M/S AGGARWAL OIL AND GEN. MILLS vs. C I T, ROHTAK

This appeal has been preferred by the assessee under Section 260-A of the Income Tax Act, 1961 (for short, “the Act”) against the order of the Income Tax Appellate Tribunal, Chandigarh dated 21.7.2006, Annexure A-6 and was admitted for consideration of following questions of law:- “i) Whether in the facts and circumstances of the case, the ITAT was justified in sustaining the penalty of Rs.1,70,753/- under Section 271(1) (c), even though the assessing Officer had not recorded any satisfaction about concealment of income in the assessment order or in the notice under Section 274 of the Income Tax Act? ii) Whether in the facts and circumstances of the case, the ITAT was justified in sustaining the penalty of Rs.1,70,753/- merely on the ground that the additions had been sustained in the quantum of appeal without appreciating that the penalty proceedings stands on a different footing than the initial assessment and the Assessing Officer must be satisfied that there has been concealment of income prior to initiation of penalty proceedings?

As regards question no.(i), it is not disputed that the same is covered against the assessee by judgment of this Court of today in I.T.A. No.1 of 2007 M/s Tej Bhan Cotton Ginnng & Press FAC v. CIT. Accordingly, the said question is decided against the assessee.

We now proceed to consider question No.(ii). While considering the claim of the assessee for deduction on account of loss of bardana, the Assessing Officer held that the claim was unfounded and in fact the assessee appeared to have sold the bags and suppressed the income so derived. The finding recorded is as under:- “5. The scrutiny of the Bardana Account for the period ending 31.3.92 revealed that the assessee has claimed loss of Rs.1,81,949/- on the sales thereof. The assessee was asked to file reasons of this loss of Rs.1,81,949/- vide this office letter dated 7.3. 94. Vide his letter dated 29.3.94 the counsel of the assessee stated that the assessee purchases the bardana for storing its rice and paddy and involves the process of ‘barti’. This process of barti repeated many times with the result that there is a wear and tear and loss of weight, also in the process the bardana is cut and torn. Thus the price of bardana is lesser than the cost price and the value of closing stock has been taken at realisable value resulted to a loss under the account. The reasons given by the counsel of the assessee are untenable and have no force as bardana is sold immediately after with the filling of rice and it has a long life more than a year. Thus, the loss of Rs.1,81,949/- claimed by the assessee in the bardana account and debited to P&L Account is disallowed.

Again the scrutiny of very bardana account revealed that the assessee has claimed shortage of 15475 bags. Vide this office letter dated 7.3.94 the assessee was asked to give reasons for this shortage of 15475 bags. Vide its letter dated 29.3.94 the counsel of the assessee stated that the shortage of 15475 bags is due to wear and tear of the bags in reposted barti resulting into shortage of 15475 bags. The reasons for shortage of 15475 bags given by the assessee are untenable and have no force. A bag is generally purchased @ Rs.10/- each and the used bag generally fetch Rs.5 to 7/-. This fact is evident from the Bardana account. The assessee has purchased 56709 bags for Rs.5,38,582/- thereby gives cost price per bag at Rs.9.49/-. Similarly, sales price of 32874 bags has been shown at Rs.417983/- in the bardana account. This gives a sale price of Rs.12.71 per bag. Since the cost price per bag as per bardana account given by the assessee firm is 9.49/- per bag the value of 15475 bags @ Rs.10/- is worked out at Rs.154750/-. Thus, the assessee has suppressed sales of 15475 bags amounting to Rs.1,54,750/- and the same is treated as income of the assessee and charged to tax for the year under consideration.....”

The CIT(A) affirmed the above finding and sustained the addition made except for partial relief as under:- “5.3. ............There cannot be shortage of bardana in one year to the extent of Rs.1,54,75/- bags because where there was no such shortage in the earlier years, no exceptional circumstances have been brought to my notice to justify this shortage of bardana. It is next observed that bardana handled in the year under consideration is not old. Out of opening stock of 32900 bags, 28000 bags had been purchased after December, 1990. The other purchases of 56709 bags were in the year under consideration. As against this, there is sale of 32874 bags and shortage of 15475 bags has been claimed. In other words, almost 1/3rd of the remaining bags after taking into account sales has been claimed as shortage. This claim is not supported either by the past history of the case or any other exceptional circumstance. Therefore, the conclusion of the AO that there was no shortage and there was suppression of sales of bardana is held to be justified......”

The Tribunal also upheld the above finding as follows:- “15). ........The addition has made on account of suppressed sales of bardana. The purchase price for the bardana for the assessment year under reference was to the tune of Rs.9.90 per bag and the sale price shown by the assessee for the AY under reference was Rs.12.71 per bag. Considering the cost price and the sale price, the estimate made by the lower authorities by taking the value at Rs.10 per bag appears to be fair and reasonable. Therefore, the same does not merit any interference from our side. Accordingly, the order of the CIT(A) is confirmed and this ground of appeal is dismissed.”

As a result of the finding on the above issue, the Assessing Officer also levied penalty equal to the amount of tax, alleged to have been evaded, which has been upheld by the CIT (A) and the Tribunal.

We have heard learned counsel for the parties.

Learned counsel for the assessee submitted that mere fact that addition was sustained by rejecting the plea of the assessee about loss of bardana, was not enough to uphold the penalty. Reliance has been placed on judgment of this Court in CIT v. Ajaib Singh & co. [2002] 253 ITR 630. 9. Learned counsel for the revenue supported the impugned finding.

Penalty can be levied under Section 271(1)(c) of the Act if there is concealment of particulars of income or if the particulars of the income furnished are inaccurate. During the course of assessment, the Assessing Officer may make additions to the declared income for various reasons, even if bonafides of the assessee are not in doubt. Mere fact that the plea of the assessee is not allowed for a particular deduction, is not always enough to infer that the assessee had furnished inaccurate particulars or concealed the particulars, but where addition is referable to inaccuracy in particulars of income furnished or concealment thereof, the penalty may be called for. The Assessing Officer has to decide the questions on its satisfaction based on reasons.

In the present case, there is concurrent finding of fact recorded by the CIT(A) and the Tribunal that the assessee concealed the particulars of income. The said finding has attained finality. If this is so, the reason for addition being furnishing of inaccurate particulars, the levy of penalty could not be held to be erroneous. The judgment relied upon is distinguishable on facts. Therein, additions were made not on account of concealment of particulars of income but on account of claim of the assessee being found to be debatable. In the question formulated it has been assumed that the penalty has been levied merely on account of addition without concealment of the particulars. This is not correct. We have noticed that levy of penalty is not based on mere addition but on satisfaction that there was concealment of particulars of income. Finding concurrently recorded by the Assessing Officer, the CIT(A) and the Tribunal is not shown to be perverse.

Accordingly, the question (ii) has to be answered against the assessee.

The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE December 07, 2010 (AJAY KUMAR MITTAL) ashwani JUDGE 7