Income Tax Appellate Tribunal - Amritsar
Joint Commissioner Of Income Tax vs Vxl (India) Ltd. on 30 March, 2005
Equivalent citations: (2005)94TTJ(ASR)513
ORDER
Joginder Pall, A.M.
1. This appeal has been filed by the Revenue against the Order of CIT(A), Jammu with Hqrs. at Amritsar, for the asst. yr. 1983-84.
2. The only issue raised in this appeal is that the learned CIT(A) was not justified in cancelling the penalty of Rs. 20,54,059 imposed by the AO under Section 271(l)(c) of the IT Act, 1961. The facts of the case are that the assessee had filed return on 20th June, 1983, showing net loss of Rs. 35,75,640. The AO completed assessment by making following two additions :
(i) Rs. 2,25,150 being sale of copper wire added under Section 41(2) of the IT Act, 1961.
(ii) Rs. 34,28,414 being trading addition made on account of excess wastage.
3. The facts leading to these additions are that the AO observed that the assessee had discarded copper wire cable worth Rs. 2,46,553 purchased during the period from 1955 to 1965. The AO observed that the assessee had not shown sale of copper wire in the P&L a/c. When the assessee was asked to explain, the assessee submitted its reply stating that the underground wire was normally not recovered as the cost of recovery of the same is much higher than the value of scrap. Besides, it might cause damage to building and flooring. However, while examining the details of old stores sold for Rs. 1,55,821, the AO observed that only sale of copper wire worth Rs. 16,000 was shown. The AO also visited factory and found that the remaining quantity of copper wire was not shown in the stock. The AO observed that the copper wire being precious item, the assessee could not have thrown away the same. Accordingly, the AO estimated the total quantity of copper wire at 12,274 kg. and reduced therefrom 60 per cent of the same as irrecoverable, i.e., 7,384 kg. The AO estimated the value of the scrap at Rs. 50 per kg. for the remaining wire weighing 4,623 kgs. which worked out to Rs. 2,31,150. He reduced therefrom a sum of Rs. 16,000 being sale proceeds of the copper wire and made net addition of Rs. 2,15,150 (Rs. 2,31,150-16,000).
3.1 Further, the AO noticed from Annex.-8 wastage of 76,336 kg. on consumption of 5,85,294 kgs. which worked out to 13.04 per cent as against 8.66 per cent shown in the last year on spinning of worsted yarn. The assessee explained that the variation in the wastage was on account of product-mix manufactured by the assessee during this year as compared to last year. It was explained that in the last year, the assessee had manufactured Angola and Serge Battle Dress for defence requirements weighing 95,540 kg. representing 55.4 per cent of production and such operation did not involve recombing. While in the assessment year under reference only 44,391 kgs. of yarn was spun for the purpose which accounted for only 8.77 per cent of total production. It was also submitted that in the earlier years much higher percentage of wastage was shown and accepted. However, the AO was not impressed with such submissions. He worked out the wastage on the basis of wastage of last year and also allowed credit for invisible wastage of last year and arrived at quantity of 2,21,99 kgs. being excessive wastage. Applying the market rate, the AO made the trading addition of Rs. 34,28,414. At the time of completing the assessment, the AO also initiated penalty proceedings under Section 271(l)(c) r/w Expln. 1 thereto.
4. Being aggrieved, the assessee impugned the additions in appeal before the CIT(A). The learned CIT(A) deleted both the additions by observing that the AO has not been able to specifically point out as to whether and how Section 145 was applicable, the complete production record had been maintained and all the purchases and sales were vouched and no defect or discrepancy in the accounts have been found by the AO, right from inception of the company from 1924, till the assessment year in appeal, the book result had been accepted, the wastage percentage accepted by the Department varied from year to year due to various factors and even for the asst. yr. 1977-78, the wastage shown at 16.43 per cent was accepted and except for the asst. yrs. 1981-82 & 1982-83, the wastage accepted by the Department was more than 17 per cent and finally the excise authorities were having strict control over the production and without their permission not a single yard of cloth could be taken out of the factory. The assessee had not pointed out as to how there could be extra stock of production worth Rs. 34,28,414 without payment of excise duty.
