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TMI Blog2024 (6) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s both original and revised claims, which would therefore need to be reconciled, only which would render the explanation acceptable to that extent. There is thus a clear understanding of the said case by the assessee, also apparent from the detailed replies in the assessment and the penalty proceedings; in fact; offering a sum of Rs. 1.8 crores in assessment proceedings, reiterated in penalty proceedings. Why, his case remains the same year after year, which it pleads for acceptance, as by the Tribunal in the quantum proceedings for the later years. No prejudice, whatsoever, stands caused, or in fact even suggested, as was questioned by the Bench during hearing. To say, therefore, that the charge is vague, is ludicrous. Reference in this context may be made to the decision in T.A. Abdul Khadar v. CWT [ 2006 (10) TMI 78 - KERALA HIGH COURT] ; and Sundaram Finance Ltd. [ 2018 (5) TMI 259 - MADRAS HIGH COURT] the facts of which be noted. Much less being raised in good faith and for bona fide reasons, we find the said legal ground as, rather, an abuse of the process of law. We therefore decline admission, relying thereon, as indeed on Jute Corp. of India [ 1990 (9) TMI 6 - SUPRE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,266 tins (Rs. 14,24,30,582), including revised claims u/ss. 80IA and 80HHC, incident thereon, remain unexplained. Though generally levied with reference to the original return, as rightly argued by Sri.Vijayaraghavan, no penalty in the instant case has been proposed on the additional income of Rs. 1.02 lakh offered in reassessment. Two, even as the assessee shall be allowed incidental deductions u/ss. 80IA and 80HHC, i.e., to the extent consistent with the assessee s explanation, penalty shall have to be necessarily computed in accordance with law. This is as the quantification of penalty is subject to Explanation 4 to section 271(1)(c). Finally, we have explained, even if broadly, as to why the assessee s legal challenge to the notice u/s. 274 is de hors the facts and, thus, invalid and, even otherwise, without merit. Accepting the assessee s explanation of having purchased the omitted goods sold for Rs. 6.10 cr., at Rs. 6.09 cr., i.e., of the same being also bought at like prices, subject to being verified, does raise the inference of they being of the same, inferior grades. Why, we wonder, this was not stated earlier, resulting in no finding in its respect. The assessee, never ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be finally restricted to the sum, i.e., qua the adjustment, net of incidental deductions, as finally assessed, for which reference, apart from the decisions afore-cited, be made to s. 80-AB. Needless to add, the assessee s objections to the proposed re computation, i.e., consistent with the manufacturing trading export profit as finally accepted by the AO, on the basis of evidence furnished, be sought, to eliminate both, the scope for error, as well as comply with the principles of natural justice. His order shall be a speaking order, meeting the assessee s objections, which we expect would conform to the clear provisions of law, as explained by the higher courts of law. We decide accordingly. We are conscious that some of our observations may not be in agreement with the case of either party before us. That, however, would be to no moment inasmuch as it is the correct legal position that is relevant, and not the view that the parties may take of their rights in the matter: CIT v. C. Parakh Co. (India) Ltd. [ 1956 (3) TMI 1 - SUPREME COURT] Assessee s appeal is partly allowed for statistical purposes. - SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI MANOMOHAN DAS, JUDICIAL MEMBE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s. 80-IA, however, remained unaltered at Rs. 275.32 lakhs (including Rs. 13.54 lakhs by way of processing commission), claiming deduction u/s. 80IA @ 25% at Rs. 68.83 lakhs, i.e., as per the original return. The restriction u/c. VIA at Rs. 4,14,67,212 (i.e., inclusive of Rs. 19,500 u/ss. 80L/80G) by the assessee, i.e., despite increase in the claim of deduction u/s. 80HHC by Rs. 125.88 (471.53 345.65) lakhs was explained to be in view of the reassessment proceedings, which are for the benefit of the Revenue (CIT v. Sun Engineering Works Pvt. Ltd. [1992] 198 ITR 297 (SC)). This was not accepted by the AO who, reckoning that on manufactured and traded goods separately, worked out deduction on the latter at Rs. 327.40 lakhs. The assessment was completed on 09.03.2004, making the following adjustments to the returned income, also initiating penalty proceedings u/s. 271(1)(c) of the Act vide notice u/s. 274 of even date: i. Claim for deduction u/s 80IA (Rs. 68,82,867/-) was rejected. ii. Bank interest of Rs. 3,13,508/- was assessed as Income from Other Sources . iii. The claim for deduction u/s 80HHC was restricted with reference to section 801A(9); iv. Deduction under sec. