M/s. Suruchi, Kolkata v. DCIT, Central Circle - III, Kolkata, Kolkata

1 SMC IN THE INCOME TAX APPELLATE TRIBUNAL BENCH- SMC KOLKATA [ . .. . . .. . ] BEFORE SHRI C.D. RAO ACCOUNTANT MEMBER / ITA NO. 1065 (KOL) OF 2010 !' #$ / ASSESSMENT YEAR 2005-06 M/S. SURACHI KOLKATA. (PAN-AAMFS5759A) DY.COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-III KOLKATA.. ('( / APPELLANT ) - ! - - VERSUS -. (+ '(/ RESPONDENT ) '( - . / FOR THE APPELLANT: / SRI RAVI TULSIYAN + '( - . / FOR THE RESPONDENT: / SRI K.K.TRIPATHI / / ORDER ( . .. . . .. . ) (C.D. RAO) ACCOUNTANT MEMBER : THE ASSESSEE HAS FILED THIS APPEAL AGAINST THE OR DER DATED 26.03.2010 OF LD. C.I.T.(A) CENTRAL-I KOLKATA PERTAINING TO ASSESSM ENT YEAR 2005-06. THE ASSESSEE HAS RAISED SEVERAL GROUNDS WHICH ARE ALL DIRECTED AGAIN ST SUSTENANCE OF PENALTY OF RS.1 29 560/- U/S. 271(1)(C) OF THE ACT BY THE LD. C.I.T.(A). 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE A SSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF SALE OF SAREES. THE PARTNERS OF THE ASSESSEE-FIRM BELONG TO AGARWAL GROUP AND THEY CARRY ON TEXTILE BUSINESS IN THE IND IVIDUAL CAPACITY AS WELL AS IN DIFFERENT PARTNERSHIPS. A SEARCH & SEIZURE OPERATION U/S. 132 WAS CONDUCTED IN THE PREMISES OF AGARWAL GROUP ON 28/10/2004 AND SUBSEQUENT DATES AN D DURING THE SAID OPERATION CASH BOOKS OF ACCOUNT AND OTHER DOCUMENTS MARKED SF/1 TO SF/19 WERE SEIZED FROM THE SHOP-CUM-OFFICE PREMISES OF THE ASSESSEE-FIRM. THE RETURN OF INCOME ACCOMPANIED WITH AUDIT REPORT U/S. 44AB FOR THE ASSESSMENT YEAR UNDE R APPEAL WAS FILED ON 24/11/2005 DECLARING TOTAL INCOME AT NIL AFTER SETTING OFF OF CARRIED FORWARD BUSINESS LOSS OF RS.26 352/- FOR A.Y. 2002-03. ON VERIFICATION OF ST OCK ON THE DATE OF SEARCH CERTAIN DISCREPANCY WAS FOUND OUT AS PER THE BOOKS OF THE A SSESSEE AND ON THE BASIS OF SUCH 2 DISCREPANCY THE A.O. HELD THAT SUCH DISCREPANCY WA S DUE TO UNRECORDED SALE BY THE ASSESSEE-FIRM. THE A.O. ESTIMATED THE G.P. RATE AT 9.31% ON STOCK DISCREPANCY AMOUNTING TO RS.48 50 846/- AND CALCULATED COST PRI CE OF BOTH OPENING & CLOSING STOCK AND DETERMINED THE UNDISCLOSED INCOME IN THE HANDS OF THE ASSESSEE AT RS.4 51 614/- ON ACCOUNT OF SUCH STOCK DISCREPANCY. THE ASSESSMENT WAS ULTIMATELY COMPLETED U/S. 143(3) ON A TOTAL INCOME OF RS.3 70 170/- AFTER SET OFF OF BUSINESS LOSS OF RS.1 07 978/- CARRIED FORWARD FROM A.Y. 2002-03. THE ASSESSEE ALT HOUGH ACCEPTED THE SHORTAGE OF STOCK AMOUNTING TO RS.45 12 616/- BUT PREFERRED AP PEAL BEFORE THE LD. C.I.T.