TMI Blog1992 (8) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... or revaluation of closing stock and, as a necessary consequence, offered an additional income of Rs.3,34,724 for the assessment year 1988-89. The assessee submitted before the ITO that the business had come to him only in the assessment year 1986-87 on account of the sudden death of his The assessee had filed the returns as worked out by his employees/accountant. The working of the closing stock was not available with him. He had, therefore, recalculated the value of closing stock following weighted average method and had offered to be assessed on additional income to avoid litigation and buy peace. The assessee also requested for bifurcation of income for the assessment years 1988-89 and 1987-88. The assessments were completed accordingly. 3. Proceedings under section 271(1)(c) were initiated for both the years. Since the assessee had not paid the advance-tax due commensurate with the income assessed as a result of revaluation of stock, proceedings under section 273(2)(c) were also initiated. For the two assessment years penalties of Rs.1,14,630 and Rs.65,598 were levied under section 271(1)(c) and penalties of Rs.9,335 and Rs.5,998 were levied under section 273(2)(c). The penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal. Such act of the assessee cannot validly be regarded as bonafide so as to not constitute concealment of income. The revised returns filed by the assessee could not also validly be regarded as voluntary ones inasmuch as they were filed only after the ITO had commenced enquiries into the question of valuation of stock and had required the assessee to explain the basis of valuation. In support of his arguments, the learned Departmental Representative relied upon the decision of the Madras High Court in the case of Co. v. IAC [1980] 124 ITR 376 and the decision of the Hyderabad Bench of the Tribunal in the case of Katika Ramulu Bros. v. ITO [1989] 31 ITD 1 (Hyd.) (TM). 6. Now, so far as the penalties under section 271(1)(c) are concerned, the learned Commissioner (Appeals) has dealt with the Issue in paragraph 5 of his impugned order relating to those penalties. which reads as under: "5. I have considered the submissions on behalf of the appellant carefully. I have also looked into the fact of the case. In asst. year 1987-88 the assessment was completed on a total income of Rs.3,51,770 as against returned income of Rs.1,22.506. The variation was mainly attributable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer was made before the department became aware about it. As a matter of fact it was clear from the order sheet notings that the Assessing Officer had already taken note of the discrepancy and was trying to offer an opportunity to the appellant to explain his case. In the circumstances when neither the discrepancy was bonafide nor the offer of additional income was voluntary there was nothing to take away the case of the appellant from the applicability of provisions of section 271(1)(c). The assessment order has become final as no appeals were filed against them. The additions have also in the circumstances, become final. The decisions relied upon by the appellant are clearly distinguishable as in those cases penalty was not held exigible as the offer of additional income was voluntary on discovery of discrepancy. As discussed earlier the facts of the appellant's case were entirely different. In the above circumstances, I am of the view that penalty under section 271(1)(c) was clearly eidgible in the appellant's case. As the Assessing Officer levied the penalty at the minimum there is no reason to modify her orders. Both the penalties are accordingly approved and the appeals are d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, could save the assessee from the consequences of the provisions of section 271(1)(c). We, therefore, conclude that the learned Co commissioner (Appeals) was eminently justified in coming to the conclusion that penalty under section 271(1)(c) was clearly exigible in the assessee's case. As the ITO had levied the penalties at the minimum, there was no case to modify her penalty orders passed under section 271(1)(c) of the Act. 8. As regards the penalties levies under section 273(2)(c), it was urged by the learned counsel that the higher estimate could not be filed as the obligation to file the higher estimate arose on account of the offer of additional income on the basis of revised valuation of closing stock. Here again, similar contentions were made, which have been rejected by us in relation to the penalties levied under section 271(1)(c). For the similar reasons, we hold that the penalties under section 273(2)(c) have been properly levied and confirmed. No case for our interference therein is made out. 9. In the result, all the four appeals by the assessee are found to be having no merit and shall, therefore, stand dismissed. Per R.K. Bali, Accountant Member - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of assessment proceedings for assessment year 1988-89, a question was raised about the valuation of closing stock in that year at Rs.535964 i.e., 1162 per 10 gms. of gold. It was pointed out on the order sheet as under:-- "that the assessee is having closing stock of gold amounting to Rs.535964. The method is adopted as base method of assessment year 1980-81 and remaining at the rate of average method. The assessee will furnish the complete details of this and also method adopted in earlier years. In absence of any proper adopted/accepted method why closing stock should not be calculated at the current rates? The assessee will furnish the above details possibly by 25-9-1989 at 11.00 AM." As a result of above enquiries the assessee vide his letter dated 16-9-1989 revised the value of closing stock at Rs.8,90,688 as per the weighted average method as against Rs.5,35,964 declared earlier and filed revised return of income on 23-10-1989 disclosing income of Rs.5,02,135 as against Rs.1,47,412 originally shown, the contents of the assessee's letter are reproduced below:-- "I am carrying on business as jeweller in the name and style of M/s Sangeeta Jewellers, my proprieta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tary