2013 (6) TMI 158 - AT - Income Tax

Addition u/s 69A - Levy of penalty u/s 271(1)(c) - difference in stock - addition made in the assessment proceedings is on account of the addition agreed upon by the assessees before the Central Excise authority under the KVSS scheme. As per revenue the search was carried out by the Central Excise Authorities for three days and they have listed out in the panchanama the value of excess goods referable to finished and semi-finished excisable goods and at the same time listed out the shortage of goods referable to raw material which in itself proves that the assessees have not maintained books properly, which resulted in additions made by the Central Excise Authorities and for the same reason the AO made the additions. Held that - According to the AO the difference between the excess stock and closing stock would reveal that the assessees purchased stock using unexplained money and therefore the addition is maintainable u/s 69A of the Act. The assessees herein could not point out that the unexplained stock found by the Central Excise Authorities was merely on eye sight basis . The search proceedings continued for three days and the Panchanama was written in presence of the Directors of the respective companies. If burning losses, etc. were not properly taken into consideration that issue could have been raised before the Central Excise Authorities at the time of preparing the Panchanama or immediately thereafter. No such efforts appear to have been made by the assessees herein. Even before us no material, whatsoever, was placed to indicate that the addition made and ultimately confirmed by the AO is not in accordance with law. Therefore, the assessees explanation is not substantiated with any material and hence there is no infirmity in the orders passed by the learned CIT(A). - Levy of penalty confirmed - Decided against the assessee.

Issues Involved:
1. Legitimacy of penalty levied under section 271(1)(c) of the Income Tax Act.
2. Validity of stock estimation and discrepancies identified by the Central Excise Authorities.
3. Applicability of the Kar Vivad Samadhan Scheme (KVSS) and its implications on penalty proceedings.
4. Consideration of burning losses and other manufacturing discrepancies.
5. Relevance of judicial precedents, specifically Dharmendra Textile Processors and Reliance Petroproducts Pvt. Ltd.

Detailed Analysis:

Issue 1: Legitimacy of Penalty Levied under Section 271(1)(c) of the Income Tax Act
The primary contention revolves around whether the penalty under section 271(1)(c) is justified. The assessees argued that the addition was based on an estimate and not on actual concealment or furnishing of inaccurate particulars. The AO, however, maintained that the acceptance of excess stock under KVSS indicated deliberate concealment, thus justifying the penalty. The CIT(A) upheld the penalty, citing the Supreme Court's decision in Dharmendra Textile Processors, which states that mens rea is not required for initiating penalty proceedings under section 271(1)(c).

Issue 2: Validity of Stock Estimation and Discrepancies Identified by the Central Excise Authorities
The stock discrepancies were identified during a search by the Central Excise Department, which found excess and shortage of stock. The assessees contested the methodology, claiming that the stock estimation was based on "eye sight basis calculation" and did not account for burning losses and other factors. The AO and CIT(A) rejected this explanation, noting that the stock taking was conducted in the presence of the Directors and that any objections should have been raised during the process. The CIT(A) adjusted the addition to Rs. 3,72,320/- after considering the difference between excess and shortage.

Issue 3: Applicability of the Kar Vivad Samadhan Scheme (KVSS) and its Implications on Penalty Proceedings
The assessees had approached the designated authorities under the KVSS, offering the disputed amount to settle the issue and avoid litigation. The AO and CIT(A) interpreted this acceptance as an admission of concealed income, thus justifying the penalty. The assessees argued that the settlement under KVSS was to buy peace and did not imply concealment of income.

Issue 4: Consideration of Burning Losses and Other Manufacturing Discrepancies
The assessees claimed that the stock discrepancies were due to burning losses and the generation of scrap, which were not properly accounted for by the Excise Authorities. The AO and CIT(A) dismissed this claim, stating that the stock taking process was thorough and any such issues should have been raised at the time of the search. The CIT(A) noted that the explanation provided by the assessees was not substantiated with any material evidence.

Issue 5: Relevance of Judicial Precedents
The CIT(A) relied on the Supreme Court's decision in Dharmendra Textile Processors to uphold the penalty, emphasizing that mens rea is not required for penalty proceedings under section 271(1)(c). The assessees, however, cited the Supreme Court's decision in Reliance Petroproducts Pvt. Ltd., arguing that making an incorrect claim in law does not amount to furnishing inaccurate particulars. The Tribunal noted that the case at hand was not about an incorrect claim of deduction but about unexplained stock, which justified the penalty under section 271(1)(c).

Conclusion:
The Tribunal concluded that the assessees failed to provide a satisfactory explanation for the stock discrepancies and could not substantiate their claims regarding burning losses and other factors. The acceptance of the excess stock under KVSS was seen as an admission of concealed income. Consequently, the Tribunal upheld the penalty levied by the AO and confirmed by the CIT(A), dismissing the appeals filed by the assessees.

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