9911796707
TMI Blog2012 (6) TMI 628X X X X Extracts X X X X X X X X Extracts X X X X ..... n nature, however, the single issue which emerges from several grounds of appeal is only in respect of justification of levy of concealment penalty. 3. The reasons for the imposition of penalty in question have emerged from the corresponding assessment order passed u/s. 143(3) of the I.T. Act, 1961 dated 21/03/1996 and the penalty order passed u/s. 271(1)(c) of the I.T. Act, 1961 dated 28/06/2007. The appellant-firm is in the business of manufacturing of Thermoware Articles. The controversy of levy of penalty has a checkered history because in the past the quantum in question had reached up to the level of the Tribunal. In the first round of assessment, an order u/s. 143(3) of the I.T. Act, 1961 was passed on 21/03/1996 According to which the two additions which are the subject matter of the levy of penalty were made in respect of unaccounted sale of raw-material of Rs. 7,53,362/- and diversion of income by sale to M/s. Milton Exports of Rs. 7,02,950/-. Against those additions, an appeal was preferred before the first appellate authority and the total additions were revised and accordingly relief was granted by the Learned CIT (Appeals). The addition in respect of unaccounted sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the sales to M/s. Milton Exports. It was argued that the Revenue had no evidence in its possession to prove that the assessee had deliberately effected the sale to the said sister-concern at the price lower than the normal sale price. Few case laws have also been cited; namely Dilip N Shroff v. Jt. CIT [2007] 161 Taxman 218 (SC) and T. Ashok Pai v. CIT [2007] 161 Taxman 340 (SC). 3.1 However, the Learned CIT (Appeals) was not convinced with the arguments of Learned Authorised Representative of the assessee. He has mentioned that the Hon'ble ITAT Ahmedabad Bench "B" [in ITA Nos. 1576/Ahd/1997 for Assessment Year 1993-94 (By Revenue), 1810/Ahd/1997 (By Assessee) & 1577/Ahd/1997 & Others] vide order dated 25/04/2005 has relied upon its earlier order for Assessment Year 1992-93. In that year the burning loss to the extent of 1% of the total material was allowed. Following the directions of the Tribunal, the Assessing Officer has then recomputed the raw-material and, accordingly, assessed at Rs. 5,84,550. The said revised addition was not an estimation by the Assessing Officer, the Learned CIT (Appeals) has commented. A part relief was granted after examining the comparison of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the Revenue on this account. It is suggested by the learned counsel that let the AO work out the consumption of raw material and burning loss as worked out by the Tribunal in Asst. Year 1992-93 and thereafter the addition, if any, can be worked out by the AO. The learned DR fairly admitted to the above submission of the learned counsel. In view of above we set aside the order of the authorities below on this ground and direct the AO to re-adjudicate the matter in accordance with the working / finding of the Tribunal in this respect for Asst. Year 1992-93 (supra)." Therefore, the burning loss and consequential consumption of raw-material was to be worked out by the A.O., rather directed to re-adjudicate the same. 4.1 Regarding alleged diversion of income on sales to M/s Milton Exports vide para (7) the matter was also restored back to A.O. by quoting the findings of the Tribunal for A.Y. 1992-93, for ready reference reproduced below :- "7. The next item of dispute in this appeal is with regard to diversion of income on sales to M/s. Milton Exports. We find that the Tribunal has considered this issue in assessee's own case for Asst. Year 1992-93 and concluded its find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tunity of being heard to the assessee, 5. Since in respect of the quantum addition, the year under consideration was dependent on the order of the Tribunal for A.Y. 1992-93, therefore we have thought it proper to peruse that order carefully. Respected co-ordinate Bench A, ITAT Ahmedabad in ITA Nos. 1159 & 1480/Ahd./1996 dated 7.5.1997 vide para (8) page 17 has discussed the issue of diversion of profit to M/s Milton Exports and after an elaborate discussion finally held vide para (12.5) page 28 that the diversion of income was to be determined not on the basis of comparison of the domestic sales but the correct method was to compare the sales executed by M/s Milton to foreign buyers and the difference was the profit diverted by the assessee to M/s Milton. 5.1 In that order the second issue of 'excess consumption of raw material' was discussed vide para (13) page 29 and after a long discussion decided vide para 17.9 page 43 in favour of the assessee by deleting the addition, reproduced for ready reference:- "17.9 We would also observe that details of the average weights of various items furnished or recovered provide only roughly the amount of raw material used in manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export market. Even when the figures of sale rates were compared it was found by the Tribunal, as noted above, that the difference was lower in respect of foreign sales made by M/s Milton in comparison to domestic sales. Then only the Tribunal has substantially reduced the addition or directed to re-compute the addition for the year under consideration. These are the sufficient reasons on the basis of which it can be held that there was no cogent material or evidence with the Revenue on the basis of which the concealment was alleged. 