Godhwani Brothers vs Assistant Commissioner Of Income ...
1993 Latest Caselaw 284 Del

ORDER

R. M. MEHTA, A.M. :

This appeal is directed against the order passed by the CIT(A) confirming a penalty of Rs. 54,686 imposed on the assessed by the Assessing Officer under S. 271(1)(c).

2. The appellant in this case is a registered firm engaged in the business of purchase and sale of goat and sheep skins, export of leather garments and trading in imported goods. The aforesaid activities are carried on from the head officer located at Delhi and branch office at Bombay.

3. The returned income in this case was Rs. 1,11,890 which came to be computed at a figure of Rs. 84,10,068 by the Assessing Officer, but after further appeals before the CIT(A) and the Tribunal the same stood reduced to Rs. 4,09,381. It may also be mentioned that the assessed had a closing stock inventory of Rs. 28 lakhs and odd to which the Assessing Officer made an addition to the tune of Rs. 25,82,917 on account of under valuation of closing stock. This comprised of Rs. 25 lakhs in respect of raw hide and skins and Rs. 82,917 in respect of the following three items :

Rs.

Rs.

(i)

Texla Electrolytic Capacitors

64,174

(ii)

Rough Ophthalmic blanks

3,288

(iii)

Wattle Extract

15,455

2. It appears that on subsequent appeal before the CIT(A), the addition of Rs. 25 lakhs was deleted whereas the three separate additions aggregating Rs. 82,917 were confirmed. It is also a matter of record that in respect of the latter items the assessed did go up before the Tribunal but at the time of hearing did not press the ground for adjudication.

3. The Assessing Officer had initiated penalty under S. 271(1)(c) in the course of assessment proceedings and after the judgment of the Tribunal had been delivered in the quantum appeal, he proceeded to finalise the penalty proceedings vis-a-vis the addition of Rs. 82,917 and issued formal show cause notice to the assessed. A perusal of the penalty order shows that the main argument which was taken was that there was no mala fide intention on the part of the assessed and no specific concealment had been proved. This argument was rejected by the Assessing Officer on the ground that the under valuation in the closing stock had been made willfully as discussed in the assessment order as also in the order passed by the CIT(A), According to the Assessing Officer the charge of concealment stood proved and the default of the assessed established. He accordingly proceeded to impose the impugned penalty which was the minimum leviable under the provisions of law. On further appeal, the CIT(A) confirmed the order passed by the Assessing Officer on more less identical lines.

4. This learned counsel for the appellant at the outset reiterated relevant facts of the case but, inasmuch as, we have already summarised these in an earlier part of our order, we do not repeat them. The discussion hereinafter refers to the main arguments advanced by the learned counsel inviting in the process our attention to the material on record and various reported decisions as follows :

(i) That the main business of the assessed was to deal in raw hides and skins and the alleged under valuation had taken place in respect of three items in which the assessed had never dealt in the past.

(ii) That the assessed had a very large closing stock inventory and the main addition of Rs. 25 lakhs on account of alleged under valuation stood deleted leaving thereby the minor addition aggregating Rs. 82,917 which was the subject matter of the penalty proceedings.

(iii) There could possibly not be motive on the part of the assessed in trying to willfully under value its closing stock with an intention of concealing income to the nominal extent of Rs. 82,917 as compared to its stock inventory aggregating Rs. 28 lakhs and odd as also the huge business transactions.

(iv) That no such addition had been made in any of the preceding assessment years and nor had any penalty proceedings under S. 271(1)(c) initiated and concluded against the assessed.

(v) That the ground of appeal before the Tribunal had been pressed since the assessed had accepted the mistake in valuation and in the meantime the CIT(A) had already allowed the benefit by making necessary adjustment in the opening stock for asst. yr. 1983-84 and this order having been passed on 26th July, 1988 and the appeal before the Tribunal coming up two years hence, viz., on 24th September, 1990.

(vi) That although the assesseds accounts were not audited, it was maintaining stock register containing all relevant particulars.

(vii) That the stock inventory as also the quantitative tally was submitted along with the return of income and this substantiated the assesseds case that it had not sought to conceal either the items in question or value thereof. Attention was invited to the fact that in so far as the first item was concerned, viz., capacitors the quantitative tally filed along with the return indicated a figure of 12,800 whereas the figure of 2,800 had been a typing mistake on the part of a member of the assesseds staff and which had led to the wrong figure having been shown.

(viii) That the assessed had obtained a certificate from one M/s. Micron Electronic to the effect that the capacitors had been damaged in water although this did not appear to be a correct judgment since the assessed was able to dispose of these capacitors in the subsequent assessment years at fairly good rates.

(ix) That in respect of Item No. 2 namely, Rough Ophthalmic Blanks, the difference was only in respect of valuation since the assessed had applied a rate of 56 paisa per piece whereas the correct value was 58 paisa per piece, the difference being Rs. 3,000 and odd. That the aforesaid item remained in stock for a full year and subsequently a portion of it came to be disposed of.

