9911796707
TMI Blog1986 (10) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in respect of these omissions, the ITO made an addition of Rs. 2,32,241 to the book results made up of as under : Rs. Saleof 283.2 kg. of hing in the price range Rs. 10-20 at the rate of Rs. 15 per kg. 4,248 Saleof 859 kg. of hing in the price range Rs. 41-50 at the rate of Rs. 50 per kg. based on the last sales 42,950Saleof 426.5 kg. of hing in the price range Rs. 51-60 at the rate of Rs. 60 per kg. based on sale in this range 15,590Saleof 1,511.8 kg. of hing in the price range Rs. 61 and above at the rate of Rs. 70 per kg. based on last sales 1,05,826 The assessee also sold hing in excess to the available goods amounting to Rs. 2,359 which is also to be added in the sales.Saleof 1,755 kg. of hing in the price range Rs. 21-30 at the rate of Rs. 220 per kg. as per last year 38,632Saleof 603 kg. of hing in the price range Rs. 31-40 at the rate of Rs. 35 per kg. as per last sales 21,005 ------------------------- 2,32,241 ------------------------- Here we may have to mention one factor which has got some relevance. Before the ITO made this addition proposals were sent to the IAC under section 144B of the Act. In response to the notice issued by the IAC, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of additions made on such account, it is unjust and unfair to proceed to levy penalty for concealment of income. Long and, detailed explanations were filed before the ITO. Rejecting all those explanations as unsubstantiated and relying on the observations made by the Tribunal while confirming the addition of Rs. 1 lakh, the ITO concluded that the assessee was guilty of concealment of income and levied a penalty of Rs. 1,25,000. 3. This penalty was cancelled by the Commissioner (Appeals) by his order dated 31-12-1984 by which he held that the addition made and confirmed was eventually on account of low rate of gross profit. For such additions, according to him, the principle of law enunciated by the various High Courts in their judgments was not to levy any penalty holding those additions to be concealment of income. On that view he cancelled the penalty. Against that order of the Commissioner (Appeals) the present appeal is filed by the revenue. 4. The learned departmental representative relying upon the orders of the IAC and the ITO submitted that the Commissioner (Appeals) has not properly appreciated the facts, that he merely accepted what was said before him by way of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee relying upon paragraph 8 of the order of the Tribunal in the quantum appeal submitted that the Tribunal dismissed the departmental appeal which meant that there was no case for addition. The order of the Tribunal should have been read as a whole to appreciate what was found out by the Tribunal and what were the defects in the accounts. He submitted that if books of account were maintained in the proper course of a business peculiar to the nature of business carried on by an assessee, even if an addition was made by rejecting the book results, no penalty could be levied treating the addition so made as a result of concealment of income more so when there was a stock tally and purchases and sales were fully vouched. In support of this proposition very strong reliance was placed upon the judgment in CIT v. Patna Timber Works [1977] 106 ITR 452 (Pat.), CIT v. Devandas Perumal Co.[1983] 140 ITR 943 (Bom.), CIT v. Mohammed Yakub Mohd. Ibrahim Co. [1983] 143 ITR 67 (Bom.) and CIT v. Mehar Singh [1985] 154 ITR 637 (Punj. Har.). He then submitted that all the discrepancies pointed out by the ITO were fully explained to the ITO as well as to the IAC in proceedings under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if an addition was made and sustained in the quantum appeal. He submitted that in the circumstances the order of the Commissioner (Appeals) should be upheld. 6. We have considered carefully these submissions and perused the record and the relevant orders. We have already adverted to the fact that assessment made on the assessee originally was set aside on appeal and the main reason for the setting aside of the assessment was the view taken that there was non-disclosure of 4,890 kg. of hing in the closing stock. The AAC while setting aside the assessment directed the ITO to examine whether the quantitative accounts furnished by the assessee was defective, to examine the chart showing the rates of 4,890 kg. of hing and to consider whether there was any possibility of sales being outside the accounts. In response to the enquiries made by the ITO while making the reassessment, the assessee submitted two lists giving the picture of sales and purchases, one up to28-2-1971and the other from28-2-1971to31-3-1971. The assessee also submitted that in order to improve the inferior quality of hing, hing of superior quality was mixed with the inferior quality but no record of it was kept beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with