Punjab & Haryana H.C : Where during survey excess stock was found and Assessing Officer made addition on actual physical verification of stock, levy of penalty under section 271(1)(c)

High Court Of Punjab & Haryana

Ramesh Chander Gupta vs. Income-tax Appellate Tribunal

Assessment Year : 1995-96

Section : 271(1)(C)

Adarsh Kumar Goel And Ajay Kumar Mittal, JJ.

IT Appeal No. 261 Of 2005

November 8, 2010

JUDGMENT

Ajay Kumar Mittal, J. – This appeal under section 260A of the Income-tax Act, 1961 (for short “the Act”), has been filed by the assessee against the order dated August 31, 2004, passed by the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar, (SMC) (in short “the Tribunal”), in I.T.A. No. 332/ASR/1999 relating to the assessment year 1995-96.

2. The point for consideration in this appeal is, whether the Tribunal was justified in sustaining the penalty under section 271(1)(c) of the Act on the ground that there had been concealment of income by the assessee?

3. Briefly stated the facts of the case as narrated in the appeal are that on August 5, 1994, a survey was carried out under section 133A of the Act at the business premises of the assessee-appellant. The surveying authority found the stock of first and second class bricks in excess to the tune of 28750 and 45280 respectively whereas the third class tiles were found short to the extent of 63400. The Income-tax Officer, on the basis of the above, vide order dated November 24, 1997, made addition of Rs. 44,380 on account of shortage in stock of third class tiles and Rs. 44,383 were added on account of excess stock of bricks of first and second classes.

4. The appeal of the assessee against the order of the Income-tax Officer was dismissed by the Commissioner of Income-tax (Appeals) (in short “the CIT(A)”), vide order dated July 1, 1998. Even the application moved by the assessee for rectification of the order dated July 1, 1998, was also dismissed.

5. The assessee preferred an appeal before the Tribunal. The Tribunal partly accepted the appeal by holding that in the case of short stock of 63400 tiles of third class, G.P. rate was to be applied but the addition having been made on the entire amount was wrong to that extent. The Tribunal, thus, directed to adopt the profit rate with respect to short stock of third class tiles found at the time of survey and restricted the addition to Rs. 7163 instead of Rs. 44,380 made by the Assessing Officer. While passing the assessment, the Assessing Officer also ordered for initiation of proceedings under section 271(1)(c) of the Act and in pursuance of the said proceedings, a penalty of Rs. 23,740 was imposed on the appellant, vide order dated December 23, 1998, annexure A1. The Commissioner of Income-tax (Appeals) on appeal by the assessee deleted the penalty, vide order dated March 18, 1999, annexure A2, against which the Revenue went in appeal before the Tribunal. The Tribunal, vide order dated August 31, 2004, reversed the order passed by the Commissioner of Income-tax (Appeals) and held that the deletion of penalty was not justified. It was ordered that the penalty be calculated on the basis of the amount of addition finally sustained by the Tribunal.

6. It is how the assessee is in appeal before us.

7. We have heard learned counsel for the parties and have perused the record.

8. The Tribunal had set aside the order of the Commissioner of Income-tax (Appeals) and directed the Assessing Officer to recompute the amount of penalty on the basis of the amount which was finally sustained by it. The Tribunal while reversing the order of the Commissioner of Income-tax (Appeals), cancelling the penalty had categorically held that the addition had not been made on the basis of estimate as recorded by the Commissioner of Income-tax (Appeals) but on actual physical verification of stock by the Assessing Officer during survey on August 5, 1994. The findings recorded by the Tribunal in paragraph 5 of its order read thus :

“We have considered the rival submissions in the light of material placed before us and precedents relied upon. In so far as the question of recording satisfaction by the Assessing Officer is concerned, we find that the same has been duly recorded in the assessment order in last paragraph of page 2 by observing ‘the assessee has either sold bricks outside the books of account or manufactured bricks outside the books of account. Hence, the value of this difference is added back in the income of the assessee as concealed income’. These observations of the Assessing Officer in addition to the initiation of penalty at the end of the assessment order clearly demonstrate that the satisfaction was duly recorded at the assessment stage. Coming to the merits of the case, we note that the assessee was found to be having excess stock of first and second class bricks at the time of survey. Inventory was prepared and duly signed by the assessee. This is not the case where some stock was found in excess by the survey party and the assessee settled the dispute by agreeing for certain additions subject to no penalty. On the contrary, the Tribunal being the final fact finding authority, vide paragraph 6 of its order in quantum has recorded a categorical finding as under :

‘Since stock with respect to first class and second class bricks has been found in excess and inventory prepared at the time of survey had duly been signed by the assessee, therefore, the addition in this regard is called for and the same has rightly been made by the Assessing Officer at Rs. 43,483 by adopting the sale rate of Rs. 725 and Rs. 500 per thousand bricks with respect to first and second class bricks respectively.’

In view of the foregoing finding, it becomes crystal clear that the assessee was having excess stock of first and second class bricks which was not accounted for in the books of account. It is true, as contended by the learned authorised representative, that penalty proceedings are different from assessment proceedings and the confirmation of addition in question does not lead to automatic confirmation of penalty. In such circumstances, the onus is on the assessee to prove that the mischief of section 271(1)(c) is not attracted. In view of the finding given by the Tribunal, in the present case, the inescapable conclusion that follows is that there was actual difference in stocks and the assessee has not succeeded in bringing out its case from the ambit of the penal provision. In so far as the contention of the learned authorised representative regarding the addition made on estimate is concerned, we are satisfied that the same is not correct because a specific quantity of bricks was found to be available outside the books of account and by simply applying the sale rate of such specific quantity, it cannot be said that the very basis of the addition is making of the estimate. Similar is the case regarding the shortage in stock of third class tiles where the addition was made at Rs. 44,380 on the basis of the value of the stock but the Tribunal restricted the addition to Rs. 7,163 by holding that only the GP rate of such sales be applied. In such circumstances, we hold that the deletion of penalty by the first appellate authority was not justified. We order accordingly and direct the Assessing Officer to recompute the quantum of penalty on the basis of the amount of addition finally sustained by the Tribunal.”

9. Further, in Income-tax Appeal No. 102 of 2006, filed by the present assessee, the addition made by the Assessing Officer has been upheld and the appeal dismissed.

10. No error could be pointed out by the counsel for the assessee in the findings recorded by the Tribunal as noticed above. An attempt was made by the counsel for the appellant for reappreciation of material on record, but the same does not fall within the domain of section 260A of the Act.

11. In view of the above, the appeal is dismissed.

[Citation : 344 ITR 320]

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