(A) AGAINST THE BALANCE SHORTAGE OF STOCK OF RS.3 38 230/- [RS. 48 50 846 RS.45 12 616] STATING THAT THE SAID SHORTAGE WAS DUE TO INTER-SHOP TRANSF ER OF STOCK TO A SISTER CONCERN. THE LD. C.I.T.(A) DISMISSED THE APPEAL OF THE ASSESSEE WHI CH WAS UPHELD BY THE I.T.A.T. BY HOLDING THAT THE CLAIM OF INTER-SHOP TRANSFER TO TH E SISTER CONCERN WAS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE. THE A.O. THUS INITIATED P ENALTY PROCEEDING U/S. 271(1)(C) OF THE ACT AND ISSUED SHOW CAUSE NOTICE. THE EXPLANAT ION OFFERED BY THE ASSESSEE IN RESPECT OF INTER-SHOP TRANSFER OF STOCK WAS NOT FOU ND SATISFACTORY BY THE A.O. ACCORDING TO HIM THERE WAS NO DISPUTE THAT UNDISCLOSED SALES WERE DETECTED WHICH WERE NOT RECORDED IN THE ASSESSEES BOOKS. THEREFORE MALA F IDE INTENTION OF THE ASSESSEE IN RESPECT OF CONCEALMENT OF INCOME WAS APPARENT. HE THEREFORE IMPOSED MINIMUM PENALTY OF RS.1 29 560/- U/S. 271(1)(C) OF THE ACT BEING 100% OF THE TAX SOUGHT TO BE EVADED. 3. ON APPEAL BEFORE THE LD. C.I.T.(A) THE ASSESSE E SUBMITTED THAT MANY TIMES PARTICULARLY IN FESTIVAL SEASON SITUATION ARISES W HEN THERE IS A SHORTAGE OF A PARTICULAR VARIETY OF SAREE AND TO MEET SUCH REQUIREMENT STOC K OF ONE SHOWROOM IS TRANSFERRED TO OTHER SHOWROOM AND ENTRIES IN THIS RESPECT ARE NOT PASSED IN THE BOOKS OF ACCOUNT. RECONCILIATION IS DONE FROM TIME TO TIME AND THE ST OCK IS RETURNED TO THE RESPECTIVE SHOWROOM AS PER AVAILABILITY OF STOCK. UNDER THIS ARRANGEMENT THERE WAS INTER-SHOP STOCK TRANSFER TO M/S. VIVHAVARI A SISTER CONCERN LOCATED IN THE SAME AREA. THE ASSESSEE FURTHER SUBMITTED THAT ALTHOUGH THERE WAS NO EVIDEN CE IN SUPPORT OF SUCH INTER-SHOP STOCK TRANSFER BUT THAT DOES NOT TANTAMOUNT TO CON CEALMENT OF INCOME AS ALLEGED BY THE A.O. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD PROVIDED AN EXPLANATION OF INTER- 3 SHOP TRANSFER AND THE A.O. FAILED TO BRING ON RECOR D ANY MATERIAL TO SHOW THAT THE EXPLANATION OFFERED BY THE ASSESSEE WAS FALSE AND T HE ASSESSEE CANNOT BE EXPECTED TO PROVE THE CLAIM OF BONAFIDES TO THE HILT. ACCORDING TO THE ASSESSEE FURTHER THE A.O. WAS NOT JUSTIFIED IN APPLYING SINGLE G.P. RATE OF 9.31% BECAUSE RATE OF G.P. VARIES FROM PERIOD TO PERIOD AND IDENTICAL RATE OF G.P. CANNOT BE APPLICABLE TO DIFFERENT TYPES OF PRODUCTS DEALT IN BY THE ASSESSEE. THEREFORE MEREL Y ON THE BASIS OF AN UNRELIABLE ESTIMATE AND WITHOUT THERE BEING ANY ACTUAL CONCEAL MENT ESTABLISHED BY THE DEPARTMENT THE A.O. CANNOT ALLEGE CONCEALMENT OF INCOME AND AD DITION MADE ON ESTIMATE BASIS DOES NOT ATTRACT PENALTY U/S. 271(1)(C) OF THE ACT. IN SUPPORT OF ITS SUBMISSIONS THE ASSESSEE PLACED RELIANCE ON SEVERAL JUDICIAL PRONOUNCEMENTS AS INCORPORATED IN THE ORDER OF LD. C.I.T.