9911796707
TMI Blog2010 (11) TMI 1071X X X X Extracts X X X X X X X X Extracts X X X X ..... Facts, in brief, as per relevant orders are that in this case a survey u/s. 133A of the Income-tax Act, 1961[hereinafter referred to as the 'Act'] was conducted in the premises of the assessee on 20- 10-2000,when excess stock of garments was found and consequently, partner of the firm Shri Harishbhai U. Mamnani while admitting the existence of excess stock, offered a sum of ₹ 11,17,752/- for taxation. Later, the assessee stated that out of the said sum, ₹ 7,75,050/- related to the assessee, the remaining to two other firms M/s Harish Garment and M/s Udharam Ashumal, controlled by the family of partners and being operated in the same premises. Subsequently, return declaring income of only ₹ 1,84,350/- filed on 31-07-2001 by the assessee, dealing in garments and dress material, was taken up for scrutiny. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee had obtained a secured loan of ₹ 14,70,939/- from Anand Mercantile Co.op. Bank Ltd. (AMCBL) against hypothecation of stocks. As per statement of stock position as on 30/6/2000 submitted to the bank, stock was valued at ₹ 26,21,865/-. Even th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to March 2001. 2.2 The AO also observed that even though the balance sheet as on 31-3-01 enclosed with the return showed secured loans amounting to ₹ 14,70,939/- on account of hypothecation of stocks with the Anand Mercantile Co-Op Bank Ltd. (AMCBL), the closing stock of goods hypothecated as per the books amounted to only ₹ 8,00,683/- after excluding the stock of ₹ 7,75,505/-declared as a result of survey . The AO further noticed that copy of the stock statements submitted to the bank revealed that the stock declared to the bank was much higher than the stock shown in the books of account. The highest stock disclosed to the bank as on 30.6.2000 amounted to ₹ 26,21,865/-.Since the assessee did not maintain day today stock register during the year, the AO worked out stock as on 30-6-2000 as per books after adopting the G.P. @ 26.2% declared by the assessee. As the stock as per the books worked out to only ₹ 8,00,683/- as against stock of ₹ 26,21,865/- declared to the bank, the AO concluded that the assessee understated of the stock in the books as on 30-6-2000 and the actual stock was much higher as disclosed to the bank. Accordingly, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,05,570 Less: cost of goods sold Rs.1,85,824 Opening stock 1-7-2000 Rs.5,19,746 (or say Closing stock as on 30-6-2000) As against the book stock of ₹ 5,19,746/- the assessee disclosed stock of ₹ 26,21,865/- to the bank as on 30-6-2000. However, while working out the excess stock, the stock disclosed during the course of survey was ₹ 7,75,505/- has to be taken into account. Thus, the excess stock disclosed to bank was worked out as under. Stocks disclosed to the Bank as on 30-6-2000 Less. Rs.26,21,865 Book stock as on 30-6-2000 Rs.519746 Add. excess stock admitted during the year Rs.775505 Rs.1295251 Rs.12,95,251 Peak difference Rs.13,26,614 Accordingly, the AO added an amount of ₹ 13,26,614 u/s. 69 of the Act. 2.3 The AO also noticed that in certain instances, the assessee claimed expenses twice on the same bill issued by party and no supporting evidences were furnished in respect of expenses of ₹ 12,250/- claimed as traveling expenses and ₹ 9,500/- in respect of staff welfare expenses. Accordingly, the AO disallowed following expenses: Electricity exp. Rs.13,901/- Advertising exp. Rs.2,336/- Staff W elfare Expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade any investment outside its books of account, considering that the excess stock as at the date of survey (20.10.2000) stands surrendered for tax, and if so, its quantum. In other words, the resolution of the issue boils down to drawing an inference as to the quantum of stock held by it during the course of the year on the basis of its statements of the stock held by it from time to time furnished to its bank for the purpose of availment of, and in terms of, the credit facilities being enjoyed by it therefrom. Towards this we find, that the assessee states that its statements are guided solely by the consideration of availment of bank finance and which is dependent upon the value thereof, determined at its purchase price, i.e., @ 60% thereof. However, it has not brought forth any evidence to support this averment, by, say, showing the amount of credit availed by it at different times during the year with reference to the corresponding bank statements. This exercise has not been made by the Assessing Officer as well, who has proceeded to treat the bank statements as sacrosanct and as exhibiting the true state of affairs, so that the amount of stock as reflected in those statements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of survey cannot be accepted. The very fact that its stock varies from month to month, and which would only be in response to the business needs, would exhibit this. Rather, we observe that stock held by it generally is to be tune of ₹ 25 to ₹ 26 lakhs throughout the year except for the months ending August, September and October, 2000. As such, the only plausible inference is that the stock generally held by it is higher (by about ₹ 7 to ₹ 8 lakhs) than that held in the months of August to October. This, coupled with the fact that the stock as found at the time of survey i.e., ₹ 17.63 lakhs matches with that declared by it to the bank as at 30.9.2000 and 30.10.2000, would impel us to hold that its peak stock is about ₹ 7.50 lakhs higher than that held by it in these months and which also cover the