TMI Blog2003 (3) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 valuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and from the chart reproduced in para 6 supra, it is noted that at the time of survey while taking stock of these concerns, goods got mixed up as a result of which overall shortage of stock was found at Rs. 4,10,954 against which Kunden Saree Shoppee declared Rs. 5 lakhs which covers this overall shortage of Rs. 4,10,954. Despite this position, the assessee agreed for an addition, but merely agreeing for addition does not constitute concealed income as held by the Hon'ble Bombay High Court in the case of D.M. Dahanukar. In fact, the entire addition is based on estimate by applying G.P. and while such an addition may be justified [however the CIT(A) has deleted an addition of Rs. 40,000 against which Revenue is not in appeal] in quantum assessment, it does not constitute concealed income of the assessee and accordingly, in our opinion, penalty is not exigible in view of the judgments of the Hon'ble Bombay High Court in Bhimji Bhanjee Co.'s case and Kiran Co.'s case. Accordingly, we agree with the findings of the CIT(A) and decline to interfere. 8. In the result, the appeal is dismissed. Per V.B.S. Bedi, Judicial Member 9. I have had an occasion to go through the proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the position of the excess stock found during the survey of Rs. 3,86,417 was communicated to the assessee under this office letter dated 14-2-1989 referred to earlier. In this connection, it was argued on behalf of the assessee that while working out the excess stock of Rs. 3,86,417 as per this office letter dated 14-2-1989, the rate of G.P. adopted was at 16.75%. The assessee under its letter dated 3-11-1988, however, has requested to take the G.P. at 20%, due to good sales during this year and on that basis, the stock difference at Rs. 1,79,159, as mentioned in the assessee's letter dated 3-11-1988. During the course of the assessment proceedings, it was further argued by the assessee's representative that at least the G.P. ratio be taken, for the purposes of stock difference on the date of survey, at 18.21%, which is the G.P. declared by the assessee in its return of income; as the assessee done so good sales and so on his own has shown the G.P. of 18.21% in the return and the stock difference arrived at accordingly. The assessee's argument in this behalf if considered in my opinion, considering that the assessee has shown the G.P. of 18.21% this year, the G.P. percentage at 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 2,19,240 being 150% of the tax sought to be evaded with respect to excess stock found. The assessee challenged the action of the A.O. in appeal and the learned CIT(A) vide order dated 5-4-1994, relying upon the decision of the Hon'ble Supreme Court in the case of Sir Shadilal Sugar General Mills Ltd., cancelled such penalty, against which the revenue has come up in appeal. 12. The learned D.R. while relying upon the basis and reasoning as given by the A.O. has further pleaded that the excess stock was found during the course of survey and as the assessee had agreed to surrender this excess stock in the return of income but did not do so at the time of filing of the return and hence it cannot be said that the assessee either acted bonafidely or voluntarily and has agreed for the addition on account of excess stock found and admitted by the assessee at the time of surveyor thereafter, accordingly, the judgment of the Hon'ble Supreme Court in the case of Sir Shadilal Sugar General Mills Ltd. will not apply to the facts of the present case. Moreover, said judgment has been held to be no good law in recent judgment of the Hon'ble Supreme Court by larger Bench in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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's case. 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 Bhimji Bhanjee Co.'s case and Kiran Co.'s case. 14. I have considered the rival submissions, gone through the orders of the authorities below as well as record and the case law cited. It is undisputed fact that the assessee in this case is found to have excess stock recorded in the books of account which was duly admitted by the assessee at the time of survey, for which the ultimate addition to the extent of Rs. 2,78,402 has been upheld after giving all possible and allowable relief to the assessee in quantum appeal. The basis for working out the excess stock is the value of goods as conveyed by the assessee at the time of survey and the gross profit of 18.21% declared by the assessee and accepted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier part of the order is concerned, the same is distinguishable and not found to be applicable to the facts of the present case, as such, is of no help to the assessee. 16. As a result, the appeal of the revenue gets partly accepted. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Per Chhibber, Accountant Member.--As there is a difference of opinion between the Accountant Member and the Judicial Member, the matter is being referred to the President of the Income-tax Appellate Tribunal with a request that the following question may be referred to a Third Member or to pass such orders as the President may desire: "Whether on the facts and in the circumstances of the case, the CIT(A) is justified in deleting the penalty levied under section 271(1)(c) of the Income-tax Act, 1961?" THIRD MEMBER ORDER Per Shri M.K. Chaturvedi, Vice President. - This appeal came before me as a Third Member to express my opinion on the following question:- "Whether on the facts and circumstances of the case, the CIT(A) is justified in deleting the penalty levied under section 271(1)(c) of the Income-tax Act, 1961?" 