Income Tax Appellate Tribunal - Mumbai
M/S. Ramlin Laboratories, Mumbai vs Assessee on 3 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
"D" BENCH, MUMBAI.
Before Shri D.K.Agarwal, Judicial Member and
Pramod Kumar, Accountant Member
I.T.A No.2115/ Mum/2011
Assessment year: 2001-02
Ramlin Laboratories, ..... Appellant
26, Anand Bhuvan, St. Xavier Road, Opp.
Bhoiwada Police Station, Parel, Mumbai.
PA No.AAAFR 0393 P
Vs
ACIT 17(3) ..... Respondent
Aayakar Bhavan, M.K. Road,
Mumbai.
Appearances:
Rupa N. Gumi, for the appellant
P.C.Maurya, for the respondent
Date of Hearing : 3.1.2012
Date of pronouncement : 31 -1-2012
ORDER
Per Pramod Kumar:
1. The short issue that we Are required to adjudicate in this appeal is whether or not the CIT(A) was justified in confirming the impugned penalty of Rs.1,22,900 imposed on the assessee u/s.271(1)(c) of the Income tax Act, 1961. The assessment year involved is 2001-02.
2. To adjudicate on this appeal, only a few material facts need to be taken note of. The assessee is engaged in the business of importer and dealer in chemicals.
During the course of assessment proceedings, the Assessing Officer, inter alia, noticed that the closing stock has been undervalued by Rs.2,03,430 in respect of 2 I.T.A No.2115/ Mum/2011 Assessment year: 2001-02 three items namely; Isodamascone, Rose oxide-L and Timberol. While the assessee accepted the mistake, the assessee also clarified that the above mistake was on account of erroneous result reduced by the accounting package which was used for the first time in the relevant previous year. It was explained that the error is in not allocating the custom duty and clearing charges in respect of some of the products and to that extent the value of closing stock was done by CIF value only. This explanation was duly noted in the assessment order itself. The matter, however, did not rest with the aforesaid quantum addition. The Assessing Officer also imposed penalty under section 271(1)(c) and while doing so, the AO observed that keeping in mind that the audit report, wherein, the auditor is required to verify the correctness of the stock before signing the audit report "the assessee has clearly concealed the income" to the extent of undervaluation of stock. Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without any success. The CIT(A) relied upon the Hon'ble Supreme Court's judgment in the case of Dharmendra Textiles Processors & Ors , vs Union of India, 306 ITR 227(SC) and observed that willful concealment is not an essential ingredient of penalty. He thus confirmed the impugned penalty. Aggrieved by which, the assessee is in appeal before us.
3. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.
4. We find that the assessee has given a reasonable explanation for the mistake in disclosing the correct value of closing stock and correctness of this explanation has not been disputed by any of the authorities below. We have also noted that it was the first year in which, the assessee was using the said accounting package and it was admitted position that the undervaluation was occurred because of flaw in software inasmuch as custom duty and clearing charges were not taken into account for the purpose of computing the value of closing stock in inventory module. In our considered view, the explanation of the assessee is a reasonable explanation. No 3 I.T.A No.2115/ Mum/2011 Assessment year: 2001-02 inconsistencies are noticed in the same and it deserves to be accepted so far as penalty proceedings under section 271(1)(c) are concerned.
5. As far as learned CIT (A)'s reliance on Hon'ble Supreme Court's judgment in the case of Dharmendra Textiles Processors & Ors (supra), we may only refer, inter alia, to the following observations made by coordinate bench of this Tribunal in the case of Kanbay Software India (P)Ltd vs DCIT(31 SOT 153)(Pune):
"51. There can be three distinct mutually exclusive situations in the case of an addition to income. In the first scenario, the addition made could be on account of contumacious conduct of the assessee in which mens rea is established or can be reasonably inferred. As far as this situation is concerned, penalty was always leviable under section 271(1)(c). In the second scenario, while the addition is made to the returned income, neither is it established, or can be reasonably inferred, that the addition made to the income is on account of contumacious conduct of the assessee nor is it established, or can be reasonably inferred, that the assessee's conduct and explanation is bona fide. In such a situation, in the light of Hon'ble Supreme Court's judgement in the case of Dilip N.Shroff (supra), penalty under section 271(1)(c) could not have been levied since the onus of establishing mens rea of the assessee could not have been discharged in such a situation. However, as the law stands now and in the light of Hon'ble Supreme Court's judgment in the case of Dharmendra Processors"(supra), penalty under section 271(1)(c) will be leviable since it is not necessary for the tax authorities to establish mens rea of the assessee. That is the area in which legal position has changed. However, there is still a third scenario in which an addition is made to the income but it is established, or can be reasonably inferred, that assessee conduct and explanation is bona fide. These are the situations in which the assessee is able to establish his innocence. In such a situation, in accordance with the undisputed scheme of section 271(1)(c), neither the penalty was leviable prior to Hon'ble Supreme Court's judgment in the case of Dilip N.Shroff (supra) nor is it leviable after the Dharmendra Textile Processor's case (supra).
52. In our considered view, therefore, there is no change in law so far as first and third scenarios visualized above are concerned. The scheme of section 271(1)(c) remains as it and this scheme clearly requires much more than a mere addition to assesse's income before penalty under the said section can be imposed. The views expressed by Their Lordships in Dharmendra Textiles Processor's case (supra) 4 I.T.A No.2115/ Mum/2011 Assessment year: 2001-02 do not bring about any radical change in the scheme of section 271(1)(c) though these views do seek to nullify the Dilip N Shroff's judgment (supra) which, in the esteemed views of the larger Bench, did not take into account the correct scheme of things as these were - more particularly post-insertion of Explanation 1 to section 271(1)(c). Indeed, even on the first principle and as seen in the above light, while this view is in accordance with the scheme of the section and the amendment brought about in the scheme of the section by insertion of explanation 1 to Section 271(1)(c), it does not bring about any radical change to the main scheme of section 271(1)(c) itself."
6. In view of the above observations made by the coordinate bench, with which we are in considered agreement, so far as the situation, in which the assessee has reasonably shown his bona fides in the explanation, the penalty under section 271(1)(c) is not attracted even in the light of law laid down in the case of Dharmendra Textiles (supra). We thus see no substance in the reliance placed by the ld CIT(A) on Dharmendra Textile's case (supra). In this view of the matter and as also bearing in mind the entirety of the case, we deem it fit and proper to delete the impugned penalty. The assessee gets relief accordingly.
7. In the result, appeal is allowed.
Pronounced in the open court on 31st January, 2012
Sd/- Sd/-
(D.K.Agarwal) (Pramod Kumar)
Judicial Member Accountant Member
Mumbai, Dated 31st January, 2012
Parida
Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals),29, Mumbai
4. Commissioner of Income Tax,17 , Mumbai
5. Departmental Representative, Bench 'D' Mumbai
//TRUE COPY// BY ORDER
ASSTT. REGISTRAR, ITAT, MUMBAI