5. The Revenue filed an appeal against the Order of CIT(A) before the Tribunal and the Tribunal reversed the Order of the CIT(A) and restored that of the AO on the ground that higher wastage accepted by the Department for the earlier years could not be a ground for not making an addition for the assessment year under consideration, moreso, when the assessee could not satisfactorily explain the same. The Tribunal also observed that the fact that GP rate for the assessment year under reference was higher as compared to earlier years was irrelevant because this issue had not been discussed in appeal by any authority. The Tribunal also observed that mere fact that the AO had not specifically mentioned about rejection of book results and invoking of provisions of Section 145(2) was not important because the questions raised by the AO remained unexplained and the assessee failed to explain before the AO about the reasons for increase in wastage. Thus, the Tribunal upheld both the additions.
6. Thereafter, the AO took up the penalty proceedings under Section 271(1)(c).
It was submitted before the AO that the additions made by the AO had been deleted by the CIT(A) and appeal filed by the Revenue against the Order of the CIT(A) was still pending with the Tribunal. It was, therefore, requested that the penalty proceedings may be kept pending till the decision of the Tribunal. Subsequently, it appears that the assessee also raised objection on the point of jurisdiction of the AO for levy of penalty. The objection regarding lack of jurisdiction was rejected by the AO. As regards the merits of the case, the AO observed that the assessee failed to substantiate its explanation before the AO and the Tribunal about the additions made on account of copper wire and excessive wastage shown by the assessee. Thus, the AO observed that the assessee failed to substantiate the explanation in regard to excessive wastage and sale of copper wire and, therefore, he imposed a penalty of Rs. 20,54,059 i.e., @ 100 per cent of the tax sought to be evaded.
7. Being aggrieved, the assessee impugned the levy of penalty in appeal before the CIT(A). It was submitted before the CIT(A) that mere fact that the additions have been made and sustained in appeal would not mean that the penalty under Section 271(1)(c) could be levied. It was submitted before the CIT(A) that both the assessment proceedings and penalty proceedings were distinct and separate. In order, to levy penalty under Section 271(1)(c), the Revenue is required to establish that the assessee was guilty of dishonest conduct, It was also submitted that both the additions made by the AO were deleted by the CIT(A). On further appeal, the Tribunal restored the additions. Thus, there was bona fide difference of opinion as to whether additions were called for or not. No penalty for such bona fide difference of opinion can be levied under Section 271(1)(c). Reliance was also placed on the judgment of Hon'ble Allahabad High Court in the case of CIT v. Devi Dayal Aluminium Industries (P) Ltd. (1987) 171 ITR 683 (AH), where it was held that the rejection of explanation of the assessee did not render the explanation being false and penalty under Section 271(1)(c) could not be levied. Reliance was also placed on the judgment of Hon'ble Andhra Pradesh High Court in the case of CIT v. H. Abdul Bakshi & Bios. (1986) 160 ITR 94 (AP)(FB) to support its contention that the findings in the assessment Order are not conclusive so far as penalty proceedings are concerned. It was held that merely because the evidence was disbelieved in the assessment proceedings, it could not be said that the assessee failed to discharge initial burden. It was also contended that both the additions in regard to excessive wastage shown and profits under Section 41(2) were made by rejecting assessee's explanation and on estimate basis, no penalty for such estimated additions could be levied. Accepting the contentions of the assessee, the learned CIT(A) cancelled the impugned penalty by recording following finding :
"08. I have considered the above facts and arguments. As is apparent from the above discussion, both the additions have been confirmed only as a result of rejection of the explanation of the appellant. The CIT(A) (para 4.4 above) has rejected the explanation on grounds of probability and the Tribunal have confirmed the same as far as addition under Section 41(2) is concerned. The explanation regarding wastage is, on an even weaker footing. The CIT(A) has accepted the explanation of the appellant but the Tribunal has rejected the same. A perusal of the findings of the Tribunal (para 05. above) indicates that the Tribunal have merely declined to accept the explanation given.