(x) That in respect of the third item, namely, Wattle Extract the difference of Rs. 15,455 was on account of insurance and freight which the assessed had charged to the revenue account instead of adding it in the closing stock and this was purely bona fide mistake.

(xi) That there had been no suppression in quantity and the difference being entirely on account of valuation which was bona fide, penalty under S. 271(1)(c) was not exigible.

(xii) That the ITO in the penalty order had not specified the correct charge against the assessed since he had used the term "has concealed the particulars of income or has furnished inaccurate particulars thereof".

5. In support of the aforesaid arguments, the learned counsel placed reliance on the following decisions contending in the process that penalty under S. 271(1)(c) cancelled :

1. CIT vs. Lakhdhir Lal Ji (1972) 85 ITR 77 (Guj)

2. CIT vs. Manu Engineering Works (1980) 122 ITR 306 (Guj)

3. Padma Ram Bharati vs. CIT (1977) 110 ITR 54 (Gau)

4. CIT vs. Shah Doshi & Co. (1982) 133 ITR 23 (Guj)

5. Chainrup Sampathram vs. CIT (1953) 24 ITR 481 (SC)

6. Bansidhar Rambillas vs. ITO (1982) 13 TTJ (JP) 383

5. The learned Departmental Representative, on the other hand, supported the orders passed by the tax authorities and the subsequent arguments advanced by him were a reiteration of the reasons recorded by these authorities in rejecting the view point canvassed on behalf of the assessed. According to him, there had been a deliberate concealment on the part of the assessed and it could not plead that it was unaware about the items which it was dealing in for the first time. Specific reference was made to the fact that in respect of Item No. 1, namely, Capacitors, the assessed had deliberately shown 2,800 pieces, the value being Rs. 17,976 and it was only after the ITO had detected the lesser figure shown the assessed had revised the same to 12,800 pieces by maintaining the same value, viz., Rs. 17,976. The further argument which was advanced was that it was not necessary to consider the past position in the assesseds case since there had been a concealment of income in the assessment year under consideration and the assessed was required to be penalised on that score. The Departmental Representative also placed reliance on Expln. 1 to S. 271(1)(c) in support of the levy of penalty and sought to distinguish the various decisions relied upon by the learned counsel.

6. In his short reply the learned counsel reiterated his stand to the effect that the quantitative tally wherein the quantity of capacitors had been indicated at 12,800 pieces had been filed Along with the return of income and on that score it could not be the case of the figure having been revised after detection by the Assessing Officer or there being a deliberate concealment on that score.

7. We have examined the rival submissions and also perused the material on record to which our attention was invited in the course of the hearing. The decisions cited at the Bar have also been considered. In our opinion, this is not a case which would attract the penal provisions since the "under valuation" of closing stock has been the result partly of a calculation mistake which has not been proved to be deliberate and partly on account of bona fide belief that the value which had been attributed to the various items of closing stock was correct. To take up item No. 1, namely, capacitors the assessed had filed relevant details Along with the return wherein it had shown a figure of 12,800 pieces the value attributable being Rs. 17,976. The correct value as per the Department was Rs. 82,150. It is the stand of the assessed that the figure of 12,800 pieces was wrongly typed as 2,800 pieces and in case the following calculation is undertake then the value of Rs. 17,976 (approx) is arrived at :

82150/12800 x 2800

No doubt the assessed has been able to dispose of these capacitors subsequently at favorable rates, viz., the figure shown in the closing stock and the addition made by the ITO but in the absence of any material on record to attribute mala fide motive to the assessed, we are of the view that penal provisions are not attracted.

8. As regards the second item, namely, Rough Ophthalmic Blanks, we accept the arguments advanced by the learned counsel that the difference of Rs. 3,000 and odd is too minor to warrant a penalty since the valuation was effected at 56 paisa per piece instead of 58 paisa and the items remained in stock for a substantial period of time and then also came to be partly disposed of.

9. As regards the last item, namely, Wattle Extract also we accept the submissions made since the difference of Rs. 15,455 represents insurance and freight which was charged to the revenue account and not added in the closing stock. This is possibly a bona fide mistake on the part of the person/persons who prepare the accounts and it is an accepted fact that the assesseds accounts are not audited.

10. It is also an accepted fact that the three items in question are ones which are not in the assessed line of business and these appear to have been imported in lieu of import given to the assesseds since it is an exporter. As against a large stock inventory aggregating Rs. 28 lakhs and odd, we find no appreciable reasons or motive on the part of the assessed to willfully under value the aforesaid three items and a proper appreciation of facts reveals the position that there was no deliberate motive on the part of the assessed and whatever has happened is entirely due to a bone fide impression about the quantity and the valuation thereof. This by no stretch of imagination can attract the penal provisions and no undue importance can be given to the withdrawal of the relevant ground before the Tribunal since the assesseds counsel was able to show that the said withdrawal came about as result of obtaining necessary relief in the subsequent assessment year at the hands of the CIT(A) and that being much prior to the hearing of the appeal before the Tribunal. In the final analysis, we cancel the penalty of Rs. 54,686 imposed on the assessed under S. 271(1)(c).

11. The appeal is allowed.