT ATTRACTED IN CASES WHERE THE INCOME OF AN ASSESSEE IS ASSESSED ON ESTIMATE BASIS AND ADDITIONS ARE MADE THEREIN.[CIT VS. SANGRUR VANASPATI LTD.,303 ITR 53(PUNJAB & HARYANA]. 6.1 NOW ADVERTING TO THE DECISIONS RELIED UPON B Y THE REVENUE, IN AM SHAH & CO.(SUPRA), THE ITO SUBJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE TO A DETAILED SCRUTINY AND AS A RESULT, FOUND THAT THERE WERE SUB STANTIAL DISCREPANCIES BY WAY OF MANIPULATION OF STOCKS, OMISSION OF SALES, INFLA TION OF PURCHASES, MAKING OUT OF BOGUS BILLS, ETC. HE, ACCORDINGLY, BROUGHT TO TAX A SUM OF RS. 1,72,775 . INTER ALIA, CASH PURCHASE OF RS. 9,987 WAS NOTICED WITHOUT PROO F WHILE AN AMOUNT OF RS. 37,535, RELATED TO UNDERSTATEMENT OF THE CLOSING ST OCK. IT WAS FOUND THAT THERE REMAINED MANY ITEMS WHICH WERE NOT SHOWN IN THE CL OSING STOCK AND FOR WHICH THERE WERE NO PURCHASES. IN THESE CIRCUMSTANCES, HO NBLE HIGH COURT SUSTAINED THE FINDINGS OF THE ITAT IN UPHOLDING THE LEVY OF P ENALTY. 6.11 IN YAMUNA RESTAURANT(SUPRA) RELIED UPON BY T HE LD. DR, EVIDENCE ON RECORD REVEALED THAT THE ASSESSEE TAMPERED WITH THE BOOKS OF ACCOUNTS ONLY WITH A VIEW TO SUPPRESS SALES AND ACCORDINGLY, HONBLE H IGH COURT SUSTAINED THE FINDINGS OF THE ITAT IN UPHOLDING THE LEVY OF PENA LTY. 6.12 SIMILARLY IN NAMLABHAI BHANABHAI(SUPRA) CL AIM OF PRIZE MONEY MENTIONED IN PART-IV OF THE RETURN WAS FOUND FALSE IN THE ASSESSMENT U/S 144 OF THE ACT AND ACCORDINGLY, HONBLE HIGH COURT HELD TH AT CONCEALMENT OR FURNISHING INACCURATE PARTICULAR COULD BE PRESUMED IN THE ABSE NCE OF REBUTTAL.. THEREFORE, LEVY OF PENALTY WAS UPHELD. IT(SS) NO.56AHD/07 6 6.2 AS IS EVIDENT FROM THE FACTS IN THE CITED C ASES, LEVY OF PENALTY WAS UPHELD SINCE EITHER DISCREPANCIES WERE NOTICED IN THE BO OKS OR BOOKS WERE TAMPERED WITH A VIEW TO SUPPRESS SALES OR FALSE CLAIM WAS MA DE. NO SUCH FACTS HAVE BEEN POINTED OUT BY THE LD. DR NOR HE COULD ESTABLISH HO W THE AFORESAID DECISIONS WERE APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF T HE INSTANT CASE .IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE DECIS IONS RELIED ON BY THE LD. DR ARE NOT APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION. 7. IN THE LIGHT OF AFORESAID DISCUSSION, WE ARE OF THE OPINION THAT WHATEVER ADDITIONS HAD BEEN SUSTAINED, WERE ON ESTIMATE BASI S NOT CALLING FOR IMPOSITION OF ANY PENALTY, SINCE THE DIFFERENCE IN ESTIMATES BY L OWER AUTHORITIES OR EVEN BY THE ITAT WAS BASED ON A DIFFERENCE OF OPINION AND THERE WAS NO POSITIVE PROOF REGARDING CONCEALMENT OF INCOME BY THE ASSESSEE. TH IS BEING SO, WE HAVE NO HESITATION IN CONCLUDING THAT IT IS NOT A CASE FIT FOR LEVY OF PENALTY U/S 158BFA(2) OF THE ACT AND THAT THE PENALTY LEVIED BY THE AO WAS RIGHTLY CANCELLED BY THE LD. CIT(A). THEREFORE, GROUND NO.1 RAISED IN THE APPEAL IS DISMISSED. 8. GROUND NOS. 2 & 3 IN THE APPEAL BEING GENERA L IN NATURE, DO NOT CALL FOR ANY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED . 9. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 25/6/2010. SD/- S D/- ( T.K. SHARMA) (A.N.PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER. AHMEDABAD. DATED:25/6/2010. COPY OF THE ORDER FORWARDED TO: 1. M/S. ARTI,SHIV BUILDING, DIWANPARA ROAD,BHAVNAGA R 2. ACIT, CIRCLE-2, BHAVNAGAR 3. CIT CONCERNED 4. CIT(A)-XVIII, AHMEDABAD IT(SS) NO.56AHD/07 7 5. THE DR,C BENCH, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD