Sri K.V. Mohammed, Arecanut Merchant V. Assistant Commissioner of Income Tax, Circle-I, Palakkad and Commissioner of Income Tax, Cochin

ITA/82/2001

AI Insights

The case involves appeals by both the assessee, Sri K.V. Mohammed, an arecanut merchant, and the Income Tax Department against the order of the Income Tax Appellate Tribunal, Cochin. The appeals arose from a common order related to a penalty for the assessment year 1985-86. The Tribunal had partly allowed the department's appeal, restoring penalties related to the valuation of closing stock and share income from a hotel business, while cancelling the penalty related to the estimation of gross profit. The High Court's judgment focused on the legality of the penalties imposed and the adequacy of the explanations provided by the assessee regarding the undervaluation of closing stock.

• Counselvise Citation: [2008] 140 COUNSELVISE.COM (IT) 799188 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 11-02-2008
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: P K R MENON
• Assessee Lawyers: P
• Keywords: Concealment of income; Estimation of gross profit; Income tax appeal; Penalty; Undervaluation of closing stock
• Section: 271(1)(c)

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR MONDAY, THE 11TH FEBRUARY 2008 / 22ND MAGHA 1929 ITA.No. 82 of 2001() -------------------- ITA.763/1990 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT: ----------------- SRI.K.V.MOHAMMED, ARECANUT MERCHANT, CHANGARAMKULAM, NANNAMUKKU POST, MALAPPURAM-679 575. BY ADV. SRI.P.BALACHANDRAN (SR.) RESPONDENTS/APPELLANT: ------------- 1. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-I, PALAKKAD. 2. THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.P.K.R.MENON(SR), SC FOR IT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 11/02/2008, ALONG WITH ITA NO. 159 OF 2001, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & T.R.RAMACHANDRAN NAIR, JJ. .................................................................... I.T. Appeal Nos.82 & 159 of 2001 .................................................................... Dated this the 11th day of February, 2008. JUDGMENT C.N.Ramachandran Nair, J. These appeals, one filed by the assessee and the other by the Department, arise from a common order of the Tribunal in a penalty appeal filed by the Department for the year 1985-86. The assessee was a merchant engaged mainly in purchase and sale of arecanuts. During the course of assessment, the Assessing Officer noticed undervaluation of closing stock and declaration of substantially low gross profit compared to gross profit returned for earlier years. Even though assessee got relief in assessment appeal, substantial additions have been sustained. In the appeal filed against penalty order issued under Section 271(1)(C) for concealment of income, the C.I.T.(Appeals) cancelled the penalty. Against this, appeal was filed by the department before the Tribunal and the Tribunal partly allowed the department's appeal and restored penalty pertaining to closing stock valuation and on share income from hotel business. It is against this order of the Tribunal both the assessee as well as the department filed these appeals. We have heard Senior counsel Sri.P.Balachandran, appearing for 2 the petitioner and Sri.P.K.R.Menon, appearing for the Income Tax Department. 2. We find that penalty levied is on three grounds, first one pertains to estimation of gross profit after rejecting the low rate of gross profit returned by the assessee. The Tribunal noticed that assessee has not consciously concealed any particulars of income. Even though gross profit returned in this year was much lower than the gross profit returned in the immediately preceding year, the addition in the assessment made in this account was Rs.9,32,800/-. On appeal, the C.I.T.(Appeals) re-estimated the income on account of difference in gross profit at Rs.5 lakhs. Since it is a case of only estimation of income on account of low rate of gross profit returned, we are of the view that the Tribunal rightly sustained the order of the Commissioner in cancelling the penalty. The department's appeal against this part of the order of the Tribunal is therefore dismissed. 3. So far as assessee's appeal is concerned, we do not find any ground to interfere with the Tribunal's order because under the amended provisions, the assessee was bound to give bonafide explanation about the concealment noticed in the form of undervaluation of closing stock. Assessee's explanation is that the stock maintained at Orissa was of inferior quality and the sale of the item in the next year proves the same. However, the 3 Tribunal found that apart from raising a contention of this nature, the assessee did not produce any details of lower price or produce any evidence to substantiate that the goods stocked at Orissa was of inferior quality. Since the assessee failed to give a bonafide explanation, we feel the Tribunal rightly sustained the penalty pertaining to undervaluation of closing stock. The next ground raised in the assessee's appeal pertains to penalty levied on the share income from hotel. It is seen from the Tribunal's order that assessee has not pressed this argument, probably on account of the fact that share income was only Rs.5,350/-. We cannot entertain any argument which was not pressed before the Tribunal. We, therefore, dismiss the assessee's appeal also. C.N.RAMACHANDRAN NAIR Judge T.R.RAMACHANDRAN NAIR Judge pms "