Case Law Details
ITO Vs Ramsons Castings (P.) Ltd. (Bombay High Court-Nagpur Bench);
In the present proceedings, the assessing officer accepted the revised return of income filed by the respondent-Assessee declaring additional income of Rs. 1.40 crores. The assessing officer did not independently either in the Assessment proceedings or even in the penalty proceedings examine the contention of the respondent-Assessee that there was no excess stock as found by the Income Tax Officer during the survey proceedings. Neither any exercise was done independently to find out whether the excess stock alleged was supported by any other evidence. This particularly in the face of the respondent-Assessee asserting that the stock taking was not properly done. In-fact, at the very first instance, the respondent-Assessee did point out that no exercise was done to weigh the stock to determine the shortage if any. In-fact, the shortage was arrived at on basis of estimate and the respondent-Assessee had itself surrendered additional income to buy peace of mind and avoid unnecessary litigation. It did not accept that actual stock was more than that recorded in its books and during the proceedings also submitted a chart showing no excess stock.
It is now a settled position of law after the Apex Court order in Mak Data (supra) that an Assessee is not absolved of penalty because the additional income has been declared to buy peace. It must follow therefore that the above strategy (buy peace) by itself will not justify imposition of penalty, unless the requirement of the section under which the penalty is imposed are satisfied.
It is the above context that the Revenue places strong reliance upon paragraph 10 of the decision of the Apex Court Mak Data (P.) Ltd. (supra) to contend that facts are identical, therefore, penalty must follow. The Assessee in the above case had during survey operation made voluntary disclosure of income. Similar to the present case submits the Revenue. However, the distinction in this case is that the respondent-Assessee had at the first opportunity i.e. when statement has been recorded, contended that the manner and method of quantification of stock done during the course of survey proceeding was not correct. In-fact, even after that it was consistently writing to the Authorities that there is no excess stock and the manner in which the stock taking has been done is not correct. This was not so in the case of Mak Data (P.) Ltd. (supra). In the case of Mak Data (P.) Ltd. (supra), the Assessee did not dispute the facts of undisclosed income at any time/stage. Therefore, paragraph 10 of the decision in Mak Data (supra) will have no application in absence of the Revenue being able to show that there has been a conduct which would warrant penalty upon the respondent-Assessee namely either concealment of income or filing of inaccurate particulars of income. In the present facts, the respondent-Assessee was consistently stating that there is no excess stock in his possession. That, it was subject to central excise control and no proceeding for clandestine removal of goods etc. were initiated against the respondent-Assessee. Further, in these facts, the respondent-Assessee, the Commissioner (Appeals) and the Tribunal have held that no penalty is imposable, as the respondent-Assessee herein has consistently contended that there is no excess stock. This contention has not been examined and commented upon the Revenue before imposing of penalty. Thus, the impugned order of the Tribunal calls for no interference.
FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:-
This appeal under Section 260-A of the Income Tax Act (Act) challenges the order dated 30-11-2012 of the Income Tax Appellate Tribunal (Tribunal). The impugned order relates to assessment year 2007-2008.
2. This appeal was admitted on 27-4-2015 on the following substantial questions of law:–
“1. Whether on the facts and in the circumstances of the case, the ITAT erred in law by upholding the order of the Commissioner (Appeals) deleting the penalty of Rs. 48,00,000 levied under Sections 271(1)(c) of the Income Tax Act, 1961?
2. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law by considering extraneous factors as basis for surrender of income of Rs. 1,40,00,000 disregarding the fact that unaccounted closing stock of Rs. 1,40,00,000 was found during survey?”
3. Brief facts giving rise to this appeal are that the respondent-Assessee is running Steel Rolling Mill at Nagpur. On 20-9-2006, a survey operation under Section 133A of the Act was conducted at the premises of the respondent-Assessee. During course of survey, stock in the hands of the respondent-Assessee was verified and it was worked out to be valued at Rs. 2.29 crores. However, the stock shown in the books of the respondent-Assessee was Rs. 89.12 crores. Thus, there was a difference of Rs. 1.40 crores in the stock found as on verification to that recorded in the books of accounts of respondent-Assessee.
4. On 23-9-2006, a statement of Mr. Shriramswarup Sarda, overall in-charge of the respondent-Assessee was recorded during the course of survey. In his statement, Mr. Sarda disputed that there was excess stock of Rs. 1.40 crores. During the course of recording the statement, a specific query as under with regard to excess stock was made by the Revenue and Mr. Sarda on behalf of respondent-Assessee responded to the query in the following manner:–
“Question No.2:- During the course of survey proceeding under Section 133A in the factories in which you are director, difference in stock has been found. How would you explain the same.
