TaxTMI 
TaxTMI 
2004 (12) TMI 312
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....ubsequently revised on 30-3-1991 to Rs. 72,60,868. The original return had been processed under section 143(1)(a) on 27-3-1991. After receipt of the revised return, the Assessing Officer issued notice under section 148 on 6-1-1992 as, according to him, the income of the assessee had escaped assessment on the ground that for assessment year 1983-84, claim of the assessee for deduction under sections 80HH and 80-I was rejected by the Department. During the course of assessment proceedings, the Assessing Officer had noticed that assessee had disclosed work-in-progress at Rs. 44,27,42,081 with a note (net of provisions Rs. 2,12,18,295). However, on perusal of the balance-sheet, the Assessing Officer did not find any such provision. Accordingly, inquiry was made. It was explained on behalf of the assessee that the value of closing stock has been reduced on account of deterioration of old stocks. It was claimed that a report had been received from the concerned officers about the deterioration of old stocks and auditors had also suggested making assessment of such stocks for the purpose of presenting a true picture of profits in the balance-sheet. According to the assessee, the method of....
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.... India has also not adversely commented upon the valuation of stock as per their report placed on record. 4. It was further contended that the Assessing Officer has wrongly proceeded on the assumption that assessee had changed the method of valuation from cost to net realizable value and that the assessee has failed to substantiate its explanation as to how the value of closing stock has fallen. The learned counsel for the assessee further contended that the Assessing Officer has not recorded any satisfaction in the assessment order that assessee has concealed the particulars of income or filed inaccurate particulars of such income. According to the ld. Counsel, in the absence of recording of such satisfaction in the assessment order, penalty imposed under section 271(1)(c) is bad in law. In support of the contention, reliance has been placed on the following decisions:- (i) CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi) (ii) Dy. CIT v. R.J. Wood & Co. (P.) Ltd, [2002] 76 TTJ (All.) 387 (iii) Subhash Gupta (Individual) v. Dy. CIT [2003] 85 ITD 167 (Jp.) (TM) (iv) Asstt. CIT v. Aggarwal Sanitary & Hardware Co. [2004] 82 TTJ (....
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....e false unless there is an element of deliberateness in it. Relying upon the decision of the Supreme Court in the case of Cement Marketing Co. of India Ltd v. Asstt. CST [1980] 124 ITR 15, it was contended that where the assessee does not include a particular item in taxable income under a bona fide belief that he is not liable so to include it, it would not be right to condemn the return as false return inviting imposition of penalty. 8. It was further contended that the assessee being a Government company, its Directors or other employees are not connected with sharing of profits. They are only interested in running the affairs of the company in consideration of salary. Therefore, no motive can be attributed to the Directors or employees for reduction of stocks or alleged suppression of profits for the purpose of evading tax. According to the ld. Counsel, it is one Department of Government paying tax to the other Government Department and, therefore, there could be no intention to suppress the profits for evasion of tax. Reliance has been placed on the decision of Bombay Bench of the Tribunal in the case of ITO v. Hindustan Petroleum Corpn. Ltd. [1986] 16 ITD 574, where in the....
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....25 per cent in B class and C class timber. The ld. Counsel also pointed out that another reason given by the Assessing Officer for rejecting the claim is that the Divisional Officers gave the certificate of damage caused to the stock in the year 1990 and Board's Resolution was also passed in the same year i.e. 1990. It was contended that the Revenue has failed to appreciate that the certificate given by the Divisional Officers was admittedly given in the year 1990 at the time of completion of the audited balance-sheet but the fact remains that there were number of inspection reports received during the year 1986-87 regarding the inspection of old timber stocks having deteriorated. 11. The ld. Counsel for the assessee contended that it is a case of an assessee who had offered bona fide explanation, which was rejected by the Department. The addition has been made for want of sufficient proof regarding the value of timber having deteriorated to the extent of 50 per cent. It was thus contended that penalty cannot be sustained merely on the ground that in the quantum appeal, addition made by the Assessing Officer has been sustained. In this connection, reliance has been placed on....
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....970] 76 ITR 696, is not applicable as the said decision relates to the law prior to 1-4-1964 but, on the other hand, the CIT(A) has relied upon the following decisions, which are based on the Explanation 1 to section 271(1)(c) prior to its substitution w.e.f. 1-4-1976:- (i) Vishwakarma Industries v. CIT [1982] 135 ITR 652 (Punj. & Har.) (FB); (ii) CIT v. Shama Magazine [1993] 213 ITR 64 (Delhi). The ld. Counsel for the assessee further contended that Explanation 1 to section 271(1)(c) casts a duty on the Assessing Officer to first record reasons that there has been concealment of income and then seek explanation of the assessee and thereafter penalty can be imposed only if any amount is found to be concealed or explanation found to be false. According to the ld. Counsel, the Assessing Officer has failed to record any such finding in the assessment order. The ld. Counsel heavily placed reliance on the decision of the Supreme Court in the case of K.C. Builders v. Asstt. CIT [2004] 265 ITR 562. According to the ld. Counsel, there has been no intention to conceal the income or furnish inaccurate particulars of income and accordingly penalty in this case is not warr....
