Income Tax Appellate Tribunal - Ahmedabad
Integra India Group Company Ltd.,, ... vs Assessee on 11 June, 2010
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IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D" AHMEDABAD
Before S/Shri Bhavnesh Saini, JM and D.C.Agrawal, AM
ITA No.1737/Ahd/2010
Asst. Year :1997-98
Integra India Group Company Vs. Dy. CIT, Cir.192),
Ltd. (formerly known as Aayakar Bhavan,
Integra Hindustan Control Race Course,
Ltd.), Integra House 7-A, Baroda.
Rajpath Society, Old Padra
Road, Baroda 390 020.
(Appellant) (Respondent)
..
Appellant by :- Shri Sanjay R. Shah, AR
Respondent by:- Shri K. M. Mahesh, Sr. D.R.
ORDER
Per D.C. Agrawal, Accountant Member.
This is an appeal filed by the assessee raising following grounds :-
(1) The ld. CIT(A) has erred in confirming the penalty levied u/s 271(1)(c) of the Act despite the fact that -
(a) proper satisfaction to initiate penalty proceedings was not arrived at by the ld. AO.
(b) the ld. AO did not specify the charge on the appellant as to whether it had concealed the particulars of its income or had furnished inaccurate particulars of its income while initiating the penalty proceedings.
(2) The ld. CIT(A) has erred in not appreciating the fact that the appellant had offered bona fide explanation for the fall in gross profit ratio which is the subject matter of levy of penalty u/s 271(1)(c) of the Act.ITA No.1737/Ahd/2010
Asst. Year 1997-78 (3) The ld. CIT(A) has erred in holding that the rejection of returned income itself reflects concealment of income.
(4) The ld. CIT(A) has further erred in not appreciating the facts and circumstances of the appellant's case or the nature of addition made (an ad hoc addition on account of low gross profit) in the order passed u/s 143(3) of the Act.
2. The grounds relating to satisfaction for initiation of penalty proceedings are not pressed by the ld. AR during the course of hearing and hence related grounds are treated as rejected.
3. The only issue survives for adjudication is levy of penalty of Rs.3,61,000/- under section 271(1)(c). In this case the assessee filed return of income showing loss of Rs.18,61,550/-. The brief facts of the case are mentioned by the AO in the penalty order with which there is no dispute -
"The AO observed that the assessee is engaged in manufacturing of relay domino panel and audio frequency track circuits being used in railway signaling in addition to the trading activities of related items. The turnover during the year was Rs.1.97 crores as against 2.25 crores of last year and the assessee has shown gross profit @ 18% as against 44% of last year and 31% in Asst. Year 1995-96. The AO also noted that the assessee has not accounted for the element of excise duty pertaining to the finished goods valued at Rs.2,50,658/- as on 31.3.1997 and as such the value in the trading account is lesser to that extent. Besides, the assessee has taken the value of work and contract in progress i.e. WIP as on 31.3.97 more or less on estimated basis for which no details have been furnished, though the assessee was specifically asked to furnish the details of WIP as well as the last date of measurement on the basis of which, final bill was submitted prior to 31.3.1997 to ascertain whether all the direct and indirect cost have been included in WIP. In view of the above, the AO was of the view that the book results shown by the assessee will not give the correct income of the assessee and accordingly he rejected the books of accounts and based on the past records and the assessee's submission, he adopted the gross profit ratio of 25% as against 18% shown by the assessee resulting in net addition of Rs.20,28,862/-".2 ITA No.1737/Ahd/2010
Asst. Year 1997-78 After making addition of Rs.20,28,862/- total income was worked out at Rs.5,14,448/- and after allowing unabsorbed business loss brought forward from earlier years total income was computed at nil. The AO proposed following computation of income:-
Net profit as per statement (-) Rs.15,26,041
Add: Disallowables as per stt.