7. About the controversy in respect of excess consumption of raw-material the addition for A.Y. 92-93 was deleted. An interesting, as also important, observation was made by the Tribunal that though a Search was conducted on the group but no incriminating material was found to show the sale of raw-material or the finished goods were ever made out side the books. As far as the bona fides of the assessee was concerned a finding was recorded by the Tribunal that the stock record relating to the production of goods, their sales, dispatch to purchaser etc. were maintained. Further on page 38 an observation was made that the purchases of raw material and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders in M/s Vikram Plastics are that return declaring income of Rs. 2,19,910/- filed on 30.11.1993 by the assessee manufacturing thermoware articles, after being processed on 29.12.1993 u/s 143(1)(a) of the Income-tax Act, 1961 [hereinafter referred to as the 'Act'] was taken up for scrutiny with the issue of notice u/s 143(2) of the Act on 24.8.1994. None responded to this notice nor to the notices u/s 143(2)/142(1) and a letter dated 31.5.1995 issued to the assessee. Even subsequent notices dated 4.8.1995 & 25.9.1995 went unresponded. Despite letter dated 31.5.1995, the assessee did not name the stock records maintained by them nor produced any such records before the AO. Even the subsequent notice dated 10.1.1996 u/s 142(1) of the Act, seeking monthwise details of items manufactured for Milton Plastic Industries were not furnished. The AO noticed that the assessee had its factory at 501-C, GIDC Plot, Halol and had been manufacturing household thermoware articles like jugs, buckets, water bottles etc. under the brand name of 'Milton' along with other associate concerns M/s Panorama Plastics, M/s Ishwar Arts, M/s Milton Plastic Industries, M/s Vijay Engg. Works an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lts, having recourse to provisions of sec. 145(2) of the Act. On the basis of findings of in the assessment order for the AY 1992-93, the AO pointed out to the assessee that total plastic material consumed in producing finished goods was 1,16,391 kg. as against 1,42,607 kg. shown as consumed in the accounts. Since out of excess consumption of 26216 kg. of plastic, the assessee could explain only 13327 kgs. sold to Milton Plastics Ltd., and remaining 12,889 kg. valued at Rs. 7,53,362/- was not explained, the AO for detailed reasons on pages 4 to 8 of the assessment order concluded that the said material had been sold outside the books and accordingly, added an amount of Rs. 7,53,362/- to the income, inter alia, since a similar addition had been upheld by the ld. CIT(A) in the AY 1992-93. 2.1 The AO further noticed that, the assessee sold finished goods for Rs. 3,70,310 to M/s Milton Exports. A scrutiny of sale bills revealed that sale price in respect of items sold to Milton Exports was merely 29 to 36% of the price charged from other parties. In the AY 1992-93 also sale price on products sold to M/s Milton Exports was 31 to 52% of the fair market value. It was also established in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee did not controvert the findings of facts recorded by the AO, the ITAT upheld the order of the ld. CIT(A). In consequence of directions of the ITAT, though the AO allowed sufficient opportunity to the assessee, none responded. Accordingly, additions to the aforesaid extent sustained by the ld. CIT(A) were maintained by the AO. Since no reply was filed by the assessee in response to a show cause notice issued by the AO before levy of penalty, the AO invoked Explanation 1 to sec. 271(1)(c) of the Act and imposed a penalty of Rs. 4,79,478/- @ 100% of the tax sought to be evaded on the income of Rs. 10,70,255/-, relying inter alia, on the decision of the Honourable Supreme Court in the case of B.A. Balasubramaniam & Bros. & Co. v. CIT [1999] 236 ITR 977/[2001] 116 Taxman 842 (SC), wherein it was held that wherever there is a difference between the returned and assessed income, there is a inference of concealment as a rule of law. 3. On appeal, the ld. CIT(A) upheld the levy of penalty in the following terms: 6. I have carefully considered the rival submission. While confirming the disallowance on account of unaccounted sale of raw material the CIT(A) had directed the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods to Milton even at a price lower than that and in the process profit of Rs. 7,38,267/-was diverted to Milton may be for the reason that Milton being an export organisation was entitled to benefit u/s. 80HHC and income so diverted was not subject to tax but the said amount in the hands of the assessee firm was subject to tax. Apparently, it was a collusive arrangement with motive to evade tax thereon. We under the circumstances, treat the above difference amount of Rs. 7,38,267/- as the profit diverted by the assessee firm to Milton and addition to that extent in the hands of the assessee is considered to be justified and we hold accordingly." 