2011 (9) TMI 370 - AT - Income Tax

Penalty - unexplained investment in stock - No particulars of excess sock were disclosed in the original return of income as well as in the return filed u/s 148 of the IT Act disclosing additional income - it is admitted fact that excess stock was found during the survey it was also admitted by the assessee and also admitted to pay tax thereon the assessee deliberately prepared the trading account in such a way to nullify the effect of excess stock found during the course of survey. The conduct of the assessee noted above clearly speaks against the assessee and points to only one point that the assessee has concealed the income. - Explanation (1) to section 271(1)(c) of the IT Act applicable to the case of the assessee - Appeal of the assessee has no merit and accordingly dismissed.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act.
2. Addition of Rs. 9,00,000 as unexplained investment in stock under Section 69 of the Income Tax Act.
3. Discrepancy in stock valuation during the survey under Section 133A of the Income Tax Act.
4. Justification and substantiation of the assessee's claim regarding stock valuation.
5. Applicability of Explanation 1 to Section 271(1)(c) regarding concealment of income.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act:
The main issue is the levy of penalty under Section 271(1)(c) of the Income Tax Act, which deals with the concealment of income or furnishing inaccurate particulars of income. The assessee was penalized for concealing income by not disclosing the correct stock value in the return of income. The penalty was confirmed by the CIT(A) and upheld by the ITAT.

2. Addition of Rs. 9,00,000 as Unexplained Investment in Stock under Section 69 of the Income Tax Act:
During the survey conducted under Section 133A, it was found that the physical stock was valued at Rs. 87,93,380, whereas the stock as per the books was Rs. 78,93,380, leading to a discrepancy of Rs. 9,00,000. The assessee's failure to justify this discrepancy resulted in the addition of Rs. 9,00,000 as unexplained investment under Section 69. This addition was upheld by the CIT(A) and the ITAT.

3. Discrepancy in Stock Valuation during the Survey under Section 133A of the Income Tax Act:
The survey revealed a difference in stock valuation, which the assessee attributed to an ad-hoc valuation method used during the survey. Despite this claim, the assessee failed to provide substantial evidence to support the discrepancy, leading to the addition of Rs. 9,00,000 and the subsequent penalty.

4. Justification and Substantiation of the Assessee's Claim Regarding Stock Valuation:
The assessee argued that the stock valuation difference was due to an ad-hoc method used during the survey and that the stock quantities tallied with the books. However, the assessee could not substantiate this claim with evidence. The CIT(A) and ITAT found that the assessee's explanation was not bona fide and lacked supporting evidence, justifying the addition and penalty.

5. Applicability of Explanation 1 to Section 271(1)(c) Regarding Concealment of Income:
Explanation 1 to Section 271(1)(c) shifts the burden of proof to the assessee to show that there was no concealment of income. The assessee failed to offer a satisfactory explanation or substantiate the claim of stock valuation, leading to the presumption of concealment under Explanation 1. The ITAT referred to various judicial precedents affirming that the addition made by the AO and upheld by the CIT(A) indicated concealment of income, justifying the penalty.

Conclusion:
The ITAT upheld the penalty imposed under Section 271(1)(c) for concealment of income. The discrepancy in stock valuation found during the survey, the failure to substantiate the claim, and the deliberate act of enhancing the opening stock to nullify the effect of excess stock led to the conclusion that the assessee concealed income. The appeal of the assessee was dismissed, confirming the levy of penalty.