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Income Tax Appellate Tribunal, ‘B ’ BENCH : CHENNAI
Before: SHRI INTURI RAMA RAO & SHRI DUVVURU RL REDDY]
आदेश / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER These are appeals filed by the Assessee directed against different orders of the Commissioner of Income Tax (Appeals)- Puducherry, (‘CIT(A)’ for short) dated 23.05.2019 and 24.05.2019 for the Assessment Year (AY) 2013-14.
ITA No.1841 & 1842 /2019 :- 2 -:
First, we take up for assessment year 2013-14 for adjudication .
The Assessee raised the following grounds of appeal:
‘’1. That the order of the learned Commissioner of Income Tax (Appeals) - Puducherry [‘CIT(A)’] is contrary to the facts and circumstances of the case and against the principles of equity and natural justice.
2. The CIT (A) failed to appreciate the sale consideration of Rs. 1,60,00,000/- includes the consideration of the value of closing stock.
3. The CIT (A) failed to appreciate that it was only an inadvertent error that the appellant had not included the value of the closing stock in the sale deed. The CIT (A) erred in upholding the addition even after the appellant had proved beyond doubt that the sale consideration of Rs.1,60,00,000 includes value of closing stock.
4. The CIT (A) failed to appreciate that the appellant had produced confirmation letter from the purchasers and had also produced the purchasers on summons. It is submitted making addition by merely disregarding such evidences is bad in law.
5. The CIT (A) failed to appreciate that the appellant had sold his tea factory as a going concern including closing stock for a consideration of Rs.1,60,00,000/-. The CIT (A) erred in confirming the addition of Rs.53,84,394/- in respect of closing stock by considering the books of accounts of the purchaser merely based on books of the purchaser.
6. The CIT (A) failed to appreciate incorrect accounting in the books of the purchaser will not amount to addition in the hands of the appellant.
7. The CIT (A) failed to appreciate merely because the purchasers have failed to show the stock in their return of income, will not alter the fact that stock of Rs.53,84,394/- was transferred to the purchasers along with other assets. The CIT (A) ought to have appreciated the other evidences in this regard.
8. The appellant craves the leave of the Hon’ble Tribunal to adduce additional grounds in support its contentions before and during the course of hearing of this appeal’’.
ITA No.1841 & 1842 /2019 :- 3 -:
The brief facts of the case are as under:
The appellant is an individual, engaged in the business of medical profession and manufacturing tea. The return of income for the assessment year 2013-14 was filed on 25.03.2015 disclosing total income of Rs.18,78236/-. Against the said return of income, the assessment was originally completed by the Assessing Officer vide order dated 30.11.2015 passed u/s. 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) at total income of Rs. 20,05,530/-.
Subsequently, the ld. Pr. Commissioner of Income Tax, Pondicherry on examination of the assessment record had formed an opinion that the Assessing Officer had failed to enquire into the issue of sale of closing stock. Accordingly, the ld. PCIT set aside the assessment to the file of the Assessing Officer vide order dated 28.03.2018 passed u/s.263 of the Act. Consequent to the revisionary order passed by the ld. PCIT, the Assessing Officer completed the assessment vide order dated 18.09.2018 passed u/s.143(3) r.w.s. 263 of the Act by bringing to tax the value of the closing stock transferred to the vendor of Rs.53,54,394/-.
The brief background of the case are as under:-
Assessee during the previous year relevant to assessment year had sold immovable properties consisting of land, building and tea
ITA No.1841 & 1842 /2019 :- 4 -: factory for consideration of Rs.1,60,00,000/- to one Mr. Raman and Mr. R. Saravanan vide sale deed No.217/213, dated 01.02.2013.
Apparently, the sale deed had given bifurcation as under:-
Sl.no Survey Nos Extent Nature of Market value as Acres property per execuant’s assessment 1 671/20,672/3 1.23 acre Land 67,03,500/- and 672/4A 2 Factory 62,76,500/- Building 30,00,000/-
Total 1.23 acre Land with Factory, buildings and machinery 1,59,80,000/-
Well �20,000/-
Total �1,60,00,000/- No sale consideration was apportioned towards closing stock.