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee offers himself voluntarily an addition to be made on the export business profits through sales in course of export in respect of the transfers in Andhra Pradesh accounting for 30593 tins which is responsible for pricing distortions. For this purpose, the working for the additional amount on export business profits is based on the following: As you will kindly appreciate, the transfer price of Rs. 234.09 per kg. for the original transfers is taken as the base. The transfer price in Andhra Pradesh which was taken at an average price of Rs. 176 per kg. is given a step up as follows: Cost of production in Andhra Pradesh Average Rs. 213/- per kg. (Kindly refer to our Annexure to 80I claim where the average cost varies from Rs. 201 to Rs 224/- per Kg on a factory to factory basis Depreciation on assets in Andhra Pradesh - Rs 20,03,669/- (Vide Schedule to Fixed assets) No. of bags processed in Andhra Pradesh - 18,563 nos. Depreciation per kg.- Rs. 5.33 Administrative Overheads (estimated) - Rs. 10/- per kg. So, total cost - Rs. 228/- This is taken as the step up price after taking cognizance of lower grades comprised in these transfers as is evident from the break-up list encl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. Stock valuation is lower of cost or market price. (emphasis, supplied) The same comprises and dilates the assessee s case. 3.2 We may at this stage state the basis of the Revenue s case qua the addition for Rs. 321.15 lacs. Finding a spurt in the returned profit on export of traded goods, i.e., from Rs. 63.14 lakhs to Rs. 416.69 lakhs, the AO analysed the figures furnished by the assessee. As against the claim of sale (to sister concerns at Andhra Pradesh) for Rs. 814.24 lakhs (347831.82 kgs. at Rs. 234.09 per kg), the revised rate was at Rs. 205 per kg. The additional sale, omitted to be returned originally, at Rs. 610.07 lakhs (346924.62 kgs) fetched an average rate of Rs. 175.86 per kg. This was explained as due to sale of low grade varieties, also exported through sister concerns at AP, omitted to be included earlier. This was doubted in the absence of any substantiation; the average cost of production being at Rs. 247 per kg, at which rate the closing stock as at the year-end was also valued. That apart, the assessee s claim was attended by the following: (a) Section 80IA reported a profit of Rs. 261.78 lakhs (other than processing commission of Rs. 13.54 lakhs), while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anatory letter dated 2nd June 2003 by the assessee establishing the genuineness of the omission. Whereas the original sales in the course of export was to the tune of Rs. 8.14 crores comprising sales of 30673 tins, the revised return incorporated the omitted sales transaction figure of Rs. 6.10 crores comprising sale of 30593 tins of kernels thus totalling a total figure of Rs. 14.24 crores on the total sale of 61266 tins of kernel. Whereas the weighted average sale price originally was Rs. 234 per kg. The revised total value after considering the omissions, went down to Rs. 205/- per kg. Our detailed reply dated 4th March 2004 has (in)adequate explanations for the reason of fall in weighted average sale price. To reiterate, you will kindly note that there was no grade-wise costing system in the cashew industry. Hence the valuation of closing stock could be done only on overall basis. However, the exports and domestic sales were priced taking into account the grades sold and the prevailing market price. Therefore, the closing stock, if valued, on grade-wise basis, would have been lower than the value adopted for closing stock by the assessee since it will take into account the diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral. Aggrieved, assessee is in second appeal. 5. Before us, the emphasis of Shri Vijayarghavan, the learned counsel for the assessee, was as to the addition being based solely on estimation, i.e., of the assessee having under-priced sale of traded goods to sister concerns, which is not proved at all. The assessee, as explained, is not maintaining inventory of cashew kernels grade- wise and, accordingly, valued the same, i.e., as at the year-end, consistent with the past, on a weighted average for the year. No fault has been pointed out by the Revenue on that score. The actual purchase and sale of goods, however, would be as per the quality of the goods. Further, the profit being entitled to deduction u/s. 80HHC, no benefit in terms of tax saving, as inferred, would arise on underselling goods to his sister concern/s. Also, penalty had not been levied on the profit omitted to be returned per the original return, i.e., Rs. 1.02 lakhs. The Tribunal, in the quantum proceedings, had again confirmed the addition on the premise that the assessee had failed to disprove under-valuation, while it was the AO who, making the said charge, had to prove it, as explained by the Tribunal