KANERIYA SAND AND AGGREGATES PVT.LTD,SURAT vs. DY.CIT, VALSAD

This appeal by Assessee is directed against the order of ld.Commissioner of Income Tax(Appeals), Valsad dated 04.08.2017, which in turn arises against the penalty levied under section 271(1)(c) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’], vide order dated 21.09.2015 for the assessment year (AY) 2012-13. The assessee raised the following grounds of appeal:

The learned CIT(A) has erred in law and facts to confirm the penalty u/s 271(1)(c) on addition of difference of excess creditors u/s 41(1) which cannot be levied where the difference was due to genuine reason and there was no evidence to suggest that it was done with the consent or knowledge of the assessee. 5.The learned CIT(A) has erred in law and facts to confirm the penalty without considering that even if considered it as income in any of the year, there was no tax effect and to have a concealment of income and it is a just a periodical difference.

Brief facts of the case as gathered from the lower authorities are that the assessee is a Private Limited Company, filed its return of income for AY 2012- 13 on 14.09.2012, declaring Nil income. The case was selected for scrutiny. During the assessment proceeding, the AO made additions Rs.8,90,808/-, on account of difference of irreconcilable sundry creditors. The AO made additions by taking view that on show cause, the assessee could not explain the said difference, therefore, the amount was added to the total income of assessee and initiated the penalty under section 271(1)(c) of the Act for furnishing inaccurate particulars of income.

The show-cause notice under section 274 read with section 271(1)(c) of the Act was served upon the assessee on 10.03.2015. The assessee filed its reply dated 2012-13) M/s Kaneriya Sand and Aggregates Pvt. Ltd. 11.04.2015 and again on 15.09.2015. The AO noted that the contents of both the reply are same. The assessee in its reply stated that one of the party namely Mesto Mineral (India) Ltd. Pvt. Ltd. has given discount of Rs. 10,00,000/- in the year 2011-12. The credit Note was issued by the said parties but the same was not received by assessee. It was further explained that in earlier submission, the assessee submitted a difference of Rs. 1,09,191/-. The credit note given by said party was not considered by Accountant while finalising the accounts. Therefore, he has carried forward the balance. It was further examined that the assessee is doing regular business with the said parties. The two offices of the said party, one at Mumbai and another at Gurgaon, had given a difference ledger account, thus, the assessee is not aware about the credit given to him at the time of finalization of account of said party. The assessee has not made the said mistake deliberately or with the intention to evade the tax. The assessee further stated that they undertake to consider the credit in current year and there is no tax liability in this Financial Year and subsequent year because of losses. The assessee explained that there is a genuine mistake and no penalty for concealment is leviable.

We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The ld. AR of the assessee submits that he has two fold submissions, firstly on the legal and technical issue and secondly on merits of the case. The ld AR for the assessee submits that the assessing officer while passing the assessment order initiated the penalty for furnishing inaccurate particulars, however, at the time of passing the penalty is was levied for furnishing inaccurate particular of income as well as for concealing the income. Thus, the penalty was levied without application of mind. Even otherwise at the time of issuing the show cause notice the assessing officer has not strike out the inappropriate portion of the notice, clearly indicating if it was issued for concealment of income or for furnishing 4 2012-13) M/s Kaneriya Sand and Aggregates Pvt. Ltd. inaccurate particulars of the income. Therefore, the assessing officer proceeded to levy penalty without application of specific charges against the assessee. To support his contention the ld AR for the assessee relied on the decision of the Hon’ble Gujarat High Court in CIT Vs Lakhdhir Lalji (85 ITR 77 Guj) and ACIT Vs Dipesh M Panjwani (ITA No. 6330 /Mum/2012).

