Income Tax Appellate Tribunal - Delhi
Gahoi Chemicals Pvt. Ltd., New Delhi vs Dcit, New Delhi on 21 April, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'C' NEW DELHI
BEFORE SHRI G.D. AGRAWAL, HON'BLE PRESIDENT
AND
SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
I.T.A .No. 1212/DEL/2012
ASSESSMENT YEAR-2005-06
I.T.A .No. 1213/DEL/2012
ASSESSMENT YEAR-2006-07
Gahoi Chemicals Pvt. Ltd., DCIT,
41, Friends Colony West, Central Circle 23,
New Delhi. vs New Delhi.
(PAN: AABCG8027F) (RESPONDENT)
(APPELLANT)
Appellant by Shri Sanjay Garg, CA
Respondent by Shri A.K. Saroha, CIT DR
Date of Hearing 23.1.2017
Date of Pronouncement 21.4.2017
ORDER
PER SUDHANSHU SRIVASTAVA, JM
Both these appeals have been preferred by the assessee. ITA No. 1212/Del/2012 has been filed against the order passed by the Ld. Commissioner of Income Tax (Appeals) - XXXIII, New Delhi dated 30/12/2012 wherein the Ld. CIT (Appeals) has confirmed penalty of Rs. 3,65,925/- imposed under section 271 I.T.A. No. 1212 & 1213/Del/2012 Assessment year 2005-06, 2006-07 (1) (c) of the Income Tax Act, 1961 (hereinafter called "the Act"). The relevant assessment year is 2005-2006.
1.1 ITA No. 1213/DEL/2012 has been filed against the order passed by the Ld. Commissioner of Income Tax (Appeals) - XXXIII, New Delhi dated 30/12/2011 confirming imposition of penalty of Rs. 4,55,588/- under section 271 (1) (c) of the Act for assessment year 2006-2007. Both the appeals were heard together and for the sake of convenience they are being disposed of through this common order.
2. The brief facts of the case for AY 2005-2006 are that the assessee company is engaged in the case of manufacturing of laminated pouch film and poly pouch film. On 01/09/2005, a survey operation under section 133A was carried out in the factory premises situated at B - 8, Site No. 1, Panki Industrial Estate, Kanpur and an inventory of stock was prepared. On the very same date, a search and seizure action under section 132 of the Act also took place in the Kurele group. The original return for assessment year 2005-2006 was filed on 31st of October 2005 at Kanpur declaring business loss of Rs. 4,17,123/- and short- term capital loss of Rs. 4,812/- to be carried forward to the next year and unabsorbed depreciation of Rs. 20,11,360/-. Thereafter, 2 I.T.A. No. 1212 & 1213/Del/2012 Assessment year 2005-06, 2006-07 the case was centralised at Delhi and subsequently notice under section 153A of the Act for assessment year 2005-2006 was issued and in compliance a return was filed declaring the same particulars as were in the original return filed on 10/05/2007. In the assessment proceedings, an addition of Rs. 10 Lacs was made on account of shares allotted to M/s Jeevandhara Waters Private Limited as the name of the assessee company did not appear either in the "schedule of investments" or in the "schedule of loans and advances" of annual accounts of the shareholding company. The assessee did not prefer any appeal against the aforesaid addition. A penalty of Rs. 3,65,925/- was imposed for filing inaccurate particulars of income which was confirmed by the Ld. CIT (Appeals) and now the assessee is in appeal before the ITAT and has preferred the following grounds of appeal -
"1. Because the learned CIT (A) has erred in law and on facts in sustaining the penalty imposed by the learned Assessing Officer for the addition made to the returned income by invoking the deeming provision of section 68 on account of share capital of Rs. 10 lacs received.
