2015 (11) TMI 742 - AT - Income Tax

Penalty u/s 271(1)(c) - suppression of sales, sale of stores and spares and repairs and maintenance - Held that - The Assessing Officer himself observes in assessment order that the assessee-company carried out negligible production and sold its stock of goods available at the beginning of the year. He further discusses the fact that it has sold out its plant and machinery with same movable/immovable assets. This gives credence to assessee s plea of having entered into distress sale. Both the authorities below have proceeded on different criteria for making the first addition of suppression of sales. The other disallowance/additions of loss arising from sale stores/spares and repair and maintenance have been made due to unverifiable cash vouchers and supportive evidence; respectively. There is no dispute about the trite proposition of law that quantum and penalty proceedings are on separate footing and each and every disallowance/addition does not necessarily resulting in imposition section 271(1)(c) penalty as held by hon ble apex court in CIT vs. Reliance Petro-products (2010 (3) TMI 80 - SUPREME COURT). We follow the same reasoning and affirms the CIT(A) s order in Revenue s appeal and reverse the lower appellate order under challenge to the extent of penalties corresponding to the additions of loss on account of sale of stores and spares and repairs/maintenance - Decided in favour of assessee. Short term capital gain addition - Held that - We have given our thoughtful consideration to the assessee s argument that its computation of short term capital gains is an arithmetic mistake. It has come on record that assessee sold its fixed assets in question, adjusted sale consideration thereof against WDV of the concerned block resulting in surplus which was further adjusted against WDV of the other block of assets. Needless to say, this latter course of action is nowhere prescribed in the Act. Therefore, we observe that the same is much more than an arithmetical mistake being in the nature of raising altogether a false claim. - Decided against assessee. Disallowance u/s 40A(2)(b) - Held that - CIT(A) s deleting section 40A(2)(b) disallowance by holding assessee s sale made to its associate concern as under invoiced to the above stated extent. It is held in the lower appellate order that this statutory provision applies to an expenditure claim and not that of an income as held in the case law of United Exports vs. CIT (2009 (8) TMI 60 - DELHI HIGH COURT ) and ACIT vs. Grand Prix Fab Pvt Ltd. (2009 (10) TMI 74 - ITAT DELHI-D ). The Revenue fails to controvert this legal proposition in the course of hearing. - Decided against revenue.

Summary

Issues Involved:
1. Penalty for suppression of sales.
2. Penalty for disallowance on sale of stores and spares.
3. Penalty for disallowance on repair and maintenance expenses.
4. Penalty for short term capital gains.
5. Disallowance under section 40A(2)(b).

Detailed Analysis:

1. Penalty for Suppression of Sales:
The Revenue challenged the CIT(A)'s order deleting a penalty of Rs. 3,51,199/- imposed on the assessee for suppression of sales. The Assessing Officer (AO) had rejected the assessee's books, averaged its gross profit (GP) from previous years, and added Rs. 19,39,768/- for suppression of sales. The CIT(A) reduced this addition to Rs. 9,83,756/- due to lack of substantiation but found the sales transactions regular, not distress sales. The Tribunal agreed with the CIT(A) that the penalty for suppression of sales was not justified, emphasizing that quantum and penalty proceedings are separate and not every disallowance/addition results in a penalty under section 271(1)(c).

2. Penalty for Disallowance on Sale of Stores and Spares:
The AO disallowed Rs. 21,15,296/- for the sale of stores and spares, citing unverifiable cash vouchers and lack of quantitative details. The CIT(A) upheld this disallowance. The Tribunal, however, reversed the CIT(A)'s order on the penalty, reasoning that unverifiable vouchers alone do not necessarily indicate concealment or furnishing of inaccurate particulars.

3. Penalty for Disallowance on Repair and Maintenance Expenses:
The AO disallowed Rs. 3,03,815/- claimed under repair and maintenance, deeming it a general entry without supportive details. The CIT(A) confirmed this disallowance. The Tribunal reversed the penalty related to this disallowance, aligning with the principle that not all disallowances justify penalties under section 271(1)(c).

4. Penalty for Short Term Capital Gains:
The AO added Rs. 54,67,547/- as short term capital gains under section 50, which the assessee had adjusted against the written down value (WDV) of other asset blocks. The CIT(A) upheld the penalty, stating that the assessee failed to explain the mistake and the claim was legally untenable. The Tribunal supported the CIT(A), noting that the incorrect adjustment was more than an arithmetic mistake and constituted a false claim, referencing the Delhi High Court decision in Zoom Communication Pvt. Ltd. and the Tribunal's decision in Gujarat State Finance Corporation Ltd.

5. Disallowance under Section 40A(2)(b):
For assessment year 2005-06, the Revenue appealed against the CIT(A)'s deletion of a Rs. 27,74,371/- disallowance under section 40A(2)(b), arguing that the assessee's sales to an associate concern were under-invoiced. The CIT(A) held that section 40A(2)(b) applies to expenditure, not income, citing United Exports vs. CIT and ACIT vs. Grand Prix Fab Pvt Ltd. The Tribunal found no legal basis to counter this and dismissed the Revenue's appeal.

Conclusion:
The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's cross-objection, emphasizing the separation of quantum and penalty proceedings and the necessity of substantiating claims to avoid penalties under section 271(1)(c). The Tribunal upheld the CIT(A)'s decisions where appropriate and provided detailed reasoning for each issue, maintaining adherence to legal precedents and statutory provisions.

Order Pronounced:
The order was pronounced in the open court on 30-09-2015.