On the merit of the case the ld. AR for the assessee submits that the addition in the assessment is made under section 41 as there was no cessation of liability in earlier year. The ld AR for the assessee has taken us through the contents of the assessment order and would submits that the addition was made only for the reasons that the accountant has committed mistake while preparing the accounts as the credit note sent by the sundry creditor was not came to his notice. The ld AR for the assessee submits that no appeal was filed against the additions in the quantum assessment as the assessee suffered losses and there was no evasion of tax. The explanation furnished by the assessee was not found to be false and incorrect. The ld AR for the assessee submits that the penalty proceedings are separate and independent. The levy of penalty is not automatic being additions attains finality. The additions were basically made as the assessee could not prove that the assessee had not made purchases. The error occurred in the accounts was not intentional or melafide, the assessee had not furnished accurate particulars nor concealed the income. To support his submissions the ld AR for the assessee relied on the following decisions; 5 2012-13) M/s Kaneriya Sand and Aggregates Pvt. Ltd.  National Textile Vs CIT (2001) 249 ITR 125,  Mukeshchandra A Lakdawala Vs ITO (2010) 0004 ITR 307 (Trib),  CIT Vs Gujarat State Fertilizers & Chemicals Ltd (2013) 054 (I) ITCL 0019 and  Price Water Cooper Private Limited Vs CIT [CA No. 6924 of 2012 of Supreme Court].

On the other hand, the ld. DR for the Revenue supported the order of lower authorities. The ld. DR for the revenue further submits that the assessing officer while passing the assessment order has clearly held that the assessee furnished inaccurate particulars of income. At the time of passing the penalty the assessing officer levied penalty for furnishing inaccurate particulars of income. So far as non- striking of the inappropriate portion in the show cause notice under section 274 read with section 271(1)(c), the assessee has not objected before the assessing officer. The assessee was very well aware about the charges of penalty. Further, the ld AR for the assessee has not shown any reasons as to whether, by not striking the inappropriate portion, the assessee or his representative were suffered any prejudice. The service of notice for initiating penalty is not statutory compliance. The Act speaks about providing the opportunity before levying the penalty, which has been provided and availed by the assessee. On merit of the case the ld DR for the revenue submits that the assessee failed to substantiate the liability of Mesto Minerals (India) Pvt Ltd. The assessee failed to explain the excess liability of Mesto Minerals 2012-13) M/s Kaneriya Sand and Aggregates Pvt. Ltd. (India) Pvt Ltd. Thus, the assessee has furnished inaccurate particulars. The assessee has no occasion to file appeal against such additions which were proved on record beyond doubt. The ld DR for the revenue prayed for dismissing the appeal on technical issue as well as on merit.

We have considered the rival submissions of the parties and have gone through the order of the lower authorities. We have also deliberated on various case laws relied by the ld. AR for the assessee and the written submissions filed by the assessee. The assessing officer at the time of passing assessment order made additions Rs.8,90,808/-, on account of difference of irreconcilable sundry creditors by taking view that on show cause, the assessee could not explain the said difference and initiated the penalty under section 271(1)(c) of the Act. Before levying the penalty the assessing officer issued show cause notice to the assessee. The assessee in its reply stated that one of the party namely Mesto Mineral (India) Ltd. Pvt. Ltd. has given discount of Rs. 10,00,000/- in the year 2011-12. The credit Note was issued by the said parties but the same was not received by assessee. The credit note given by said party was not considered by Accountant while finalising the accounts. The reply furnished by the assessee was not accepted by the assessing officer by taking view that the assessee made excess claim of creditors to the extent of Rs.8,90,808/- and that committed a default for furnishing inaccurate particulars for furnishing inaccurate particulars of income. The ld CIT(A) confirmed the action of the assessing 7 2012-13) M/s Kaneriya Sand and Aggregates Pvt. Ltd. officer by taking view that the assessee failed to explain the excess liability and no further appeal was filed by the assessee against the additions. It is settled position under the law that the penalty proceedings are separate and independent. Merely no appeal is filed by the assessee, cannot be as basis of levying the penalty. Before us, the ld AR for the assessee vehemently argued that no further appeal was filed by the assessee on the additions in the assessment as there was no tax liability as the assessee suffered losses in the current financial year.

We find that the lower authorities while considering the reply of the assessee, filed in response to the show cause notice for levying the penalty, has not held that the reply of the assessee is false. On independent consideration of the reply of assessee, filed in response to the show cause notice under section 274 read with section 271(1)(c). We find that the assessee has given reasonable and plausible explanation that the accountant has committed mistake while preparing the accounts as the credit note sent by the sundry creditor was not came to his notice and there was attempt for tax evasion as the assessee suffered loss. In our view it was sufficient explanation and reasonable within the scope of section 273B of the Income tax Act. Thus, we accept the secondary submissions of the ld AR for the assessee and direct the assessing officer to delete the penalty levied under section 271(1)(c) of the Act.