Income Tax Appellate Tribunal - Ahmedabad
Nirma Limited,, Ahmedabad vs The Dy.Cit, Circle-5, Ahmedabad on 10 October, 2018
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ, अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, AHMEDABAD
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
आयकर अपील सं./ IT(SS)A.No.168/Ahd/2015
[Block Period : 1-4-1995 to 27-9-2001]
Nirma Limited DCIT, Cir.3(1)(1)
Nirma House Vs Ahmedabad.
Ashram Road
Ahmedabad 380 009.
PAN : AAACN 5350 K
अपीलाथ / (Appellant) यथ / (Respondent)
Assessee by : Shri S.N. Soparkar, and
Shri Himanshu C. Shah
Revenue by : Shri S.K. Dev, Sr.DR
सन
ु वाई क तार ख/ Date of Hearing : 03/10/2018
घोषणा क तार ख / Date of Pronouncement: 10/10/2018
आदे श/O RDER
PER RAJPAL YADAV, JUDICIAL MEMBER
Assessee is in appeal before the Tribunal against order of ld.CIT(A)-9, Ahmedabad dated 20.3.2015 passed for the block period 1.4.1995 to 27.9.2001.
2. Sole grievance of the assessee is that the ld.CIT(A) has erred in confirming penalty of Rs.6,18,386/- imposed under section 158BFA(2) of the Income Tax Act, 1961.
3. Brief facts of the case are that a search under section 132 of the Act was carried out at the premises of the assessee on 27.9.2001. Simultaneous surveys were also conducted at different business premises. A notice under IT(SS)A No168/Ahd/2015 2 section 158BC was issued to the assessee, and in response to the notice, the assessee has filed return of income for the block period at NIL. The assessment order was passed on 31.10.2003whereby income of the assessee for the block period was determined at Rs.27,77,98,314/-. The ld.AO has made addition on ten counts. On further appeal, almost all the additions were deleted except an addition of Rs.7,70,960/- and Rs.2,39,475/-. The facts with regard to these additions are that during the course of survey at Bhavnagar factory premises it came to the notice of survey team that the assessee was having excess stock of lime stone of 6704 MT having value of Rs.7,70,960/-. This value of excess stock was added to the total income and addition stand confirmed upto the level of the Tribunal. Similarly, during the course of search at the residential premises of cashier, Shri Manilal B. Patel a file inventorised as annexure A/2 was found and seized. The file contained loose paper-sheets. In the loose paper names of Shri Mahendra Fadia and other associate persons and employees were mentioned. In the statement of Shri Manibhai B. Patel, he disclosed that he was writing daily cash book of the company and noting in that pages pertained to advances given by him on behalf of the company for cash expenses to be incurred by the associates and employees. Thus, on the basis of that evidence, unexplained cash at Rs.2,39,475/- was added as undisclosed income of the assessee. This addition was also stand confirmed upto the Tribunal. The ld.counsel for the assessee submitted that the assessee has challenged order of the Tribunal before the Hon'ble High Court in Tax Appeal No.306 of 2012 and question of law relating to both the issue stand admitted. He placed on record copy of interim order passed by the Hon'ble High Court dated 28.6.2012. The AO has imposed a penalty under section 158BFA(2) of the Act on this addition of Rs.10,10,435/-. Appeal to the CIT(A) did not bring any relief to the assessee.
IT(SS)A No168/Ahd/2015 3
4. With the assistance of the ld.represnetatives, we have gone through the record carefully. Penalty under section 158BFA of the Income Tax Act is to be imposed on all together different grounds than the one imposed under section 271(1)(c) for concealment of income or furnishing inaccurate particulars of income. Recently, the Hon'ble High Court has considered this issue and propounded the distinction elaborately in the judgment rendered in the case of CIT Vs. Beecharbhai P.Parmar, 341 ITR 499. Before embarking upon an inquiry on the facts of the present case, we deem it appropriate to take note of the finding recorded by the Hon'ble Gujarat High Court in the case of CIT Vs.Beecharbhai P. Parmar. The Hon'ble Court has taken note of section 158BFA, and thereafter expounded the meaning and interpretation of this section. The discussion made by the Hon'ble Court from para 8 to 9 in this regard reads as under:
"8. Having thus heard learned counsel for the parties, we may take note of the relevant statutory provisions. Sec. 158BFA of the Act is part of Chapter XIV-B, which lays down special procedure for assessment of search cases. Sec. 158BFA pertains to levy of interest and penalty in certain cases. Sub-s. (2) of s. 158BFA, which is relevant for our purpose, reads as under:
"158BFA. Levy of interest and penalty in certain cases--(1) ...................