1 Deprn.as per stt. Rs.18,78,772
2 Disallowance u/s 43B Rs.30,767
3 Rule 6D disallowance Rs.476/-
4 Entertainment expenditure Rs.1,613/- Rs.19,11,628/-
(+) Rs.3,85,587/-
Add: Disallowables as per asst.order
1. GP addition as discussed in para 2 Rs.20,28,862/-
2. Out of miscellaneous exps. As per Rs.52,138/-
para 3
3. Out of staff welfare exps. As per para 4 Rs.10,027/-
4. On account of leave encashment as per Rs.1,12,397/- Rs.22,03,424/-
para 5
Rs.25,89,011
Less: Deductions/allowables as per stt. Rs.20,74,563/-
Total Income Rs.5,14,448/-
Less: Unabsorbed business loss b/f of Rs.1,75,592/- Rs.1,75,592/-
Asst. Year 1996-97
Unabsorbed business loss b/f Rs..3,38,856/-
For Asst. Year 1995-96 Rs.21,25,985/- Rs.3,38,856/- Rs.3,38,856/-
set off to the extent of Rs.3,38,856/-
Total income Rs.NIL
While rejecting the books, the AO noted that assessee has valued the finished goods excluding excise duty. He also noted that value of work in progress shown at Rs.22,14,477/- has not been substantiated. In this regard the AO noted as under :-
"Beside this, it also noted that the assessee has taken the value of work and contract in progress i.e. WIP as on 31.3.1997 more or less on estimated basis. The amount shown is for Rs.22,14,477/- as against a sum of Rs.26,08,617/- in the immediately preceding Asst. Year. No details for the same are furnished by the assessee although the assessee's authorised representatives have conceded that the same is valued at lower of cost or realizable value. In this regard, the assessee was specifically asked to 3 ITA No.1737/Ahd/2010 Asst. Year 1997-78 furnish the details of WIP as well as asked to furnish the last date of measurement on the basis of which final bill is submitted prior to 31.3.1997 so as to ascertain that all the direct and indirect cost incurred thereafter right from the beginning upto 31.3.1997 could be worked out and accordingly taken as WIP as on 31.3.1997. Therefore, in view of the above as well as further taking into consideration the overall facts of the case, it is held that the books results shown by the assessee does not deduce the correct income of the assessee. Therefore, in view of the same by invoking the provisions of section 145(2) of the I.T. Act, the books results are rejected."
When the matter went before the ld. CIT(A) he confirmed the application of GP rate of 25%. In this regard ld. CIT(A) had observed in the quantum appeal as under :-
"With regard to the rejection of book results, it is seen that the appellant has not furnished the details of working of WIP though the AO has specifically asked for the same. It is immaterial whether the notes to the accounts indicate that the cost of WIP include material cost, labour cost and appropriate factory overheads. It is the AO who has to examine whether this has been actually done or not as he has to calculate the correct total income. Only because the auditors have put the above note, the appellant cannot say that it is immaterial whether the details were furnished before the AO or not. Non-furnishing of the details of working of the cost of WIP before the AO, for which no explanation has been submitted, itself can be the basis for rejection of book results as it is an important calculation through which the profit can be varied. In view of the above, I hold that the AO has rightly rejected the book results. Further, the submission of the appellant that the book results have been accepted in the earlier two years does not affect the case of the appellant as all the Asst. Years are different and while verifying the correctness of book results in a particular year, the facts of that year only are required to be considered. In this view of the matter, the decisions cited by the appellant will not be relevant as these are based on the peculiar facts of these cases. Coming to the gross profit ratio adopted by the AO @ 25%, I find that it is perfectly justified in view of the past records of the appellant and the submissions of the appellant before the AO. I, therefore, confirm the addition made by the AO."4 ITA No.1737/Ahd/2010
Asst. Year 1997-78 The assessee contested the quantum addition before the Tribunal which also confirmed the application of section 145(3) for rejecting the books but reduced the GP rate to 21%. The Tribunal observed as under :-
"After going through the facts of the case, it is noted that the GP rate in assessment year 1995-96 was 31% and in this year there is loss of trading sales amounted to Rs.12,19,321/- due to this reason, there is a fall in GP rate at 18% has shown by the assessee. We feel that fall in GP rate is on a higher side and even the estimation made by the lower authorities at 25% is also on higher sides. Accordingly, we fairly estimate the gross profit at 21% which will meet the ends of justice. Accordingly, AO is directed to re-compute the income after applying the GP at 21% to the total sales of the assessee. As regards to the other two grounds, which are on account of disallowance of miscellaneous expenses and disallowance of staff welfare expenditure at Rs.52,138/- and Rs.10,027/- respectively, as we have already estimated GP rate which will cover these disallowances. Hence no separate addition can be made. In view of these facts and circumstances, the assessee's appeal is partly allowed."
