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2010 (11) TMI 1071
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....lter or raise additional grounds of appeal." 2 Facts, in brief, as per relevant orders are that in this case a survey u/s. 133A of the Income-tax Act, 1961[hereinafter referred to as the 'Act'] was conducted in the premises of the assessee on 20- 10-2000,when excess stock of garments was found and consequently, partner of the firm Shri Harishbhai U. Mamnani while admitting the existence of excess stock, offered a sum of Rs. 11,17,752/- for taxation. Later, the assessee stated that out of the said sum, Rs. 7,75,050/- related to the assessee, the remaining to two other firms M/s Harish Garment and M/s Udharam Ashumal, controlled by the family of partners and being operated in the same premises. Subsequently, return declaring income of only Rs. 1,84,350/- filed on 31-07-2001 by the assessee, dealing in garments and dress material, was taken up for scrutiny. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee had obtained a secured loan of Rs. 14,70,939/- from Anand Mercantile Co.op. Bank Ltd. (AMCBL) against hypothecation of stocks. As per statement of stock position as on 30/6/2000 submitted to the bank, stock was value....
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....ts for the period November to March 2001. 2.2 The AO also observed that even though the balance sheet as on 31-3-01 enclosed with the return showed secured loans amounting to Rs. 14,70,939/- on account of hypothecation of stocks with the Anand Mercantile Co-Op Bank Ltd. (AMCBL), the closing stock of goods hypothecated as per the books amounted to only Rs. 8,00,683/- after excluding the stock of Rs. 7,75,505/-declared as a result of survey . The AO further noticed that copy of the stock statements submitted to the bank revealed that the stock declared to the bank was much higher than the stock shown in the books of account. The highest stock disclosed to the bank as on 30.6.2000 amounted to Rs. 26,21,865/-.Since the assessee did not maintain day today stock register during the year, the AO worked out stock as on 30-6-2000 as per books after adopting the G.P. @ 26.2% declared by the assessee. As the stock as per the books worked out to only Rs. 8,00,683/- as against stock of Rs. 26,21,865/- declared to the bank, the AO concluded that the assessee understated of the stock in the books as on 30-6-2000 and the actual stock was much higher as disclosed to the bank. Accordingly, the as....
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....st of goods sold Rs.2,77,812 Opening stock 1-6-2000 Rs.6,46,761 Add. Purchase of June, 2000 Rs. 58,819 Rs.7,05,570 Less: cost of goods sold Rs.1,85,824 Opening stock 1-7-2000 Rs.5,19,746 (or say Closing stock as on 30-6-2000) As against the book stock of Rs. 5,19,746/- the assessee disclosed stock of Rs. 26,21,865/- to the bank as on 30-6-2000. However, while working out the excess stock, the stock disclosed during the course of survey was Rs. 7,75,505/- has to be taken into account. Thus, the excess stock disclosed to bank was worked out as under. Stocks disclosed to the Bank as on 30-6-2000 Less. Rs.26,21,865 Book stock as on 30-6-2000 Rs.519746 Add. excess stock admitted during the year Rs.775505 Rs.1295251 Rs.12,95,251 Peak difference Rs.13,26,614 Accordingly, the AO added an amount of Rs. 13,26,614 u/s. 69 of the Act. 2.3 The AO also noticed that in certain instances, the assessee claimed expenses twice on the same bill issued by party and no su....
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....y implies that the assessee was engaging in sales (trading activity) outside of its books of account. The issue, therefore, that arises for consideration is whether, in the facts of the present case, i.e., where the assessee was admittedly carrying stock in excess of that reflected in its books of accounts in respect of its business, can it be said to have made any investment outside its books of account, considering that the excess stock as at the date of survey (20.10.2000) stands surrendered for tax, and if so, its quantum. In other words, the resolution of the issue boils down to drawing an inference as to the quantum of stock held by it during the course of the year on the basis of its statements of the stock held by it from time to time furnished to its bank for the purpose of availment of, and in terms of, the credit facilities being enjoyed by it therefrom. Towards this we find, that the assessee states that its statements are guided solely by the consideration of availment of bank finance and which is dependent upon the value thereof, determined at its purchase price, i.e., @ 60% thereof. However, it has not brought forth any evidence to support this averment, by, say, sho....
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....onsistent with the facts on record to ignore the same, the income to be taxed being the real one. However, it is also a matter of fact that the stock of the assessee, or any business entity for that matter, cannot be held at constant levels throughout the year. As such, the assessee's plea that its entire excess stock stands discovered and surrendered at the time of survey cannot be accepted. The very fact that its stock varies from month to month, and which would only be in response to the business needs, would exhibit this. Rather, we observe that stock held by it generally is to be tune of Rs. 25 to Rs. 26 lakhs throughout the year except for the months ending August, September and October, 2000. As such, the only plausible inference is that the stock generally held by it is higher (by about Rs. 7 to Rs. 8 lakhs) than that held in the months of August to October. This, coupled with the fact that the stock as found at the time of survey i.e., Rs. 17.63 lakhs matches with that declared by it to the bank as at 30.9.2000 and 30.10.2000, would impel us to hold that its peak stock is about Rs. 7.50 lakhs higher than that held by it in these months and which also cover the date of ....
