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2015 (11) TMI 742 - ITAT AHMEDABAD

2015 (11) TMI 742 - ITAT AHMEDABAD - TMI - Penalty u/s 271(1)(c) - suppression of sales, sale of stores and spares and repairs and maintenance - Held that:- The Assessing Officer himself observes in assessment order that the assessee-company carried out negligible production and sold its stock of goods available at the beginning of the year. He further discusses the fact that it has sold out its plant and machinery with same movable/immovable assets. This gives credence to assessee’s plea of hav .....

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not necessarily resulting in imposition section 271(1)(c) penalty as held by hon’ble apex court in CIT vs. Reliance Petro-products (2010 (3) TMI 80 - SUPREME COURT). We follow the same reasoning and affirms the CIT(A)’s order in Revenue’s appeal and reverse the lower appellate order under challenge to the extent of penalties corresponding to the additions of loss on account of sale of stores and spares and repairs/maintenance - Decided in favour of assessee.

Short term capital gain a .....

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that the same is much more than an arithmetical mistake being in the nature of raising altogether a false claim. - Decided against assessee.

Disallowance u/s 40A(2)(b) - Held that:- CIT(A)’s deleting section 40A(2)(b) disallowance by holding assessee’s sale made to its associate concern as under invoiced to the above stated extent. It is held in the lower appellate order that this statutory provision applies to an expenditure claim and not that of an income as held in the case law of .....

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RDER PER : S. S. GODARA, JUDICIAL MEMBER:- These two Revenue s appeals for A.Y. 2002-03 and 2005-06 and assessee s cross objection in the former case, arise from orders of the CIT(A)-III, Baroda dated 12-10-2011 and 02-11-2011 passed in appeal nos. CAB/III-17/09-10 and CAB/III-222/07-08, in proceedings under section 271(1)(c) and 143(3) of the Income Tax Act, 1961; in short the Act ; respectively. 2. We proceed assessment year-wise for the sake of convenience and brevity. The Revenue s former ap .....

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nd short term capital gains of ₹ 54,67,547/- arising from sale of fixed assets having written down value; respectively. 3. Both parties reiterate their grounds to pray for acceptance of appeal and cross objection. They also support the CIT(A) s order to the extent it supports their case. 4. The assessee-company is engaged in quarry business, grit manufacturing and kapachi etc. The Assessing Officer records in assessment order that it has carried out negligible production, sold its stock av .....

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ry business for a long time. He rejected assessee s books, averaged its GP in preceding two assessment years @ 17% and added the same to its costs of goods; coming to ₹ 56,11,836/- resulting in addition of ₹ 19,39,768/- on account of suppression of sales. The second disallowance/addition made was on account of sale of store and spare on account sale of stores and spares. The Assessing Officer rejected assessee s plea to have sold stores and spares for scrap value in cash causing of & .....

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section 50 of the Act. This comprised of a sum of ₹ 4,86,650/- qua factory building and ₹ 49,80,897/- relating to plant and machinery. The assessee sold the above stated assets, reduced sale consideration against WDV of the respective block of asset resulting in surplus which in turn was further adjusted against WDV of other blocks of assets. The Assessing Officer accordingly framed a regular assessment making all above stated disallowances/additions. He initiated impugned penalty pr .....

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56/- arising from difference between cost of goods amounting to ₹ 46,57,824/- as reduced by the sale price of ₹ 36,72,068/- for want of substantiation of claim. The CIT(A) confirmed the other two addition on sale and stores/spares and the one pertaining to repairs and maintenance (supra). We find that the assessee had not challenged the short term capital gains addition before the CIT(A). Quantum proceedings accordingly appear to have attained finality. Even the assessee is fair enou .....

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The CIT(A) in order under challenge deletes penalty sum of ₹ 3,51,191/- pertaining to suppression of sale addition of ₹ 9,83,756/- (supra) and affirms all other penalties arising from disallowances/additions of sale of stores and spares, repair maintenance and short term capital gains. In this backdrop of facts that the Revenue has filed its appeal and assessee prefers cross objection to the extent indicated in preceding paragraphs. 8. We have heard both the parties and perused the .....

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nto distress sale. Both the authorities below have proceeded on different criteria for making the first addition of suppression of sales (supra). The other disallowance/additions of loss arising from sale stores/spares and repair and maintenance have been made due to unverifiable cash vouchers and supportive evidence; respectively. There is no dispute about the trite proposition of law that quantum and penalty proceedings are on separate footing and each and every disallowance/addition does not .....

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hallenges penalty corresponding to short term capital gain addition of ₹ 54,67,547/- made in the course of assessment. The CIT(A) s findings under challenge qua this issue read as follows: 6.4. The last ground on which penalty has been levied relates to computation of short term capital gain. It was noted by the Assessing Officer that the assessee had sold assets falling in block of building, plant and machinery and vehicles. After reduction of sales consideration out of WDV of respective .....

