2025 (3) TMI 1171 - HC - Income Tax

Revision u/s 264 - shortage of stock found during a survey by the Central Excise Authority - HELD THAT - Admittedly the petitioner has not filed proper income tax return for the Assessment Year 2009-10 and shown the total loss - AO while passing the order u/s 143 (3) on the basis of survey conducted by the Excise Authority found that the valuation of the stock has not been mentioned in the books of account of the petitioner. So the AO has added the said income and the petitioner has also admitted the same before the Excise Authority. So the petitioner Company has not mentioned the difference of stock in their books of accounts. In spite of issuance of notice by the Department of the Assessment proceedings the petitioner failed to offer any satisfactory explanation. The petitioner has also not preferred any appeal against the assessment order and only preferred revision petition u/s 264. While dismissing the revision the Revisional Authority has noted that the petitioner/Company has not submitted any satisfactory explanation regarding the discrepancy at the time of assessment proceedings or at the time of penalty proceedings. It was found that discrepancy of stock found at the time of Central Excise survey was accepted by the petitioner Company as the sales outside books of accounts and the petitioner has also paid excise duty on that amount. Entire sale done outside books of accounts is income to be added as the raw material cost has been accounted for in the regular books of accounts. Thus the petitioner s contention that only GP should be added to income could not be accepted. It is settled that penalty proceedings are separate from assessment proceedings and therefore filing of revision petition under Section 264 against quantum addition would not be of any help to the petitioner in the Appellate proceedings against the penalty under Section 271 (1) (c). Considering the scope of writ jurisdiction and the fact that the petitioner has failed to establish any violation of natural justice or competency of jurisdiction this Court is not inclined to interfere with the aforesaid findings recorded by the Revisional Authority. WP dismissed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the addition of Rs. 57,41,353/- to the total income of the petitioner due to the alleged shortage of stock found during a survey by the Central Excise Authority was justified.
Whether the Revisional Authority's decision to dismiss the revision petition under Section 264 of the Income Tax Act 1961 was appropriate.
Whether the writ jurisdiction of the High Court is applicable to reassess the findings of the Revisional Authority.

ISSUE-WISE DETAILED ANALYSIS

1. Justification of Addition to Total Income

Relevant legal framework and precedents: The assessment was conducted under Section 143(3) of the Income Tax Act 1961, and the revision was sought under Section 264. The penalty proceedings were initiated under Section 271(1)(c) of the Act. The petitioner cited various precedents suggesting that only the net profit rate should be added to the income in case of stock discrepancies.
Court's interpretation and reasoning: The Court noted that the discrepancy in stock was acknowledged by the petitioner and that the petitioner admitted to sales outside the books of accounts. The Court found that the entire sale done outside the books should be added as income since the raw material cost was already accounted for in the regular books.
Key evidence and findings: The survey operation by the Central Excise Authority revealed a shortage of 171.05 metric tonnes of finished goods and 45.655 metric tonnes of raw material, leading to an under-valuation of Rs. 57,41,853/-. The petitioner failed to reflect this in their books and did not provide a satisfactory explanation during the assessment proceedings.
Application of law to facts: The Court applied the legal framework to the facts by affirming that the addition of the entire amount related to the discrepancy was justified, as the petitioner had already accounted for the raw material costs.
Treatment of competing arguments: The petitioner argued for only the gross profit to be added, citing various precedents. However, the Court found these precedents distinguishable on facts and upheld the Revisional Authority's decision.
Conclusions: The Court concluded that the addition of Rs. 57,41,353/- to the petitioner's income was justified and that the petitioner's arguments were insufficient to overturn the decision.

2. Dismissal of Revision Petition under Section 264

Relevant legal framework and precedents: Section 264 of the Income Tax Act 1961 allows for revision of orders. The petitioner argued that the Revisional Authority's order was non-speaking and did not consider the cited precedents properly.
Court's interpretation and reasoning: The Court observed that the Revisional Authority had jurisdiction and that the petitioner failed to provide any satisfactory explanation for the stock discrepancy during revision proceedings.
Key evidence and findings: The Revisional Authority noted the petitioner's acceptance of the discrepancy and payment of excise duty on the unaccounted sales, reinforcing the decision to dismiss the revision.
Application of law to facts: The Court applied the legal standards for revision and found that the Revisional Authority's decision was consistent with the law and facts presented.
Treatment of competing arguments: The petitioner cited case laws to argue for relief, but the Court found these cases factually distinct and not applicable to the current circumstances.
Conclusions: The Court upheld the Revisional Authority's decision to dismiss the revision petition, finding no grounds for interference.

3. Applicability of Writ Jurisdiction

Relevant legal framework and precedents: The petitioner sought relief under Article 226/227 of the Constitution of India, challenging the Revisional Authority's decision.
Court's interpretation and reasoning: The Court emphasized the limited scope of writ jurisdiction, particularly when the petitioner failed to demonstrate any violation of natural justice or lack of jurisdiction by the Revisional Authority.
Key evidence and findings: The Court found that the petitioner had not availed the appellate remedy and had not established any procedural irregularity or jurisdictional error.
Application of law to facts: The Court applied the principles of writ jurisdiction and found no basis to interfere with the Revisional Authority's findings.
Treatment of competing arguments: The respondent argued that the scope for interference in writ jurisdiction was limited and supported the Revisional Authority's decision. The Court agreed with this position.
Conclusions: The Court dismissed the writ petition, reinforcing the limited scope of interference under writ jurisdiction.

SIGNIFICANT HOLDINGS

Core principles established: The Court reinforced the principle that discrepancies in stock acknowledged by the assessee and sales outside the books should be fully added to the income, as raw material costs are already accounted for. The scope of writ jurisdiction is limited, especially when procedural compliance and jurisdiction are not in question.
Final determinations on each issue: The Court upheld the addition of Rs. 57,41,353/- to the petitioner's income, dismissed the revision petition under Section 264, and found no grounds for interference under writ jurisdiction.

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