(A). THE LD. C.I.T.(A) AFTER CONSIDERING THE VARIOUS DECISIONS CITED BY THE ASSESSEE AND THE FACTS OF THE CASE CONFIRMED THE PENALTY OF RS.1 29 560/- IMPOSED BY THE A.O. U/S. 271(1)(C) OF THE ACT BY OBSERVING AS UNDER :- 3.1. I HAVE CAREFULLY CONSIDERED THE SUBMISSION O F THE LD. A.R. THERE IS NO DISPUTE THAT STOCK DEFICIT OF RS.48 50 846/ WAS FOUND DURING THE COURSE OF SEARCH OPERATION . THE SHORTAGE WERE TREATED AS UNACCOUNTED SALES AND ACCO RDINGLY THE A.O ADDED THE UNDISCLOSED INCOME OF RS.4 51 614/- BY CALCULATING PROFIT OF 9.31% OF THE TOTAL SHORTAGE OF STOCK OF RS.48 50 846/-. THE APPELLANT ACCEPTED THE SHORTAGE AND UNACCOUNTED SALE OF STOCK AMOUNTING TO RS.45 12 616/-. HOWEVER APPEAL W AS FILED STATING THAT THE BALANCE SHORTAGE WAS DUE TO INTER SHOP TRANSFER OF STOCK OF RS.3 38 230/- TO A SISTER CONCERN . THE APPEAL WAS DISMISSED BY THE C.I.T (A) HOLDING T HAT THE SHORTAGE OF RS.3 38 230/ COULD NOT BE EXPLAINED BY THE ASSESSEE WITH ANY DOC UMENTARY EVIDENCE. ON FURTHER APPEAL ALSO THE HONBLE I.T.A.T UPHOLD THE ORDER OF C.L.T.(A) HOLDING THAT THE ASSESSEE CLAIM THAT THE STOCK OF RS.3 38 230/- WAS TRANSFERRED TO THE SISTER CONCERN WHICH WAS NOT SUPPORTED BY ANY DOCUMENTARY PROOF. N EITHER THERE WAS ANY ENTRY IN THE BOOKS OF ACCOUNTS NOR ANY EVIDENCE WAS SUBMITTED WH ETHER THERE WAS AN EXCESS STOCK FOUND AT THE PREMISES OF THE SISTER CONCERN M/S VIB HAVARI . 3.2 HENCE IT IS APPARENT THAT UNACCOUNTED SALES OF GOODS OF RS.48 50 846/- WAS MADE BY THE ASSESSEE AND ACCORDINGLY PROFIT OF RS.4 51 6 14/- WAS SUPPRESSED. ACCORDINGLY THE A.O INITIATED PENALTY PROCEEDING UNDER SECTION 271( 1)(C) AND AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE IMPOSED PENALTY OF RS.1 29 560/- BEING 100% OF THE TAX SOUGHT TO BE EVADED. THIS IS A CASE WHERE UNDISCLOS ED SALES WERE DETECTED DURING THE COURSE OF THE SEARCH AND SEIZURE OPERATION. THE CAL CULATION OF THE CONCEALMENT OF SALES MADE BY THE A.O IS FAIR AND OBJECTIVE AND PURELY BA SED ON THE DOCUMENTARY EVIDENCE. MOREOVER THE ASSESSEE HAS HIMSELF ADMITTED THE CONC EALMENT OF SALES OF RS.45 12 616/-. AND THE EXPLANATION OF THE REAMING UNACCOUNTED SALE S OF RS.3 38 230/- WAS