2. Because the learned CIT (A) has erred in law and on facts in sustaining the penalty by ignoring the fact that the assessment framed u/s 153A was without jurisdiction as no "Panchnama" was drawn in the name of appellant company, accordingly there was no valid platform for levy of penalty."3
I.T.A. No. 1212 & 1213/Del/2012 Assessment year 2005-06, 2006-07 2.1 The brief facts of the case for assessment year 2006-2007 are that during the course of survey operation under section 133A of the act, physical stock taking was done and it was found that there was a difference of 18,082 kg in the stock as per books of accounts and the actual stock found in inventory taking during the course of survey operation. As per the AO, the assessee failed to reconcile the difference in stock and had conceded that there was a difference of 17,882 kg in the stock as on the date of survey and the same was offered by the assessee company for tax. The value of stock was worked out at Rs. 13,53,500/- by taking average purchase price of each item and an addition of the amount was made to the income of the assessee company for the year under consideration. Subsequently, penalty proceedings under section 271 (1) (c) of the Act were initiated and the penalty of Rs. 4,55,588/- was imposed. Aggrieved, the assessee preferred an appeal before the Ld. CIT (Appeals) who confirmed the penalty and now the assessee is in appeal before the ITAT and has raised the following grounds of appeal -
"1. Because the ld. CIT has erred in law and on facts in sustaining the penalty imposed by the Assessing Officer.4
I.T.A. No. 1212 & 1213/Del/2012 Assessment year 2005-06, 2006-07
2. Because the order of ld. CIT being erroneous in law and on facts on account of difference in stock of Rs. 13,53,500/- found during survey."
3. In the appeal pertaining to assessment year 2005-2006, the Ld. Authorised Representative submitted that the assessment order specifically mentions that all the requisite information, that is confirmation, bank statement, audited accounts and income tax returns for the year under consideration of the shareholder company were furnished by the assessee company and even the shares stood allotted and as such the initial onus of the assessee stood duly discharged and the only reason for addition was that the name of the assessee company was not reflected in the annual accounts of the shareholder company. The Ld. AR submitted that no documents furnished by the assessee were found to be false and that no facts had been concealed and the assessee could not be held responsible for the errors/omissions in the balance sheet/documents of others. It was also submitted that the penalty had been imposed on the ground that no appeal was filed against the quantum proceedings but non-filing of the appeal is relevant only for the purpose of assessment of income and is not an adverse fact in penalty proceedings. The Ld. Authorised Representative submitted that this approach was 5 I.T.A. No. 1212 & 1213/Del/2012 Assessment year 2005-06, 2006-07 wholly arbitrary and erroneous. The Ld. Authorised Representative further submitted that the very initiation of the penalty suffered from jurisdictional defect as no due satisfaction as envisaged by section 271 (1) (c) of the act was recorded. The Ld. Authorised Representative submitted that the show cause notice issued under section 274 of the Act and placed at page 3 of the paper book did not specify as to whether the penalty proceedings were being initiated for concealing particulars of income or for furnishing inaccurate particulars of income. The Ld. Authorised Representative submitted that the notice under section 274 of the Act should specifically state as to whether the penalty was being imposed for the concealment of particulars of income or for furnishing inaccurate particulars of income. Reliance was placed on the decision of the Hon'ble Karnataka High Court in the case of CIT versus Manjunatha Cotton and Ginning Factory reported in 359 ITR 565 wherein the Hon'ble Karnataka High Court had held that the notice under section 274 of the Act should specifically state the grounds mentioned in section 271 (1) (c), that is whether it is for concealment of income or for furnishing of inaccurate particulars of income. The Ld. Authorised Representative submitted that in the present case, 6 I.T.A. No. 1212 & 1213/Del/2012 Assessment year 2005-06, 2006-07 neither in the assessment order nor in the show cause notice issued under section 274, the assessee was made aware as to on what ground were the penalty proceedings initiated or the show cause