Income Tax Appellate Tribunal - Ahmedabad
Shivam Art Processors (P) Ltd. vs Assistant Commissioner Of Income Tax on 4 August, 1999
Equivalent citations: (2000)69TTJ(AHD)600
ORDER
T.J. Joice, A.M. This appeal by the assessee is directed against the order of the learned Commissioner (Appeals), dated 30-3-1998, for the assessment year 1995-96 whereby the first appellate authority has upheld the penalty levied under section 271(1)(c) amounting to Rs. 4,02,318. For the asst. yr, 1995-96, the assessee- company filed the return of income on 29-11-1995, declaring net loss of Rs. 1,75,064. The assessment was completed under section 143(3) on 12-12-1996, and the total income determined in the assessment comes to Rs. nil after setting off depreciation for the current year against the income complied, The following are the details of the computation appearing at the end of the assessment order.
Rs.
Rs.
Net loss as per audited P&L a/c 1,75,064 Add:
Disallowances (1) Shortage in stock of colours & chemicals (Para 5) 5,03,244 (2) Shortage in stock of cloth 3,31,360 (3) Depreciation (Para 10) 6,700 8,81,364 7,06,300 Less:
Depreciation for the assessment year 1995-96 to the extent of income available (28,30,905 - 7,06,300) 7,06,300 Total income Nil The assessing officer initiated the penalty proceedings under section 271(1)(c) as he was of the view that the assessee was liable to penalty in respect of disallowance made on account of shortage in cost of colour, chemicals and cloth. In the order under section 271(1)(c) passed on 27-6-1997, the assessing officer considered the objections raised by the assessee to the proposed penalty. He found the explanation given by the assessee as unsatisfactory and levied penalty of Rs. 4,02,318. On appeal, the learned Commissioner (Appeals) confirmed the levy of penalty and dismissed the assessee's appeal. 2. In the present appeal before us, the learned counsel for the assessee has vigorously disputed the levy of penalty. It is pointed out by the learned counsel for the assessee that the assessed income is nil and, therefore, the assessee is not liable for penalty under section 271(1)(c) as the assessee has not evaded payment of tax. The assessee was doing only job work for others and, therefore, the question of closing stock valuation did not affect the assessee's taxable income. Moreover, the difference in the figures assessed by the assessing officer was on account of estimation and for such estimated addition, no penalty could be levied under section 271(1)(c), The learned counsel relied on the decisions of the Hon'ble Supreme Court in CIT v. Khoday Eswarsa & Sons 1972 CTR (SC) 295. (1972) 83 ITR 369 (SC), Anantharam Veersinghaiah & Co. v. CIT (1980) 16 CTR (SC) 189 : (1980) 173 ITR 457 (SC) and CIT v. Anwar Ali (1970) 76 ITR 696 (SC). Further, it is pointed out by the learned counsel that when the resultant income is a loss, no penalty can he levied under section 271(1)(c) as laid down in the following decisions:
(1) Panchratna Hotels (P) Ltd. v. Dy. CIT (1993) 47 TTJ (Ahd) 282, (2) Zaveri Paper & Board MMs v. Income Tax Officer (1993) 47 TTJ (Ahd) 170 (3) H. T. Power Structures (P) Ltd. v. Assistant Commissioner (1993) 47 TTJ (Ahd) 146 (4) CIT v. Jaora Oil Mills (1981) 129 ITR 423 (MP);
(5) CIT v. Prithpal Singh & Co. (1990) 85 CTR (PM) 26 : (1990) 183 ITR 69 (P&H).
It is further pointed out that reference applications and SLPs. filed by the department against the decision of the Tribunal have been rejected by the Hon'ble Gujarat High Court and Hon'ble Supreme Court as reported in (1994) 212 ITR (St) 60.
3. On the other hand, the learned departmental Representative took strong exceptions to the pleadings of the learned counsel by referring to the case laws reported in N. Venkatavaradha Reddiar v. CWT (1995) 127 CTR (Mad) 158 . (1995) 214 ITR 76 (Mad), Laxmi Chand Bhagaji v. Dy. CIT (1994) 48 ITD 322 (Bom), Income Tax Officer v. Alit Kumar Arya (1988) 30 TTJ (Jp) 41 : (1988) 25 ITD 42 (Jp) and M. Ethurajan v. Assistant Commissioner (1998) 60 TTJ (Mad) 641 : (1998) 65 ITD 87 (Mad). He draws our attention to ExpIn. 4 of section 271(1)(c) according to which even in the case of a loss, penalty is leviable if there is concealment of particulars of income or furnishing of inaccurate particulars of such income. The learned departmental Representative, therefore, states that the case laws relied on by the learned counsel do not advance the assessee's case.