M/s Ramsons Casting Pvt. Ltd., Nagpur-I would like to mention that the stock statement taken if any is not correct in my knowledge at that time I was available at my office at Neeti Gaurav Complex, Ramdaspeth, Nagpur. I was informed by my person that the persons taking stock were not technically qualified or competent for the same. In-fact, there was no weighment of stock. Hence, it cannot be said that the physical stock has been taken. I may mention that these are different sizes, length and grades of material. Each has its own physical weight based on its density. The materials are in bundle and the bundles varies. The size of ingots also varies in length, shape and size. Thus, there cannot be any standard yardstick to take physical weighment except by actual weighment on Weigh Bridge. In such a short time so much of the quantity cannot be actually weighed. Thus, it can be very safely concluded that the figures mentioned in the stock statement may be vague estimate. We do not agree with the results mentioned in the stock statements. We have also mentioned that the persons who had signed the stock statement is not authorized and competent enough for this work. We may also clarify that as per our system in the materials received by weighment. The materials produced are also weighed and all the entries are made on actual in our records as well as records kept as per central excise laws. The officials of central excise department verify the same. Our audit team also carried on the verification. We have never found any variation in the stock. We are prepared to get the stock physically weighed by employing trucks and trailers.” (Emphasis supplied)
5. Thereafter, on 14-11-2007, the respondent-Assessee filed its return of income for the subject assessment year 2007-2008 declaring income of Rs. 74.96 lakhs. This return was followed by a revised return on 6-2-2008 declaring the same income of Rs. 74.96 lakhs. On 21-2-2008 a further, revised return was filed declaring income at Rs. 89.12 lakhs to be followed by another revised return on 31-3-2008 declaring the income at Rs. 74.96 lakhs. It was only on 26-11-2008 that in a further revised return of income an additional income of Rs. 1.40 crores was declared. This revised return was filed on the understanding that no penalty would be levied upon it as it was being offered only to buy peace of mind and avoid unnecessary litigation.
6. The assessing officer on 31-12-2008, completed the assessment under Section 143(3) of the Act by accepting the revised return filed on 26-11-2008. Further, assessing officer in the above order also initiated penalty proceeding under Section 271(1)(c) of the Act. This was followed by show cause notice dated 31-12-2008 wherein the respondent was called upon to show cause why penalty should not be imposed on the basis that it had concealed particular of income or furnished inaccurate particulars of such income.
7. The respondent-Assessee replied to the penalty notice and pointed out that there was no excess stock at all and the stock taking was not done in a proper manner. The assessing officer did not accept the contention of the respondent-Assessee and imposed penalty under Section 271(1)(c) of the Act on the ground of furnishing “inaccurate particulars of such income”. As a consequence, this led to penalty of Rs. 48 lakhs under Section 271(1)(c) of the Act by an order dated 22-6-2009 of the assessing officer.
8. Being aggrieved, the respondent-Assessee filed an appeal to the Commissioner (Appeal) (CIT (A)). During the course of proceedings before the Commissioner (Appeals), a remand report was submitted by the assessing officer, wherein it was clarified that though penalty was initiated for furnishing of inaccurate particulars of income as well as concealment of income, the penalty was imposed only for furnishing inaccurate particulars of income. Further, on examination of facts, Commissioner (Appeals) concluded that there has been no filing of inaccurate particulars of income on part of the respondent-Assessee. In particular, he noted the fact that at all times commencing from the recording of the statement of Mr. Sarda, the respondent-Assessee, has challenged the valuation of the stock at Rs.1.20 crores. Even thereafter, the respondent-Assessee addressed communication dated 21st and 25-9-2006 to the Income Tax Authorities pointing out that the manner and method of quantification of stock done during the course of survey proceeding was not correct. It also notes that the respondent-Assessee was subject to Excise control as contended by the respondent and no case with regard to clandestine removal etc. was ever initiated against the respondent. No other incriminating material was found during the survey. The impugned order held on examination of facts that there is no warrant to impose penalty under Section 271(1)(c) of the Act as the respondent had not furnished inaccurate particulars of income. Thus, by an order dated 10-6-2010, the appeal of the respondent-Assessee was allowed and penalty of Rs. 48,00,000 under Section 271(1)(c) of the Act was deleted.
9. Being aggrieved with the order dated 10-6-2010 of the Commissioner (Appeals), the Revenue carried the issue in appeal to the Tribunal. By the impugned order dated 30-11-2012, the Tribunal on examination of facts, upheld the order of the Commissioner (Appeals). In particular, reliance was placed upon the statement of Mr. Shriramswarup Sarda, Person in-charge of the respondent-Assessee made during the course of survey proceedings challenging the valuation of the stock arrived at by the Revenue. This protest was continued by further letters to Investigating Authorities under the Act even after the statement was recorded. Further, the Tribunal held that mere surrender of additional income would not by itself lead to imposition of penalty, in the absence of Revenue being able to establish that respondent-Assessee had filed inaccurate particular of income. In the above view, the impugned order of the Tribunal dismissed the Revenue’s appeal.
10. Mr. Parchure, learned senior counsel appearing for the appellant-Revenue in support of appeal submits that impugned order of the Commissioner (Appeals) and the Tribunal setting aside the penalty was contrary to the binding decision of the Apex Court in case of Mak Data (P.) Ltd. v. CIT (2013) 358 ITR 593. Consequently, voluntary disclosure of income made by the respondent-Assessee of Rs. 1.40 crores in the revised return of income being an attempt to buy peace of mind and avoid unnecessary litigation would not by itself exempt/absolve the Assessee from the imposition of penalty. Moreover, it is submitted that the facts in the above decision, and in the present case are identical. In the above case also, it was during the course of survey proceedings that the respondent-Assessee had surrendered further income voluntarily only with a view to buy peace of mind and avoid unnecessary litigation. Thus, the penalty is warranted.