notice was being issued. It was further submitted that merely because the assessee did not file an appeal, the same cannot be considered as an admittance and, therefore, without showing that the explanation of the assessee was false or not bona fide, no penalty could have been validly imposed in the present case. It was submitted that the provisions of section 68 permitting the assessing officer to treat unexplained cash credit as income were enabling provisions for making certain additions where there was a failure on the part of the assessee to give an explanation or where the explanation was not to the satisfaction of the assessing officer. It was submitted that the addition on this account would not automatically justify the imposition of penalty under section 271 (1) (c ) and no penalty could be imposed if the facts and circumstances were equally consistent with the hypothesis that the amount did not represent concealed income as with the hypothesis that it did and for this proposition the Ld. Authorised Representative placed reliance on the decision of the Hon'ble Gujarat High Court in the case of National Textiles 7 I.T.A. No. 1212 & 1213/Del/2012 Assessment year 2005-06, 2006-07 versus CIT reported in 249 ITR 125. It was submitted that in view of the factual matrix of the case, the penalty imposed was patently wrong and the same should be deleted 3.1 In response, the Ld. Departmental Representative submitted that the addition under section 68 had attained finality as no appeal had been preferred against the quantum addition. The Ld. Departmental Representative submitted that the assessee had disguised its own money in the form of share capital which would have gone untaxed but for the addition by the revenue through the assessment and, therefore, it was a clear case of concealment of particulars of income. The Ld. Departmental Representative further submitted that as the aforesaid share capital was not appearing in the balance sheet of M/s Jeevandhara Water Private Limited, the explanation of the assessee was false and, therefore, it was covered by clause (A) of explanation 1 to section 271 (1) (c) of the Act. The Ld. Departmental Representative submitted that the assessee had not discharged its burden of proof by producing cogent material in the case and was squarely covered by the decision of the Hon'ble Delhi High Court in the case of CIT versus HCIL Kalindee Arsspl reported in 37 taxman.com 347 wherein the Hon'ble High Court of Delhi had laid down the ratio that 8 I.T.A. No. 1212 & 1213/Del/2012 Assessment year 2005-06, 2006-07 initial burden of proof was upon the assessee to prove that his explanation was bona fide and which could be discharged only by producing cogent material. The Ld. Departmental Representative submitted that the Hon'ble High Court had held that penalty provisions did not require culpable mens rea and the relevant question to be asked was whether the assessee had discharged the onus and satisfied the conditions mentioned in explanation 1. The Ld. CIT DR also placed reliance on the judgement of the Hon'ble Delhi High Court in the case of Zoom Communications Private Limited reported in 327 ITR 510. The Ld. Departmental Representative further submitted that the judgement of the Hon'ble Supreme Court in the case of Mak Data Private Limited versus CIT reported in 38 taxman.com 448 has laid down that the AO has to satisfy himself whether the penalty proceedings be initiated or not during the course of assessment proceedings and that the AO is not required to record his satisfaction in a particular manner or to reduce it in writing. The Ld. Departmental Representative further submitted that the Hon'ble Supreme Court has further clarified that the AO is not to be carried away by the plea of the assessee like 'voluntary disclosure', 'buy peace', 'avoid litigation', 'amicable settlement' etc 9 I.T.A. No. 1212 & 1213/Del/2012 Assessment year 2005-06, 2006-07 to explain its conduct and that the initiation of penalty proceedings is to be made during assessment proceedings and after that it is a matter of judicial proceedings as to whether the case is covered under section 271 (1) (c) are not. The Ld. Departmental Representative submitted that the mention by the AO about the admittance by the assessee for filing inaccurate particulars of income cannot be construed as to mean that the AO had levied penalty for filing inaccurate particulars only. The Ld. Departmental Representative submitted that in light of the judicial precedents and the conduct of the assessee, the order of the Ld. CIT (Appeals) to be upheld.