09, In the case of CIT v. Devi Dayal Aluminium Industries (1987) 171 ITR 683 (All), the ITO did not accept the claim of the assessee with regard to process loss and he made an addition on account of suppressed profits as well as on account of undervaluation of stock. The additions were deleted by the CIT(A} but were restored by the Tribunal. The ITO levied the penalty under Section 271(1)(c) but the penalty was deleted by the Tribunal on the ground that although the explanation of the assessee is not acceptable, there is no material on which it could be held that explanation is not bona fide. On a reference by the Department, the High Court observed as under :
'Rejection of the explanation does not render it false so as to attract Section 271(1)(c). The assessee failed to substantiate melting loss of wastage but so long as the claim was bona fide, it could not be held to be false. Moreover, the Tribunal has not given any reason as to how the finding of the CIT in appeal about melting; loss was erroneous. The assessee may not be permitted to derive any advantage as it was not consistent in its stand, but that could not render the claim false. It applied to stock discrepancy. In any case, if the assessee had furnished all details and had not concealed anything, then it cannot be said that he was not acting bona fide only because its explanation cannot be accepted. The proviso to the explanation to Section 271(1)(c) was, therefore, squarely applicable and the Tribunal was justified in the circumstances in cancelling the penalty'.
9.1 In the case of the company, the facts are even better. Elaborate day-to-day stock and quantitative records and fully vouched books of account are maintained and no defect therein has been pointed out. Much higher wastage has been allowed in earlier years. The explanation of the appellant has not been examined by any technical expert. Accordingly, mere rejection of the explanation would not amount to either concealment or to the conclusion that the explanation is false.
9.2 In the case of profit under Section 41(2) also, the AO has nowhere been able to establish that the sales of old stock discarded by the appellant this year as well as in other years do not contain sale of old discarded wire. Here, again is a case of rejection of an explanation without any finding that such explanation is false.
9.3 In view of the above, it is clear that no case for imposition of penalty under Section 271(l){c) has been made out. Keeping in view the case law cited by the appellant and the above discussion, the penalty Order dt. 28th July, 1998, is without any justification and is cancelled."
8. The learned Departmental Representative heavily relied on the Order of the AO. He submitted that during the course of assessment proceedings, the AO examined in detail about the old items discarded during the year and found that the assessee had not properly accounted for old copper wire purchased during the years 1955 to 1965. The assessee had accounted for Only sale of scrap and copper wire to the extent of Rs. 16,000. He submitted that the addition made in this regard was finally upheld by the Tribunal. He further submitted that the assessee had shown excessive wastage in the worsted yarn division which was 13.16 per cent as against last years wastage of 8 per cent. He submitted that during the course of assessment proceedings, the assessee submitted an explanation which was examined by the AO and rejected. Therefore, the addition was made and the same was also upheld in appeal. The assessee failed to substantiate the explanation and, therefore, penalty under Section 271(1)(c) read with explanation thereto was rightly imposed by the AO. Accordingly, the learned Departmental Representative strongly urged that the Order of the CIT(A) may be set aside and that of the AO restored.
9. The learned counsel for the assessee, Shri M.P. Sarda, on the other hand, heavily relied on the Order of the CIT(A) and reiterated the submissions which were made before the authorities below. He also drew our attention to p. 22 of the paper book where the AO has recorded that he was not inclined to accept the explanation of the assessee and thereafter proceeded to estimate the addition of Rs. 2,15,150. He submitted that the addition of Rs. 2,15,150 is based on the assumption that the old machinery discarded has been sold and not accounted for in the books. He submitted that even working given therein has again been based on assumption as he has estimated the weight of copper wire at the time of purchase, quantity not recovered and the balance which according to him was sold and not reflected in the books of account. Thus, he contended that this addition is merely based on surmises and conjectures. He submitted that the assessee had maintained complete books of account which were also audited and these were supported by bills and vouchers and the AO had not pointed out even a single instance of suppression of sales or where the purchase and sale was not supported by proper vouchers. The assessee had also maintained complete quantitative details. Drawing our attention to p. 24 of the paper book which is again a copy of the assessment order, the learned counsel submitted that the AO has recorded in the assessment Order that it was common knowledge that the wastage in the spinning and worsted yarn was more than the spinning of synthetic yarn or blended yarn. But he has noted the various quantitative details recorded in Annex.-10. This again shows that the assessee had maintained complete records for the same, He drew our attention to p. 97 of the paper book where the assessee had given explanation in regard to not recovering the old copper wire because of heavy cost of recovery and the reasons that it might cause damage to building and flooring. Drawing our attention to p. 100 of the paper book, he submitted that the sales of old stores/scraps were duly accounted for by the assessee at Rs. 4,29,754. Break up of the same was duly given at p. 101 of the paper book. Thus, mere fact that the addition was made by rejecting the explanation of the assessee does not mean that the assessee had either concealed or furnished inaccurate particulars of its income.