4. We have considered the rival submissions and various case laws cited on behalf of both the parties. On careful consideration of the facts and circumstances of the case, we are of the view that the penalty levied under section 271(1)(c) cannot be upheld in law either on merits or on legal principles. We find that the assessee gave the following written submissions in the course of assessment proceedings with regard to the alleged shortage in stock of colours and chemicals ~ "The difference in the stock value of colour and chemicals taken on the date of survey made by the IT department and with the value as per books is because of the following reasons ..
(a) The stock on the date of survey was taken by the income-tax persons and the factory clerical staff was not taken by actual weight in all the cases. In most cases, actual weight was not made but approximate weight was noted.
(b) That several bulk items and hazardous items which are kept in open space of the factory were also not taken in the list. Such as industrial salt which is used in water softing plant is kept in open. Hydre is hazardous. So major quantity is kept in open field only. Limited quantity is kept in store for actual issue of hydre after weighting to the production shop.
(c) That colours and chemicals duly mixed and prepared for use and lying in the different production centres, such as sprinting machines, padding mangle and colour kitchen and finishing chemicals at stanter have not been considered while noting down the stock on the date of survey,
(d) That the chemicals used in the effluent treatment have not been included in the stock list, which are kept in open near the treatment plant.
(e) That the estimate of coal made by the staff and Income-tax persons is on very lower side."
As regards the alleged shortage in the stock of art silk cloth, the assessee by its written submissions, dated 2nd Oct., 1996, submitted to the assessing officer as under :
"(a) The shortage is on account of shrinkage in the manufacturing process.
(b) There is error in the calculation of shortage determined on the date of survey inasmuch as the book stock did not take into account pending lots as on 1st April, 1994, for earlier period and only processing and dispatch based on lots received during 1st April, 1994, to 25th Aug., 1994, has been considered."
We also find that in the course of penalty proceedings, the assessee referred to various case laws in support of the contention that penalty was not leviable where the net result of the computation was a loss.
5. In the case of the assessee, a survey was conducted under section 133A of the Income Tax Act, 1961, and certain discrepancies were noticed in the stock-in-trade of silk cloth and colour and chemicals. The assessee have its explanation in respect of the discrepancy but this was not accepted by the assessing officer. It is true that the assessee agreed to the addition made in the assessment order and no appeal was filed against the assessment order. The learned Commissioner (Appeals) has merely relied on the observations given by the assessing officer in the penalty order while confirming the penalty.
6. It is well settled in law that assessment proceedings and penalty proceedings are distinct and separate. The additions made in the assessment order may be relevant for penalty proceedings but such addition does not necessarily lead to levy of penalty. The question to be considered is whether the assessee concealed the particulars of income or furnished inaccurate particulars of income while filing the return of income. When there was a difference in the stock valuation according to the assessing officer, the assessee came forward with an explanation regarding the discrepancy. Though this explanation was not found acceptable to the assessing officer and disallowance was made in the assessment order, the assessee's explanation as quoted by us in para 4 above appears to be quite plausible one in the circumstances of the case. There is no indication that the assessee was trying to conceal the particulars of income or furnishing inaccurate particulars of income by giving explanation which, though plausible, was not accepted by the assessing officer. After all, it was a difference in estimation and the estimation no doubt can vary depending on various factors. That apart, the third addition made in the assessment order was only a clerical mistake in the calculation of depreciation. These facts and circumstances of the case clearly indicate that penalty is not warranted for concealment of particulars of income as the assessee's bona fides cannot be disproved. In the circumstances on merits of the case, the assessee is entitled to the benefit of doubt and no penalty is exigible. In this view of the matter, we have no hesitation in cancelling the levy of penalty by reversing the orders of the authorities below.
7. That apart, in a number of decisions of the Tribunal as cited in para 2 above, it has been held that penalty under section 271(1)(c) cannot be levied where the result of computation is a loss on a negative figure. In Pancharatna Hotel v. Dy. CIT in ITA Nos. 2509 & 2510/Ahd/1992 (supra), the Tribunal Ahmedabad 'A' Bench considered the legal provision at length in which various High Court decisions have also been referred to. The Tribunal also considered the effect of ExpIn. 4 below section 271(1)(c). As mentioned earlier, reference application filed by the department against the decision of the Tribunal has been rejected by the Hon'ble Gujarat High Court and the SLP filed by the department has also been rejected by the Hon'ble Supreme Court as reported in 212 ITR (St) 60, The ratio of the above decisions are applicable to the facts of the present case because even after the disallowance made by the assessing officer in the present case, the resultant income is a loss. In the circumstances, penalty under section 271(1)(c) is not exigible on this technical ground as well. Accordingly, we set aside the order of the assessing officer and delete the penalty,
8. In the result the appeal is allowed.