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....hich was, therefore, reduced therefrom for surrender purposes. However, we also find that the Assessing Officer has, not accepting the assessee's contention in this respect on the ground that it would be indeed surprising that the assessee submits stock belonging to its sister concerns to its bank, not made any investigation in the matter. The reality of a business practice, whether right or wrong, has to be adjudged on the basis of evidence, or, in its absence, on the basis of preponderance of probabilities, so that the Assessing Officer's ground of rejection thereof, to our mind, is legally infirm. However, the assessee's statement would need to be verified on facts i.e., whether the said two sister concerns whose stock also lies at its business premises, enjoy any credit facility from any bank against the security of stock and, if not, it would only be reasonable to allow credit for the amount of stock as per their books of account as at 30.6.2000 i.e., the date with reference to which the peak value of unexplained investment has been reckoned. For the determination of book stock as on 30.6.2000, in the absence of any stock register, the stock as arrived at ....
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....As regards GP addition, the ITAT upheld the findings of the AO in the following terms: 11. The first ground of the assessee in the cross objection relates to the confirmation of addition on account of Gross Profit made by the Assessing Officer at Rs. 1,49,888. 12. Addition in this case was made by the Assessing Officer after observing the sharp decline in the GP rate in the post- survey period in comparison to the preceding periods as under: Period Gross Profit Rate From 1.4. 1998 to 31.3.1999 25.66% From 1.4. 1999 to 31.3.2000 24.81% From 1.4.2000 to 20.10.2000 26.20% From 1.11.2000 to 31.3. 2001 11.63% The learned Assessing Officer, before effecting the impugned addition, considered all the arguments and evidence led by the assessee and stated his findings in clear terms which found acceptance of the learned CIT(A). 13. Before us, the learned AR repeated the arguments as made before the authorities below, while the learned Departmental Representative relied on the orders of he authorities below. 14 We find that the Assessing Officer has passed a very reasoned o....
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....ted. As such, we are of the opinion that though unevidenced, it would not be appropriate to uphold the disallowance of the said expenditure in the facts of the present case. The orders of the authorities below on this point, therefore, stand reversed. 17 The third and the final ground in the Cross objection is against confirmation of disallowance of staff welfare expenses for Rs. 9,500. This amount has been disallowed, in the absence of any evidence being furnished before the Assessing Officer as well the CIT(A). However, the assessee had explained before both the authorities below that the same related to hospital expenses of an employee of the firm - Shri Bharat Bhai, who got his leg fractured in a minor accident while going to Nadiad for business purposes. Under the peculiar facts and circumstances of the case, we do not think the assessee's explanation is unrealistic. Also, considering the nature of the expenditure which arose in the exigencies of the situation, it would not have been very practical to collect the necessary evidence. Also, we believe that the AO, if doubtful of the assessee's explanation, should have, instead of just brushing it asi....
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...., there does not appear to be any reasonable ground for there being such a large variation in the pre-survey and post survey rate of G.P. declared. The Learned CIT(Appeals) held that "the appellant has made an attempt to explain the decline in shortfall in GP but the same is not acceptable in the absence of any documentary evidence. There is no evidence that sales affected during the post survey were affected due to less margin and there Is also no evidence that direct expenses during the post survey period have gone up. There is also no proof so as to accept the plea of the appellant that stock clearance sale was made with a low margin. In these circumstances, I decline to accept the arguments put forth by the counsel that profit disclosed of 20.5% by the appellant was reasonable and more particularly when post-survey GP was about 26.20%. The appellant has failed to explain such sudden fall during post-survey period and it is also noticed that since there is substantial down fall in overall GP during the year as compared to GP disclosed in preceding/succeeding years also. I therefore, hold that the AO Is Justified in making GP addition of Rs. 1,49,888/-." This was confirmed by ....
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....s squarely held that the peak difference in stock declared by the appellant deserves to be brought to tax reflects that the appellant had clearly not declared its true and correct income. Penalty u/s. 271(l)(c) Is clearly attracted on this issue and is therefore, confirmed. 6. The addition on account of advertisement expenses has been accepted by the appellant. Since the appellant has failed to offer any explanation for such an addition at any stage, It Is obvious that the same were inflated expenses claimed by the appellant. In view of the above, I do not think this Is a fit case to Interfere with the levy of penalty u/s. 271(l)(c) on this issue also. 7. As a result, penalty levied u/s. 271(l)(c) of the IT Act is confirmed. However, the Assessing Officer has not brought on record any reason to justify the levy of penalty @ 200%. The same Is therefore, reduced to 100%." 7. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The learned AR on behalf of the assessee while carrying us through the impugned orders and relying upon decisions in the case of Shri Pravinbhai B Soni vs. ITO [1993) 117 Taxation 4 (Trib),ITO vs. Smt. Shanuur J Far....