9.1. As regards, the second addition of Rs. 34,28,414 on account of excessive wastage, the learned counsel drew our attention to p. 25 of the paper book which is a copy of the assessment Order where again the AO has mentioned that keeping in view the past history of the case, visible wastage was estimated at 8 per cent and invisible wastage at 1.26 per cent. Here also, the AO made the addition purely on the basis of assumptions and presumptions and on estimate basis. There is no evidence or material available with the Department that the assessee had indeed suppressed production and sold the same in the open market. He drew our attention to p. 14 of the paper book which shows comparative position of wastage in woollen and worsted division. He submitted that for the asst. yr. 1981-82, the wastage of woollen and worsted division was 9.08 per cent and the same was at 22.51 per cent for woollen division. Similarly for the asst. yr. 1982-83, the wastage in worsted division was 8.66 per cent and in the woollen division was 22.76 per cent. As against the same, the wastage of the assessee for the assessment year under reference in worsted division was 13.04 per cent whereas the same was 16.78 per cent in woollen division. Thus, he submitted that as against wastage of 22.51 per cent in the woollen division of the immediately preceding assessment years, the wastage for the same was at lower figure of 16.78 per cent in the assessment year under reference. If the intention of the assessee was to manipulate its accounts, the assessee could have done so even in woollen division where the wastage shown in the assessment year under reference was lower by 6 per cent as compared to immediately two preceding assessment years. He further drew our attention to p. 35 of the paper book which contains the details of past history of the case. He submitted that in the asst, yrs. 1977-78 and 1978-79, wastage shown in the worsted division was 16.43 per cent and 15.31 per cent respectively. Such wastage was accepted by the Revenue. In fact in none of the earlier assessment years, any addition was made by rejecting the books results. Drawing our attention to p. 36 of the paper book, the learned counsel for the assessee submitted that the GP rate shown by the assessee for the assessment year under reference was 24.92 per cent as against the GP rate shown of 19.13 per cent of the immediately preceding asst. yr. 1982-83. He further submitted that right from asst. yrs. 1975-76 to 1981-82, GP rate shown varied from 15.78 per cent to 21.39 per cent. The GP rate shown for the assessment year under reference was the highest as compared to earlier assessment years and even sales shown by the assessee were better than earlier assessment years. This only shows that the assessee had not manipulated trading results in the books of account. He further submitted that this company was merged with another company in the immediately succeeding assessment years. The net effect of making both the additions resulted in making addition of Rs. 6 lakhs, otherwise net result was loss. No benefit of carry forward of loss was available to the assessee because of the merger of the company with the other company. Even in regard to excessive wastage shown, the assessee had duly explained the reasons during the course of assessment proceedings. It was submitted that the wastage varied on account of different product-mix manufactured by the company during this year as compared to earlier years. He drew our attention to p. 15 of the paper book where it was mentioned that the assessee had manufactured Angola and Serge Battle Dress for defence requirements in the earlier assessment years representing 55.4 per cent of production whereas in the assessment year under reference, the assessee had manufactured only 44,391 kgs. which accounted for only 8.77 per cent of the total production. Since such quality is rough, it did not require excessive combing and recombing which results in higher wastage. It was also submitted that the assessee had maintained complete quantitative details both lotwise and overall quantity wise. It was also submitted that the item manufactured by the assessee was subjected to detailed examination by the excise authorities and no item could be removed without payment of excise duty. Thus, there was no possibility of there being any extra production, sale thereof without being detected by the excise authorities. The mere fact that the additions have been made by rejecting the assessee's explanation did not mean that the assessee was guilty of concealment of income or furnishing inaccurate particulars thereof.