(2) The AO or the CIT(A), in the course of any proceedings under this chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the AO under cl. (c) of s. 158BC :
Provided that no order imposing penalty shall be made in respect of a person if--
(i) such person has furnished a return under cl. (a) of s. 158BC;
IT(SS)A No168/Ahd/2015 4
(ii) the tax payable on the basis of such return has been paid or, if the assets seized consist money, the assessee offers the money so seized to be adjusted against the tax payable;
(iii) evidence of tax paid is furnished along with the return; and
(iv) an appeal is not filed against the assessment of that part of income which is shown in the return :
Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the AO is in excess of the income shown in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return."
8. Upon perusal of sub-s. (2) of s. 158BFA of the Act, it would emerge that the AO or CIT(A) has the power to impose penalty in course of any proceedings under the said chapter, which penalty would range between 100 per cent to 300 per cent of the tax leviable on the undisclosed income determined by the AO under cl. (c) of s. 158BC of the Act.
8.1 Proviso to sub-s. (2) of s. 158BFA of the Act, however, provides for four conditions, upon satisfaction of which, the assessee would get immunity from such penalty. Such conditions are to be satisfied cumulatively. In essence, it provides that the penalty shall not be imposed if the assessee furnishes a return under cl. (a) of s. 158BC;
also pays tax on the basis of such return, or offers for adjustment any money seized, or produces evidence of having paid such tax, and also does not file appeal against assessment on that part of the income which is shown in the return. In other words, in cases of proceedings for block assessment, the assessee would have an additional chance to avoid penalty by furnishing a return, paying tax on such undisclosed return and accepting finality with respect to the same.
8.2 Further proviso to sub-s. (2) of s. 158BFA is merely in nature of clarification and provides that the first proviso would not apply where undisclosed income determined by the AO is in excess of the income shown in the return and in such cases, penalty shall be imposed on that portion of the undisclosed income determined, which is in excess of the amount of undisclosed income shown in the return.
8.3 Closely seen, sub-s. (2) of s. 158BFA makes it clear that it is well within the discretion of the AO, while framing the assessment for the IT(SS)A No168/Ahd/2015 5 block period, whether or not to impose any penalty or not. The words, "may direct" have to be given its normal meaning, leaving discretion to the officer. In absence of any special reason the word, "may" cannot be read as "shall".
8.4 In case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR (SC) 26 the apex Court in connection with penalty prescribed in Orissa Sales-tax Act observed :
".. ..An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to imposed penalty, when there is a technical or venial breach of the provisions of the act or where the breach flows from abona fide belief that the offender is not liable to act in the manner prescribed by the statute."
9. The contention of the counsel for the Revenue that only upon satisfaction of the conditions contained in proviso to sub-s. (2) that the assessee, in case of the block assessment can be spared of the penalty cannot be accepted. It is, of course, true that upon satisfying such conditions, the assessee would get immunity from penalty. Nevertheless, this is not a thing as to suggest that in no other case, or on no other ground, the AO may at his discretion, not impose penalty the moment additions under cl. (c) of s. 158BC are sustained. In other words, we are unable to hold that the penalty under s. 158BFA(2) is mandatory in nature.
9.1 It is true that s. 273B of the Act which provides that penalty shall not be imposed in certain cases on the assessee proving that there was reasonable cause for failure to pay tax refers to several provisions such as ss. 271, 271A, etc., makes no mention of s. 158BFA(2). This still does not mean that penalty under s. 158BFA(2) is mandatory."
5. It is pertinent to mention here that Chapter XIVB starting from Section 158B provide special procedure for assessment of search cases upto the IT(SS)A No168/Ahd/2015 6 search conducted prior to 31.5.2003. Under the scheme of block assessment, income of an assessee for the block purpose is to be computed under section 158BB. In a series of decisions, it has been held that income for the block is to be computed on the basis of seized material. In other words, when the AO issues notice under section 158BC of the Act, inviting the assessee to file return of the undisclosed income, he would supply copies of seized material on the basis of which the assessee has to compute true undisclosed income. In other words, material on the basis of which income of an assessee has to be determined for the purpose of block period is common. It is the material collected during the course of search. In these circumstances, the allegations or the charge against an assessee could be why he failed to compute true undisclosed income. Thus, the question before us is, whether on the basis of material supplied by the ld.AO for preparing block return, could it be construed as assessee knowingly not included the income on these two issues which has been added subsequently in the assessment proceedings, and confirmed upto the ITAT ? As far as addition regarding stock position, an explanation was given by the assessee during the assessment proceedings and copy of such explanation is available on page no.108 of the paper book. It is a letter dated 17.12.2002 written by the assessee in response to the notice received under section 142(1) of the Act. It is imperative upon us to take note of relevant part of the reply, which reads as under:
[2] Stock at Bhavnagar Chemical Complex Your above referred letter also states the difference between the book, stock and physical stock in case of Limestone, salt and soda Ash. The question posed pertains to our Bhavnagar Site survey u/s.133A of Income Tax Act, 1961 was carried out. Any issue of such Survey proceedings cannot and ought not be covered while looking into Block assessment. Without prejudice to above, we draw your attention to the following facts:
IT(SS)A No168/Ahd/2015 7 It is pertinent to bear in mind the following vital facts, which has substantial bearing in the process of physical stock taking.