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....hat the Divisional Officers who had certified the deterioration of stocks had not physically inspected the stocks and that they had no idea regarding the market value of the work-in-progress. According to the ld. D.R., the documentary evidence produced by the assessee in the form of MRP where some Junior Officials had mentioned that the quality of timber is bad was not sufficient for reduction in the value of stock to the tune of more than Rs. 2 crores. Our attention was also invited to the decision of the Tribunal in quantum appeal in assessee's own case where it has been observed that it was the Managing Director who had suggested that the value of closing stock of work-in-progress in Chopal and Chamba Divisions could be less than 50 per cent and 25 per cent of their cost respectively. According to the ld. D.R. the Board's Resolution dated 22-8-1990 was passed in pursuance of the suggestion of the Managing Director arbitrarily and without any basis. Our attention was also drawn to the findings of the CIT(A) wherein various factors have been mentioned for sustaining the penalty imposed under section 271(1)(c). 17. The ld. D.R. further contended that the assessee had all....
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....under the Income-tax Act. It did not enjoy the right to arbitrarily reduce the taxable income as it pleases. According to the ld. D.R., if the payment of correct tax were considered to be inconsequential in the case of Government Corporations, then there would be no need to bring them to tax net. 19. Referring to the contention advanced on behalf of the assessee that the management had no motivation to conceal the income or furnish inaccurate particulars of such income, it was contended that such an argument is inconsequential as the penal provisions have been enacted to ensure compliance and discipline. It was contended that if the Government Corporations are held to be not liable to penalty for the default, the discipline would be lost and it will be taken as blanket licence to take liberty with tax compliance. It was further contended by the ld. D.R. that without prejudice to the above arguments, if lack of motivation is accepted for the sake of arguments, the penalty is chargeable for gross and wilful negligence. The ld. D.R. further contended that as per the decision of the Supreme Court in the case of Jeevan Lal Sah, the principle laid down in the case of CIT v. Anwar Ali ....
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.... decision for reduction in the value of stocks sometime in the year 1990 and the Divisional Forest Officers had also given their report nearly at the same time in the year 1990 when the value of stocks has been adopted as on 31-3-1987. It has also been pointed out by the Assessing Officer that the reduction in value is not based on actual valuation but on estimate basis. The assessee had filed an appeal against the decision of the Assessing Officer in making the addition but without any success. The Tribunal also in the second appeal confirmed the addition made by the revenue authorities. It has been observed by the Tribunal that the assessee has reduced the value of stocks on estimate basis and that in earlier years, the assessee had all along valued its closing stock at cost. The addition was thus confirmed. The Assessing Officer had imposed the penalty @ 200 per cent of the tax sought to be evaded. The CIT (A) has upheld the levy but has reduced the quantum of the penalty to 100 per cent of the tax sought to be evaded. The issue before us is as to whether the assessee can be held to have concealed the income or furnished inaccurate particulars of income. On consideration of fact....
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.... (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, - (i) .. .. .. (ii) .. .. .. (iii) .. .. .. Explanation 1.- Where 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) or the Commissioner 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." There have been amendments in Explanation 1 to section 271(1)(c) at more than once. Explanation 1 was substituted w.e.f.....
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....ovision as per clause (A) of Explanation 1 to the effect that assessee had failed to offer an explanation is inapplicable. The second part of the clause (A) of the Explanation would be attracted if the explanation offered by the assessee is found to be false. For this, the findings of the revenue authorities shall have to be considered. The following findings have been recorded by the CIT(A) in his order:- "(i) Admittedly upto 31-3-1987 no proposal for reduction in value of work-in-progress regarding timber lying with Chamba and Chopal divisions had been made. No physical details of old and damaged stocks, the value of which was reduced subsequently, were prepared upto 31-3-1987. (ii) ** (iii) The officers who were in charge of these divisions as on 31-3-1987 had never proposed reduction in the value of stocks and had never certified that these had not damaged and were of lesser market value. (iv) The Board's Resolution dated 22-8-1990 could not be given retrospective effect and could not be used for educing the value of stocks as on 3-3-1987. (v) the casual certificates given by the Divisional Managers in charge of Chamba and Chopal....
