2020 (1) TMI 147 - AT - Income Tax

Capital gain computation - sale of closing stock - provisions of Section 50C applicability - stock was lying with the assessee on the date of sale of other fixed assets - as contended that assets were sold on going concern, slump sale basis and no consideration was assigned towards sale of closing stock - HELD THAT - In the absence of any application by the assessee to consider the additional evidence and in fact no evidence was filed before us except by making bald assertion before us. Further, this contention militate against the very statement of the assessee that closing stock was sold as part of the immovable assets. There is yet another reason to confirm the addition, even assuming that no specific consideration was assigned to the sale of closing stock, provisions of Section 50C of the Act are attracted on the sale of fixed assets. Thus, the addition is required to be confirmed even under the provisions of Section 50C of the Act, in the light of the fact that the sale consideration received exactly matches with the guideline value prescribed for stamp duty purpose in respect of fixed assets. Therefore, we do not find any reason to interfere with the orders of the lower authorities and we dismiss the appeal filed by the assessee. Levy of penalty u/s.271 (1) (c) in respect of addition made on account of undisclosed sale value of the closing stock - HELD THAT - Perusal of the order of Assessing Officer as well as ld. CIT(A), the addition was made considering sale value apportioned to various assets. Admittedly, no sale consideration was apportioned towards sale of the closing stock and the closing stock was not physically available with the assessee and the closing stock was admittedly transferred to the buyer. These admitted material facts led to addition. The only contention made by the assessee is that this was sold as part of sale of assets, which is not supported by any evidence. The Tribunal had recorded a finding that his statement is not supported by any evidence on record. The Hon ble Rajasthan High Court in the case of Badri Prasad Om Prakash vs. CIT 1985 (10) TMI 24 - RAJASTHAN HIGH COURT had held that wherever the assessee had failed to rebut the factual position on the basis of which addition was made, the levy of penalty u/s.271(1) (c) of the Act was justified. Thus, it is clear case of concealment and Assessing Officer had rightly levied penalty u/s.271 (1) (c) of the Act. The contention of the assessee that in show cause notice, the Assessing Officer had not struck off the relevant limb has no relevance, since he had filed explanation in response to show cause, which means that assessee very well understood the show cause notice, and therefore the ratio of the decision of Hon ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT cannot be applied as the assessee understood the show cause and filed explanation. Recently, the Hon ble Jurisdictional High Court in the case of Amtex Software Solutions Pvt. Ltd vs. ACIT 2019 (6) TMI 1182 - MADRAS HIGH COURT had reiterated the same ratio. Hence, we do not find any merits in the appeal filed by the assessee

Summary

Issues Involved:
1. Whether the sale consideration of ?1,60,00,000 includes the value of closing stock.
2. Whether the addition of ?53,84,394 for closing stock by the Assessing Officer was justified.
3. Whether the penalty under Section 271(1)(c) of the Income Tax Act for concealment of income was justified.

Detailed Analysis:

Issue 1: Inclusion of Closing Stock in Sale Consideration

The Assessee contended that the sale consideration of ?1,60,00,000 for immovable properties, including land, building, and tea factory, included the value of closing stock. The Assessee argued that the assets were sold on a slump sale basis or as a going concern, and thus, no specific consideration was assigned to the closing stock. However, the Assessing Officer rejected this contention, noting that no sale consideration was apportioned towards the closing stock in the sale deed.

Issue 2: Justification of Addition for Closing Stock

The Assessing Officer, upon reassessment, added ?53,84,394 to the Assessee's income, representing the value of the closing stock. The CIT(A) upheld this addition, and the Tribunal confirmed the decision. The Tribunal noted that the stock was lying with the Assessee at the time of sale, and the Assessee ceased to carry on the business. The contention that the assets were sold on a slump sale basis was rejected because liabilities were not taken over, and capital gains under slump sale were not offered to tax. The Tribunal found that the stock was implicitly sold to the same party, as confirmed by the purchaser, and the consideration received for the closing stock was not offered to tax. The Tribunal dismissed the Assessee's argument that the stock was sold as part of the immovable assets due to a lack of documentary evidence and confirmed the addition under Section 50C of the Act, as the sale consideration matched the guideline value for stamp duty purposes.

Issue 3: Penalty for Concealment of Income

The Assessing Officer initiated penalty proceedings under Section 271(1)(c) for concealment of income, stating that the Assessee did not disclose the sale consideration for the closing stock. The penalty of ?16,63,777 was levied. The CIT(A) confirmed the penalty, and the Tribunal upheld it, noting that the addition was made based on the sale value apportioned to various assets. The Tribunal found that the Assessee failed to rebut the factual position leading to the addition, and the Tribunal's earlier finding that the Assessee's statement was unsupported by evidence justified the penalty. The Tribunal dismissed the Assessee's argument that the show cause notice was defective, citing that the Assessee understood the notice and responded to it, invoking Section 292B of the Act to uphold the validity of the notice.

Conclusion:

Both appeals filed by the Assessee for the assessment year 2013-14 were dismissed. The Tribunal confirmed the addition of ?53,84,394 for the closing stock and upheld the penalty of ?16,63,777 under Section 271(1)(c) for concealment of income.