Contention of the assessee was that assets were sold on slump sale basis or going concern basis. Therefore, no specific consideration was assigned towards sale of closing stock. This contention of the assessee was rejected by the Assessing Officer and brought to tax.
Being aggrieved, an appeal was preferred before the ld.CIT(A) who vide impugned order confirmed the action of the Assessing Officer.
ITA No.1841 & 1842 /2019 :- 5 -:
Being aggrieved, the appellant is in appeal before us in the present appeal. It is contended that assets were sold on going concern, slump sale basis and no consideration was assigned towards sale of closing stock. It is further contended that no stock was lying with the assessee and the stock should be deemed to have lost value and no addition can be made.
On the other hand, the ld. Sr. Departmental Representative placed reliance on the orders of lower authorities.
We heard the rival submissions and perused the material on record. Admittedly, stock was lying with the assessee on the date of sale of other fixed assets. Assessee ceased to carry on the business.
The contention of the assessee that asset was sold on slump sale as going concern cannot be accepted in view of the fact that liability were not taken over and capital gains under slump sale as prescribed u/s.50b of the Act were not offered to tax. Admittedly, closing stock was not lying with the assessee. Therefore, the impliedly stock had been sold to same party, as the purchaser also confirmed.
Apparently, the consideration received on account of sale of closing stock was not offered to tax. Contention of the assessee that stock was sold as part of immovable asset had no credence, in as much as,
ITA No.1841 & 1842 /2019 :- 6 -: no documentary evidence to this effect was produced. The mere fact that purchasers had shown closing stock in his hands would go to show that some consideration was received towards sale of closing stock. Statement and the confirmation given by the purchasers has no credence in as much as, it is collusive statement made by the purchaser. The amount of addition is same as value adopted by the assessee. Therefore, there cannot be any dispute as to the quantum of the addition on this issue. Other contention of the assessee during the hearing of the appeal is that stock way lying with the assessee himself and in the absence of any value, the cost should be treated as nil is rejected for two reasons. Firstly, this plea was not taken before lower authorities and secondly, this issue is purely factual issue which cannot be adjudicated by this Tribunal in the absence of any application by the assessee to consider the additional evidence and in fact no evidence was filed before us except by making bald assertion before us. Further, this contention militate against the very statement of the assessee that closing stock was sold as part of the immovable assets. There is yet another reason to confirm the addition, even assuming that no specific consideration was assigned to the sale of closing stock, provisions of Section 50C of the Act are attracted on the sale of fixed assets. Thus, the addition is required to be confirmed even under the provisions of Section 50C of the Act, in ITA No.1841 & 1842 /2019 :- 7 -: the light of the fact that the sale consideration received exactly matches with the guideline value prescribed for stamp duty purpose in respect of fixed assets. Therefore, we do not find any reason to interfere with the orders of the lower authorities and we dismiss the appeal filed by the assessee.
Now, we take up appeal of the assessee in for assessment year 2013-2014 for adjudication.
The return of income for the assessment year 2013-14 was filed on 25.03.2015 disclosing total income of Rs.18,78236/-. Against the said return of income, the assessment was originally completed by the Assessing Officer vide order dated 30.11.2015 passed u/s. 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) at total income of Rs. 20,05,530/-. Subsequently, the ld. Pr. Commissioner of Income Tax, Pondicherry exercising his powers vested with him u/s.263 of the Act had set aside the assessment since the Assessing Officer had failed to examine the issue of sale of closing stock.
Pursuant to the order passed u/s.143(3) r.w.s. 263 of the Act the assessment was completed vide order dated 18.09.2018 bringing into tax the value of closing stock of Rs.53,84,394/-.