having been made suo moto and prior to detection by the Department. In view of the circumstances explained above, you are requested to kindly treat this most sympathetically and refrain from charging any interest or levying any penalties in correction with this declaration." The assessee's contention that the additional income offered for taxation should be treated as being fully voluntary having been made suo moto and prior to detection by the Department is not accepted. As substantial portion of income concealed pertained to assessment year 1987-88, this assessment was also taken up for scrutiny after obtaining previous approval of the Dy. CIT Range 22, Bombay. Notice under sections 143(2) and 142(1) of the IT Act, 1961 were issued and sent to the assessee along with a letter dated 26-10-1989 which reads as under: "I am enclosing notices under sections 143(2) 142(1) of IT Act for assessment year 1987-88. Under the provisions of section 142(1) of the IT Act, you are requested to make your submissions on the following: The opening stock of gold ornaments as worked out by you after conversion into 24 carat is 4182 grams valued at Rs.6,29,715 i.e., at Rs.1505 per 10 gms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of revaluation of closing stock will be Rs.2,29,269. After taking into all the facts of the case and discussions made with the assessee's representative, income of Rs.2.29,265 was added for assessment year 1987-88 and Rs.1,25,449 was added for assessment year 1988-89 treating it as income from undisclosed sources. The assessee has not filed appeal against the above order and accepted the entire addition and taxes have also been paid except interest under section 217 for which decision is still awaited from higher authorities. In response to show-cause notice under section 271(1)(c) the assessee replied vide letters dated 14-2-1990 and 11-4-1990 stating as under:-- "I had revalued the closing stock of assessment year 1988-89 at Rs.8,90,688 as against Rs.5.35,964 as per declaration letter dated 16-9-1989. Thus the difference of Rs.4.54,724 I offered as income being fully voluntary having been suo moto and prior to detection by the department. My father Late Shri Achalchand Sharma was expired suddenly before one and half year leaving me in dark about the business activity accounts, family affairs, social obligations etc. In view of the above fact, I had lot of difficult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of closing stock made by the department that the assessee has come forward with a disclosure and offered Rs.3,54,723 as additional income. Therefore it is deliberate concealment. I, therefore, levy penalty of Rs.65.598 being minimum penalty at 100% of the concealed income. This order has been passed with the prior approval of the Dy. CIT Range 22, Bombay vide his order No. DCR 22/Approval/90-91 dated 26-6-1990." 12. A perusal of the order Sheet Entry whose compliance was required by the Assessing Officer by 25-9-1989, which has been reproduced In the penalty order at 'A' above, will indicate that the method of valuation as explained by the representative of the assessee to the Assessing Officer was claimed to be "as base method of assessment year 1980-81 and remaining at the rate of average method". The expression used (as noted by the Assessing Officer in the order Sheet) does not refer to any proper method of valuation. However the fact remains that there was definite undervaluation and this fact was pointed out by the Assessing Officer to the assessee. The assessee, vide his letter dated 16-9-1989, which was, however, filed in the office of the ITO on 11-10-1989, enhanced the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... together with principle of LIFO (Last in First Out) was adopted as a consequence of which the valuation of closing stock was at a much lesser figure than the average purchase price or for that matter even the opening Stock, has to be considered in the context of purchases of different Carats of Gold Ornaments being converted into 24 Carats and then taken Into the trading account. The assessee himself realised the incorrectness of this method and accordingly when confronted by the Assessing Officer during the course of assessment proceedings for assessment years 1988-89. he offered to increase the valuation of the Closing Stock by adopting the weighted average method and offered additional income for taxation. However, this action alone of the assessee will not make him guilty of deliberate concealment of income particularly so as the assessee inherited the business only about 1 1/2 years prior to the commencement of the assessment proceedings as a result of the death of his father Sh. Achal Nath Sharma on account of Heart Attack, which fact has been conveyed to the Assessing Officer vide letters dated 14-2-1990 and 11-4-1990 in response to penalty notices under section 271(1)(c), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sharma. he should not be further penalised by holding him guilty of conscious and deliberate concealment. Accordingly the penalties under section 271(1)(c) levied by the Assessing Officer for both the assessment years under consideration are directed to be deleted. 15. As regards the penalties levied under section 273(2)(c) are concerned, it is found by the learned first Appellate Authority that even on the basis of returns filed originally the Advance-tax paid by the assessee was less than what was required under the relevant provisions and under these circumstances there was a clear failure to discharge the obligation as provided under section 209A(4) of the IT Act by the assessee. Since the penalties levied by the Assessing Officer as well as confirmed by the first Appellate Authority are the minimum leviable under the Act. we have no hesitation in confirming the order passed by the learned first Appellate Authority in this regard. 16. In the result the appeals relating to penalties under section 271(1)(c) in ITA Nos. 6063 and 6064 (Bom.)/1991 are allowed whereas the appeals relating to penalties under section 273(2)(c) in ITA Nos. 6065 6066 (Bom.)