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....l and Chamba divisions for the assessment year under reference alone. The assessee had not followed the changed method of valuation in the subsequent assessment years. This fact was clearly admitted by the ld. Counsel during the course of assessment proceedings .... In fact during the course of assessment proceedings and even before the CIT(A) the assessee could not substantiate its claim that the market value of the closing stock was less as compared to other stock. She has recorded a finding that the value of the old stock would be more in view of the fact that it got seasoned with the passage of time. Further, the assessee has not been able to lead any evidence, whatsoever, to show that such stock was sold at a price shown in the closing stock or at a lesser price in the subsequent year. In fact on the basis of details furnished by the assessee before the CIT(A), she has noted that average sale price in Chopal and Chamba Divisions was Rs. 2,875 per cubic metre and Rs. 3,969 per cubic metre respectively as compared to the rate of Rs. 1,726 and Rs. 431 cubic metre in the respective Divisions adopted by the assessee. Moreover, the assessee has not been able to file any evi....
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....efinite reports. In the absence of such definite material, the reduction in the valuation of the closing stock could not be said to be based on concrete and definite material. 9. We have also tried to look into the surrounding circumstances of the case. Now as mentioned above, the value of the closing stock has to be taken on the last date of the accounting year, i.e. 31-3-1987. Reliance in this regard is placed on the judgment of Delhi High Court in the case of CIT v. Kamani Metals & Alloys Ltd., cited supra. It means that the value of the closing stock of work-in-progress at Chopal and Chamba Divisions would have been more by Rs. 2,12,18,295 as on 31-3-1987 if we ignore the subsequent event of 1990. The advance tax has to be paid in the previous year i.e. before 31-3-1987. The assessee could not have anticipated the decrease in value of the closing stock based on certificates in 1990, during the financial year 1986-87. This should have been taken into account for estimating the income of the assessee for the assessment year under reference for the purpose of payment of advance tax. After including such stock, the estimated income should have been more than Rs. 3 crores a....
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....(iii) CIT v. Chandrakant M. Tolia [1996] 220 ITR 438 (Mad.). 24. On the basis of above principles of law we proceed to consider as to whether in view of the findings recorded in quantum proceedings, the explanation of the assessee can be said to have been found to be false. Their Lordships of the Supreme Court in the case of Cement Marketing Co. of India Ltd. v. Asstt. CST [1980] 124 ITR 15, laid down that the word 'false' involves an element of deliberateness. For this purpose we will have thus to consider the explanation of the assessee in regard to the findings recorded in assessment proceedings, including the findings recorded by the Tribunal in quantum proceedings. The explanation of the assessee is to the following effect:- (i) That the assessee had valued its timber stock under section 271B of 1981-82 lying in Chamba, Chopal and Narwa Divisions at net realizable value by reducing the work-in-progress by Rs. 2,12,18,295, and that this fact was disclosed by the assessee itself in the balance sheet. The accounts of the assessee were audited by statutory auditors, namely, M/s. Lamba Biz & Co. on 10-9-1990, who have duly approved the valuation of stocks and ha....
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....n made on estimate does not establish the amount of the assessee to deliberately reduce the income for the purpose of taxation. 25. It is the case of the assessee that penalty under section 271(1)(a) has also been upheld by the Tribunal on the ground that during the financial year, the events taking place in the year 1990 could not be the basis of estimation of income in the financial year 1986-87. So, however, the ret urn of income has been filed in the year 1990 after the process of assessment of value was completed and the approval of the Board of Directors. 26. The explanation of the assessee regarding the circumstances under which the claim was made is relevant for consideration for the purpose of levy of penalty. Therefore, what is material for the purpose of section 271(1)(c) is to consider the explanation of the assessee as to whether the claim made by the assessee, which was found to be inadmissible in assessment proceedings, was a false claim or a bona fide claim and that all the material facts had been disclosed by the assessee. We have repeatedly pointed out that assessee had clearly indicated in trading and profit & loss a/c. about the reduction in value. All the....
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....n given in the year 1990. Was the certificate given on the basis of memory? Ans. It was not on the basis of memory but based on the fact that the lots were inspected by me at various times and various reports received from my subordinate staff regarding the condition of these lots. Qn. When did you last inspect these lots prior to Aug., 1990? Ans. I do not remember. Qn. What are the specific records on the basis of which you came to the conclusion given in your certificate? Ans. There are no other records except monthly reports received from the subordinate staff. Qn. How did you arrive at the percentage of 50%? Ans. It is general statement and is not exact. Qn. What would be approximate area over which these would be lying? Ans. This would be spread out over the area of entire Division. It may be a few hundred kilometers. Qn. Could you indicate what part of proportion would be B-Class and would be C-Class out of this? Ans. The classification is done by our Marketing Division after the timber reaches the Sale Depot. I would not be able to indicate the proportion. 28. From the above....