10. Proceeding further, the learned counsel submitted that in this case additions were deleted by the CIT(A). However, these were restored by the Tribunal. This only shows that there was only bona fide difference of opinion for which penalty under Section 271(1)(c) could not be imposed. Relying on the judgment of Hon'ble Allahabad High Court in the case of CIT v. Devi Dayal Aluminium Industries (P) Ltd. (supra), the learned counsel submitted that the mere rejection of the explanation of the assessee did not render it false so as to attract penalty under Section 271(1)(c): He further relied on the judgment of Hon'ble Kerala High Court in the case of B.F. Varghese v. State of Kerala (1964) 72 ITR 726 (Ker), where it was held that the fact that the yield disclosed by the assessee in the books of account does not satisfactorily compare with the yield as estimated by the assessing authority for the previous year is no ground for rejecting the accounts of the assessee as the yield would vary from year to year to large extent depending on several facts. He also relied on the decision of same High Court in the case of St. Teresa's Oil Mills v. State of Kerala (1970) 76 ITR 365 (Ker), where it was held that in a case where the assessee had maintained complete books of account supported by bills and vouchers, no trading addition could be made by rejection of book results on the ground that there was variation in consumption of electricity. He further relied on the judgment of Hon'ble Bombay High Court in the case of R.B. Bansilal Abirchand Spinning & Weaving Mills v. CIT (1970) 75 ITR 260 (Bom), where it was held that the mere fact that the percentage of dead loss of cotton was high in a particular year could not lead to an inference that there has been a suppression of the production in a spinning mill. Concluding his arguments, the learned counsel for the assessee submitted that the learned CIT(A) has rightly cancelled the penalty and, therefore, his Order does not merit any interference.
11. We have heard both the parties at some length and given our thoughtful consideration to the rival submissions with reference to facts, evidence and material on record. We have also carefully gone through the orders of the authorities below, referred to the relevant pages of the paper book to which our attention had been drawn and referred to the judgments relied upon by the learned counsel. The undisputed facts of the case are that the AO made an addition of Rs. 2,15,150 under Section 41(2) in respect of sale of copper wire and Rs. 34,28,414, being a trading addition made on account of excessive wastage in worsted division. It is also a fact that both the additions were deleted by the CIT(A) and restored by the Tribunal. There is also no dispute about the fact that the assessee had maintained complete books of account duly supported by bills and vouchers and were subjected to audit also. There is also no doubt about the fact that the assessee had offered explanation in regard to both the additions. It is also a fact that both the additions have been made on estimate basis on the assumption that the assessee had not properly accounted for copper wire and wastage shown in worsted division was higher as compared to earlier assessment year. Nevertheless, the fact remains that the GP rate shown by the assessee was much higher as compared to earlier assessment years and besides even the wastage shown by the assessee in the worsted division for the assessment year under reference was lower than some of the earlier assessment years. Besides, it is also a fact that the wastage shown in the woollen division was lower by 6 per cent as compared to similar wastage shown in the earlier two assessment years. Now the only question that requires to be examined by this Bench, whether, on these undisputed facts, it could be held that the penalty under Section 271(1)(c) was leviable or not ?.
11.1 It is trite law that both the assessment proceedings and penalty proceedings are distinct and separate proceedings. Merely because addition has been made and sustained in appeal does not, by itself, justify imposition of penalty. Reliance in this regard is placed on the judgment of Hon'ble Punjab & Haryana High Court (Full Bench) in the case of Vishwakarma Industries v. CIT (1982) 135 ITR 652 (P&H)(FB). While addition can be made on the ground that the explanation given by the assessee was not found to be satisfactory, but for the purpose of levy of penalty under Section 271(1)(c), the AO still requires to demonstrate that the conduct of the assessee was dishonest or contumacious. Until there is material or evidence to show that the assessee had concealed its income or furnished inaccurate particulars thereof, the AO will not be justified for levying penalty under Section 271(1)(c).
