9911796707
TMI Blog2003 (3) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... n. The assessee challenged the addition before the CIT(A) who vide her order dated 18-2-1993 reduced the addition by Rs. 40,000 and sustained an addition of Rs. 2,78,402. The A.G. initiated penalty proceedings under section 271(1)(c) and after giving an opportunity of being heard to the assessee levied a penalty of Rs. 2,19,240 which is equal to 150 per cent of the tax sought to be evaded. 3. The assessee appealed to the ld. CIT(A) and advanced detailed arguments which are summarised as follows: (1) The survey party had inventorised the huge stock of three different firms in some 5 to 6 hours; actually it takes 3 to 4 days to count the physical stock of various firms and therefore, there is every possibility of omission or commission on the part of the survey party. (2) The values had been stated by the salesmen of the three firms and they were not knowing the cost price of each sari and told the over-valued prices of most of the items. (3) There were three more sister concerns doing the same business in the same premises. The stock as a whole was counted and the A.O. had not considered the shortage of stock found in the other concern i.e. M/s. Kunden Fabrics. (4) While valuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT v. K.P. Madhusudanan [2000] 246 ITR 218 wherein the Hon'ble Kerala High Court has explained Sir Shadilal Sugar & General Mills Ltd.'s case and submitted that penalty was clearly leviable. He placed reliance on the decision of Hon'ble Bombay High Court in the case of Western Automobiles (India) v. CIT [1978] 112 ITR 1048, in Krishna Kumari Chamanlal v. CIT [1996] 217 ITR 645 (Bom.) and CIT v. D.K.B. & Co. [2000] 243 ITR 618 (Ker.). 6. Shri S.N. Doshi, the learned counsel for the assessee, submitted that though the difference in stock was not agreeable to the assessee, still for the purpose of avoiding litigation and for buying peace of mind the assessee declared this difference. However, it is true that at the time of filing return, this addition was not made. But that was a mistake and the same was rectified because during the course of assessment proceedings, the assessee offered this amount for addition. He further submitted that the survey party took just 5 hours for inventorising the stock as against nearly 4 days needed for taking the stock and that the stock difference is on account of estimation of value of stock and estimation of percentage of gross profit. He drew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------- --------------------------------------------------------------------------------------- He submitted that in fact there is shortage of stock of Rs. 6,89,356 - Rs. 2,78,402 = Rs. 4,10,954 and in respect of all the three firms, the assessee had made a declaration of Rs. 10,94,443. Despite this position, the assessee agreed for the addition. Therefore, merely agreeing for addition does not constitute concealed income. In support of his contention, he relied upon the decision of the Hon'ble Bombay High Court in D.M. Dahanukar v. CIT [1967] 65 ITR 280. He submitted that the assessee never admitted that the excess stock was its concealed income and the assessee has only taken the benefit of capitalisation. He also placed reliance on the decision in CIT v. Bhimji Bhanjee & Co. [1984] 146 ITR 145 (Bom.) and CIT v. Kiran & Co. [1996] 217 ITR 326 (Bom.). 7. We have considered the rival submissions and perused the facts on record. As is clear from the facts of the case, survey was conducted on the assessee and its two sister concerns situated in the same premises on 4-10-1988. During the course of survey, difference was calculated by applying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... survey party at Rs. 3,18,402 on the basis of valuation given by assessee at the time of survey. However, while filing the return of income, this addition was not made in the income declared by the assessee. However, in the course of assessment proceedings, the assessee offered this amount of addition and the A.O. noted at pages 3 and 4 of his order as under: "There was a survey under section 133A of the Act, in the business premises on 4-10-1988, when the inventory of the stock was found in assessee's business premises was taken and the tentative trading account as on the date of survey was drawn. After making certain corrections as pointed out by the assessee under this office letter dated 14-2-1989, an excess stock of Rs. 3,86,417 as worked out in the letter dated 14-2-1989 was intimated to the assessee for addition for the assessment year 1988-89. During the course of the assessment proceedings for the assessment year 1988-89, however, the assessee took the stand that since the survey took place only on 4-10-1988, the discrepancy in stock is relatable to the assessment year 1989-90 and not to assessment year 1988-89. The said discrepancy is, as such, considered during this year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; original inv. Carriage inward 20,047 Less. mistake in 82,735 Packing expenses 15,423 calculation G.P. at 18.21% 6,01,546 ----------- on Sales of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; ----------- Thus, even if we adopt the G.P. rate of 18.21% as shown by the assessee there comes the difference on account of excess stock as on the date of survey of Rs. 3,18,402, which the assessee has not shown in the return, as admitted by it. This difference of Rs. 3,18,402 is accordingly liable for inclusion in the assessee's income, since this income is not shown, in the return, penalty proceedings under section 271(1)(c) of the Act, are separately initiated." 11. However, with respect to the A.O.'s order the assessee challenged the addition before the learned CIT(A) who vide order dated 18-2-1993 reduced the addition by Rs. 40,000 by holding this to be belonging to Kunden Fabric and sustained the addition of Rs. 2,78,402. The A.O. initiated the penalty proceedings under section 271(1)(c) and after giving due notice to the assessee and considering his reply levied pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of estimation of value of stock and estimation of percentage of gross profit. He drew the attention of the Bench to the details of stock position found as on 4-10-1988 in the cases of the three firms which is as under: ---------------------------------------------------------------------------------- Name Shortage Excess Declaration/ of stock of stock additions made ---------------------------------------------------------------------------------- Kunden Silk Nil 2,78,402 2,78,402 Kunden Fabrics 3,16,041 &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods as conveyed by the assessee at the time of survey and the gross profit of 18.21% declared by the assessee and accepted by the A.O. in the assessment proceedings for the year under consideration. Despite having strongly resisted the inclusion of income on account of excess stock found and valued in the income for the assessment year 1988-89 on the ground that the survey in this case has been conducted on 4-10-1988 and this date falls in the assessment year 1989-90 and not in 1988-89, so the addition in this respect was not made in the assessment year 1988-89 but the assessee did not include/ disclose such income in the return filed for assessment year 1989-90. Hence, it cannot lead to the conclusion that there was no intention on the part of the assessee to conceal its income when the return was filed and as such the assessee cannot escape from levy of penalty. To have excess stock than recorded in the books of account cannot be said to be without the knowledge of the assessee and an intention to conceal the same is very much there when the same was agreed but was omitted to be disclosed in the return of the income. Had there been no scrutiny of the case, the assessee would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 271(1)(c) of the Income-tax Act, 1961?" 