2017 (8) TMI 648 - HC - Income Tax

Penalty under Sections 271(1)(c) - assessee surrendered additional income - unaccounted closing stock found during survey - Held that - In the present proceedings the Assessing Officer accepted the revised return of income filed by the respondent Assessee declaring additional income of 1.40 crores. The Assessing Officer did not independently either in the Assessment proceedings or even in the penalty proceedings examine the contention of the respondent Assessee that there was no excess stock as found by the Income Tax Officer during the survey proceedings. Neither any exercise was done independently to find out whether the excess stock alleged was supported by any other evidence. This particularly in the face of the respondent Assessee asserting that the stock taking was not properly done. In-fact at the very first instance the respondent Assessee did point out that no exercise was done to weigh the stock to determine the the shortage if any. In-fact the shortage was arrived at on basis of estimate and the respondent Assessee had itself surrendered additional income to buy peace of mind and avoid unnecessary litigation. It did not accept that actual stock was more than that recorded in its books and during the proceedings also submitted a chart showing no excess stock. In the present facts the respondent Assessee was consistently stating that there is no excess stock in his possession. That it was subject to central excise control and no proceeding for clandestine removal of goods etc. were initiated against the respondent Assessee. Further in these facts the respondent Assessee the CIT(A) and the Tribunal have held that no penalty is imposable as the respondent Assessee herein has consistently contended that there is no excess stock. This contention has not been examined and commented upon the Revenue before imposing of penalty. Thus the impugned order of the Tribunal calls for no interference. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the ITAT erred in law by upholding the order of the CIT(A) deleting the penalty of ?48,00,000/- levied under Sections 271(1)(c) of the Income Tax Act, 1961.
2. Whether the Tribunal erred in law by considering extraneous factors as a basis for the surrender of income of ?1,40,00,000/- disregarding the fact that unaccounted closing stock of ?1,40,00,000/- was found during the survey.

Issue 1: Deletion of Penalty under Section 271(1)(c)
The respondent-Assessee, operating a Steel Rolling Mill, was subject to a survey under Section 133A of the Income Tax Act on 20th September 2006. During the survey, a discrepancy of ?1.40 crores in stock valuation was noted. The Assessee disputed this valuation, arguing that the stock was not weighed accurately and the personnel conducting the stock-taking were not technically qualified. Despite these objections, the Assessee filed multiple revised returns, eventually declaring an additional income of ?1.40 crores on 26th November 2008, to avoid litigation.

The Assessing Officer accepted this revised return but initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) deleted the penalty, noting that the Assessee had consistently disputed the stock valuation and no incriminating material was found during the survey. The Tribunal upheld this decision, emphasizing that mere surrender of additional income does not automatically lead to penalty imposition without evidence of inaccurate particulars of income.

Issue 2: Consideration of Extraneous Factors for Income Surrender
The Revenue argued that the voluntary disclosure of ?1.40 crores was an attempt to buy peace of mind and avoid litigation, citing the Supreme Court's decision in Mak Data P. Ltd. v. Commissioner of Income Tax. However, the Tribunal found that the Assessee had consistently challenged the stock valuation method and maintained that no excess stock existed. The Tribunal held that the Revenue failed to prove that the Assessee filed inaccurate particulars of income, distinguishing this case from Mak Data, where the Assessee did not dispute the undisclosed income.

Conclusion
The High Court affirmed the Tribunal's decision, noting that penalty proceedings are independent of assessment proceedings and require clear evidence of concealment or inaccurate particulars of income. The Assessee's consistent challenge to the stock valuation and lack of evidence from the Revenue to support the excess stock claim justified the deletion of the penalty. Both substantial questions of law were answered in favor of the Assessee, and the appeal was dismissed with no order as to costs.