TaxTMI 
TaxTMI 
2024 (6) TMI 405
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....and agricultural income of Rs. 22,087), claiming deduction under Chapter VIA at an aggregate of Rs. 4.15 cores, being principally u/ss. 80IA and 80HHC of the Act, at Rs. 68.83 lakhs and 345.65 lakhs respectively. The same was processed u/s. 143(1), i.e., as such, granting refund for Rs. 18.62 lakhs, on 15.03.2002. Subsequently, on 16.04.2002, notice u/s. 148(1) was issued, which was responded to by filing a return of income on 06.06.2003 at Rs. 19,30,992, i.e., at an increase of Rs. 1,02,199, retaining deduction u/c. VI-A at Rs. 4.15 crores, even as that u/s. 80HHC stands enhanced to Rs. 471.53 lakhs. This variation was explained in the assessment proceedings as on account of omission to include transactions of purchase and sale in the course of export, from/to sister concerns in Andhra Pradesh (AP), during the relevant year, which was stated as not deliberate. The said omission was further stated to have a chain effect for other locations, which had since been carried out, even as the overall production and out-turn remains the same. Inasmuch as the same was voluntary, it was requested to accept the same, without levy of penalty. It was observed by the Assessing Officer (AO) that ....
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.... per kg. If Andhra Pradesh transfers alone were taken into consideration, the value of 30593 tins was Rs. 6,10,06,722/-. This gives an average price of Rs. 176 per kg. The break up of the original transfers unit-wise is enclosed. On perusal, you will please appreciate that many of the transfers are at higher prices. It is important to observe in this connection that the higher grade produced by the assessee have all gone for direct exports as is evident from the fact that the average export realisation per kg. as per schedules accompanying return furnished to you works out to Rs. 276/-. The lower prices of Rs. 142/- to Rs. 199/- per kg. was attributed to sales of SPS, LWP, W.450 and such other similar far inferior grades included in transfers for exports. A similar situation has occurred in Andhra Pradesh comprising sales of lower grades Overall cost of production cannot be a criteria for determining the transfer price for sales in the course of export for the simple reason that the stock consist of several grades with some of them as explained above are (of) far inferior in quality. For valuation purpose, however, in the absence of grade-wise costing designed by the Cashe....
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.... Pradesh was also taken into consideration, the total quantity sold for exports was 61266 tins valued at Rs. 14,24,30,582/- averaging to Rs. 205 per kg. If Andhra Pradesh transfers alone were taken into consideration, the value of 30593 tins was Rs. 6,10,06,722/-. This gives an average price of Rs. 176 per kg. The break-up of the original transfers unit-wise is enclosed. On perusal, you will please appreciate that many of the transfers are at higher prices. It is important to observe in this connection that the higher grade produced by the assessee have all gone for direct exports as is evident from the fact that the average export realisation per kg. as per schedules accompanying return furnished to you works out to Rs. 276/-. The lower prices of Rs. 142 to Rs 199 per kg. was attributed to sales of SPS, LMP,W.450 and such other similar far inferior grades included in transfers for exports. A similar situation has occurred in Andhra Pradesh comprising sales of lower grades. Overall cost of production cannot be a criterion for determining the transfer price for sales in course of export for the simple reason that the stock consists of several grades with some of them as exp....
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....31.534%, unheard of in the said business; (e) Section 80IA(9) specifically excludes deduction qua profits subject to section 80-IA from being claimed as deduction under any other provision of Chapter VIA, which is to be limited to the amount of profit or gain of the enterprise, also referring to section 80AB and decision in Motilal Pesticides (I) Pvt. Ltd. v. CIT [2000] 243 ITR 26 (SC). The unexplained difference between the trading sale of Rs. 1424.31 lakhs (694756.44 kgs. or 61,266 tins) and the average cost of purchase, i.e., Rs. 1716.05 lakhs (@Rs.247 per kg.), was added as income, also factoring in the cost of tins (containers) inasmuch as the sale value was admittedly inclusive of tin cost, as under: Cost of kernels as per closing stock valuation. Rs. 247/- per kilo Cost of tin purchased. Rs. 48 per tin Value of kernels sold in the course of export (61266*11.34*247) Rs. 17,16,04,84 Value of 61,266 (61266*48) tins Rs. 29,40,768 Rs. 17,45,45,609 Less: Value disclosed in the accounts. Rs.14,24,30,582 Short credit in A/cs. due to Under valuation made. Rs. 3,21,15,027 3.3 Though the assessee furnished several replies ....