In penalty proceedings assessee furnished the reply which is enclosed by him on pages 41-42 to 48 of the Paper Book. We have perused this reply and it does not explain why assessee did not furnish before the AO/CIT(A)/ITAT the basis on which it has worked out the work in progress of Rs.22,14,477/-. We also asked the ld. AR to show to us as to whether it has given to the AO/CIT(A)/or the Tribunal in quantum proceedings, or even in penalty proceedings, the basis on which it has worked the WIP on that figure. However, we were not provided with any answer or document to show as to how the assessee has worked out the figure of WIP. The AO after considering the reply of the assessee held that onus cast on assessee by virtue of explanation 1(B) to section 271(1)(c) has not been discharged. He accordingly levied penalty of Rs.3,61,000/-.
5 ITA No.1737/Ahd/2010Asst. Year 1997-78
4. The ld. CIT(A) confirmed the penalty, the reasons given by him are (1) the assessee has not furnished the details of work in progress though the AO has specifically asked for the same. On legal position of levy of penalty ld. CIT(A) relied on following propositions :-
i) Wherever there is a difference between returned and assessed income, there is an inference of concealment as a rule of law.
ii) That the responsibility of rebuttal of such inference is on the assessee.
iii) That the assessee is expected to offer an explanation.
Absence of explanation by itself will merit penalty.
iv) That in the explanation wherever offered the assessee will have to prove that the failure to return the correct income was not on account of any fraud or neglect on his part. In other words, it has to be substantiated by the assessee that the explanation offered is bona fide and all material facts have been disclosed by him.
v) That if the assessee fails to prove so, he shall be deemed to have concealed the income or furnished inaccurate particulars of income or a deliberate failure to furnish accurate particulars on the part of the assessee.
vi) That it is no longer necessary for the department to go further and establish that there is a conscious concealment of particulars of income or a deliberate failure to furnish accurate particulars on the part of the assessee.
The ld. CIT(A) also relied on the decision of Hon. Kerala High Court in CIT vs. TJ Mathai 269 ITR 492 (Ker) for the proposition that rejection of returned income itself reflects concealment.
6 ITA No.1737/Ahd/2010Asst. Year 1997-78
5. Before us, the ld. AR for the assessee submitted that AO has finally estimated the income by applying GP rate of 25% and the Tribunal has reduced that GP to 21%. The penalty u/s 271(1)(c) cannot be levied where income is estimated. The ld. AR relied on the following judgments in support of his argument:-
Harigopal Singh vs. CIT (2002) 258 ITR 0085 (P & H) Navjivan Oil Mills vs. CIT (2001)252 ITR 417 (Guj) CIT vs. Ajaib Singh & Co. (2002) 253 ITR 630 (P & H) Shiv Lal Tax vs. CIT (2001) 251 ITR 373 (Raj) However, there is no reply given to us by ld. AR as to why assessee failed to furnish the basis for working of WIP.
6. On the other hand, ld. DR submitted that the assessee has withheld vital information from AO inasmuch as he did not provide any basis for working of WIP. If it is left to the sweet will of the assessee to value WIP or doing stock at any figure, and even when asked to submit the details, the assessee does not furnish details, then it is withholding of material facts necessary for assessment and, therefore, case is covered by explanation 1(B) to section 271(1)(c).
7. We have considered the rival submissions and perused the material on record to which the parties have drawn our attention. The undisputed facts are that AO had called for the basis for valuation of closing stock and basis of valuation of work in progress. Excise duty was found excluded from valuation of closing stock. But the basis for calculating work in progress at Rs.22,14,477/- was not furnished. The books were rejected and profits were estimated at 25% as against GP of 18% shown by the assessee. Finally GP was reduced to 21% by the Tribunal. It resulted in an addition of Rs.8,37,668/- on which the AO worked out minimum penalty u/s 271(1)(c) at Rs.3,61,000/-.
7 ITA No.1737/Ahd/2010Asst. Year 1997-78
8. The alternative argument of the ld. AR is that finally the assessed income is NIL and, therefore, tax sought to be evaded is NIL. Even returned income was a loss and, therefore, there was no tax thereon. Once returned income is NIL and assessed tax is NIL then there is no tax sought to be evaded and, therefore, no penalty can be levied. He referred to the decision of this Tribunal in ITA NO.3929/Ahd/2007 for Asst. Year 1995-96 in the case of Maxima Systems Ltd. vs. ACIT pronounced on 11/6/2010 for the proposition that where returned income is nil, assessed tax is nil, and tax sought to be evaded also is nil, then no penalty can be levied.