NOT FOUND TO BE TRUE. 3.3 HENCE TAKING THE ABOVE FACTS INTO CONSIDERAT ION IT IS HELD THAT THE CONCEALMENT OF INCOME IN THE CASE OF THE ASSESSEE STANDS PROVED A ND AS PER PROVISION OF SECTION 4 271(1)(C) THE ASSESSEE IS LIABLE FOR PENALTY. I HA VE DULY CONSIDERED THE VARIOUS DECISION CITED BY THE APPELLANT. HOWEVER SINCE THE FACTS ARE NOT COMPARABLE AND SINCE THE CONCEALMENT HAS BEEN PROVED BEYOND DOUBT WITH DOCUM ENTARY EVIDENCES IT WILL NOT HELP THE ASSESSEE TO ESCAPE ADDITIONAL LIABILITY IN THE FORM OF PENALTY. FURTHER SINCE THE A.O. HAS ONLY IMPOSED THE MINIMUM PENALTY NO RELIEF CAN BE GRANTED. CONSIDERING ABOVE THE PENALTY OF RS.1 29 560/- IMPOSED BY THE A .O. IS CONFIRMED. HENCE THIS APPEAL BY THE ASSESSEE 4. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. C.I.T.(A) AND THE C ASE LAWS RELIED UPON BEFORE HIM. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AND THE FINDINGS RECORDED IN THEI R ORDERS. 5. AFTER HEARING RIVAL SUBMISSIONS AND CAREFULLY P ERUSING THE MATERIAL AVAILABLE ON RECORD IT IS OBSERVED THAT A SEARCH & SEIZURE OPER ATION U/S. 132 OF THE ACT WAS CONDUCTED ON 28/10/2004 AT THE PREMISES OF AGARWAL GROUP WHICH INCLUDED THE ASSESSEE-FIRM ALSO. THE ASSESSEE FILED RETURN ON 24 /11/2005. THE A.O. ON THE BASIS OF SEIZED DOCUMENTS FOUND STOCK DISCREPANCY TO THE TUN E OF RS.48 50 846/- AND APPLYING G.P. RATE OF 9.31% ON SUCH STOCK COMPUTED THE UNDI SCLOSED INCOME OF THE YEAR UNDER APPEAL AT RS.4 51 614/- AND ACCORDINGLY IMPOSED P ENALTY OF RS.1 29 560/- U/S. 271(1)(C) OF THE ACT. THE ASSESSEE ACCEPTED THE SHO RTAGE OF STOCK AMOUNTING TO RS.45 12 616/-. FOR THE BALANCE STOCK DISCREPANCY ALLEGED BY THE A.O. OF RS.3 38 230/- THE ASSESSEES APPEAL BEFORE THE C.I.T.(A) AND THER EAFTER BEFORE THE TRIBUNAL WAS DISMISSED. THE ASSESSEE ALL ALONG SUBMITTED THAT TH E STOCK DISCREPANCY TO THE TUNE OF RS.3 38 230/- WAS DUE TO INTER-SHOP TRANSFER/EXCHAN GE BETWEEN SISTER CONCERNS DEALING IN SIMILAR TEXTILE GOODS AND THIS SYSTEM IS COMMONL Y FOLLOWED DURING FESTIVAL SEASON AND OTHER OCCASIONS TO BOOST THE SALES. IT WAS ALSO SUBMITTED THAT AS PER THE AFORESAID ARRANGEMENT THE ASSESSEE-FIRM TRANSFERRED SOME OF ITS STOCK TO M/S. VIVHAVARI A SISTER CONCERN ON THE OCCASION OF PUJA SALE AND DURING SE ARCH OPERATION AT THE PREMISES OF AGARWAL GROUP SOME STOCKS OF INTER-SHOP TRANSFERRE D ITEMS WERE FOUND. IN THIS CASE SEARCH TOOK PLACE ON 28/10/2004. THE RETURN FOR TH E ASSESSMENT YEAR UNDER CONSIDERATION ALONG