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....ee and the fact that there was no wanton concealment. In fact, the revised return of income reported an increase in profits subject to tax. In any case, the huge addition of Rs. 1.8 crores to business profits offered by the assessee in the beginning of the assessment proceedings itself should remove any apprehension in the mind of the Officer regarding any concealment at all. Of course, the additional income offered under business profits was only subject to 80HHC benefit which also derives support from decisions of higher authorities. Thus, you will be convinced beyond doubt that the assessee has not concealed any income by voluntarily filing a revised return of income to be followed by a voluntary offer of addition of a substantial magnitude. In the transfers to sister concerns, the value of tins was already embedded in the sale price, an issue decided by the first Appellate authority in favour of the assessee. (emphasis, ours) 4. The assessee thus failing to improve his case in any manner, penalty was levied for the same reasons, finding the assessee's offer of an additional sum of Rs. 180.40 lakhs in assessment (subject to the deduction u/s. 80HHC), as inad....
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....e relevant. The assessee has subsequently, on 30/10/2023, i.e., vide letter dated 27/10/2023, placed the same on record. Smt. Devi, the ld. Sr. DR, would, on the other hand, rely on the orders by the Revenue authorities. Shri Vijayaraghavan would, at this stage, raise a legal ground, i.e., qua the non-maintainability of the proceedings in view of the notice u/s. 274 dated 09.03.2004 not specifying the limb of section 271(1)(c), i.e., concealment of particulars of income or furnishing inaccurate particulars of income, under which the impugned penalty stands levied u/s. 271(1)(c) r/w Explanation 1 thereto, adverting to the copy of the said notice (PB pg. 3). Reliance for the purpose was placed by him principally on Mohd. Farhan A. Shaikh v. Dy. CIT [2021] 434 ITR 1 (Bom)(FB), also reading out there-from. Smt. Devi would, in reply, submit that the matter ought to be decided on merits, as indeed had been done in quantum and penalty proceedings inasmuch as there is, on facts, even no claim that the assessee had not understood the reason/s for which the addition had been made and, accordingly, penalty initiated and levied; the legal ground now raised being motivated to eschew an adverse ....
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....s stated, of lower grades. But, then, this is precisely what the assessee is required to prove. The primary burden to prove his return, and the claims preferred thereby, is on the assessee, who is even otherwise, i.e., on facts, in the intimate know of his affairs (CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC); Lakshmiratan Cotton Mills Co. v. CIT [1969] 73 ITR 634 (SC);and which can further only be on the basis of proper materials (CIT v. R. Venkataswamy Naidu [1956] 29 ITR 529 (SC)). And which remains un-discharged in the instant case. It is only thereafter that the onus shall, where the sale rates are still doubted by the Revenue, shift thereto. There is nothing on record to show that the purchase and sale of cashew kernels from/to sister concerns was of lower grades and, therefore, billed lower. The purchase and sale bills would have at once proved the difference in quality and, concomitantly, price. That apart, the assessee's explanation itself shows that while the purchases and sales of cashew kernels are of different grades, varying vastly in prices, no separate inventory is maintained, so that the year-end inventory is valued at weighted average cost of purchase or, as....
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....has rightly considered the entire quantity (61266 tins x 11.34 kg. per tin) purchased/sold from/to sister concerns, as against the quantity omitted to be originally returned (30593 tins). The said omission only served to bring to focus the assessee's trading results, and the manner in which the same were arrived at, and hold no other significance so as to exclude the quantity (30673 tins) sold through sister concerns, returned originally. The rates to be compared are the average rate for the year, at which the closing stock stands in fact valued (Rs.247 per kg.), and that in respect of the sale under reference, i.e., Rs. 205/kg. As regards the cost of tins, the same would definitely form part of the goods sold inasmuch as the goods are sold upon being packed therein. If they were purchased in packed condition, there was no necessity for purchasing tins. There is, in fact, no statement of the condition in which the same were purchased. The same stands deleted by the ld. CIT(A), whose order is not placed on record, and which therefore does not help the assessee's case. Be that as it may, the said amount being no longer a part of the assessed income, would stand to be excluded in term....
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....a definite basis, bereft hitherto of any, supporting the assessee's case. What, we wonder, prevented the assessee from stating so in the first instance; it merely harping on having sold inferior grade cashew kernels without in any manner demonstrating the same. There is, accordingly, no reference thereto in the orders by the Revenue authorities, either at the assessment or at the appellate stage, or even in that by the Tribunal in the quantum proceedings, both for the current and the subsequent years. This led to the matter being decided by it, instead of on merits, on the basis of burden of proof. 6.5 The matter, therefore, ought to travel to the file of the AO for necessary verification and examination of assessee's claim/s. The same, where true, shall, as afore-stated, loss notwithstanding, operate to remove the basis of the Revenue's charge of the assessee having not shown to have sold inferior grade varieties in any manner and, thus, inferring under-selling thereof, presumably to save on tax by transferring profit to the sister concern/s, which charge is though, both unproved and incidental, on which nothing therefore turns, even as explained in Patel Chemical Works (supra)....