6.1.1 In other words the arrangement to divert the income to M/s. Milton Export was held to be a collusive arrangement with a motive to evade tax. Therefore the said addition is clearly liable for penalty. 6.2 Coming to the third addition of Rs. 66,750 relating to disallowance of purchase of clocks it has been noticed by Hon, ITAT at para 8 of the order that; "We have heard both the parties and perused the material placed before us. The Assessing Officer has recorded the finding that the assessee purchased clocks of Rs. 66,750 from M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agship company of the group provided raw material and its requirement to M/s Milton Plastic Industries, which in turn got job work done through the aforesaid associate concerns having factories at Halol. The AO further noticed that the assessee purchased raw material, moulded the components and after assembling the same, sold these during the period 1.4.1992 to 31.8.1992. Thereafter, only job work was done for M/s Milton Plastic Industries. For the year under consideration, the assessee did not furnish the relevant details nor produced relevant records sought by the AO. The AO pointed out that a similar situation had arisen in the AY 1992-93, when despite persistent queries and issue of summons, the assessee did not produce the records like hourly production reports, daily production report, raw material stock report, finished goods dispatch report, goods inward register, quality control report, assembly reports on the ground that these were destroyed after collation of financial reports and records. Even summons issued to Shri Kanhaiyalal Vaghani were not responded. Accordingly, additions were made in the AY 1992-93 on account of discrepancies in consumption of raw material and sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO noticed that M/s Milton Exports reflected net profit of Rs. 1,89,15,105 on sales of Rs. 6.62 crores. Thus net profit rate worked out to 29.54% as against meagre net profit rate of 2.99% shown by the assessee. The AO also found that M/s Milton Exports was entitled to deduction u/s 80HHC of the Act and the assessee contended that sales were made at lower prices to in order to enable M/s Milton Exports to penetrate International market and that the assessee was under obligation to sell the goods at a low price. However, for detailed reasons given on pages 8 to 12 of the assessment order and relying on his own findings in the AY 1992-93, which had been upheld by the ld. CIT(A), the AO added an amount of Rs. 17,50,942/- to the income on the ground that real motive was diversion of income to M/s Milton Exports and avoidance of tax on such income. 4.2 Besides, the AO also disallowed an amount of Rs. 67,500/- on account of purchase of quartz clocks on 31.12.1992, since the assessee did not furnish any evidence regarding distribution of these clocks while the business of trading in goods had been discontinued on 31.8.1992 itself. 4.3 Inter alia, penalty proceedings u/s 271(1)(c) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has deliberately concealed any income nor has furnished inaccurate or particulars of its income. It may be submitted here that before the penalty can be levied the department/revenue has to bring on record evidences to prove that there was concealment positively. If there is no evidences on record except the explanations given by the assessee, which explanation is either found to be false or is unacceptable to the revenue it does not amount to a finding that concealment has been established. (iv) The sales were made for commercial expediency of getting entry into the export market and the sales were effected at the sale price recovering the cost of raw material and also the input cost. The transaction has been treated as genuine and there was no motive to divert. We may also submit here that M/s Milton Exports has not been treated as Benami of our firm and therefore the entire approach of the authorities will not hold good in the present proceedings. (v) Burden of proof is not discharged by the Revenue in penalty proceedings. (vi) Assessment proceedings and penalty proceedings are distinct and penalty proceedings are distinct and findings in the assessment is not conclusive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing terms; "(c). In this case, in the original order, it was noticed by the Assessing Officer, that the assessee had made sales of Rs. l5,51,6647/- to its sister concern M/s Milton Exports at lower rate, whereas, the normal sale price of the goods sold was calculated at Rs. 33,02,6067/- and accordingly, the difference of Rs. 17,50,942/- was added to the total income of the assessee. Subsequently, the Ld. CIT(A) granted relief to the tune of Rs. 5,63,424/- to the assessee. Afterwards, the Hon'ble ITAT has set-aside the order and restore to the file of the Assessing Officer with a direction to re-work the amount of