a. During the course of survey proceeding, the stock taking and verification taken up late evening at around 7.00 p.m. and was completed within a total period of about 2 to 3 hours So that the time allotted for stock taking and verification was very short and the exercise was undertaken at the time when the people put on the job were totally exhausted.
b. Soda ash plant is spread out in total area of about 480 acres of land wherein raw material storage area would be about 100 acres, which is very huge and the distance between limestone and salt would be about 2 Kms. Area of finished goods godown, where Soda Ash is stored is about 34,000 Sq.Yd. These figures are only to give an idea of the vastness and the size and therefore the time constraints, which can substantially, the care and precision in the stock taking exercise.
c. The raw materials are mostly bulky in nature, which are stored in open area The quantities have been huge and the same has been physically verified by adopting the "measurement method", i.e. the size of the heap in length, width and height is measured by a measurement tape and then the calculations are made by applying factor 10 arrive at an estimate of the quantity. Stock of limestone and salt has been by adopting this kind of method and has not been physically weighed, i.e. of the stock was not carried out. The methodology so adopted always has tolerance • Limestone and Salt are stored in open yard, in earmarked area within the plant premises. They are stocked up in huge mound.
• Stacks cannot be uniform. Apart from valleys and hills, they are triangular, tripodical, rectangle and loose dumps also.
• Given the mature of stocks and/or mounds, it is impossible to measure an accurate stock • Stock taking of volumetric stock is a peculiar exercise, requiring special expertise • It can be quite subjective exercise depending on the nature of material and team of persons measuring the volumetric stock.
IT(SS)A No168/Ahd/2015 8 • Stock measurement is always affected by the approach or handling of the measuring process by the team of persons undertaking the measurement. Even holding the Measurement tape loose or tight, on the mound to be measured, can result into variation in stock, and this fact was brought to the notice even during the search proceedings.
In fact some of the above factors were brought to the notice of the department's officer in the statement of Mr.V.N.Dewsai, our Vice President. The relevant reply was recorded in Gujarati, translated in English to reproduce hereunder.
xxxx xxxx xxx xxxx xxxx xxx
We enclose herewith a copy of a Statement of Stock physically verified on 27.9.2001. You may observe therein at the top of the paper, it has been mentioned that "physical stock taken on urgent basis" and below that "normal" stock and "undersize" stock have been separately taken and calculated. Inadvertently, this stock has been compared with Book stock. In fact the correct calculation of stock should be:
Qty. In MT
a. Stock of usable lime 30,937.600
stone as specifically
Stated "NORMAL
b. Stock of unusable 7,847,100
"UNDER SIZE'
material (Not to be
taken for Book Stock
comparison)
IT(SS)A No168/Ahd/2015
9
c. Stock as per books 32,080,082
Book stock found in 1,142,482
Excess
6. A perusal of the above reply would indicate that measurement of stock was taken hypothetically in estimated manner. The details of stock taking proceedings have been placed on pages 103 to 107 of the paper book. For example weight of heap was worked out at 4389 MTs. by taking measurement as 28 x 33 x 9.5. This is purely a rough calculation. When such type of material is supplied, then any assessee preparing its return would harbor a belief that he will explain his position to the AO during the assessment proceedings and no addition will be made. It is a different matter that addition as made and confirmed upto the ITAT, but it is also important to note that Hon'ble Court has admitted question of law on this point. Similarly, with regard to second addition, the assessee has given its explanation that these are the rough sheets showing cash given to the employees for incurring certain necessary expenses. According to the assessee, these expenses must have been posted in the regular books. Hence it would not partake character of income assessable in its hand. These are possible opinion, which would have been harboured by the assessee at the time of filing of return. There cannot be any allegations against the assessee that it has deliberately not computed his true undisclosed income from the seized material. As against the above, it is to be seen that the AO has computed the income from the seized material at Rs.24.77 crores. His computation totally failed except an addition of Rs.10 lakhs. The ld.counsel for the assessee at the time of arguing this appeal has submitted that no consequences have been provided against the ld.AO for formation of such an opinion. He expressed the disappointment of the assessee against the manner in which penalty has been imposed upon it. We recognize the disappointment, but in the present form no remedy is available to the assessee on this aspect. However, we are convinced that the assessee IT(SS)A No168/Ahd/2015 10 does not deserve to be visited with penalty under section 158BFA in the given circumstances. We allow the appeal of the assessee and delete penalty.
12. In the result, appeal of the assessee is allowed.
Order pronounced in the Court on 10th October, 2018 at Ahmedabad.
Sd/- Sd/- (PRADIPKUMAR KEDIA) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER