Penalty u/s 271(1)(c) up to 100% of tax evaded justified in case of excess stock found during survey

Kishore Kumar Vs DCIT (ITAT Hyderabad)

ITAT Hyderabad in case of excess stock of gold found during survey held that penalty u/s 271(1)(c) of the Income Tax Act up to 100% of the tax evaded is justified instead of 298% as upheld by CIT(A).

Facts- The assessee is an individual and engaged in the business of gold and pawn broking in the name and style of M/s. Jaidev Jewellers and Jawanmal Gulabchand Bankers respectively at Narsapuram wherein he is the proprietor. A survey operation u/s 133A of the I.T. Act, Act 1961 was conducted in the business premises of the assessee on 12.5.2013 and certain incriminating material was found and impounded. The case was selected up for scrutiny and statutory notice u/s 143(2) of the Act was issued and the assessment was completed u/s 143(3) assessing the income at Rs.23,45,438/-.

During the course of scrutiny proceedings, the assessee admitted the discrepancy in closing stock of gold. Further, he stated that the gross weight of gold ornaments includes stones, pearls and wax items which cannot be ignored as a contributing factor for such difference. Considering the submissions of the assessee, the value of excess stock of gold was worked out to Rs.12,12,959/- and added to the total income.

In appeal, the CIT (A) upheld the action of AO on the ground that the assessee could not prove that the stock did not pertain to him and that the assessee could not produce any material evidence in this regard.

AO thereafter initiated proceedings u/s 271(1)(c) of the Act. Rejecting the various explanations given by the assessee, the Assessing Officer levied penalty of Rs.11,00,000/-. In appeal, the learned CIT (A) sustained the penalty so levied by the Assessing Officer.

Conclusion- It is an admitted fact that the Assessing Officer made addition of Rs.12,12,959/- being the value of excess stock of gold on the ground that the assessee could not substantiate with evidence that the stock available with him did not pertain to him. Accordingly, the Assessing Officer brought to tax an amount of Rs.12,12,959/- which was upheld by the CIT (A) in the quantum appeal and the Assessing Officer thereafter initiated penalty proceedings u/s 271(1)(c) of the Act and levied penalty of Rs.12,12,959/-. We find the learned CIT (A) upheld the penalty levied by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraph. It is the submission of the learned Counsel for the assessee that the penalty so levied by the Assessing Officer at Rs.11,00,000/-comes to 298% of the tax sought to be evaded which is on the higher side and therefore, is not justified.

We are of the considered opinion that levy of penalty of 100% of the tax sought to be evaded will meet the ends of justice, we, therefore, modify the order of the CIT (A) and direct the Assessing Officer to restrict the penalty u/s 271(1)(c) of the Act at 100% of the tax sought to be evaded. The Assessing Officer shall calculate the penalty @ 100% of the tax sought to be evaded. The grounds raised by the assessee are accordingly partly allowed.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

This appeal filed by the assessee is directed against the order dated 22.7.2022 of the learned CIT(A)-11 Hyderabad, relating to A.Y.2014-15.

2. Although a number of grounds have been raised by the assessee, however, these all relate to the ex-parte order of the learned CIT (A) in confirming the levy of penalty of Rs.11,00,000/-made by the Assessing Officer u/s 271(1)(c) of the Act.

3. Facts of the case, in brief, are that the assessee is an individual and engaged in the business of gold and pawn broking in the name and style of M/s. Jaidev Jewellers and Jawanmal Gulabchand Bankers respectively at Narsapuram wherein he is the proprietor. A survey operation u/s 133A of the I.T. Act, Act 1961 was conducted in the business premises of the assessee on 12.5.2013 and certain incriminating material was found and impounded. The assessee filed his original return of income for the A.Y 2014-15 on 29.11.2014 admitting total income of Rs.8,45,310/-. The case was selected up for scrutiny and statutory notice u/s 143(2) of the Act was issued on 24.9.2015 and the assessment was completed on 30.12.2016 u/s 143(3) assessing the income at Rs.23,45,438/- wherein the following additions were made:

3.1 During the course of scrutiny proceedings, the assessee admitted the discrepancy in closing stock of gold. Further, he stated that the gross weight of gold ornaments includes stones, pearls and wax items which cannot be ignored as a contributing factor for such difference. Considering the submissions of the assessee, the value of excess stock of gold was worked out to Rs.12,12,959/- and added to the total income.

4. In appeal, the learned CIT (A) upheld the action of the Assessing Officer on the ground that the assessee could not prove that the stock did not pertain to him and that the assessee could not produce any material evidence in this regard.

5. The Assessing Officer thereafter initiated proceedings u/s 271(1)(c) of the Act. Rejecting the various explanations given by the assessee, the Assessing Officer levied penalty of Rs.11,00,000/-.

6. In appeal, the learned CIT (A) sustained the penalty so levied by the Assessing Officer by observing as under:

“6. The decision:

In the instant case, assessment was completed u/s 143(3) on 30.12.2016 by making various additions amounting to Rs.15,00,128 being difference in closing stock of gold and silver and excess silver stock admitted in IDS.

Subsequently, penalty u/s 271(1)(c) amounting to Rs.11,00,000/- was levied vide order dated 29.03.2019 against which the appellant had filed an appeal. The appeal was dismissed by CIT[A) on account of delay vide order in Appeal No. 10423/2019-20 dated 24.02.2021.

Against the order of CIT(A), the appellant filed an appeal before the Hon’ble ITAT wherein the Hon’ble ITAT vide order in ITA No.172/Hyd/2021 dated 29.10.2021 restored the file to CIT(A) with a directions to give 3 effective opportunities for fresh adjudication on merits after affording adequate opportunity to the assessee to explain the delay.

The appellant filed the same reason which has already been considered and the same was rejected vide order in Appeal NO.10423/2019-20 dated 24.02_2021, the relevant part of which is reproduced as under:

“In this regard, it is to be noted that there is a delay of 320 days in filing of this appeal for which no cogent reason has been given by the appellant an.d accordingly, the application for condonation of the delay was rejected in purview of exercise of provisions of Section 249(3) of the IT Act, 1961 vide order dated 10.02.2021 which is reproduced as under:

7. Aggrieved with such order of the learned CIT (A) the assessee is in appeal before the Tribunal.

8. The learned Counsel for the assessee submitted that the Assessing Officer levied penalty of Rs.11,00,000/- which comes to 298% of the tax sought to be evaded. Relying on various decisions, he submitted that such penalty should be reduced to 100% of tax sought to be evaded.

9. The learned Dr, on the other hand, heavily relied on the order of the CIT (A) and submitted that the CIT (A) has given justifiable reasons while upholding the penalty of Rs.11.00 lakhs levied by the Assessing Officer u/s 271(1)(c) of the Act and therefore, the same should be upheld.

10. We have heard the rival arguments made by both the sides and perused the record. It is an admitted fact that the Assessing Officer made addition of Rs.12,12,959/- being the value of excess stock of gold on the ground that the assessee could not substantiate with evidence that the stock available with him did not pertain to him. Accordingly, the Assessing Officer brought to tax an amount of Rs.12,12,959/- which was upheld by the CIT (A) in the quantum appeal and the Assessing Officer thereafter initiated penalty proceedings u/s 271(1)(c) of the Act and levied penalty of Rs.12,12,959/-. We find the learned CIT (A) upheld the penalty levied by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraph. It is the submission of the learned Counsel for the assessee that the penalty so levied by the Assessing Officer at Rs.11,00,000/-comes to 298% of the tax sought to be evaded which is on the higher side and therefore, is not justified. It is his submission that although the assessee could not substantiate the excess stock of gold, however, it does not call for the maximum penalty leviable under the provisions of the Act and he has no objection if such penalty is reduced to the minimum penalty prescribed under the provisions of the Act. Considering the totality of the facts of the case, we are of the considered opinion that levy of penalty of 100% of the tax sought to be evaded will meet the ends of justice, we, therefore, modify the order of the CIT (A) and direct the Assessing Officer to restrict the penalty u/s 271(1)(c) of the Act at 100% of the tax sought to be evaded. The Assessing Officer shall calculate the penalty @ 100% of the tax sought to be evaded. The grounds raised by the assessee are accordingly partly allowed.

11. In the result, appeal filed by the assessee is partly allowed.

Order pronounced in the Open Court on 24th March, 2023.