date of survey. This observation, though compelling in the facts and circumstances of the case, would need to factor in some of the arguments taken by the assessee before the authorities below to see if they merit acceptance, and if so, their impact on the aforesaid finding. (a) The assessee successfully pleaded that the difference in stock with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ality of a business practice, whether right or wrong, has to be adjudged on the basis of evidence, or, in its absence, on the basis of preponderance of probabilities, so that the Assessing Officer's ground of rejection thereof, to our mind, is legally infirm. However, the assessee's statement would need to be verified on facts i.e., whether the said two sister concerns whose stock also lies at its business premises, enjoy any credit facility from any bank against the security of stock and, if not, it would only be reasonable to allow credit for the amount of stock as per their books of account as at 30.6.2000 i.e., the date with reference to which the peak value of unexplained investment has been reckoned. For the determination of book stock as on 30.6.2000, in the absence of any stock register, the stock as arrived at on application of their average GP rate (for the relevant year) may be substituted. Further, as the two sister concerns also carry stock in excess of their book stock, and which was also surrendered at the time of survey in their hands, and accepted by the Deptt., at ₹ 106572 and ₹ 235675 respectively, credit for the same would also be merited on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate in the post- survey period in comparison to the preceding periods as under: Period Gross Profit Rate From 1.4. 1998 to 31.3.1999 25.66% From 1.4. 1999 to 31.3.2000 24.81% From 1.4.2000 to 20.10.2000 26.20% From 1.11.2000 to 31.3. 2001 11.63% The learned Assessing Officer, before effecting the impugned addition, considered all the arguments and evidence led by the assessee and stated his findings in clear terms which found acceptance of the learned CIT(A). 13. Before us, the learned AR repeated the arguments as made before the authorities below, while the learned Departmental Representative relied on the orders of he authorities below. 14 We find that the Assessing Officer has passed a very reasoned order, and conversely, the assessee has not led any evidence in its favour, relying only upon general assertions and which again are not borne out of record, and rather, are inconsistent therewith. The lean period which it speaks of bears the GP rate of 26.20%. Also, its contention of the inapplicability of the division of the trading account for the year into two parts i.e., pre and post survey periods is not tenable, in view of the fact that all the figures th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed before the Assessing Officer as well the CIT(A). However, the assessee had explained before both the authorities below that the same related to hospital expenses of an employee of the firm - Shri Bharat Bhai, who got his leg fractured in a minor accident while going to Nadiad for business purposes. Under the peculiar facts and circumstances of the case, we do not think the assessee's explanation is unrealistic. Also, considering the nature of the expenditure which arose in the exigencies of the situation, it would not have been very practical to collect the necessary evidence. Also, we believe that the AO, if doubtful of the assessee's explanation, should have, instead of just brushing it aside, called for some circumstantial or collateral evidence. We, therefore, uphold the assessee 's claim and delete the addition of ₹ 9,500/-." 5. In the light of aforesaid findings of the ITAT, the total income was finally determined at ₹ 11,36,600/- as against the returned income of ₹ 1,84,350/-. Thereafter, in response to a showcause dated 7/6/2005 and further notice dated 2/12/2005 before levy of penalty , the assessee submitted since they had filed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t direct expenses during the post survey period have gone up. There is also no proof so as to accept the plea of the appellant that stock clearance sale was made with a low margin. In these circumstances, I decline to accept the arguments put forth by the counsel that profit disclosed of 20.5% by the appellant was reasonable and more particularly when post-survey GP was about 26.20%. The appellant has failed to explain such sudden fall during post-survey period and it is also noticed that since there is substantial down fall in overall GP during the year as compared to GP disclosed in preceding/succeeding years also. I therefore, hold that the AO Is Justified in making GP addition of ₹ 1,49,888/-." This was confirmed by the order of the ITAT which stated that "the Assessing Officer has passed a very reasoned order, and conversely, the assessee has not led any evidence in its favour, relying only upon general assertions and which again are not borne out of record, and rather, are inconsistent therewith. The lean period which it speaks of bears the GP rate of 26.20%. Also, its contention of the inapplicability of the division of the trading account for the year into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny stage, It Is obvious that the same were inflated expenses claimed by the appellant. In view of the above, I do not think this Is a fit case to Interfere with the levy of penalty u/s. 271(l)(c) on this issue also. 7. As a result, penalty levied u/s. 271(l)(c) of the IT Act is confirmed. However, the Assessing Officer has not brought on record any reason to justify the levy of penalty @ 200%. The same Is therefore, reduced to 100%." 7. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The learned AR on behalf of the assessee while carrying us through the impugned orders and relying upon decisions in the case of Shri Pravinbhai B Soni vs. ITO [1993) 117 Taxation 4 (Trib),ITO vs. Smt. Shanuur J Farooqui,10 SOT 25(Mum.) and CIT vs. Vijay kumar jain,38 DTR (Chhatisgarh)345 contended that no penalty can be levied on estimated additions. Regarding advertisement expenses, the ld. AR merely stated that the amount was debited twice and the assessee had accepted the disallowance. To a query by the Bench, the ld. AR submitted that their appeal against order of the ITAT was not admitted by the Hon'ble High Court. On the other hand , the ld. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k upheld by the ITAT ,there is nothing to suggest that the assessee submitted any explanation before the AO during the penalty proceedings. In nutshell, the assessee failed to substantiate their explanation in relation to GP results in the post survey period during the assessment proceedings before the AO as also before the CIT(A) and the ITAT nor established bonafide of their explanation. Regarding other addition towards excess stock, the assessee did not submit any explanation during the penalty proceedings at all. Thus, the assessee failed to discharge the onus laid down upon it, in terms of explanation 1 to sec. 271(1)(c) of the Act. Before proceeding further , we may have a look at the relevant provisions of section 271(1)(c) of the Act, which read as under: "271.Failure to furnish returns, comply with notices, concealment of income, etc. (1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person- ......................................................................................... (c) has concealed the particulars of his income or furnished inaccurate particulars o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well established that they lead to the same effect namely, keeping off a certain portion of the income from the return. According to Law Lexicon, the word "conceal" means: "to hide or keep secret. The word 'conceal' is con+celare which implies to hide. It means to hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of ; to withhold knowledge of. The offence of concealment is, thus, a direct attempt to hide an item of income or a portion thereof from the knowledge of the income-tax authorities." In Webster's Dictionary, "inaccurate" has been defined as : "not accurate, not exact or correct; not according to truth; erroneous ; as an inaccurate statement, copy or transcript." 8.11 If the disclosure of facts is incorrect or false to the knowledge of the assessee and it is established, then such disclosure cannot take it out from the purview of the act of concealment of particulars or furnishing inaccurate particulars thereof for the purpose of levy of penalty. The penalty u/s 271(1)(c) of the Act is leviable if the AO is satisfied in the course of any proceedings under this Act that any perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order dated 7-3- 1980, upheld the additions sustained by the AAC and restored the addition of ₹ 37,535 of the said item No. 5, which was deleted by the AAC. In the light of these facts, the Hon'ble jurisdictional High Court sustained the order of the ITAT, upholding the levy of penalty u/s 271(1)(c) of the Act even on the amount of ₹ 37,535/-.If the income had to be assessed under section 145 of the Act, then the presumption would be that the income was not properly returned, as held by Hon'ble jurisdictional High Court in CIT vs. Chandra Vilas Hotel,291 ITR 202(Guj). In this decision the Hon'ble High Court found that the assessee was not maintaining its account for six years and every year assessments were framed with the help and assistance of section 145(1) of the Act. Accordingly, the Hon'ble jurisdictional High Court observed that at least some order should have worked as an eye-opener for the assessee and that every year the assessee was repeating the same trend and still it wanted to say that it had not concealed the income or there was no fraud or gross or wilful neglect on its part. In the instant case also, the ITAT came to the conclusion tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 (SC); TC 50 R. 795, Addl. CIT v. Jeevan Lal Sah [1994] 117 CTR (SC) 130; [1994] 205 ITR 244 (SC); TC 50 R. 973 and K.P.Madhusudanan vs. CIT,251 ITR 99(SC), it is well established that whenever there is difference between the returned and assessed income, there is inference of concealment. The explanation 1 to sec. 271(1)(c) of the Act raises a presumption that can be rebutted by the assessee with reference to facts of the case. Thus, the onus is on the assessee to rebut the inference of concealment. The absence of explanation itself would attract penalty. The explanation offered by the assessee should not be false. The onus laid down upon the assessee to rebut the presumption raised under explanation 1 would not be discharged by any fantastic or fanciful explanation. It is not the law that any and every explanation has to be accepted . In our considered view, the provisions of Explanation 1 to section 271(1)(c) of the Act, when the assessee did not submit any explanation during penalty proceedings in relation to unexplained investment in stock, is clearly attracted and the assessee has miserably failed to discharge the onus laid down in terms of this explanation. Likewise in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed against him. These provisions include the Explanation. By reason of the Explanation, where the total income returned by the