11.2 Now, in the present case, we find that the assessee had given explanation in regard to old copper wire discarded in the accounting year under reference. It is not in dispute that the said copper wire was installed about 15 to 20 years before, i.e., the years 1955 to 1965. The assessee had given reasons that the old wire could not be retrieved because of heavy cost involved in the recovery of the same and the reason that the removal thereof might cause damage to the building and flooring. This was a plausible explanation. Even during the visit of the AO to the factory, no such copper wire was found in the store. The assessee had shown sale of old copper wire at Rs. 16,000 and the same was duly reflected in the miscellaneous income under the head "sale of discarded stores and machinery". There is no evidence available with the Department which could show that the assessee had, in fact, sold such copper wire at higher amount than what was reflected in the books of account. Therefore, in any case, the addition has been made because the explanation has not been found satisfactory. But such explanation could not be considered as false or mala fide. Moreover, addition has been made on estimate basis only, by assuming the quantity of wire, quantity of irrecoverable wire or the quantity realised by the assessee. There is no definite information with the AO that actually old wire sold was more than worth Rs. 16,000.
11.3 Similar is the position with regard to wastage shown in' the worsted division. There is no denying the fact that the assessee had maintained complete quantitative details indicating the consumption and yield of the same. It is also a fact that the wastage shown in the woollen division was much less as compared to worsted division in comparison to earlier assessment years. If the assessee had intention of manipulating trading results, it could have easily done in the woollen division also. Further, addition was made purely on estimate basis as discussed in the preceding paragraphs and the addition has been made on the ground that the explanation of the assessee is not found to be satisfactory. But this does not automatically lead to the conclusion that the assessee had concealed the income with a view of evade tax or conduct of the assessee was mala fide. Thus, here also, penalty under Section 271(1)(c) could not be levied merely because the explanation has been found unsatisfactory. The following judgments also support the case of the assessee.
(i) CIT v. Dew Dayal Aluminium Industries (P) Ltd. (supra) In this case, the explanation of the assessee with regard to melting loss in manufacture of steel and stock discrepancy was not accepted. The additions were made and the same were upheld by the Tribunal. The Tribunal deleted the penalty on the ground that the rejection of the explanation of the assessee did not render explanation false. On a reference, the Hon'ble Allahabad High Court upheld the Order of the Tribunal.
(ii) R.B. Bansilal Abirchand Spinning & Weaving Mills v. CIT (supra)
(iii) St. Teresa's Oil Mills v. State of Kerala (supra) (iv) B.F. Varghese v. State of Kerala (supra) In all the above cases, it has been held that where complete books of account are maintained duly supported by bills and vouchers, no addition could be made merely on the ground that there was variation in the consumption of electricity or yield shown by the assessee was lower as compared to earlier assessment years. Thus, in these cases, even the additions made were not approved by the High Court.
(v) CIT v. Metal Products of India (1984) 150 ITR 714 (P&H) In this case, income was estimated by rejecting the book results. Later penalty under Section 271(1)(c) was levied by relying on the explanation that returned income was less than 80 per cent of the assessed income. On these facts, the Tribunal cancelled the penalty on the ground that mere rejection of book results and estimation of income at higher figure does not itself lead to the conclusion that the assessee had concealed its income.
(vi) CIT v. Ravail Singh & Co. (2002) 254 ITR 191 (P&H) Here also addition was made on estimated basis without their being any concrete evidence of concealment of income. On these facts, it was held that there was no evidence that the assessee had concealed the particulars of income or furnished inaccurate particulars thereof. No penalty under Section 271(1)(c) read with Explanation could be levied.
(vii) CIT v. Dhillon Rice Mills (2002) 256 ITR 447 (P&H) In this case, the AO made an addition of Rs. 2,85,253 on estimate basis on account of low yield of phak and chilka. On appeal, the learned CIT(A) deleted the addition of Rs. 81,254. On further appeal, the Tribunal upheld the Order of CIT(A). The AO levied penalty under Section 271(1)(c) on the ground that the estimated addition made on account of low yield of phak and chhilka was upheld in appeal. On further appeal before the CIT(A), the penalty levied was cancelled on the ground that there was no proof that the assessee had concealed the income. This Order was upheld by the Tribunal on the ground that additions have been made on estimated basis. On a reference, the Order of Tribunal for cancelling the penalty was upheld by the Hon'ble High Court.