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...., charging it therefore of being vague. The Revenues' sole case is of the assessee's inability to prove his accounts, inferring, on the basis of the available material, the cost of the goods sold for the year (Rs.247/kg) to have been recovered in-so-far as it relates to cashew kernels sold to sister concerns, at an average of Rs. 205/kg, inclusive of the cost of containers. The assessee renders no substantiated explanation, making a false plea as to absence of quality-wise grading. During hearing before us, however, he provides one with reference to the purchase cost, which appears plausible, and for consideration of which the matter stands restored to the file of the AO, also noting, at the same time, of it being inconsistent with the assessee's both original and revised claims, which would therefore need to be reconciled, only which would render the explanation acceptable to that extent. There is thus a clear understanding of the said case by the assessee, also apparent from the detailed replies in the assessment and the penalty proceedings; in fact; offering a sum of Rs. 1.8 crores in assessment proceedings, reiterated in penalty proceedings. Why, his case remains the same year ....
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....aj Krishan [2000] 246 ITR 327 (Del), to cite two. Instances w.r.t. s.271(1)(c) are again several, viz., Maharaj Garage & Co. v. CIT [2018] 400 ITR 292 (Bom)(rendered independent of CIT v. Smt. Kaushalya [1995] 216 ITR 660 (Bom)), not considered by it in Mohd. Farhan A. Shaikh (supra)); CIT v. Chandulal [1985] 152 ITR 238 (AP); CIT v. Mithila Motors Pvt. Ltd. [1984] 149 ITR 751 (Pat); Hajarilal Kishorilal v. CIT [1967] 64 ITR 563 (MP). None of these decisions, based on fundamental principles of law, stand considered in the decisions in CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 (Kar) and Mohd. Farhan A. Shaikh (supra). Most of the decisions in the matter are prior to insertion of s. 292B. Though not a case one, a defective notice, it is well-settled, does not annul proceedings. Reference is made to Kantamani Vankata Narayan & Sons v. ITO [1967] 63 ITR 638 (SC) where the Hon'ble Court upheld a reassessment notice which did not, similarly, set out the clause under which it was issued. At worst, where a prejudice is shown, the matter would stand to be remitted to the stage where the irregularity had thus intervened. There are accordingly decisions galore to the effec....
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....ll varieties, obfuscates and distorts the correct operating result, and toward which the assessee's explanation, i.e., absence of such a practice in the industry, is equally misplaced. Couple these debilitative facts with the omission to record purchase and sale worth several crores, it seriously undermines the credibility of the assessee's accounts, ostensibly audited; more so when the omission admittedly had a chain reaction, resulting in revising initial claims u/ss. 80-IA/HHC, and not merely an addition of Rs. 1.02 lac in trading profit. The accounts, much less of sister concerns - even whose identity is not disclosed, equally under cloud, are not produced at any stage. Penalty stands accordingly imposed and confirmed in appeal, as was the relevant adjustment to the returned income in quantum proceedings up to the second appeal, not stated to have been contested further. He, before us in second appeal in penalty proceedings, while not improving his case in any manner, seeks to capitalize on the alleged defect in the notice u/s. 274, claiming it as vague, not conveying the basis for the initiation of penalty proceedings. The same is wholly misplaced on facts; rather, a false sta....
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....1.15 lacs) shall, for the purpose of penalty, survive only to the extent unexplained inasmuch it, then, clearly falls within the purview and ambit of Explanation 1 to sec.271(1)(c), invoked by the AO. Two things, however, need to be made clear. Firstly, that penalty, imposable in principle, would be w.r.t. the assessee's revised return, to the extent the adjustment qua the trading profit on sale of 61,266 tins (Rs. 14,24,30,582), including revised claims u/ss. 80IA and 80HHC, incident thereon, remain unexplained. Though generally levied with reference to the original return, as rightly argued by Sri.Vijayaraghavan, no penalty in the instant case has been proposed on the additional income of Rs. 1.02 lakh offered in reassessment. Two, even as the assessee shall be allowed incidental deductions u/ss. 80IA and 80HHC, i.e., to the extent consistent with the assessee's explanation, penalty shall have to be necessarily computed in accordance with law. This is as the quantification of penalty is subject to Explanation 4 to section 271(1)(c). Finally, we have explained, even if broadly, as to why the assessee's legal challenge to the notice u/s. 274 is de hors the facts and, thus, invalid ....