assessee is less than 80 per cent. of the total income assessed under section 143 or 144 or 147, reduced to the extent therein provided, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, unless he proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The assessee is, therefore, by virtue of the notice under section 271 put to notice that if he does not prove, in the circumstances stated in the Explanation,, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that section. No express invocation of the Explanation to section 271 in the notice under section 271 is, in our view, necessary before the provisions of the Explanation therein are applied. The High Court at Bombay was, therefore, in error in the view that it took and the Division Bench in the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment of duty or tax as the case may be, the theory of mens rea is not attracted. In such matters, the rules of interpretation contemplate a strict interpretation rather than a liberal and wider interpretation. 8.61 The rule of mens rea has to be established beyond all reasonable doubt in criminal cases, but it is not so in the case of an economic offence. The classical view that "no mens rea, no crime" has long ago been eroded, especially regarding economic crimes. In economic offences, the notion that a penalty or a punishment cannot be cast in the form of an absolute or no fault liability but must be preceded by mens rea must be rejected. A rule of strict liability or absolute liability should be imposed without insisting mens rea to deal with such socio economic crimes, vide S. Bagavathy v. State of Tamil Nadu [2007] 1 LW 892. 8.62 Mens rea is not an essential ingredient for contravention of the provisions of the civil Act. Unless the language of the statute indicates the need to establish the element of mens rea, it is generally sufficient to prove that a default in complying with the statute has occurred and it is wholly unnecessary to ascertain whether such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct., 1872 gives statutory recognition to this universally accepted rule of evidence. iii) there is no discretion on the Assessing Officer as to whether he can invoke the Explanation or not. 8.9 In the case of Usha Fertilisers vs. CIT,269 ITR 591(Guj), while upholding the levy of penalty, Hon'ble jurisdictional High Court observed that ".......The Supreme Court in the case of Mussadilal Ram Bharose [1987] 165 ITR 14 has specifically laid down the scope of the Explanation in the following words: "The position, therefore, in law is clear. If the returned income is less than 80 per cent, of the assessed income, the presumption is raised against the assessee that the assessee is guilty of fraud or gross or willful neglect as a result of which he has concealed the income but this presumption can be rebutted. The rebuttal must be on materials relevant and cogent." As to what could be the explanation by which the assessee can rebut the presumption raised against it, is stated by the apex court in the same decision in the following words while confirming the view expressed by the Full Bench of the Patna High Court in the case of CIT v. Nathulal Agarwala and Sons [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR, we find that these decisions were rendered on their own peculiar facts and as argued by the ld. DR ,are not applicable to the facts in the instant case before us. First such decision is in the case of Shri Pravinbhai B Soni(supra). In this case, during the assessment proceedings, a credit entry of ₹ 10,000/- was found in assessee's account with a certain firm in which the assessee was a partner. On questioning the assessee regarding the source, he explained that ₹ 10,000/- was deposited out of his withdrawals for the last 8 years. As there was no evidence, the assessee agreed to surrender this amount for taxation. The ITO levied minimum penalty of ₹ 6,750/- for concealing true particulars of income. The first appellate authority confirmed ITO's order. On appeal, the ITAT held that the mere admission that the amount belonged to him is not proof that the amount actually belongs to the year under consideration and therefore, this amount cannot be taken into consideration for levying penalty. However, such are not the facts in the instant case. 9.1 Next decision in the case of Smt. Shannur J Farooqui(supra) relates to levy of penalty u/s 271(1)(c) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of explanation 1 to sec. 271(1)(c) of the Act before the lower authorities and even before us , we have no hesitation in upholding the order of the ld. CIT(A) in confirming the penalty imposed by the AO under s. 271(1)(c) of the Act on the aforesaid additions of ₹ 1,49,888/- on account of low GP in the post survey period and ₹ 9,84,367/- towards unexplained investment in stock. As regards disallowance of ₹ 2,336/- on account of advertisement expenses, we are of the opinion that mere disallowance of a claim will not amount to filing of inaccurate particulars of income. It can at best be a "wrong claim" not "a false claim". In such circumstances, Hon'ble Delhi High Court held in the case of Commissioner Of Income-Tax.vs Bacardi Martini India Limited.,288 ITR 585(Del) that no penalty was leviable. Therefore, levy of penalty on the amount disallowed on account of advertisement expenses is not justified. The AO shall, accordingly, exclude the amount while working out quantum of penalty. With these observations ground nos.1 & 2 in the appeal are disposed of. 11. No additional ground giving been raised before us in terms of residuary ground no. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