/1991 are dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 gms of gold at an average rate of Rs.2533 per 10 grams. On bifurcation of the position of preceding year, i.e., assessment year 1987-88, it was noticed that opening stock was valued at Rs. 1536 per 10 gms. The average purchase price during the year was Rs.1728 per 10 gms. The valuation of closing stock was adopted at Rs.1200 per 10 gms which amounted to undervaluation of stock." 5. Vide his letter dated 16-9-1979, which was filed In the office of the ITO on 11-10-1989, the assessee explained his case and offered for taxation Rs.3,54,724 as under:-- "As a result of these workings, I find that as against the closing stock of Rs.5,35,964 as on S.Y. 2043 (relevant to assessment year 1988-89) my closing stock should be valued at Rs.8,90,688 as per the weighted average method. The closing stock value of my Gold Ornaments as on S.Y. 2043 (23-10-1987) may be revised accordingly. You are requested to kindly treat my return for assessment year 1988-89 as amended accordingly. i.e., the income be increased by Rs.3,54,724. However, if it is thought necessary that this difference in stock i.e. Rs.3,54,724 should be distributed over the preceding years as well, the same may kindly be done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that the offer of additional income based on correct valuation was voluntary. The claim, however, is not found to be correct on scrutiny of assessment order and consideration of the sequence of events. Firstly, it is seen that in assessment year 1987-88 the opening stock was valued at the rate of Rs.1536 per 10 gms. whereas the closing was valued at Rs.1200 per 10 gms. This was in spite of the fact that the average purchase price was Rs.1728 per 10 gms. In assessment year 1988-89 the closing stock was valued at the rate of Rs.1240 per 10 gms. and the average purchase price at Rs.2135 per 10gms. Thus it would be seen that in assessment years 1987-88 and 1988-89 the closing stock valuations were made at rates lower than the rates adopted in the opening stock and that at which purchases were made during the year. There is ostensible explanation for this practice other than the desire to understate the income. When the price had gone up at a rapid rate there was no bona fide explanation for valuing the closing stock at rates lower than the opening stock and purchase price. In the circumstances, I am of the view that the discrepancy in valuation of closing stock was not bonafide. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.1116 per 10 gms. as against the opening stock at the rate of Rs.1240 per 10 gms. although the average purchase price during the year was Rs.2135 per 10 gms. Thus the closing stock valuations were made at the rates much lower than the rates adopted for the opening stock and the rates at which the purchases were made during the two years. The adopting of this manner of valuation by the assessee cannot be held to be tenable either under the FIFO (first in first out) method or under the weighted average method of valuation. In the assessment year 1988-89, the average purchase price was at as high a rate as Rs.2213 per 10 gms. yet the assessee chose to value his closing stock at such a low rate as Rs.1116 per 10 gms. which is almost 50 per cent of the rate of purchase price. This gross disparity between the two rates clearly indicates that the act of the assessee in undervaluing his stock could not be unintentional, inadvertent or bona fide. This is a blatant and intentional act of gross undervaluation of closing stock so as to escape tax liability for the two years. As regards the voluntary nature of disclosure of additional income, here again, it would be difficult to accept the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which fact has been conveyed to the Assessing Officer vide letters dated 14-2-1990 and 11-4-1990 in response to penalty notices under section 271(1)(c) which have been incorporated in the penalty order passed under section 271(1)(c) and marked 'C' in the reproduced portion of the penalty order in earlier paragraph", deleted the penalty as under:-- "14. Keeping in view the totality of facts and circumstances of the case, I am of the opinion that if the assessee has, in his endeavour to buy peace, offered for taxation enhanced valuation of the stock on the basis of weighted average method as suggested by the Assessing Officer he has suffered taxation for his negligence in accepting the acts of ommission/commission by his earlier Accountant - may be as instructed by his late father Sh. Achal Nath Sharma, he should not be further penalised by holding him guilty of conscious and deliberate concealment. Accordingly the penalties under section 271(1)(c) levied by the Assessing Officer for both the assessment years under consideration are directed to be deleted." 10. The learned counsel for the assessee reiterated the submissions, which were made before the IT authorities, as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this stage, the assessee came out with disclosure of concealed income of Rs.3,54,724 which he offered for taxation with request "to kindly treat most sympathetically and refrain from charging any interest or levying any penalties in connection with this declaration". Therefore, I entirely agree with the submissions made on behalf of the Revenue that but for the detection of concealed income by the ITO the assessee would not have come forward with the disclosure of additional income aggregating to Rs.3,54,724. The reported decisions relied upon by the assessee would not be of much help to him. In the case of Sir Shadilal Sugar General Mills Ltd., the Honble Supreme Court was dealing with a case under the corresponding provisions of the Indian Income-tax Act, 1922, which are materially different from the one, with which we are concerned in the present appeals. The word "deliberate" has been deleted since long in the relevant provision of the Act, which are applicable to the instant case. Similarly, the decision in the case of Haji Gaffar Haji Dada Chini, would not be of any help to the assessee, in view of sweeping changes made in section 271(1)(c) of the Act from time to time. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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