9. The ld. DR on the other hand submitted that case of the assessee is covered by clause (a) to explanation-4 and not by clause (c) of that explanation to section 271(1)(c). Therefore, the above judgment of the Tribunal in Maxima Systems Ltd. (supra) would not be applicable. There are two issues involved in this appeal -one is whether penalty under section 271(1)(c) can never be levied if income is estimated by applying GP rate and the second is where there is no tax sought to be evaded within the meaning of explanation 4 to section 271(1)(c) whether penalty can be levied or not.
10. Regarding the first issue we are of the view that it is not a law that penalty can never be levied if income is estimated. There are always two situations when AO resorts to estimation -one is where AO finds material against the assessee about suppression of income but exact quantity of addition cannot be worked out on the basis of material so found against the assessee and, therefore, he resorts to estimation. The second situation is where books are simply rejected for various defects found therein in accordance with section 145 of the Act and AO resorts to estimation. In 8 ITA No.1737/Ahd/2010 Asst. Year 1997-78 the second situation no case of penalty as such can be made out unless the case falls within the meaning of explanation-1. There are numerous authorities in support of the above propositions.
(i) In Harigopal Singh vs. CIT (supra) the AO had estimated the sales and the GP part of which was confirmed by the Tribunal. Hon. High Court finally held that penalty under such situation cannot be levied. We notice that there is no finding about any non-compliance by the assessee or withholding of any material fact from the AO.
(ii) In Shiv Lal Tak vs. CIT (supra) it was found that penalty was not leviable in view of proviso -(ii) to section 271(1)(c) wherein it is provided that where difference between the assessed income and the returned income does not arise on account of gross or willful negligence on the part of the assessee no penalty is leviable. Thus in the proviso to explanation-1 as applicable in Asst. Year 1978-79, it was considered necessary for the AO to show that addition to the total income had arisen on account of gross or willful negligence on the part of the assessee, if it cannot be shown, then no penalty could be leviable.
(iii) In Navjivan Oil Mills vs. CIT (supra) returned income was found less than 80% of the assessed income. Accordingly explanation to section 271(1)(c) was invoked by raising presumption of concealment. In this case books of accounts were seized and the AO estimated turnover and made additions based on such estimates. The Hon. Gujarat High Court held that presumption raised by the explanation is rebuttable and onus which is to be on the Revenue by the main provision is shifted to the assessee. The onus can be discharged on the basis of preponderance of probabilities. The Hon. High Court held that failure to give correct 9 ITA No.1737/Ahd/2010 Asst. Year 1997-78 income could not be ascribed to the assessee on account of any fraud or any gross or willful neglect. In this case penalty levied was Rs.10,400/- and the Hon. High Court held that onus is discharged by the assessee.
(iv) In CIT vs. Ajaib Singh & Co. 253 ITR 630 (supra) the Hon. Punjab & Haryana High Court held that disallowance of expenditure does not mean that assessee has furnished inaccurate particulars of income. Addition to income was based on estimate by disallowing expenditure. Hon. High Court held that for levy of penalty under section 271(1)(c) the concealment must be deliberate. Thus this authority related to that provision of section 271(1)(c) where onus was on the AO to prove that concealment of income was deliberate.
In addition to these authorities referred by the ld. AR, there are several others which also hold the above view that penalty cannot be levied if addition is made on estimate basis.
(i) Hon. Gauhati High Court in CIT vs. Chhaganlal Shankarlal (1975) 100 ITR 464 (Gau) held that where book results are rejected and additions are made on estimate basis, explanation cannot be straightway invoked for levying penalty.
(ii) Hon. Allahabad High Court in CIT vs. Nadir Ali & Co. (1977) 106 ITR 151 (All) held that where income is estimated by adoption of a higher rate of profit no penalty can be imposed.
(iii) In CIT vs. Harnam Singh & Co. (1977) 106 ITR 532 (All) it was held that where profits are estimated by applying a flat rate penalty cannot be imposed.