3.2 Further, in appeal pertaining to assessment year 2006- 2007, the Ld. Authorised Representative drew our attention to page 33 of the paper book which reflected the total excess stock and the total stock in short as on 31st of August 2005. The Ld. Authorised Representative pointed out that the total excess stock as per the 2nd last column in the chart amounted to Rs. 4,92,583.66, whereas, the total stock in short as per the last column in the chart amounted to Rs. 8,61,272.10. The Ld. Authorised Representative submitted that the figure of the total shortage in stock, that is, Rs. 13,53,855.76 was worked out by 10 I.T.A. No. 1212 & 1213/Del/2012 Assessment year 2005-06, 2006-07 adding the total of these two columns and as such the penalty imposed was on a wrong amount. It was further submitted by the Ld. Authorised Representative that the addition had been agreed upon by the assessee to buy peace of mind and that the same was not a fit case for imposition of penalty as no concealment/furnishing of inaccurate particulars of income was made out. It was submitted that the opening stock and the closing stock during the year under consideration were accepted by the assessing officer and the valuation was not disturbed and as such any excess/shortage got neutralised during the course of the year. The Ld. AR submitted that in view of the facts of the case the penalty imposed should be deleted.
3.3 In response, the Ld. Departmental Representative submitted that the quantum addition for excess stock found during the course of survey had attained finality as no appeal had been preferred against the quantum addition and the plea of the assessee that the stock at the close of the year was as per the books of accounts which took care of the discrepancy in the middle of the year was not acceptable as it underlines the fact that the books are not reliable. The Ld. Departmental Representative also relied on a plethora of decisions as relied 11 I.T.A. No. 1212 & 1213/Del/2012 Assessment year 2005-06, 2006-07 upon by him in the assessee's appeal for assessment year 2005- 2006 and submitted that the ratio of the judgements would be applicable on the facts of the case in this year also. It was submitted that in view of the specific discrepancy found during the course of the survey, the penalty imposed was justified and that the same should be upheld.
4. We have heard the rival submissions and perused the material on record. As far as the appeal for AY 2005-06 is concerned, it is clear that in the instant case it cannot be said that the assessee had withheld any relevant information regarding the receipts and income from the AO. The amounts added back by the AO were the amounts disclosed by the assessee itself. With regard to the provisions of section 271(1)(c ) of the Act pertaining to penalty, the Hon'ble Apex Court has authoritatively laid down that making of a claim by the assessee which is not sustainable will not tantamount to furnishing inaccurate particulars. In CIT vs. Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC), the Hon'ble Apex Court has held as follows:
"A glance at this provision would suggest that in order to be covered, there has to be concealment of particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The present is not a case of 12 I.T.A. No. 1212 & 1213/Del/2012 Assessment year 2005-06, 2006-07 concealment of income. That is not the case of the Revenue either. However, the Ld. Counsel for the revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the section 271 (1) (c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The learned counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income." We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars."
4.01 Although, both the lower authorities have held that the assessee has furnished inaccurate particulars and concealed particulars of income, on a consideration on the facts, such a view is not tenable is the present appeal. Therefore, respectfully following the judgment of the Hon'ble Apex court in the case of Reliance Petroproducts Pvt. Ltd. (Supra) we delete the penalty for AY 2005-06.
13I.T.A. No. 1212 & 1213/Del/2012 Assessment year 2005-06, 2006-07 4.1 As far as the appeal for AY 06-07 is concerned, the Ld. AR has raised a point that the penalty has been imposed on the wrong amount. However, this plea was not before the Ld. CIT (A). Further, the correct amount on which the penalty has to be imposed will have to be verified by the AO in terms of the submissions made by the Ld. AR before us. Therefore, without commenting on the merits of the imposition of penalty, we restore the issue to the file of the AO for considering the submissions of the assessee with regard to the quantum on which the penalty has to be worked out. Therefore, this appeal stands allowed for statistical purposes.
5. In the final result, I.T.A. No. 1212/Del/2012 stands allowed and I.T.A. No. 1213/Del/2013 stands allowed for statistical purposes.
Order pronounced in the open court on 21.04.2017 Sd/- Sd/-
(G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) PRESIDENT JUDICIAL MEMBER DATED: 21st APRIL 2017 'GS' 14 I.T.A. No. 1212 & 1213/Del/2012 Assessment year 2005-06, 2006-07 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR ASSTT. REGISTRAR ITAT NEW DELHI 15