Income Tax Appellate Tribunal - Jaipur
Assistant Commissioner Of Income-Tax vs Milap Textile Mills on 31 March, 1993
Equivalent citations: [1993]46ITD449(JP)
ORDER
J.K. Verma, Accountant Member
1. The only ground of appeal taken by the Revenue in this case reads as under:-
On the facts and in the circumstances of the case the learned CIT(A) has legally erred in cancelling the penalty levied under Section 271(1)(c) in disregard to Explanation 1(B) of Section 271(1)(c) as the ITAT had sustained addition of Rs. one lac and to that extent assessee could not be said to have substantiated his low trading results.
2. Brief facts of the case are that the assessee is engaged in processing of grey cloth, both of medium and super fine quality. Subsequently this cloth is sold. The assessee had filed return of income at Rs. 4,63,511. It was assessed by IAC (Asstt.) at Rs. 6,53,185. The main reason for the addition was that whereas according to the ZAC (Asstt.), this year the assessee had disclosed a g.p. rate at 12 per cent and whereas in the preceding year the g.p. rate was 15 per cent, the IAC (Asstt.) had applied a g.p. rate at 13.25 per cent. While doing so he had taken into account various explanations of the assessee including the loss suffered on account of unexpected flood in the near by river where the assessee's factory is located and which should have caused some damage to assessee's stocks. At the same time he found certain defects in the maintenance of accounts which he discussed in his order and that is why he applied a g.p. rate at 13.25 per cent which resulted in an addition of Rs. 1,90,000.
3. The assessee took this matter in appeal and the CIT(A) deleted the entire addition mainly because according to him no specific defects had been pointed out by IAC (Asstt.) and that as there was flood in the area in 1979 there was no justification for addition of Rs. 1,90,000.
4. Being aggrieved by this order, the Revenue came in appeal before the Tribunal. The Tribunal considered the matter afresh and vide its order dated 30-10-1987 in ITA No. 314/JP/1985 gave its findings in para 5 of its order. It took into account that last year also assessee had carried on similar business but this year there were floods in July, 1979 which must have affected assessee's profits. It also took into account the fact that the IAC (Asstt.) had elaborately discussed the nature of assessee's business and the reasons given by the assessee for low profits. It also took note of the fact that the IAC (Asst.) had found that assessee had not maintained any record to show day to day or month to month processing of grey cloth and hence it was difficult to know the quantity of finished cloth obtained or actual consumption of various chemicals, raw materials, on day to day basis. Similarly it noted that no quality-wise details of sales of cloth were available. It further noted that in spite of floods and damage to the cloth, the rates per meter had increased from Rs. 6.20 to Rs. 7.04 and the total sales had also increased from Rs. 1.27 lacs of last year to Rs. 1.29 lacs this year. The Tribunal further observed that in the absence of any specific reasons except the flood, the low profit as shown by the assessee could not be accepted and that the assessee had not proved that the assessee had suffered loss at roughly about Rs. 3,80,900. The Tribunal further observed at para 6 of its order that by its letter dated 21-7-1979 the assessee had submitted that records regarding production work were washed away whereas the assessee had denied the maintenance of the production records. It also took note of the fact that the assessee had claimed that there was shortage of caustic soda this year while the IAC (Asst.) had pointed out that in assessee's sister concern, namely, M/s. Digvijay Textiles the caustic soda was used at 3.5 times more than in the earlier year. With these observations the Tribunal came to the conclusion that in its view the CIT(A) was not justified in deleting the entire addition ignoring the specific defects pointed out by the IAC (Asst.) and also the reason given by the IAC (Asst.) that for want of records the loss suffered by floods could not be verified. The Tribunal further observed that in its view, for want of proper records, the book results could not be accepted as they did not indicate the correct profits. It also observed that no record or evidence had been shown regarding the raw material or processed cloth which were available with the assessee on the date of flood and how much of that was lost. In these circumstances, taking note of the fact that the loss suffered by the assessee on account of floods could not be denied as the factory of the assessee was located near the river bed, the Tribunal held that additions to the tune of Rs. 1 lac in the trading results will be just and reasonable.
5. In this back ground the learned Departmental Representative drew our attention to the decisions of the Hon'ble Rajasthan High Court in the cases of CIT v. Smt. Satnam Malik [1979] 120 ITR 309 and CIT v. Chandi Prasad Khetan [19791 120 ITR 314 and the cases referred to in those decisions to canvass that the finding given by the Tribunal in its order was good evidence although it might not be conclusive evidence. He submitted that in the instant case the Tribunal had given a finding of fact that no evidence or satisfactory explanation had been given by the assessee to prove the low gross profit shown by it this year and, thus in fact, had held that the assessee was not able to substantiate the reasons for the difference between the returned and the assessed income and hence in view of the Explanation 1(B) to Section 271(1)(c), the penalty was clearly exigible.
