COMMISSIONER OF INCOME TAX RAJKOT-III vs. BHARAT HIRALAL POPAT

O/TAXAP/1016/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1016 of 2006

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI Sd/-

and HONOURABLE MR.JUSTICE K.J.THAKER Sd/-

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? No 5 Whether it is to be circulated to the civil judge ? No ================================================================ COMMISSIONER OF INCOME TAX RAJKOT-III....Appellant(s) Versus BHARAT HIRALAL POPAT....Opponent(s) ================================================================ Appearance: MR PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1 RULE SERVED for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI Page 1 of 10

O/TAXAP/1016/2006 JUDGMENT and HONOURABLE MR.JUSTICE K.J.THAKER

Date : 09/12/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Learned Advocate Mr. Pranav G. Desai appears for the Appellant – Department. 2. While admitting the matter on 22.01.2007, the following substantial question of law was framed for consideration by this Court :- “Whether

facts

and circumstances of the case, the Appellate Tribunal was right in law in dismissing the appeal of the revenue on the ground of it being below the limits of tax limits prescribed for filing the appeal contrary to the fact that the actual tax effect alongwith interest and surcharge would be more than Rs.1 lac?” 3. The facts in brief which give rise to this Appeal are as under :- The assessee is a proprietary concern and is carrying on business in trading of Page 2 of 10

O/TAXAP/1016/2006 JUDGMENT Cement, Cement Sheet etc. During the year under consideration, the assessee had declared gross sales @ Rs.39,53,732/= which included sale of glazed tiles of Rs.56,250/-, and declared gross profit @ Rs.95,911/- which is 2.42% as against last years sales which was of Rs.35,63,792/- and gross profit disclosed was Rs.80,597/- which was 2.26%. During

the

course

assessment proceedings, the assessee had submitted the details of monthwise sales and purchases and details of closing stock. After verification of the purchase register with bill files and value of closing stock declared by the assessee, certain defects were noticed. UNDER VALUATION OF CLOSING STOCK :- A show cause notice was issued wherein the assessee was asked to state as to why under valuation of closing stock to the tune of Rs.32,140/- in cement bags and Rs.19,600/- in cement mix should not be added to the total income on account of under valuation of closing stock declared Page 3 of 10

O/TAXAP/1016/2006 JUDGMENT by the assessee. The assessee was required to give written submission / remain present. However, on the date of hearing, nobody attended the hearing nor any written submission was filed by the assessee. It was presumed that the assessee had nothing to say in the matter. Hence, penalty proceedings u/s.271(1)(C) of the Act was separately initiated for furnishing of inaccurate particulars of income. SUPRRESSED SALES :- A show cause notice was issued to the assessee wherein it was stated that by selling goods value of Rs.2,06,170/- to the sister concern of the assessee at Rs.1,79,212/-, the assessee had purchased a loss of Rs.26,958/-. The assessee was asked as to why the suppressed sales made to the sister concern to the extent of cost price that is loss incurred should not be added back to the assessee's income on account of sales made to the sister concern less than the cost price. The assessee had not submitted any written submission nor attended personally, Page 4 of 10

O/TAXAP/1016/2006 JUDGMENT therefore, it was presumed that the assessee had nothing to say in the matter and the loss purchased to the tune of Rs.26,958/- by suppression of sales without any reasons added back to the income

the

assessee.

Penalty proceedings u/s.271(1)(c) of the Act was separately initiated for furnishing of inaccurate particulars of income. INTRODUCTION OF RS.1,70,000/- IN CAPITAL ACCOUNT :- During

the

course

assessment proceedings and on verification of capital account of the proprietor, it showed introduction of new capital of Rs.40,000/- on 27.10.2000, Rs.1,00,000/- on 08.11.2000 and Rs.30,000/- on 30.11.2000. The assessee was asked to submit the source of introduction of new capital amounting to Rs.1,70,000/- to the capital account of the assessee. The assessee did not submit any written submission in this behalf nor attended personally to argue the case. It was presumed that the assessee had nothing to Page 5 of 10