Even in appeal before the ld. Commissioner of Income Tax (Appeals), the Commissioner of Income Tax (Appeals) addition was ITA No.1841 & 1842 /2019 :- 8 -:
confirmed and in further appeal before the Tribunal, the Tribunal in had confirmed the addition.
13 While the matter stood thus, the Assessing Officer initiated penalty proceedings u/s.274 r.ws. 271 (1) ( c) of the Act . Accordingly, show cause notice was issued for concealment of particulars of income. In response to show cause notice, the assessee has submitted that closing stock was sold as a part of sale of asset for a consideration of Rs.1,60,00,000/-. However, the Assessing Officer considering the fact that sale consideration was apportioned of various assets had concluded that closing stock was not sold as part of sale of assets, accordingly he concluded that assessee has concealed particulars of income by not disclosing sale consideration of closing stock. Accordingly, levied penalty of �16,63,777/- u/s.271(1)
(c) of the Act.
Being aggrieved, an appeal was preferred before the ld.CIT(A) who vide impugned order confirmed the action of the Assessing Officer.
Being aggrieved, the appellant is in appeal before us in the present appeal. It is contended that in show cause notice, the Assessing Officer had not stuck off the relevant limb of show cause notice and therefore based on the ratio of decision laid down by ITA No.1841 & 1842 /2019 :- 9 -:
Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton and Ginning Factory, 359 ITR 565 that no penalty could be levied. He further submitted that mere rejection of explanation does not warrant levy of penalty, placing reliance on the decision of Hon’ble Supreme Court in the case of CIT vs. Reliance Petro Products Ltd, 322 ITR 158.
On the other hand, the ld. Sr. Departmental Representative placed reliance on the orders of lower authorities.
We heard the rival submissions and perused the material on record. The only issue in the present appeal relates to levy of penalty u/s.271 (1) (c) of the Act in respect of addition made on account of undisclosed sale value of the closing stock. From the perusal of the order of Assessing Officer as well as ld. CIT(A), the addition was made considering sale value apportioned to various assets.
Admittedly, no sale consideration was apportioned towards sale of the closing stock and the closing stock was not physically available with the assessee and the closing stock was admittedly transferred to the buyer. These admitted material facts led to addition. The only contention made by the assessee is that this was sold as part of sale of assets, which is not supported by any evidence. The Tribunal had recorded a finding that his statement is not supported by any evidence & 1842 /2019 :- 10 -: on record. The Hon’ble Rajasthan High Court in the case of Badri Prasad Om Prakash vs. CIT, [1987] 163 ITR 440 had held that wherever the assessee had failed to rebut the factual position on the basis of which addition was made, the levy of penalty u/s.271(1) (c) of the Act was justified. Thus, it is clear case of concealment and Assessing Officer had rightly levied penalty u/s.271 (1) (c) of the Act. The contention of the assessee that in show cause notice, the Assessing Officer had not struck off the relevant limb has no relevance, since he had filed explanation in response to show cause, which means that assessee very well understood the show cause notice, and therefore the ratio of the decision of Hon’ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (supra) cannot be applied as the assessee understood the show cause and filed explanation. The Bangalore Bench of the Tribunal, to which one of us i.e. the Accountant Member is the author of the order, in the case of P.M.Abdulla vs. ITO (in & 1224/Bangalore/2012, dated 17.10.2016) had held that this cannot be a valid reason for deletion of the penalty u/s.271(1) (c) of the Act by holding as under:-
‘’9. We heard rival submissions and perused material on record. The only issue involved is whether levy of penalty u/s.271(1) ( C) is valid in law keeping in view the decision of the Jurisdictional High Court in the case of Manjunatha Cotton &Ginning Factory (supra). The contention of the assessee is that since the Assessing Officer had not ticked off the relevant column in the show cause notice, it goes to prove that the Assessing Officer had not reached satisfaction before initiating proceedings u/s.271(1) ( c). The contention of the learned & 1842 /2019 :- 11 -:
Counsel for assessee that the relevant column has not been ticked, cannot be accepted as it is found from material placed before us that for both the years, the column relevant to concealment of particulars of income has been ticked by the Assessing Officer. In any event, it is found that the assessee had offered an explanation for concealment of particulars of income only. The assessee, at no stage of penalty proceedings and at no stage had complained of violation of the principles of natural justice. Thus, no prejudice is caused on account of any omission or commission in the show cause issued. The provisions of Section 292B clearly lay down that :-
“’ Return of income, etc, not to be invalid on certain grounds:
292B:- No return of income, assessment, notice, summons or other proceeding furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.