the explanation that the hing purchased at the higher rates were sold at the lower rates due to deterioration in quality. Having failed to establish this also, the appellant stated that he had mixed the higher price goods with the lower price ones and sold them as such. In support of this, he contended that sale of the higher price goods is more in quantity than the purchased one. This statement of the appellant is also not fully corroborated. As per para 11(v), it is evident that the appellant had not accounted for the sale of 859 kg. of hing purchased in the price range of Rs. 41-50 which according to the appellant's own statement remained unsold in the months of February and March. The latest explanation of having mixed the goods of various quality cannot be verified from any contemporary records. It is also worth mentioning that the appellant is a manufacturer of synthetic hing as well. One irresistible conclusion from the facts and circumstances of the case is that the appellant had understated the sale price of the goods though he had at the end tried to give a quantitative tally. The excess sales in the higher price ranges than the purchases clearly indicate that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) vis-a-vis the stand of the assessee and the grounds of appeal taken before us by the assessee, with the result, that assessee's appeal, viz., IT Appeal No. 4307 (Delhi) of 1982 stands rejected." It will be seen from the above that the concurrent finding recorded by the AAC, who heard the appeal originally, by the IAC (Assessment) under section 144B, and the Commissioner (Appeals), who heard the quantum appeal and the Tribunal was that the accounts maintained by the assessee were defective and that there was not only suppression of closing stock to some extent, be it even 859 kg. of hing, and ample scope for manipulation of selling prices existed. Moreover, for the assessment year 1972-73 also the Tribunal held that the proviso to section 145 of the Act was applicable. Even for the assessment year 1971-72 the book results were not accepted and addition was made. We may also state that the assessee did not maintain any stock register but only prepared quantitative particulars from the purchase invoices and sale bills. Before the Commissioner (Appeals) against imposition of penalty under section 271(1)(c) the assessee stated as under : " The assessee had recorded the purchases a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess shown or the shortages are properly accounted for or not. Otherwise the stock particulars, disclosed by the assessee cannot be said to be fool-proof. The non-maintenance of the stock register must be seen in the light of the various discrepancies found by the ITO and the finding of the Commissioner (Appeals) that there was suppression of closing stock. The varying explanations offered by the assessee at various times also assumes importance and relevance to judge whether the assessee offered truthful explanations or not. Therefore, if in this state of accounts the book version was rejected and in order to make an addition the gross profit rate shown in the assessment year 1969-70 was taken as a guide, it cannot be said that the addition was made only on account of gross profit in a routine way without there being any discrepancy in the accounts as if the addition was made only on account of the lowness of gross profit. The addition made in this case is not of such an addition. This is an addition made to cover up the suppression in the closing stock and the unrecording or improper recording of sales by manipulating the selling prices. That was the reason why the learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot known on what grounds the addition for that year was made and on what grounds the AAC had cancelled the penalty and whether that cancellation of penalty was accepted by the revenue or not. We are, therefore, of the opinion that the Commissioner (Appeals) is not justified in cancelling the penalty more particularly when the assessee had conceded before the Tribunal that it was not possible to explain the discrepancies found out by the revenue which explicitly meant that the discrepancies pointed out by the revenue were real and genuine. We, therefore, reverse the order of the Commissioner (Appeals) and restore that of the ITO. 8. Since we have dealt with on the facts of this case, we found it proper to deal with the case law cited both for and against the assessee that when an addition on account of gross profit was made, no penalty should be imposed. At the cost of repetition we may point out that there is a difference between an addition made on account of gross profit being lower from an addition made taking gross profit as a measure when substantial omissions were found in the accounts. The latter would amount to concealment of income for there was no explanation and the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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