WITH AUDIT REPORT U/S. 44AB WAS FILED ON 24/11/2005. THE A.O. HAS NOT POINTED OUT ANY DISCREPANCY OR IRREGULARITY IN SUCH ACCOUNTS. HE COMPLETED THE 5 ASSESSMENT U/S. 143(3) TAKING THE DISCREPANCY OF ST OCK FOUND BY THE SEARCH PARTY DURING SEARCH & SEIZURE OPERATION AND ADOPTING G.P. RATE O N ESTIMATE BASIS DETERMINED THE UNDISCLOSED PROFIT ON SUCH UNRECORDED STOCK AT RS.4 51 611/- AND ACCORDINGLY IMPOSED PENALTY U/S. 271(1)(C) FOR SUCH CONCEALMENT OF INCO ME DETERMINED ON ESTIMATE BASIS. ON THE ABOVE FACTS IN MY CONSIDERED OPINION PROVISIO NS OF SEC. 271(1)(C) ARE NOT ATTRACTED TO CASES WHERE INCOME OF AN ASSESSEE IS ASSESSED ON ESTIMATE BASIS AND ADDITIONS ARE MADE THEREIN ON THAT BASIS. MOREOVER IT IS A SETTL ED POSITION THAT IN PENALTY PROCEEDINGS MATTER MUST BE CONSIDERED AFRESH FROM THE DIFFERENT POINT OF VIEW WITHOUT PREJUDICE WHETHER AN ADDITION HAD BEEN CONFIRMED IN REGULAR A SSESSMENT OR NOT PENALTY U/S. 271(1)(C) IS NOT SIMPLY A CONSEQUENCE OF AN ADDITIO N BEING MADE TO THE INCOME OF THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING S AND/OR SUSTAINED ON APPEAL. AS STATED ABOVE THE A.O. BY APPLYING G.P. RATE ESTIMA TED THE ASSESSEES CONCEALED PROFIT/INCOME AND IMPOSED PENALTY ON SUCH CONCEALME NT OF INCOME. THEREFORE AN ADDITION MADE ON ESTIMATE BASIS BY ITSELF CANNOT BE ENOUGH TO INITIATE LEAVE ASIDE CONCLUDE PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. IN VIEW OF ABOVE CONSIDERING THE ORDERS OF THE AUTHORITIES BELOW SUBMISSIONS OF BOTH THE PARTIES AND CASE LAWS RELIED UPON WE ARE OF THE VIEW THAT THE IMPOSITION OF PEN ALTY U/S. 271(1)(C) OF THE ACT ON THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE DOES NOT WARRANT. THEREFORE THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND THE A.O. IS DIR ECTED TO DELETE THE PENALTY OF RS.1 29 560/- LEVIED U/S. 271(1)(C) OF THE ACT. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED. 0 / 1 2 1! 3 04 THIS ORDER IS PRONOUNCED IN OPEN COURT ON 28.2.2011. SD/- ( . .. . . .. . ) (C.D.RAO) ACCOUNTANT MEMBER ( (( ( ) )) ) DATE: 28-02-2011 6 / ITA NO. 1065 (KOL) OF 2010 / - + 5 65#7- COPY OF THE ORDER FORWARDED TO : 1. '( / THE APPELLANT : M/S.SURACHI 48-A PARK STREET KOLKATA-700 016. 2 + '( / THE RESPONDENT : D.C.I.T. CENTRAL CIRCLE-III KOLK ATA. 3. /! () : THE CIT(A) CENTRAL-I KOLKATA. 4. /!/ THE CIT KOL- 4. < 3 + ! / DR ITAT KOLKATA BENCHES KOLKATA 5. GUARD FILE . 5 + / TRUE COPY /!1/ BY ORDER (DKP) > ? / DY/ASSTT. REGISTRAR .