O/TAXAP/1016/2006 JUDGMENT say in the matter. Since the assessee had never disclosed any agricultural income in the return of income filed by him, therefore the source as claimed by the assessee that the said amount was introduced out of his past savings of agricultural income was not acceptable, and amount introduced to the tune of Rs.1,70,000/- was treated as income from undisclosed source of the assessee and added back to the total income. Hence, penalty proceedings u/s.271(1)(c) of the Act were separately initiated for concealment of income. In the assessment of the respondent certain additions were made with regard to closing stock and suppression of sale. The same were deleted by the Commissioner (Appeals). On further appeal, the Appellate Tribunal without going into the merits of the case, dismissed the appeal of the revenue on the ground that the tax effect is less than Rs.1 Lac and thereby, in view of the Circular issued by the Central Board of Direct Taxes, the appeal was not maintainable. Page 6 of 10

O/TAXAP/1016/2006 JUDGMENT 4. Learned Counsel for the appellant contended that the Tribunal has committed an error in disposing the Appeal without entering into the merits, in view of the fact that the date on which the Tribunal has disposed of the Appeal for the Assessment Year 2001 – 2002, i.e. 17.03.2004, the Tax Limit prescribed was Rs.1,00,000/=. 5. In above view of the matter, here, it would be relevant to refer to the decision of the Apex Court in CIT vs. Khoday Eswarsa and Sons reported in [1972] 83 ITR 369, wherein, in an unnumbered para, the Apex Court observed and held as under :- “From the above it is clear that penalty being proceedings being penal in character, the department must establish that the receipt of the amount in dispute constitutes income of assessee. Apart from falsity of explanation given by the assessee department must have before it before levying penalty cogent material or evidence from which it could be inferred that assessee has consciously concealed particulars of his income or had deliberately furnished inaccurate Page 7 of 10

O/TAXAP/1016/2006 JUDGMENT particulars in respect of the same and that the disputed amount is a revenue receipt. No doubt the original assessment proceedings, for computing the tax may be a good item of evidence in the penalty proceeding s but the penalty cannot be levied solely on the basis of the reasons given in the original order of assessment.” 6. In the case on hand, there is no material to show that that the assessee has

consciously

concealed

certain particulars pertaining to his income or has supplied inaccurate particulars, deliberately. Further, it is the case of the Revenue that the explanation given by the assessee in connection with his income is not acceptable and it is not the case that the assessee has offered no explanation or false explanation, at all. Instead the case of the revenue is that the explanation given by the assessee cannot

accepted.

similar circumstances, this Court in the case of AMRUT TUBEWELL COMPANY VS. ASST. CIT rendered in Tax Appeal Nos. 128 & 129 of 2001 (Supra), observed as under in Para- 15; Page 8 of 10

O/TAXAP/1016/2006 JUDGMENT “15. So far as the penalty under Section 273(2)(a) is concerned, said section reads as under; 273(2)[a] has furnished under subsection(1) or sub-section(2) or subsection(3) or sub-section (5) of section 209A, or under sub- section (1) or subsection (2) of section 212, an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue, ...]” The Tribunal has recorded that the CIT(A) confirmed the penalty imposed by the AO under this section on the ground that the difference between the earned income and the assessed income of the assessee was more and that the assessee, himself, had declared income of Rs.75,000/- by filing revised return. The Tribunal, further, observed that the CIT(A) had found that the assessee was not able to prove the source of cash credit, and therefore, CIT(A) upheld the penalty levied by the AO, which is confirmed by the Tribunal. However, while doing so, here again, the Tribunal failed to appreciate the fact that the assessee had not furnished any details pertaining to advance tax which was untrue. On the contrary, the additions were of such nature that the assessee could not have foreseen. We are, therefore, of the opinion that the order of the Tribunal cannot be sustained and Page 9 of 10

O/TAXAP/1016/2006 JUDGMENT deserves to be quashed and set aside.” 7. In above view of the matter, the decision of the Apex Court in CIT VS. KHODAY ESWARSA & SONS(supra) and of this Court in AMRUT TUBEWELL COMPANY VS. ASST. CIT (supra), would apply to the facts of the present case. Hence, the appeal deserves to be allowed. 8. In the result, this appeal is ALLOWED. The question of law raised in this appeal is answered in favour of the appellant- assessee and against the respondent- Revenue, accordingly. Sd/- (K.S. JHAVERI, J.) Sd/- (K.J. THAKER, J.) CAROLINE Page 10 of 10