10 ITA No.1737/Ahd/2010Asst. Year 1997-78
(iv) In CIT vs. M.M. Rice Mills (2002) 253 ITR 17 ( P & H) addition was made on the ground of defects in method of account but no evidence of concealment of income was found. Additions were made under proviso to section 145(1) of the Act by adopting the view that gross profits shown in the books were too low and there were defects in the method of accounting employed. It was held that it would not automatically lead to the conclusion that there was failure to return the correct income by fraud or gross or willful neglect.
(v) Hon. Madhya Pradesh High Court in CIT vs. Shivnarayan Jamnalal & Co. (1998) 232 ITR 311 (MP) held that where the assessee had placed before the AO whatever the books of account it had maintained and it is not found that it has withheld or concealed any material or made any deliberate attempt to defraud the revenue than penalty under section 271(1)(c) could not be levied.
(vi) Hon. Madras High Court in Addl. CIT vs. T.K. Perumal Swamy (1984) 150 ITR 600 (Mad) held that where return for relevant year was based on estimated profits or and ITO adopted higher figure by estimate, levy of penalty was not justified.
11. The other view point is that merely because additions are made on estimate basis it can never be held that penalty cannot be levied.
11.1 Hon. Patna High Court in CIT vs. Md. Warasat Hussain (1988) 171 ITR 405 (Pat) observed that assessment by estimate is one of the known process for taxing income. Where assessee conceals relevant material/evidence, the Revenue has no option but to make the assessment by estimate. An assessment by estimate is as much legal as any other assessment. Therefore, even in a best judgment assessment, the figure so 11 ITA No.1737/Ahd/2010 Asst. Year 1997-78 assessed must be held to the income of the assessee. Such assessment would not affect the levy of penalty. There were two additions in this case one was on account of cash credit and the other was on account of capital gains. In respect of cash credit Hon. High Court held that assessee had a plausible explanation but in respect of capital gains Hon. High Court noticed that assessee did not produce the sale deed with regard to the transaction in question and there was no other evidence regarding the sale of the property. Accordingly penalty on this part of income was confirmed.
11.2 In Dr. (Mrs.) K. D. Arora vs. CIT (1986) 162 ITR 481 (Pat) Hon. Patna High Court confirmed the levy of penalty in respect of amount of gifts shown by the assessee in part-iv of the return as received by her minor son by holding that assessee did not furnish any material fact to prove the gifts.
11.3 In CIT vs. Swarup Cold Storage & General Mill (1982) 136 ITR 435 (All) Hon. Allahabad High Court found that assessee did not produce the books of account and income was assessed on estimate basis. Thus the difference between the return income and income assessed arose due to the estimate. The onus lying on the assessee to prove that omission to return correct income was not due to any fraud or willful neglect, was not discharged and, therefore, levy of penalty was valid. It was held that explanation to section 271(1)(c) after amendment in 1964 will apply even if the difference between the returned income and assessed income is due to the estimate. In this case ITO had called for the books of accounts which were not produced and assessment was made ex parte.
11.4 Hon. Madras High Court in CIT vs. E.V. Rajan (1985) 151 ITR 189 (Mad) confirmed the levy of penalty where it was found that 12 ITA No.1737/Ahd/2010 Asst. Year 1997-78 additions were made by estimate though on the basis of entries in an anamat book.
11.5 Hon. Patna High Court in CIT vs. Standard Mercantile Co. (1987) 166 ITR 39 (Pat) found that assessee did not produce books of accounts released by Sales-tax Department. The additions were made on estimate basis. Hon. High Court confirmed the levy of penalty. It was held that the addition made by estimate represented concealed income when assessee did not produce the books of account.
11.6 In CIT vs. M. N. Chatterjee (1988) 170 ITR 87 (Pat) it was held that once explanation to section 271(1)(c) becomes operative three legal presumptions are raised against the assessee, the first is that the amount of assessed income is a correct income and it is in fact the income of the assessee himself. The second presumption is that the failure to return the correct income was due to concealment of the particulars of his income on his part. The third presumption is that failure of assessee was due to furnishing of inaccurate particulars of his income. Although all the three presumptions are rebuttable but the initial burden of discharging the onus to rebut his presumption would be on the assessee. Once the assessee rebuts the presumption he will be out of the mischiefs of explanation unless the department shows that it is the assessee who has in fact concealed particulars of income or furnished inaccurate particulars thereof. The discharge of burden by the other parties is like any ordinary burden of proof in any judicial proceedings to be accepted or rejected upon preponderance of evidence. Such burden can be discharged on the basis of material available on record also. In that case assessee had admitted higher figure of sales before sales tax authority as compared to what was shown before the income-tax authorities and there was no 13 ITA No.1737/Ahd/2010 Asst. Year 1997-78 explanation worth the name about the difference. Thus there was an obvious concealment. Further estimate of income was based upon assessee's own percentage of income from the record of earlier years. It was held by Hon. Court that if the rate of sales was higher in earlier years the Income-tax Authorities were fully justified in holding that income could not be lower in a subsequent year if facts have not changed.