6. The learned counsel for the assessee on the other hand argued that it was not a case in which it was claimed that the loss was suffered on account of floods. He submitted that assessee's job was dyeing and printing and not manufacture of cloth. He submitted that if job work was excluded, the g.p. would come down to 12 per cent which alarmed the Assessing Officer although in fact, according to the learned counsel, the g.p. was 14.07 per cent which should have been treated as normal. The learned counsel submitted that on 21-7-1979 sudden floods had come in the river and the assessee has lodged a report with the Police and with the Income-tax Deptt. to come and verify the loss sustained by the assessee but no one came. He explained that the assessee had taken loans from the Bank and hence the assessee had to file details to bank in respect of hypothecated goods on every Friday. The learned counsel claimed that the assessee had furnished all details of purchase of cloth, dyes, chemicals etc. and had explained that since assessee was doing work of only processing the grey cloth, quality was not important. Thus, according to Shri G.D. Gargieya, the case was that assessee was asked to explain the low g.p. and the assessee had given detailed explanation before CIT(A) and also a summary chart because the Assessing Officer had made additions of Rs. 1.90 lacs. Thus according to Shri Gargieya it was not a case of claiming any particular loss; it was only a case of explaining lower g.p.. He submitted that the Assessing Officer had added Rs. 1.90 lacs which had been deleted in toto by the CIT(A) and which had been restored to Rs. 1 lac by the Tribunal. In this way, according to Shri Gargieya, there were three opinions and since the assessee had given a plausible explanation which found favour with the CIT (A) as well as with the Tribunal, the penalty either under main provisions of Section 271(1)(c) or its explanation could not be imposed. He drew our attention to the Miscellaneous Application which had been filed before the Tribunal after its order. Although that Miscellaneous Application had been rejected by the Tribunal without giving a hearing to the assessee. he reiterated that as per the chart filed on page 13 of the Paper Book the g.p. rate this year worked out to 14.07 per cent against 15.4 per cent of last year and not 12 per cent as considered by the Assessing Officer. Regarding the details of the loss suffered by the assessee during the floods, he drew our attention to page 11 of the Paper Book where separate items of chemicals, colours, cloth and packing material in respect of which the assessee had suffered loss was shown at Rs. 1,34,487. He further pointed out that in his written submissions before the learned CIT(A) in the quantum appeal (pages 1 to 10 of the Paper Book) the assessee had pointed out that whereas the Assessing Officer had only taken into account the increase in the average sale price this year, he had not taken into account the increase in the average cost price which worked out to Rs. 4.09 as against Rs. 3.48 of last year. He further drew our attention to his submissions on page 9 where he had affirmed that the additions had been made without invoking the provisions of Section 145(1) and without pointing out any defects in the books of account and in the method of accounting. It was further asserted on the same page that the learned IAC did not point out that sales had been under-stated or purchases had been inflated or stocks had been undervalued or chemicals were not actually purchased or fake purchases had been incorporated in the books of account. In these circumstances, the learned counsel argued, even if the Tribunal had restored an addition of Rs. 1 lac against a total deletion of Rs. 1.90 lacs made by the CIT(A), the addition was still on an estimated basis and not on the basis of any specific concealment made by the assessee nor was it a case that the difference in income was on account of a basis which the assessee had either not explained or which explanation the assessee could not substantiated. In this connection he drew our attention to the cases referred to by him in his written submissions before the CIT(A) and in particular to the decisions of the Delhi Bench in the case of Kuldeep Sood v. ITO [1985] 22 TTJ (Delhi) 532 and of the Bombay Bench in the case of K.G. Nariman alias N.K. Gajwani v. ITO [1989] 33 TTJ (Bom.) 565. He submitted that the ratio of both these decisions was that merely because an explanation given by the assessee was rejected and estimated additions were made, it could not be a basis for imposition of penalty under Section 271 (1)(c) or its explanation.
7. We have carefully considered the submissions made from both the sides and the material on record. In the first instance we would like to distinguish cases relied upon by the learned Departmental Representative, namely, the cases of Smt. Satnam Malik (supra) and Chandi Prasad Khetan (supra) both of Hon'ble Rajasthan High Court. It may be mentioned that in both those cases in the quantum appeals the Tribunal had given a specific finding that the disputed income belonged to the assessee, that those sources of income had not been disclosed to the Department and the additions of income had been upheld by the Tribunal as additions on account of concealed income. It was in this context that the Hon'ble Rajasthan High Court had given the decisions that the Tribunal was not justified in cancelling the penalties after having given a specific finding in the quantum appeals that it was the concealed income of the respective assessees. On the other hand, in the instant case, as we have mentioned earlier, although the Tribunal has given various reasons for restoring part of the additions which had been totally deleted by the learned CIT(A), the Tribunal has not given a specific finding anywhere to the effect that it was a concealed income of the assessee. In fact, from the facts and circumstances which we have discussed above it is also clear that it is not a case where the assessee has either given no explanation for the additions which had been made to its income or it has not been able to substantiate its explanation. The comparative chart given on page 13 of the Paper Book does show that the difference between the g. p. rate of last year and this year is only .07 per cent and that too after the loss suffered by the assessee in the floods. Thus while the Tribunal has held in the quantum appeal that the assessee has not been able to fully prove the extent of loss in the floods, it cannot be said that the Tribunal has held that the claim of loss in floods was false. In fact, the Tribunal has accepted that since the factory of the assessee was located near the bed of the river, it did suffer a loss on account of sudden and unexpected floods, but how much was the loss is a question of estimate.
8. Taking all these factors into account, we hold that in this case the assessee has been able to give a reasonable explanation for fall in its profits as compared to last year and although that explanation was not fully accepted by the Tribunal, the very fact that the learned CIT(A) had accepted it and even the Tribunal, the very fact that the learned CIT(A) had accepted it and even the Tribunal has restored only partial additions would mean that the explanation given by the assessee was a plausibl e and bona fide explanation and hence in our opinion, the learned CIT(A) was justified in taking the view that where an addition has been restored even by the Tribunal on an estimated basis and the assessee has given a plausible and bona fide explanation for its having filed a return of income on the basis of its books of account in which no specific defects could be pointed out, the imposition of penalty under Section 271(1)(c) was not justified.
9. Accordingly we uphold the order of the learned CIT(A). The appeal filed by the Revenue is dismissed.