2. I have heard the rival submissions in the light of material pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not accepted the assessee's contention on the ground that in the case of M/s. Kunden Fabrics this contention was not accepted. On the basis of the appellate order in the case of M/s. Kunden Fabrics, CIT(A) held that stock worth Rs. 40,000 should be considered as belonging to M/s. Kunden Fabrics. The addition to the tune of Rs. 36,000 was maintained on this account. 7. The learned Accountant Member, while deleting the penalty, concluded that the entire addition was based on estimate. Shri G.S. Singh, learned CIT DR vehemently opposed this finding. It was stated that the addition was not based on estimate. Besides, the learned Accountant Member was not correct in stating that the value of such stock was arrived at by applying a GP rate of 20%. Admittedly, the A.O. applied 18.21% rate of GP. He also opposed the observation in the order of learned Accountant Member that the firm agreed for the addition of Rs. 3,18,402 on account of excess stock computed by the survey party. It was stated that this figure was arrived at during the assessment proceedings. Besides, the very fact that the assessee preferred appeal against that addition shows that the addition was not acceptable to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le High Court has held that the offer for settlement was not an evidence for concealment of income. In the present case there was no offer for settlement. As such, in the facts of the present case, this decision cannot be applied. 13. Shri G.S. Singh, learned CIT DR submitted that the assessee accepted during the survey proceedings the factum of excess stock. In the return the assessee did not reflect the excess stock, as accepted at the time of survey. The addition was not made on agreed basis. It was agitated before the CIT(A). Although the assessee claimed that its GP was 20%, but the CIT(A) found that as per the return it was only 18.21%. The CIT(A) allowed relief of Rs. 40,000 on the ground that some stock relates to the sister concern. The assessee accepted the order of the CIT(A). No second appeal was filed before the Tribunal. The penalty was not levied on the basis of valuation of stock. It was levied on the excess stock found at the time of survey. It is not correct to say that the Department valued the stock. At best it could be said that the amount of Rs. 36,000 which was included in Rs. 3,18,402 was on estimated basis. 14. Shri G.S. Singh placed his reliance on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing label/tag to the varieties. The price is conveyed by the salesman to the customers. The actual sale price is decided by the owner. It is not the tag price or the label price. It is strange that this fact was not brought to the notice of the Revenue at any stage. Even before the Tribunal no argument in this regard was ever made. For the first time this argument was canvassed before me. Considering all the surrounding facts, I find no merit in this argument. Accordingly, I decline to accept the same. 19. To buttress the point of estimate, it was further argued that the survey party completed the valuation work within 4 to 5 hours. It is impossible to have a value of stock of more than Rs. 1.50 crores within such a short time. It was alleged that the survey party considered the price based on tags. 20. This argument is not tenable. In the counter affidavit it was stated that the survey party contained sufficient number of staff members. The inventory of stock was prepared during the course of survey operation, which contained Serial Number, Description, Quantity, Sales Price and Total. The said inventory was prepared by the survey officials and confirmed by the partner of M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere in respect of any facts material to the computation of the total income of any person under this Act,-- (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) to be false, or-- (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed." 26. In the, present case the assessee offered an explanation. But the assessee was not able to substantiate the explanation. The bona fide of the explanation was not proved beyond the shadow of doubt. Where a presumption is raised by virtue of the provisions of the Explanation, the burden lies on the assessee to prove the fact that the failure to return the correct income did not arise from any fraud or any gross or wilfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The request regarding the GP figure was also considered. The assessee wanted adjustment of GP at the rate of 20%. The A.O. found that the assessee disclosed GP of 18.21% in the year under consideration. As such, he took the figure as disclosed by the assessee. No mistake was crept on that count. It cannot be said that the valuation was on the estimated basis. I, therefore, agree with the reasoning given by the learned Judicial Member on this count. 30. The matter will now go before the regular Bench for deciding the appeal in accordance with the opinion of the majority. Per U.B.S. Bedi, J.M.--As there was a difference of opinion between the Accountant Member and the Judicial Member, following question was referred to a Third Member: "Whether on the facts and circumstances of the case, the CIT(A) is justified in deleting the penalty levied under section 271(1)(c) of the Income-tax Act, 1961?" 2. The learned Vice-President, Shri M.K. Chaturvedi, sitting as Third Member by his opinion dated 7-3-2003 has concurred with the view of the Judicial Member. In accordance with the majority view, while upholding the imposition of penalty under section 271(1)(c) except in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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