diversion of income as per the working given by it in its order in assessee's own case for A.Y. 1992-93, after giving adequate opportunity to the assessee. In order for A.Y. 1992-93, the Hon'ble ITAT had relied upon its decision in the case of M/s Vikram Plastic another associate concern. In the case of M/s Vikram Plastic, the Hon'ble ITAT held that M/s Milton Exports had sold the relevant goods in foreign market at sales price substantially lower than the local market rates. Therefore, the profit diverted by the assessee to M/s Milton Exports is taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, during the year under consideration also, the gross profit of M/s Milton Exports came @ 28.5% on sales of Rs. 20,92,712/- considering the sale price of the preceding year, in comparison to the over all gross profit for the year was 29%. Perusal of the above facts shows that the gross profit margin of M/s Milton Exports on sales of goods purchased from the assessee firm remains almost similar to over all its gross profit for the relevant year. It is pertinent to mention here that M/s Milton Exports was engaged in exports of the goods produced by the associate concerns. As discussed above, sale price in respect of goods of Rs. 55,488/- was not available, the profit earned by M/s Milton Exports was worked out considering the gross profit rate of 29% over the sales at Rs. 22,664/. Thus, the total of gross profit earned by M/s Milton Export came at Rs. 6,19,200/- (Rs. 5,96,536 + Rs. 22,664) on sales of goods purchased at Rs. 15,51.664/- from the assessee firm. This gross profit was worked out considering the sale price of preceding year. Since the assessee as well as M/s Milton Exports did not furnish the sale price of the relevant goods for the year under consideration, further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Diversion of income from sales to Milton Exports Rs. 7,19,200/ (ii) Excess consumption of raw material Rs. 21,39,323/- As regards first addition, while confirming the addition, Hon. ITAT observed as under: "apparently it was a collusive arrangement with motive to evade tax thereon we under the circumstances treat the above difference amount of Rs. ... as the profit diverted by the assessee firm to Milton and addition to that extent in the hands of the assessee is considered to be justified and we hold accordingly."/ From the above observation of Hon. ITAT, there is no necessity to write further whether it is a case of concealment or not. The highest fact finding authority had termed transactions as the collusive arrangement with a motive to evade taxes. There is no doubt that appellant concealed the income by diverting profit to Milton Exports. As regards other addition on account of excess consumption of raw material Hon. ITAT has confirmed the addition of excess consumption on the basis of findings given in order for A.Y. 1992-93. On the basis of elaborate study and analysis of statements, Tribunal came to the conclusion that appellant claimed excess burning loss and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding there has been concealment, that would be sufficient to sustain the penalty. Keeping in mind these two circumstances, we are of the view that the judgment of division Bench in the case of Dilip N. Shroff v. JCIT need consideration. The Explanation added to section 271(1)(c) also indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing returns". Since the above observation of Hon. Apex Court are clearly applicable to the facts of appellant's case, penalty levied by the Assessing Officer u/s.271(1)(c) is confirmed on both the issues." 6. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A) in these two appeals. The learned AR on behalf of the assessee while carrying us through the impugned orders reiterated their submissions before the ld. CIT(A) in the case of M/s Vikram Plastics. As regards Panorma Plastics, the ld. AR added that facts being similar, his submissions in the case of M/s Vikram Plastics may be considered. To a query by the Bench , the ld. AR did not reply as to the fate of penalty levied u/s 271(1)(c) of the Act in the AY 1992-93 in the case M/s Vikram Pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer or the Deputy Commissioner (Appeals) 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. 7.1 As is evident from the aforesaid cl. (c) of s. 271(1) of the Act, the words used are 'has concealed the particulars of his income' or furnished 'inaccurate particulars of such income'. Thus, both in case of concealment and inaccuracy, the phrase 'particulars of income' has been used. The Legislature has not used the words 'concealed his income'. From this it would be apparent that penal provision would operate when there is a failure to disclose fully or truly all the particulars. The words 'particulars of income' refer to the facts whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining half which is in fact disclosed would, not being his complete disclosure amount to inaccurate particulars of income as regards that constituent item of the return. By the very nature of the assessment proceedings the ITO while ascertaining the total income chargeable to