11.7 In CIT vs. T.J. Mathai 269 ITR 492 (ker) on which ld. DR has relied upon, the facts were that assessee filed return showing NIL income whereas income was assessed at Rs.3,85,725/-. The AO levied the penalty for concealment which was cancelled by ld. CIT(A) and his order was upheld by the Tribunal. Hon. High Court held that explanation to section 271(1)(c) attracted in such case and the burden shifted on the assessee, was not discharged.
11.8 Hon. Gujarat High Court in CIT vs. Chandra Vilas Hotel (2007) 291 ITR 202 (Guj) held that where if assessee fails to discharge the burden cast upon him to show that his action was bona fide, the explanation would not provide any protection and penalty proceedings would be valid. In that case the income was estimated and gross profit rate was applied. The addition to the total income was made by adding 20% or more to the returned income. The assessee was maintaining books of account in the same manner persistently for several years and were not found reliable.
11.9 In Addl. CIT vs. Smt. Chandrakanta & Anr. (1994) 205 ITR 607 (M.P.) where assessee was not maintaining the books of accounts an income was estimated, levy of penalty on assessed income on estimate basis was held valid.
14 ITA No.1737/Ahd/2010Asst. Year 1997-78
20. Thus on the basis of above authorities following principles can be culled out in respect of levy of penalty where an addition is made on estimate basis.
(1) Where addition is made on estimate basis explanation-1 to section 271(109c) is attracted and burden is shifted to the assessee to discharge the burden that addition so made did not represent any concealed income or addition in respect of which he has furnished inaccurate particulars of income by showing that explanation given by him was bona fide he has not suppressed any material fact, and has substantiated his explanation.
(2) On the claim made by the assessee that he has substantiated his explanation or his explanation is bona fide or he has not suppressed any material fact, the AO has to show that such claim is factually or legally not correct. This can be shown by either material on record or material subsequently brought on record by the AO or by the assessee available at the time of assessment.
(3) Discharge of burden of proof lying on the parties is of the same nature as is prescribed for judicial proceedings.
(4) Where AO finds that there is suppression of facts and there is no reasonable explanation for not submitting the necessary facts the burden lying on the assessee by virtue of explanation-1 to section 271(1)(c) is not discharged.
(5) Thus in a case where AO specifically calls for books of account on any particular material fact and assessee does not submit his books of account or does not give any plausible or acceptable explanation then he would be guilty of not furnishing material fact before the AO.
15 ITA No.1737/Ahd/2010Asst. Year 1997-78 (6) Where addition is made purely on estimate basis by rejecting explanation furnished by the assessee then even if explanation to section 271(1)(c) is attracted penalty under section 271(1)(c) cannot be levied if apparently there is no allegation of explanation not being bona fide or suppression of any material fact.
(7) Where assessee submits all the facts which are available in his possession which can be reasonably accepted to be in his possession and control and for others which he is not able to produce before the AO, there is a reasonable explanation which can be held to be satisfactory no penalty can be levied as the burden lying on the assessee by virtue of explanation can be said to be discharged and addition so made cannot be deemed to be assessee's concealed income or income for which he has furnished inaccurate particulars.