(viii) CIT v. Bharat Rice Mills (2001) 250 ITR 584 (P&H) In this case, the AO made the addition on the ground that the yield of rice and phak shown by the assessee was lower. On appeal, the learned CIT(A) upheld the addition. On appeal, against the Order of the CIT(A), the Tribunal deleted the addition on the ground that the yield shown by the assessee was fair and reasonable. Thus, even addition made on account of low yield was deleted and such Order was upheld by Hon'ble Punjab and Haryana High Court.
(ix) ITO v. Nandi Steel Works (P) Ltd. (1997) 63 ITD 364 (Bang).
In this case, the AO made additions on account of excessive burning loss and subsequently levied penalty under Section 271(1)(c). It was held that since the entire addition was merely based on estimate of burning loss and no finding of purchases and sales outside the books had been given, it was not a fit case for levy of penalty under Section 271(l)(c).
(x) Tribunal Indore Bench, in the case of Laxmi Dal Mills v. ITO (1995) 53 TTJ (Ind) 425.
In this case yield shown by the assessee was supported by regular books of account showing quantitative results. The AO made addition by applying higher yield. On appeal, the Tribunal reduced the addition. The AO also levied penalty under Section 271(1)(c) in respect of part of the additions sustained. It was held that there was no fixed yard stick to determine reasonable percentage of Dal which depended upon several factors, and the assessee's explanation of less produce was not found to be false. Therefore, this was not a fit case for levy of penalty under Section 271(1)(c).
11.4 Thus, from the detailed discussion in the preceding paragraphs and the consensus of the opinion expressed by the various High Courts and the Benches of the Tribunal, it is clear that no penalty under Section 271(l)(c) is leviable where the additions have been made on estimate basis by rejecting the explanation of the assessee. In the present case also, the additions have been made and sustained purely by rejecting the explanation of the assessee. There is no material or evidence on record that the explanation furnished by the assessee was either false or dishonest. In fact, in the earlier assessment years, much higher percentage of wastage shown in the worsted division was accepted by the Department. There is also no material or evidence to show that assessee had made sales outside the books of account. Not even a single defect has been pointed out by the AO in the books of account. Therefore, mere fact that additions have been made and sustained would not justify levy of penalty under Section 271(1)(c).
11.5 Moreover, in the case of CIT v. Himat Ram Laxmi Narain (1986) 162 ITR 619 (P&H), the ITO had found during the course of the assessment proceedings that the assessee had been doing business outside its books and had invested an amount of Rs. 78,075. As the explanation furnished by the assessee was found to be unsatisfactory, the AO added this amount to the income of assessee as income from undisclosed sources and later imposed a penalty under Section 271(1)(c). On appeal, the Tribunal found that assessee had produced books of account to show that goods had been purchased on credit and all payments made after disposing of the same. The Tribunal cancelled the penalty on the ground that explanation given by the assessee was plausible. On a reference, the Hon'ble Punjab & Haryana High Court upheld the Order of the Tribunal for the reason that the burden of proof placed on it by explanation to Section 271(1)(c) stood discharged. This judgment is equally applicable to the facts of the present case. Here also, the assessee has discharged the onus by offering a plausible explanation. Moreover, when complete books of account are maintained by assessee which are duly audited all purchases and sales are duly supported by bills and vouchers, all expenses are vouched, no defects in the books or specific instance in regard to suppression of purchases and sales have been pointed out by the AO, it could not be said that assessee failed to substantiate the explanation and on these facts, it could not also be said that the explanation of the assessee was not bona fide and material facts relating to computation of its total income were withheld by assessee. Therefore, no penalty under Section 271(1)(c) either for concealing the particulars of income or furnishing inaccurate particulars read with explanation to Section 271(1)(c) could be levied.
12. In the light of these facts and circumstances of the case, legal position discussed above and respectfully following the ratio of various judgments including that of the jurisdictional High Court of Punjab & Haryana,- we do not find any justification to interfere with the Order of the CIT{A). The same is upheld and all the grounds of appeal of the Revenue are rejected.
In the result, the appeal filed by the Revenue is dismissed.