tax would be in a position to detect the specific or definite particulars of income concealed or of which false particulars are furnished. Where in the constituents of income returned, such specific or definite particulars of income are detected as concealed, then even in the total income figure to that extent they reflect, it would amount to concealment to that extent. In the same way where specific and definite particulars of income are detected as inaccurate, then such figure will also make the total income inaccurate in particulars to the extent it does not include such income. Whether it be a case of only concealment or of only inaccuracy or both, the particulars of income so vitiated would be specific and definite and be known in the assessment proceedings by the ITO, who on being satisfied about each concealment or inaccuracy of particulars of income would be in a position to initiate the penalty proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings. In terms of provisions of sec. 271(1)(c) of the Act read with Explanation 1 thereto and the judicial pronouncements in the case of B.A. Balasubramaniam & Bros. Co. (supra), CIT v. B.A. Balasubramaniam & Bros. Co. [1985] 152 ITR 529/20 Taxman 215 (Mad.), Mussadilal Ram Bharose (supra), K.R. Sadayappan (supra), Jeevan Lal Sah (supra) and K.P. Madhusudanan (supra), 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 my considered view, the provisions of Explanation 1 to section 271(1)(c), when M/s Vikram Plastics did not submit any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer or the Appellate Assistant Commissioner issues to an assessee a notice under section 271, he makes the assessee aware that the provisions thereof are to be used 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide belief that such duty or interest is not taxable does not arise. It goes without saying that any violation of the law or rules relating to economic offences, either relating to the 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. 7.6.1 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. 7.6.2 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 establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly returned, as held by Hon'ble jurisdictional High Court in Chandra Vilas Hotel (supra) and levy of penalty has to be upheld. 7.8 In the case of CIT v. Prathi Hardware Stores [1993] 203 ITR 641 (Ori.), Hon'ble Orissa High Court have laid down the following proposition of law: (i) Explanation to section 271(1)(c) is the rule of evidence. (ii) the initial burden of rebuttal is on the assessee because the basic facts are within the special knowledge of the assessee. Section 106 of the Indian Evidence Act., 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. 7.9 In the case of Usha Fertilisers v. CIT [2004] 269 ITR 591/[2005] 142 Taxman 414 (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 ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Swarup Cold Storage & General Mills [1982] 136 ITR 435/10 Taxman 215 (All.). 8. In the light of the discussion made above, it is thus clear that all the material facts and particulars relating to the assessee's computation of income were never disclosed by the assessee, and it is further clear that the explanation offered by the assessee has not been substantiated and as well as it is not found to be plausible and bona fide one and it is against all human probabilities, especially when the conduct of these assessees show that these assessees have been diverting profits to M/s Milton Exports year after year, resulting in evasion of tax. In this view of the matter and in the light of decisions of the Hon'ble Supreme Court and jurisdictional High Court referred to above, I am of the opinion that these assessees have not been able to discharge the burden that lay upon them by Explanation 1 to s. 271(1)(c) of the Act. Therefore, I have no hesitation in upholding the orders of the ld. CIT(A) in confirming the penalty imposed by the AO under s. 271(1)(c) of the Act in these two cases. 9. In the result, both these appeals are dismissed. REFERENCE UNDER SECTION 255(4) OF THE INC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the AO on these two issues were subject matter of appeal before the CIT(A) and the first appellate authority granted part relief to the assessee and the figures of two additions were revised. The addition in respect of unaccounted sale of raw-material was reduced from Rs. 7,53,362/- to Rs. 5,84,450/- and on account of diversion of income by sale to "ME" from Rs. 7,02,950/- to Rs. 4,18,965/-. The assessee still being aggrieved, preferred second appeal before the Tribunal and the Tribunal restored the matter by setting aside the assessment order to the file of the AO. Consequently, after the issue was set aside to his file, the AO framed assessment at the same figure as was assessed earlier while giving effect to the order of the learned CIT(A). The AO placed heavy reliance on the assessment order through which the revised income was finally assessed and held these amounts as amount of income on which tax was evaded and the levied penalty under Section 271(1)(c) of the Act. 4. The learned counsel for the assessee submitted that the additions were made purely on estimate basis, and therefore, could not become base for imposition of penalty for concealment of income or filing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee should be adopted and specially so in the penalty proceedings. He relied on the decision of the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) in support of his arguments. 