in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducing there-from. It is indeed surprising that this issue should arise year after year, i.e., the assessee selling goods to it s sister concerns at rates far lower than that obtaining, on average, for the year, and which he, albeit without evidence, explains as on account of inferior grade goods, and, further that the assessee s case continues to be unsubstantiated. Two, we find no reference to it s order dated 29.11.2007 in the Tribunal s orders for the later years. It is clear, therefore, that the same was not brought to it s notice by the parties, which is extremely disconcerting and depreciative. More so, of the assessee pleading his case sans reference to the Tribunal s order in his own case! Reliance thereon, in terms of the clear law qua judicial precedence, is, thus, misplaced (refer: Kondiba Dagadu Kadam v. Savitribai Sopan Gujar Others [1999] 3 SCC 722 [(2) SCR 728] and Sir Chunilal V. Mehta Sons Ltd. v. Century Spng. Mfg.Co. Ltd. [1962] AIR 1962 (SC) 1314 [(1962) SCR 549]. That is, not only the same cannot be regarded as a judicial precedent for the current year, it cannot be so for the later years as well; the only manner in which the Tribunal could take a different v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different grades are bound to be purchased and sold at different prices, perhaps to separate constituencies, in different markets. The valuation method adopted presupposes that the closing inventory is comprised of different grades in the same ratio in which they are purchased during the year, which is clearly presumptuous. The same, highly irregular, could be sustained only in case the different grades fall within a small price range or the sale of inferior goods is marginal, not impacting the operating result for the relevant year in any significant manner. Reference for the purpose may be made to CIT v. British Paints (I) Ltd. [1991] 188 ITR 44 (SC). As clarified therein, section 145 confers power as well as imposes duty on the AO to determine the correct profit and gain of the business. As such, where the accounts are prepared without disclosing the real cost of the goods in trade, he is duty bound to determine the taxable income by making computation in the manner he deems fit. Given the clear law in the matter, the issue becomes principally factual, wholly unproved. In our clear view, therefore, the Tribunal s order dated 29.11.2007 for the current year rightly holds the burd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147340.120 - 2.96 Production 2660357.420 - 61.15 Purchase Original 250364.520 - 6.36 Omission 346924.620 - 6.09 Total 597289.140 - 12.45 Cost of sales 3404986.680 - 76.56 Less sales 2955680.660 - 75.96 Original Omission 346924.620 - 6.10 Total 3302605.280 - 82.06 Closing stock 102381.400 - 102381.400 Value (Rs in Crores) 2.53 2.53 [The same was stated to be in agreement with the Balance Sheet (as on 31.3.2000), filing along-with original and revised Balance Sheet and P L (for F.Y. 1999-2000)]. The same, to our mind, radically alters the assessee s case, stating, in effect, that the sale, omitted to be returned earlier, i.e., Rs. 6.10 crores, was accompanied by the omission to record the corresponding purchase as well, which is at Rs. 6.09 crore, and which accounts for the additional income of Rs. 1.02 lakhs, offered in the reassessment. The same would: (a) prove that the omission has no bearing on the valuation of closing stock; and (b) that the goods sold at low rates were also, similarly, purchased at a lower price, proving the assessee s case of the said sale being, as stated, of low grade varieties. Though, surely, it would still be at a loss, i.e., taking into account, as oug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 234 per kg., and that of the omitted sale (30673 tins), Rs. 176 per kg., the sale rate of the exported 52,671 tins should fall in between even as the sequence of either sale both of which though are at a profit, is not known. To put it in perspective, while the assessee thus states of the same being sold at a profit of about Rs. 2 lac and odd (ignoring tin cost), the AO computes the profit at Rs. 327.40 lakhs, and the assessee himself at an even higher at Rs. 416.69 lakhs, increasing it from Rs. 63.14 lakhs returned earlier! The same needs to be explained. And the apparently contradictory claims reconciled with reference to the books of account, presenting a cogent picture, which appears incoherent. The burden for the same, besides w.r.t. Explanation 1 to section 271(1)(c) (refer Mak Data (P.) Ltd. vs. CIT [2013] 358 ITR 593 (SC); CIT v. Atul Mohan Bindal [2009] 317 ITR 1 (SC); UoI v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC); Guljag Industries v. CTO [2007] 293 ITR 584 (SC); K.P. Madhusudhanan vs. CIT [2001] 251 ITR 99 (SC); B.A. Balasubramaniam Bros v. CIT [1999] 236 ITR 977 (SC), to cite some), is on the assessee who makes the claim. 