Madras H.C : The assessee was not liable for penalty under s. 271(1)(c) for concealment of income by way of understatement of the value of closing stock of hatching eggs to the tune of Rs. 11,70,047

High Court Of Madras

CIT vs. Pioneer Breeding Farms

Section 271(1)(c)

Asst. Year 1992-93

P.D. Dinakaran & Mrs. Chitra Venkataraman, JJ.

Tax Case (Appeal) No. 57 of 2004

26th February, 2007

Counsel Appeared :

Muralikumaran, for the Appellant : R. Venkatnarayanan for M/s Subbaraya Ayar, for the Respondent

JUDGMENT

P.D. DINAKARAN, J. :

The above tax case appeal is directed against the order of the Tribunal dt. 24th July, 2003 made in ITA No. 1337/Mds/1996 for the asst. yr. 1992-93, and is admitted on the following question of law :

“Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not liable for penalty under s. 271(1)(c) for concealment of income by way of understatement of the value of closing stock of hatching eggs to the tune of Rs. 11,70,047 ?”

The Revenue is the appellant. The assessee filed its return of income for the asst. yr. 1992-93 admitting a total income of Rs. 1,92,300. The assessment under s. 143(3) was completed on 29th March, 1995 determining the total income at Rs. 16,83,986. During the course of the assessment proceedings, it was found that the assessee was selling eggs that were found not fit for hatching at a nominal rate of 25 paise per egg. A survey at the assessee’s premises also confirmed the said fact. It was found that the assessee had adopted a flat rate for the entire closing stock of hatching eggs @ Rs. 2.66 per egg. The AO found that there was wide difference between the value admitted and the actual value and brought the difference amount, viz., Rs. 11,70,047, to assessment. In view of the suppression in the sale of eggs and the difference in the value of the closing stock, the AO initiated penalty proceedings under s. 271(1)(c) of the Act, and being not satisfied with the explanation offered by the assessee, penalty of a sum of Rs. 3,17,318 was levied.

The assessee preferred an appeal before the CIT(A), contending that the valuation @ Rs. 2.66 per hatching egg was adopted as per the specific directions from the Chief Manager, Indian Bank, Variety Hall Road, Coimbatore, who had sanctioned a working capital loan to the assessee. The CIT (A) confirmed the addition made by the AO, however he opined that for the purposes of penalty proceedings, it could not be held that the assessee had suppressed or concealed any particulars. Accordingly, the AO was directed to exclude the addition of Rs. 11,70,047 from the computation of penalty and confine to only the amount of Rs. 25,000 being the suppression of sale for levying penalty under s. 271(1)(c) of the Act.

On appeal by the Revenue, the Tribunal confirmed the order of the CIT(A). Hence, the present appeal raising the substantial question of law referred to above.

The learned senior standing counsel appearing for the Revenue submitted that there was wide difference between the value admitted and the actual value and therefore, the AO is right in adding the difference between the two figures to the total income of the assessee.

The learned counsel appearing for the assessee reiterating the submissions made before the CIT (A) and Tribunal, justified the orders passed by the said authorities.

7. Any addition on account of difference in stock can be made only on adequate materials, but not arbitrarily. Admittedly, there was a difference between the value of the closing stock declared to the bank and to the IT authorities. The fact that the assessee valued the eggs @ Rs. 2.66 per egg merely based on the direction issued by the Indian Bank, Loans and Advances Department, Coimbatore dt. 25th May, 1992 is not disputed. In view of the same, there is no basis to treat the difference in value as the assessee’s undervaluation of stock or undisclosed income. Under such circumstances, there is no incertitude in coming to the conclusion that there is no error or legal infirmity in the order of the Tribunal so as to warrant interference. Hence, we answer the question of law in favour of the assessee and against the Revenue and the appeal is dismissed. No costs.

[Citation : 295 ITR 78]

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