7. I have considered rival submissions and have perused the proposed orders of the learned JM and the learned AM. The assessee-firm is in the business of manufacturing of thermo-ware articles. In the first round of the assessment, in the order passed under Section 143(3) of the Act, two additions were made viz. (i) in respect of unaccounted sale of raw-material of Rs. 7,53,362/- and diversion of income by sale to "ME" of Rs. 7,02,950/-. Against these two additions, an appeal was preferred by the assessee before the first appellate authority and part relief was granted by the CIT(A) and the additions were reduced i.e. in respect of unaccounted sale of raw-material to Rs. 5,84,500/- and on account of income diversion by sale to "ME" to Rs. 4,18,965/. The assessee still being aggrieved, preferred an appeal to the Tribunal and the Tribunal has restored the matter by setting aside the assessment to the file of the AO. However, after giving effect to the direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the books of account. The AO has not pin-pointed any discrepancy or irregularity in the records. The possibility of sale of raw material outside the books was not based upon any material evidence but on suspicion which was created on account of non-availability of certain specific record. The revenue has not alleged any manipulation in the accounts on the part of the assessee or creation of any false evidence and the addition was in fact made due to difference of opinion in respect of percentage of burning loss. The facts of the case with regard to this issue may justify the addition made in the assessment case of the assessee but on mere possibility or suspicion or difference of opinion on some issue is not sufficient to impose penalty for concealment of income or filing of inaccurate particulars of income. In these facts, I am of the considered opinion that no penalty under Section 271(1)(c) of the Act was leviable on the first issue of addition made on account of unaccounted sale of raw-material and I agree with the learned JM in directing to delete the penalty on this issue. 9. Regarding other issue of penalty levied for diversion of income by sale to "ME", I find that quan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers. The material particulars with regard to the sale made to "ME" were disclosed by the assessee, at the time of filing of its return of income with the department. The facts of the case may justify the addition made on account of low rate of profit on sale made to the sister concern but are not sufficient to sustain the penalty imposed under Section 271(1)(c) of the Act. 10. I find that the learned AM has sustained the penalty by observing that the assessee has submitted the explanation which it failed to substantiate during the assessment and penalty proceedings. He has relied on the decision of the Hon'ble Courts in support of the conclusion reached by him. He has observed that it is not a law that each and every explanation of the assessee has to be accepted. He further observed that in matters of economic offences, the rules of interpretation contemplate a strict interpretation rather than a liberal and wider interpretation. He has further observed that the classical view that "no mens rea, no crime" has long ago been eroded, especially regarding economic crimes. He has observed that unless the language of the statute indicates the need to establish the element of men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng issue, the matter was referred to Third Member u/s. 255(4) of I.T. Act, 1961 for his opinion as proposed by Ld. JM. "Whether, on the facts and circumstances of the case, the learned CIT (Appeals) was justified in upholding penalty under Section 271(1) (c) of the I.T. Act, 1961 levied by the Assessing Officer." 2. The Hon'ble Vice President (AZ), as Third Member in these cases, after hearing the parties and considering the facts and circumstances of the cases, vide order dated 25/01/2012, has concurred with the proposed order of the Ld. J.M., by observing as under:- "11. In the facts of the case and in accordance with the relevant provisions of law and applicability of decisions of the Hon'ble Courts, I have no hesitation to hold that the penalty under Section 271(1)(c) of the Act was not leviable on the assessee and question referred to me is answered in negative i.e. in favour of the assessee and against the Revenue. In view of this, I agree with the learned JM on the issue of levy of penalty referred to me by the Hon'ble President and uphold his cancelling the penalty levied under Section 271(1) (c) of the Act. 12. In ITA No. 1445/Ahd/2008 in the case of M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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