21. When we apply the above principles to the facts of the present case, the AO has right from the assessment stage insisted on production of the basis for working out the figure of WIP but assessee neither submitted such basis nor gave any explanation as to why he is unable to furnish such basis. In our considered view how the assessee has valued the closing stock or work in progress or the basis on which he has arrived at a particular figure of closing stock or WIP is a relevant material fact for the purpose of assessment. It affects the profit chargeable to tax for the assessment year in question. If assessee furnishes any figure in the ingredients in trading/manufacturing account such as opening stock, purchases, sales and closing stock without substantiating them then he would be guilty of suppressing material fact unless there is a reasonable explanation for not furnishing such material fact before the AO. The assessee is a Limited Company. It has claimed that accounts are audited, 16 ITA No.1737/Ahd/2010 Asst. Year 1997-78 therefore, it is not expected that assessee would be adopting any arbitrary figure for closing stock or WIP. The figure of WIP is an odd figure being Rs.22,14,477/-. It must have been arrived at on certain basis by working out the cost of the material, labour input and other over-head. If the assessee does not furnish the details of such inputs which goes to make the value of WIP taken in the closing stock there is a clear suppression of facts to the extent of gross and willful negligence. Accordingly burden cast by explanation 1(B) to section 271 is not held discharged and, therefore, penalty is clearly attracted.
22. The second line of argument taken by the assessee is that assessed tax is zero and so is returned tax. Hence hence tax sought to be evaded is NIL, the levy of penalty is not workable and, therefore, no penalty should be levied. In our considered view there is no merit in this argument. For the sake of convenience we reproduce explanation -4 to section 271(1)(c) as under :-
"Explanation-4 to section 271(1) - for the purposes of clause (iii) of this sub-section, the expression the amount of tax sought to be evaded-
[(a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income]
(b) in any case to which explanation 3 applies, means the tax on the total income assessed [as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self-assessment tax paid before the issue of notice under section 148]
(c) in any other assessee, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished.]"17 ITA No.1737/Ahd/2010
Asst. Year 1997-78 Explanation 4(a) applies where the addition to the total income reduced the loss or converts the loss into income then tax sought to be evaded would be equal to tax charged on the addition so made. Explanation 4(b) applies to a situation where assessee does not furnish return of income as required from him under section 153(1), 139, 142(1) or 148(1) then tax sought to be evaded would be equal tax on income assessed as reduced by prepaid taxes. Explanation-4(c) applies in residuary cases where clause
(a) and (b) to explanation 4 are not applicable. Thus where explanation 4 is invoked and it is found that assessee's case is covered under explanation 4(a), then one need not go to explanation 4(c). There is no option that out of the three clauses in explanation-4 whatever is favourable to the assessee should be invoked. One has to go serial wise and find out as to whether in the facts of the particular case if clause (a) is applicable it should be forthwith applied. Thereafter, if clause (a) is not applicable one should apply clause (b) and where none of the two clauses are applicable then one goes to residuary clause (c). It is not that, whatever clause is suitable to the assessee, should be picked up and applied. In the present case returned income is loss of Rs.18,65,550/- and addition so made by the AO has resulted into total income of Rs.5,14,448/- which was reduced to NIL by set off of unabsorbed loss brought forward from earlier years. Further we notice that there is no such ground taken by the assessee that in its case explanation 4(c) is applicable except raising this issue in the argument. We also notice that for invoking explanation 4(c) facts are required to be investigated inasmuch as no working of taxes by virtue of this explanation has been given. Notwithstanding we have held that explanation 4(c) is not applicable in the case of assessee. The AO is correct in working concealment on addition of Rs.8,37,668 which has effect of reducing the 18 ITA No.1737/Ahd/2010 Asst. Year 1997-78 declared loss. We confirm the order of ld. CIT(A) and dismiss the appeal filed by the assessee.
23. In the result, appeal of the assessee is dismissed.
Order was pronounced in open Court on 30/9/10.
Sd/- Sd/-
(Bhavnesh Saini) (D.C. Agrawal)
Judicial Member Accountant Member
Ahmedabad,
Dated : 30/9/10.
Mahata/-
Copy of the Order forwarded to:-
1. The Assessee.
2. The Revenue.
3. The CIT(Appeals)-
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Ahmedabad
1.Date of dictation 24 /9/2010.
2.Date on which the typed draft is placed before the Dictating 27/9/2010 Member................Other Member................
3.Date on which the approved draft comes to the Sr.P.S./P.S.............
4.Date on which the fair order is placed before the Dictating Member for pronouncement..............
5.Date on which the fair order comes back to the Sr.P.S./P.S...............
6.Date on which the file goes to the Bench Clerk...........
7.Date on which the file goes to the Head Clerk.............
8.The date on which the file goes to the Asstt. Registrar for signature on the order........................
9.Date of Despatch of the Order.................
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