6.6 Next, we consider the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. This satisfaction is to be immanent in the assessment order, and may not necessarily be separately recorded. It is not under challenge in the instant case. The notice u/s. 274 is not a statutory notice, but only an administrative device to seek the assessee s explanation qua the adjustment/s to it s returned income in assessment qua which penalty proceedings stand initiated. The requirement of law is accordingly met on the provision of opportunity, through a notice u/s. 274, to the assessee to meet the Revenue s case as made out in the assessment order, observing, thus, the mandate of law as well as the principle of natural justice. This is purport of notice u/s. 274 nothing more and nothing less. How, as questioned by the Bench during hearing, to no answer, does the AO convey the specific limb of s. 271(1)(c) where, in his view, separate limbs thereof are attracted qua separate adjustments in assessment in respect of which penalty proceedings u/s.271(1)(c) are being initiated? Does the law therefore contemplate issue of separate notices for each such adjustment? The notice is valid. No wonder, the Hon ble Courts have considered the matter in perspective, and validated the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of particulars of income, i.e., irrespective of the limb on which initiation was based or specified in s.274 notice, i.e., concealment of particulars of income or furnishing inaccurate particulars of income. Nothing, as such, turns on whether it is a case of one or the other. How, one may ask, is the AO supposed to firm-up his mind in the matter without considering the assessee s explanation? The difference between the two may in the facts of a case may even otherwise be very thin, as observed in Sivagaminatha Moopnar Sons v. CIT [1964] 52 ITR 591 (Mad), or may overlap, as noted in A.M. Shah Co. v. CIT[1999] 238 ITR 415 (Guj). The dismissal of the SLP by the Hon ble Apex Court in S.S. Emrald s case is not per a speaking order. In Sum 7.1 We may capsule our findings. There have to be, it may be appreciated, strong reasons for selling goods at rate/s below par, much less recovering indirect cost as well, as also including an element of profit, more so where it is on a regular basis and, further, from sister concerns. This is precisely what the assessee seeks to justify without material though, stating of having sold inferior grade cashew kernels. That apart, valuation of goods va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g recovery of direct cost, implying nil gross profit, be said to be excessive? No case of it being excessive or not reasonable stands made in either quantum or penalty proceedings. The assessee, however, explaining before us, per submissions made in response to a query in its respect, post hearing, that the goods sold below par were in fact at a profit, albeit nominal, being also purchased at low prices, alters the assessee s case, proving the goods sold, at least in part, to be of an inferior grade. It removes the basis of the Revenue inferring a loss thereon, as where the identity of the goods purchased and sold, at Rs. 6.09 cr. and Rs. 6.10 cr. respectively, is, as stated, the same. So, however, there are yet serious gaps; rather, anomalies, in the assessee s case, with even the Revenue s action being internally inconsistent. Our directions in the matter are being stated separately (see para 7.2). Though we have approved the adjustment made in principle, we refrain from issuing any direction in its respect. The same is, in the set aside proceedings, to be made by the AO, as deemed proper after hearing the assessee, taking into account the explanation/s furnished. The trading pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturing profit, where and to the extent explained and accepted, may also require revisiting the claim for deduction u/s. 80-IA. Again, even if a part (22,078 tins, i.e., 52671 30593) of the export sale comes out of the omitted sale of 30673 tins, the same would be at marginal profit and, considering the proportionate indirect cost, at a loss, while the revised claim is at an increase over the reported profit of Rs. 63.14 lacs! The assessee s case rests critically on the truth and validity of his explanation, made presumably w.r.t. his accounts. Each of the observations made herein, as indeed by the AO, have to be addressed, and toward which reference is also made to para 6.5 of this order. The AO also contradicts himself. While charging the assessee to have diverted profit to sister concerns, i.e., under-reporting it, seeking to neutralize the inferred deficit of Rs. 321.15 lacs, even without proportionate administrative cost, and which the assessee works at Rs. 180.40 lacs, he determines the trading net profit on export at Rs. 327.40 lacs! That is, goes by the reported figures, which, he, in the same breath, claims as inflated. This is in view of a clear lack of transparency in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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