1993 (5) TMI 56 - AT - Income Tax

Account Books Assessing Officer Closing Stock High Court Levy Of Penalty S. 10 Total Income

Summary

Issues Involved:
1. Cancellation of penalty imposed under section 271(1)(c) of the Income-tax Act, 1961.
2. Valuation and estimation of closing stock as on 31-3-1985.
3. Assessment of damaged and defective stock.
4. Alleged suppression of stock and concealment of income.
5. Justification of penalty imposition based on the findings of the Assessing Officer and CIT (Appeals).

Detailed Analysis:

1. Cancellation of Penalty Imposed Under Section 271(1)(c):
The revenue appealed against the cancellation of a penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1985-86. The penalty was initially imposed on the grounds that the assessee suppressed its stock as on 31-3-1985, thereby concealing its income. However, the CIT (Appeals) canceled this penalty, leading to the revenue's appeal before the Tribunal.

2. Valuation and Estimation of Closing Stock as on 31-3-1985:
The assessee filed its return of income on 9-10-1987, disclosing a total income of Rs. 2,21,320. A search conducted on 17-9-1985 led to the seizure of account books and other financial documents. The Assessing Officer and the CIT (Appeals) had differing views on the valuation of closing stock. The Assessing Officer valued the closing stock at Rs. 86,52,322, while the assessee claimed it was Rs. 38 lakhs. The CIT (Appeals) concluded that there was a suppression of stock estimated at Rs. 10 lakhs, thus granting the assessee a relief of Rs. 30,73,814.

3. Assessment of Damaged and Defective Stock:
The assessee claimed that the closing stock included defective and damaged goods valued at Rs. 23,49,210 as per the tag price, while the department's valuation did not account for these damaged goods. The CIT (Appeals) and the Tribunal accepted the presence of damaged goods, which were also acknowledged in the inventory taken by the Commissioners appointed by the High Court. The Tribunal held that the deduction for defective and damaged goods should be allowed, as the assessee had maintained proper accounts for reduction sales.

4. Alleged Suppression of Stock and Concealment of Income:
The Assessing Officer accused the assessee of suppressing stock and concealing income, leading to the imposition of a penalty. However, the CIT (Appeals) found that the addition of Rs. 10 lakhs was based on an estimate and not on concrete evidence of unaccounted stock as on 31-3-1985. The Tribunal noted that the existence of damaged and defective stock was a normal incident of trade and that the assessee had reconciled the stock found by the Commission. The Tribunal concluded that there was no suppression of stock as alleged by the revenue.

5. Justification of Penalty Imposition:
The Assessing Officer imposed a penalty of Rs. 4,80,570 under section 271(1)(c), arguing that the assessee had tendered false statements to reduce its tax burden. However, the CIT (Appeals) and the Tribunal found no justification for this penalty. The Tribunal emphasized that the alleged concealment was quantified based on the value of materials and tag prices, not on actual quantities. The Tribunal held that the assessee had reconciled the stock value as on 31-3-1985 and explained the value adopted, thus vacating the penalty.

Conclusion:
The Tribunal upheld the CIT (Appeals)'s decision to cancel the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961. It found that the addition of Rs. 10 lakhs was based on an estimate rather than concrete evidence of unaccounted stock. The Tribunal accepted the assessee's explanation regarding the presence of damaged and defective stock and concluded that there was no suppression of stock or concealment of income. The appeal of the revenue was dismissed.