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TMI Blog2014 (9) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... stock valuation to ₹ 70,75,882,36 against ₹ 1,03,23,724/- considered by the AO. Hence, the penalty leviable has to be re-worked. AO is directed to re-work the penalty. But for the quantification aspect against penalty order is sustained. - Decided against assessee. - ITA Nos.82 & 83(Bang) 2013 - - - Dated:- 12-9-2014 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER Assessee by : Smt Sheetal, Advocate Revenue by : Shri M.K.Biju, JCIT ORDER PER SHRI ABRAHAM P GEORGE, AM: These are appeals filed by the assessee against orders dated 19-10- 2012 of CIT(A),Mysore, first one assailing the quantum addition made in the assessment and second one assailing the levy of penalty under section 271(1)(c) of the IT Act, 1961 ( in short The Ac ), 2. First we take up appeal against quantum addition; 2.1 Facts apropos are that assessee was engaged in processing of raw cashew nuts and producing edible cashew kernel as also trading in cashew kernels. It had filed its return for the impugned assessment year, declaring income of ₹ 1,82,62,775/-. During the course of assessment proceedings learned AO noted that assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70,000 7,93,800.00 2.Sales to armed forces 16,327 1,85,148.18 3. Local sales of 11.34 Kg tins 1,900 21,546.00 4. Local sales of 10 Kg tins 38,185 3,81,850.00 Total sales 1,26,412 13,82,344.18 E Closing stock 14,267 2,11,606.30 For the closing stock of 2,11,606.30 Kgs AO applied the rate of ₹ 207.23 per Kg to arrive at a value of ₹ 4,38,51,174/-. Rate of ₹ 207.23 per Kg was taken from assessee s own value of ₹ 2350/per tin of 11.34 Kg. Since assessee had valued the closing stock of kernels at ₹ 3,35,27,450/-, the AO made an addition for the difference of ₹ 1,03,23,724/-. 4. Assessee had during the relevant previous year given an advance of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee submitted that the additional evidence was only a month-wise working of the stock movement, dividing the stock in 10 Kg tins and 11.34 Kg tins. According to her this was a crucial material which will help the Tribunal in deciding on the correctness of the claim of the assessee. 8. On merits, learned AR stated that audit report in Form 3CD mentioned quantities in tins. Assessee had never given a break-up in Kilograms. According to her, the AO went by a wrong premise that the opening stock 11696 tins were of 11.34 Kg kernel. Likewise the yield of 22.70% was also worked out considering every tin to be of 11.34 Kg. AO had made a reverse working, applying a mistaken yield ratio mentioned by the assessee and arrived at a higher production than what was there. If the closing stock of 2,11,606.30 Kgs (14267 tins) worked out by the AO is taken as correct, it would mean packing of 14.83 Kgs of kernel in a tin, which was impossible. Assessee, as per the learned AR was following a consistent method of valuation of stock and this should not have been disturbed by the AO. Reliance was placed on the decisions of Hon ble jurisdictional High Court in the case of CIT Vs Sridevi Enterprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock has been presumed as of 11.34 Kg each viz 132632.64 Kgs. Production of 13,21,597.22 Kgs for the year has been worked based on the yield of 22.70% shown by the assessee. Hence, this cannot be faulted. In other words, the only item in which, assessee can be aggrieved is the weight of opening stock quantity of 11696 tins. Even if we presume that every one of these tin was of 10Kg the opening quantity will not be less than 1,16,960 Kg. The maximum difference that could be there could be only (1,32,632.64)-(1,16,960.00) i.e 15672.64 Kgs. If we reduce it from the closing stock of 2,11,606.30Kgs worked out by the AO, the figure will be 1,95,933.66 Kg. At the rate of ₹ 207.23 per Kg the value thereof will be ₹ 4,06,03,332.36. As against this closing stock value adopted by the assessee was ₹ 3,35,27,450/- leaving a difference of ₹ 70,75,882.36.There can thus be no doubt that assessee had suppressed closing stock worth ₹ 70,75,882.36 at the least. 13. As for the claim of the assessee that AO ought not have attempted conversion of tins to Kilograms, since it had along shown its stock movement in tins we are unable to appreciate. Purchase of raw cashew was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gives the quantity of goods manufactured. Sales is a function of stock available and goods manufactured out of raw material consumed. Goods sold are recorded in terms of weight being Kilogram or pounds depending on the market. However, as per the books of the assessee, sales are recorded in terms of number of tins dispatched. The tins exported by the assessee and sold to the Indian Army weighs 11.34 Kgs (25 pounds). Whereas the sales made within the country weight only 10 Kgs. Since the sales are recorded in terms of number of tins, the assessee has recorded all the sales in number of tins. The assessee has failed to record the correct quantity of sales in his book of accounts. As a result there is a deficit of 1.4 Kgs in respect of each tin sold within the country and should be available with the assese as closing stock. Hence, there is a difference in the quantum of closing stock shown by the assessee in its returns of income. The above fats were also confirmed by the investigation undertaken by this office by calling for information u/s 133(6) of the IT Act, 1961 from the assessee s purchasers. 4.7 When these evidences were confronted to the assessee during the course of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntage and gain out of it, is nothing but furnishing inaccurate particulars. Giving a break-up of number of tins with different quantities, so as to fit its valuation of closing stock, is nothing but an after thought. In our opinion, it was only an effort to suppress the income which it otherwise had. 22. On the aspect of levy of penalty under section 271(1)(c ), Hon ble jurisdictional High Court in the case of CIT vs Manjunatha Cotton and Ginning Factory 359ITR 565, after analysing the law laid down by Hon Apex Court through various judgments, including that of Union of India Vs Dharmendra Textile Processors and others 306ITR277, held as under at paras 63 to 64 of it judgment. 63. In the light of what is stated above, what emerges is as under: a) Penalty under Section 271(1)(c) is a civil liability. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. e) The existence of such conditions sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. u) The findings recorded in the assessment proceedings in so far as concealment of income and furnishing of incorrect particulars would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reasse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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