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ese blocks of assets which was out of the ambit of the provisions of section 50. As the assessee could not offer any explanation in this regard, the Assessing Officer computed the short term capital gain at ₹ 54,67,547/-. 6.4.1 The appellant has submitted during the course of appellant proceedings that this was a mistake while computing the short term capital gains. It is not a case of suppression of short term capital gains but a bonafide mistake which had kept in while preparing the retu .....

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such circumstances, the levy of penalty by the AO on this amount is correct. 6.4.3 On the basis of above facts, it is evident that the appellant had not shown the correct short term capital gains by filing inaccurate particulars. The appellant has not filed any explanation as to why such types of claims were made by it in its return of income except claiming that it was a mistake. Hence, the penalty imposed by A.O. u/s 271(1)(c) is correct. This is as per the ratio laid down in the following dec .....

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in 191 Taxman 179 (Delhi) has held that the ratio of Hon'ble SC decision in the case of Reliance Petroproducts Pvt Ltd. is not applicable in the present type of cases. The Hon'ble HC has held as follows: "19. It is true that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the appellant, but it cannot be disputed that the claim made by the appellant needs to be bona fide. If the claim besides being incorrect in law .....

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lty under section 271(l)(c) of the Act. If we take the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the appellant would not be liable to imposition of penalty, even if he was not acting bona fide while making a claim of this nature, that would give a license to unscrupulous appellants to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked u .....

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ts decision in the case of Gujarat State Financial Corporation (Supra) has held as follows: "5.2 As is evident from the aforesaid clause (c) of sect/on 271(1) of the Act, the words used are 'has concealed the particulars of his income' or furnished jrate 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 b .....

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c) of the Act. In the instant case, the Id, CIT(A) upheld the levy of penalty under section 271(1)(c) of the Act since the appellant furnished inaccurate particulars of the income by claiming provision for bad debts and provision for diminution of investments in violation of provisions of the Act. Rather the provisions of the Act expressly debar deduction of such provision for bad debts and provision for diminution of investments. The expression 'has concealed the particulars of income' .....

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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." 5.3 If the disclosure o .....

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ulars of such income. Here we may point out that the decisions relied upon by the appellant on the issue of recording of satisfaction by the Assessing Officer before initiating penalty proceedings under section 271(1)(c) of the Act are no longer relevant in view of sub-section (IB) inserted in section 271 of the Act by Finance Act, 2008. The said provision purports to create a fiction by which satisfaction of the Assessing Officer is deemed to have been recorded in cases where an addition or dis .....

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al information given by him has not been found to be incorrect, he will not be liable to imposition of penalty under section 271(1)(c) of the Act, even if the claim made by him is not sustainable in law, provided that he either substantiates the explanation offered by him or the explanation, even 'if not substantiated, is found to be bona fide. If the explanation is neither substantiated nor shown to be bona fide, Explanation 1 to section 271(1)(c) would come into play and the appellant will .....

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ul debts was expressly made not deductible in is of the relevant provisions of section 36(1)(vii) of the Act, the appellant claimed the deduction, even when the amount had not been written off. We cannot overlook the fact that only a small percentage of the Income-tax Returns are picked up for scrutiny. If the appellant makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, i .....

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s for making them, in the hope that their return would not be picked up for rutiny and they would be assessed on the basis of self assessment under section 143(1) of the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax, which in any case, was payable by them. The consequence would be that the persons who make claims of this nature, actuated by an intention to evade tax otherwise payable by them would get away without paying the tax legally payable b .....

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ch is having professional assistance in computation of its income, and its accounts are compulsorily subjected to audit. In the absence of any details/explanation from the appellant, we fail to appreciate how such deductions could have been left out computing the income of the appellant company and how it could also have escaped the attention of the auditors of, especially when the deduction for provision for bad and doubtful debts and provisions for diminution in value if investments were claim .....

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diminution in the value of investments. In terms of provisions of section 271(1)(c) of the Act read with Explanation 1 thereto and the judicial pronouncements in the case of B.A, Balasubramaniam & Bros. Co. v. CIT [1999] 236 ITR 977 (SC), CIT v. B.A. Balasubramaniam & Bros. Co. [1985] 152 ITR 529 (Mad.), CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 (SC); CIT v. K.R. Sadayappan [1990] 185 ITR 49 (SC); Add/. CIT v. Jeevan Lal Sah [1994] 205 ITR 244 (SC) and K.P. Madhusudanan v. CIT [20 .....

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us laid down upon the appellant 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. Since the appellant failed to substantiate their explanation in respect of amount in relation to disallowance on account of provision for bad and doubtful debts - ₹ 1,62,81,557 and provision for diminution in value of investments-₹ 21,98,638, the onus laid down upon th .....

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invoked the Explanation 1 to section 271(1)(c), it had to be considered at the appellate stage in view of decision of Hon'ble Bombay High Court in CIT v. SMJ Builders [2003] 262 ITR 60 and of Hon'ble Apex Court in K.P. Madhusudanan's case (supra). There is no discretion on the Assessing Officer as to whether he can invoke the explanation or not. We agree with the findings of the Id. CIT(A) that there is no material in support of the claim for deduction of ,the aforesaid provisions o .....

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