2. I have heard the rival submissions in the light of material placed before me and precedents relied upon. On 4-10-1988 there was a survey action under section 133A of the Income-tax Act, 1961 (hereinafter called the Act) at the premises of the assessee firm and its two sister concerns, viz. M/s. Kunden Fabrics and M/s. Kunden Saree Shoppee. In the course of this action, the survey party found that there was excess stock. 3. Vide letter dated 3-11-1988, the assessee submitted before the A.O. that as per the calculation of the Department the actual stock in the shop was valued at Rs. 14,26,076. As such, according to this valuation, the excess stock was Rs. 3,19,076. The assessee objected this valuation. It was said that this valuation was crept with the following discrepancies in the calculation:-- (i) There was error in calculation to the tune of Rs. 82,935. (ii) The stock belonging to M/s. Kunden Fabrics of Rs. 76,000 was kept in the air-conditioned room along with the stock of the assessee. This was counted by mistake. (iii) The stock figure of Rs. 14,26,076 was ascertained by accounting for estimated Gross Profit at 16.75% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee preferred appeal against that addition shows that the addition was not acceptable to the assessee. In the assessment proceedings the assessee did not offer this amount for addition, as stated in the order of learned Accountant Member. Shri G.S. Singh stated that the learned Accountant Member proceeded on the basis that the assessee agreed for the addition and merely agreed for the addition does not constitute concealed income. He deleted the addition by applying the decision of the jurisdictional High Court rendered in the case of D.M. Dahanukar. 8. In regard to the observation of the learned Accountant Member that the assessee never admitted that the excess stock was its concealed income and the assessee has only taken the benefit of capitalisation, the learned counsel for the assessee expressed doubt. It was stated that the assessee did not take the benefit of capitalisation. As such, the learned Accountant Member was not correct on this aspect. 9. The other cases, on the basis of which the learned Accountant Member deleted the penalty are:-- (1) Bhimji Bhanjee & Co.'s case. (2) Kiran & Co.'s case. 10. In the case of D.M. Dahanukar, dividend income was not s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as included in Rs. 3,18,402 was on estimated basis. 14. Shri G.S. Singh placed his reliance on the decision of the Apex Court rendered in the case of Union of India v. Banwari Lal Agarwal [1999] 238 ITR 461. In this case the assessee contended before the Court that the assessment was made on the basis of a compromise arrived at between the assessee and the CIT. The Apex Court has held that there was no evidence to show that the assessment was made in pursuance of a mutual understanding that no penal action would be taken against the assessee. Besides there is no provision in the Act sanctioning such a compromise. 15. The very fact that the assessee filed appeal against the order of A.O. clearly demonstrates that the addition was not on agreed basis. As such, the facts of Banwari Lal Agarwal's case are not germane to adjudicate the issue. 16. Shri G.S. Singh further relied on the decision of the Hon'ble Calcutta High Court rendered in the case of CIT v. Bijay Iron Stores [2001] 252 ITR 408. In this case certain account books and loose papers were seized during search operations. Additions were made and penalty was also imposed. The Tribunal held that the penalty could not be impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The said inventory was prepared by the survey officials and confirmed by the partner of M/s. Kunden Silk by signing each page of the said inventory. Signature of the survey incharge officer was also made on each page of the inventory. The very fact that the assessee at its own accepted the fact of excess stock indicates that what the assessee was agitating was not the valuation of stock. It only pointed out the errors crept in the amount of stock taken by the survey party. That error was appropriately corrected. The other argument of the assessee was in regard to the GP rate. This argument was also accepted. In regard to the stock of sister concern, the CIT(A), on due consideration, reduced the amount. As such, the argument of the assessee on this aspect appears only to be an after thought. 21. The learned counsel for the assessee submitted that before the Division Bench, the contention that the difference in stock was on estimated basis, was accepted by the learned Accountant Member, therefore, he did not make further contention as to the sale price taken on the basis of label or tag price. I find no merit in this argument. There is no material to, say so. 22. The learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. No special mode of proving is given in that section and so the same may be proved by the assessee like any other fact. In other words, it is open to the assessee either to give a positive explanation and adduce evidence to substantiate the same or without giving any positive explanation or producing evidence to establish from the materials on record that the failure to return the correct income was not caused by any fraud or gross or wilful neglect on his part. When the Explanation 1 to section 271(1)(c) of the Act provides that unless he proves", the emphasis is obviously on proof of the fact and not on the furnishing of an explanation. 27. A return cannot be said to be false unless there is an element of deliberateness in it. It is possible that even where the incorrectness of the return is claimed to be due to want of care on the part of the assessee and there is no reasonable explanation forthcoming from the assessee for such want of care, the deliberateness may be inferred and the return may be liable to be branded as a false return. But where the assessee does not inclu ..... 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