THE ITO, WARD-1(3), RAJKOT-GUJARAT vs. M/S. KRANTI EXTRUSTION CRAFT PVT. LTD.,, RAJKOT-GUJARAT

Grievance raised by the Assessing Officer is as follows :-

Briefly stated, the relevant material facts are like this. The assessee is engaged in the business of manufacturing of Aluminium Extrusion and was subjected to survey under section 133A of the Act on 13.03.2007. During the course of survey, the assessee company declared income of Rs.50,01,608/- as undisclosed income on account of (1) Excess stock valuation Rs.25,21,608/-, (2) Expenses doubted Rs.15,00,000/- & (3) Machinery Rs.9,80,000/-. In the income tax return filed by the assessee, the assessee declared the aforesaid income as business income under the head “income declared under income tax survey”. However, eventually there was loss under the head “business income”. This declaration did not have tax implication in the current year. When the return so filed came under scrutiny of the Assessing Officer, the Assessing Officer was of the view that the said income was taxable under section 69 of the Act. In appeal, the learned CIT(A) was of the view that the provisions of section 69 did not come into play as no investment was found recorded in the books of account. Accordingly, the learned CIT(A) directed the Assessing Officer to treat the income as disclosed at the time of survey as business income eligible for set off against carried forward loss as well as current year loss. The directions of the CIT(A) was challenged in appeal before the co-ordinate bench and the Tribunal was of the view that so far as excess stock valuation of Rs.25,21,608/- and expenses doubted of Rs.15,00,000/- are concerned, these additions can only be made under the head “”business income”” against which current year’s loss and brought forward loss can be set out. However, as regards investment in machinery of Rs.9,80,000/- is concerned, the relief granted by the learned CIT(A) was reversed.

The matter did not rest there. In the meantime, the Assessing Officer also imposed penalty by observing that the views taken by the learned CIT(A) in treating the disputed additions as additions under the head business income, which was challenged before the Tribunal and “the decision of ITAT, Rajkot is awaited”. He further noted that irrespective of whether or not brought forward loss of earlier years is to be set off against the income concealment part as discussed in the Assessment Order remains intact. The Assessing Officer accordingly proceeded to conclude as follows :-

Once again assessee carried the issue in appeal before the ld. CIT(A) and in his brief order the ld. CIT(A) deleted the impugned penalty by stating as follows :-

The Assessing Officer is not satisfied and is in appeal before us.

We have heard the rival submissions, perused the material on record and duly

We find that so far as the addition relatable to excess stock valuation and doubtful expenses are concerned, the case of the Assessing Officer hinged on whether or not these amounts are taxable under the head income from other sources. As a matter of fact, the Assessing Officer, in the impugned penalty order, has himself observed that the penalty is being imposed as views of the CIT(A) are not accepted and the matter is in appeal before the Tribunal. Having noted thus, we find that the co- ordinate bench of this Tribunal has disapproved the action of the CIT(A). In this regard, the penalty must stand deleted. We have also noted that even though the assessee agreed to include this amount in the profit shown by him, there was no material whatsoever to justify these additions on merits. Under these circumstances and considering the fact that the addition was tax neutral even at the point of time when the addition was made, we are of the considered view that the penalty in respect of these additions was certainly not justified. Ld. CIT(A) was thus correct in his conclusion to the

Similarly, it appears on a perusal of the material on record, that there is no discussion by the ld. CIT(A) with respect to penalty relatable to shortage of cash amounting to Rs.3,10,567/-, even though this amount is included by the Assessing Officer in the additions in respect of which impugned penalty is levied. We, therefore, also direct the ld. CIT(A) to examine this aspect of the matter and, if necessary, deal with the same by way of a speaking order in accordance with law and by giving fair and reasonable opportunity of hearing to the assessee.

To sum up, while action of the ld. CIT(A) is approved to the extent of deleting penalty relatable to (a) Excess stock valuation of Rs.25,21,608/-, (b) doubtful expenses of Rs.15,00,000/-, we remit the matter to the file of learned CIT(A) for fresh adjudication of penalty relatable to (a) Machinery of Rs.9,80,000/- & (b) shortage of cash of Rs.3,10,567/-. Ordered accordingly.

In the result, appeal is partly allowed for statistical purposes in the terms indicated above. Pronounced in the open Court on this 5th day of January, 2018.