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....ed from assessee's own books of account. As is apparent from the facts of the case, the assessee failed to substantiate its explanation regarding low GP of only 11.63% in the post survey period during the course of assessment proceedings while no attempt at all was made in the penalty proceedings to justify through any explanation except stating that penalty could not be imposed on estimated additions. As regards addition towards excess stock upheld by the ITAT ,there is nothing to suggest that the assessee submitted any explanation before the AO during the penalty proceedings. In nutshell, the assessee failed to substantiate their explanation in relation to GP results in the post survey period during the assessment proceedings before the AO as also before the CIT(A) and the ITAT nor established bonafide of their explanation. Regarding other addition towards excess stock, the assessee did not submit any explanation during the penalty proceedings at all. Thus, the assessee failed to discharge the onus laid down upon it, in terms of explanation 1 to sec. 271(1)(c) of the Act. Before proceeding further , we may have a look at the relevant provisions of section 271(1)(c) of the Act....
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....to the determination of an item as income or material to the correct computation is not filed or that which is filed is not accurate, then the assessee would be liable to penalty under s. 271(1)(c) of the Act. The expression 'has concealed the particulars of income' and 'has furnished inaccurate particulars of income' have not been defined either in section 271 or elsewhere in the Act. However, notwithstanding the difference in the two circumstances, it is now well established that they lead to the same effect namely, keeping off a certain portion of the income from the return. According to Law Lexicon, the word "conceal" means: "to hide or keep secret. The word 'conceal' is con+celare which implies to hide. It means to hide 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....
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....aring given by the notice under section 271(1)(c), obviously is against such concealment and inaccuracy as is detected in the assessment proceedings". 8.2 We may point out that in the aforecited decision , the AAC by his order dated 2-2-1974,interalia, deleted other additions including the amount of Rs. 37,535 which related to understatement of closing stock while in further appeal before the Tribunal in the quantum proceedings, the Tribunal by its order dated 7-3- 1980, upheld the additions sustained by the AAC and restored the addition of Rs. 37,535 of the said item No. 5, which was deleted by the AAC. In the light of these facts, the Hon'ble jurisdictional High Court sustained the order of the ITAT, upholding the levy of penalty u/s 271(1)(c) of the Act even on the amount of Rs. 37,535/-.If the income had to be assessed under section 145 of the Act, then the presumption would be that the income was not properly returned, as held by Hon'ble jurisdictional High Court in CIT vs. Chandra Vilas Hotel,291 ITR 202(Guj). In this decision the Hon'ble High Court found that the assessee was not maintaining its account for six years and every year assessments were framed with....
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....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. v. CIT [1999] 157 CTR 556(SC), CIT v. B.A. Balasubramaniam & Bros. [1984] 40 CTR (Mad.)/[1985] 152 ITR 529 (Mad.) , CIT v. Mussadilal Ram Bharose [1987] 60 CTR (SC) 34/[ 1987] 165 ITR 14 (SC); TC 50 R. 474; CIT v. K.R. Sadayappan [1990] 86 CTR (SC) 120; [1990] 185 ITR 49 (SC); TC 50 R. 795, Addl. CIT v. Jeevan Lal Sah [1994] 117 CTR (SC) 130; [1994] 205 ITR 244 (SC); TC 50 R. 973 and K.P.Madhusudanan vs. CIT,251 ITR 99(SC), 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....
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....d on estimate basis." 8.3 Hon'ble Supreme court in the case of K.P.Madhusudanan vs. CIT,251 ITR 99(SC) held that "We find it difficult to accept as correct the two judgments aforemeiitioned. The Explanation to section 271(1)(c) is a part of section 271. When the Income-tax Officer 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 ....
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....nalty on the aforesaid two additions. Even otherwise it is a settled law that in economic offences, the statutory liability to pay either duty or tax is nothing but a strict liability where the question of proving beyond the shadow of doubt one's existence of bona fide 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. 8.61 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....
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.... Vilas Hotel,291 ITR 202(Guj) and levy of penalty has to be upheld. 8.8 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. 8.9 In the case of Usha Fertilisers vs. CIT,269 ITR 591(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 raised against the assessee that the assessee is guilty of fraud or g....
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.... Mills,136 ITR 435 (All.)]. No doubt the AO/CIT(A) are required to make an honest and fair estimate of the income even in a best judgment assessment and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts and details.[ Kachwala Gems Vs JCIT, 288 ITR 10 (2007)(SC) ]. 9. Now adverting to three decisions relied upon by the ld. AR, we find that these decisions were rendered on their own peculiar facts and as argued by the ld. DR ,are not applicable to the facts in the instant case before us. First such decision is in the case of Shri Pravinbhai B Soni(supra). In this case, during the assessment proceedings, a credit entry of Rs. 10,000/- was found in assessee's account with a certain firm in which the assessee was a partner. On questioning the assessee regarding the source, he explained that Rs. 10,000/- was deposited out of his withdrawals for the last 8 years. As there was no evidence, the assessee agreed to surrender this amount for taxation. The ITO levied minimum penalty of Rs. 6,750/- for concealing true parti....