11. Mr. Saket Bhattad learned counsel appearing for the respondent-Assessee submits that no interference is warranted as there were concurrent findings by two authorities. Besides, it is submitted that in this case the decision of the Apex Court in Mak Data (P.) Ltd. (supra) would not apply, as the basis of the orders of the two Authorities deleting the penalty was not on the basis that the declaration of income was subject to the condition of no penalty being imposed. In this case, both the Authorities on merits, found no penalty is imposable. Therefore, Mak Data (P.) Ltd. (supra) would have no application.
12. We find that the decision of the Apex Court in Mak Data (P.) Ltd. (supra) was rendered on 30-10-2013 i.e. after impugned order of the Tribunal dated 30-11-2012. Thus, normal course would have been to restore the issue to the Tribunal to pass a decision keeping in view the decision of the Apex Court in Mak Data (P.) Ltd. (supra). However, such an exercise is not called for in this case as neither of the two authorities i.e. Commissioner (Appeals) and the Tribunal have deleted the penalty on account of the respondent-Assessee declaring additional income to buy peace/avoiding litigation. Both, the Commissioner (Appeals) and the Tribunal have on merits found that the conduct of the respondent-Assessee did not justify any penalty under Section 271(1)(c) of the Act. Therefore, we would examine the appeal of the Revenue on merits in the context of the findings by the Authorities under the Act.
13. In the matter of imposition of penalty where two authorities have concurrently come to finding that no penalty is imposable, this Court would normally not interfere, in absence of the finding being perverse. However, it is settled position in law that the assessment proceedings and penalty proceedings are two independent and separate proceedings. Therefore, mere addition to the declared income during assessment proceedings would not ipso-facto lead to an imposition of penalty upon the party. The imposition of penalty under Section 271(1)(c) of the Act can only take place where there has been either concealment of income or filing of inaccurate particular of income on the part of the respondent and the explanation is not found satisfactory.
14. In the present proceedings, the assessing officer accepted the revised return of income filed by the respondent-Assessee declaring additional income of Rs. 1.40 crores. The assessing officer did not independently either in the Assessment proceedings or even in the penalty proceedings examine the contention of the respondent-Assessee that there was no excess stock as found by the Income Tax Officer during the survey proceedings. Neither any exercise was done independently to find out whether the excess stock alleged was supported by any other evidence. This particularly in the face of the respondent-Assessee asserting that the stock taking was not properly done. In-fact, at the very first instance, the respondent-Assessee did point out that no exercise was done to weigh the stock to determine the shortage if any. In-fact, the shortage was arrived at on basis of estimate and the respondent-Assessee had itself surrendered additional income to buy peace of mind and avoid unnecessary litigation. It did not accept that actual stock was more than that recorded in its books and during the proceedings also submitted a chart showing no excess stock.
15. It is now a settled position of law after the Apex Court order in Mak Data (supra) that an Assessee is not absolved of penalty because the additional income has been declared to buy peace. It must follow therefore that the above strategy (buy peace) by itself will not justify imposition of penalty, unless the requirement of the section under which the penalty is imposed are satisfied.
16. It is the above context that the Revenue places strong reliance upon paragraph 10 of the decision of the Apex Court Mak Data (P.) Ltd. (supra) to contend that facts are identical, therefore, penalty must follow. The Assessee in the above case had during survey operation made voluntary disclosure of income. Similar to the present case submits the Revenue. However, the distinction in this case is that the respondent-Assessee had at the first opportunity i.e. when statement has been recorded, contended that the manner and method of quantification of stock done during the course of survey proceeding was not correct. In-fact, even after that it was consistently writing to the Authorities that there is no excess stock and the manner in which the stock taking has been done is not correct. This was not so in the case of Mak Data (P.) Ltd. (supra). In the case of Mak Data (P.) Ltd. (supra), the Assessee did not dispute the facts of undisclosed income at any time/stage. Therefore, paragraph 10 of the decision in Mak Data (supra) will have no application in absence of the Revenue being able to show that there has been a conduct which would warrant penalty upon the respondent-Assessee namely either concealment of income or filing of inaccurate particulars of income. In the present facts, the respondent-Assessee was consistently stating that there is no excess stock in his possession. That, it was subject to central excise control and no proceeding for clandestine removal of goods etc. were initiated against the respondent-Assessee. Further, in these facts, the respondent-Assessee, the Commissioner (Appeals) and the Tribunal have held that no penalty is imposable, as the respondent-Assessee herein has consistently contended that there is no excess stock. This contention has not been examined and commented upon the Revenue before imposing of penalty. Thus, the impugned order of the Tribunal calls for no interference.
17. In the above view, both the substantial questions of law for our consideration are answered in the affirmative i.e. in favour of the respondent-Assessee and against the appellant-Revenue.
18. Accordingly, appeal disallowed. No order as to costs.