The Hon’ble Jurisdictional High Court had neither considered nor brought to the notice of the Hon’ble High Court, provisions of Section 292B of the Act. Even assuming that there is a defect in the show cause notice issued, as canvassed by the learned Counsel for assessee that will vitiate the entire penalty proceedings, the judgment was rendered by the Hon’ble High Court in the case of Manjunatha Cotton & Ginning Factory (supra) without considering the provisions of Section 292B. Subsequently, the Hon’ble Jurisdictional High Court in the case of CIT vs. Sri Durga Enterprises (2014) 44 taxmann.com 442 (Kar) while dealing with the validity of notice u/s.148 of the Act as valid and responded to it in letter and spirit and participated in the proceedings and in light of the provisions of Section 292B, notice issued u/s.148 was held to be valid. The relevant paragraph of judgment is extracted below:-
9. In the present case, as observed earlier, the assessee not only responded to the notice under Section 148 of the Act within one month, but on the basis of the return filed earlier, participated in the proceedings till the matter reached the FAA and was disposed of. A glance at Section 292B of the Act, shows that under this provision, certain Acts are not to be & 1842 /2019 :- 12 -:
treated as invalid, may be by reason of any mistake, defect or omissions, either in return of income, assessment, notice, summons or other proceedings. In other words, a notice cannot be invalidated by reason of any mistake, such as the one occurred in the present case, namely, the period of filing return of income was not specified as contemplated by Section 148 of the Act. If such a defect is not allowed to be cured, or treated as invalid so as to declare the notice invalid, despite the fact that assessee had taken that notice as valid and responded to it in letter and spirit and participated in the proceedings, the very purpose/objective of the provisions contained in Section 292B of the Act would stand frustrated/defeated. The intent of the Legislature is clear from the language employed in this provision which states that a defective notice, such as the one in the present case, cannot be declared invalid by reason of any mistake, defect or omission, if the notice in `substance' and in `effect' is in conformity with or according to the intent of purpose of this Act. The intent or purpose of issuing the notice is to call upon the assessee to file return, if the Assessing Officer finds that income has escaped the assessment. This being the intent and purpose of the provisions contained in Section 148 of the Act, in our opinion, it stands satisfied if the notice is responded within reasonable time, which in the present case was 30 days, irrespective of the fact whether the period was specified or not in the notice for filing return of income. In the present case, if the assessee had not responded to this notice at all and had raised such ground of challenge, perhaps, he would not succeed. But having responded and participated in the proceedings, he cannot be allowed to turn around and raise objection for the first time before the Tribunal seeking invalidation of the proceedings initiated by issuing notice under Section 148 of the Act. In the circumstance, we allow this appeal answering both the substantial questions of law in favour of the Revenue and against the assessee. In view of the peculiar facts and circumstances of the case, there shall be no order as to costs.
Thus, having regard to the ratio laid down by the Hon’ble Jurisdictional High Court in the subsequent decision in the case of Sri Durga Enterprise (supra) we hold that show cause notice issued u/s.274 r.w.s 271(1) ( c) cannot be held to be invalid’’.
& 1842 /2019 :- 13 -:
Recently, the Hon’ble Jurisdictional High Court in the case of Amtex Software Solutions Pvt. Ltd vs. ACIT (2019) 418 ITR 99 had reiterated the same ratio. Hence, we do not find any merits in the appeal filed by the assessee
In the result, the appeal filed by the assessee in 2013-2014 stands dismissed.
To summarize the results, the appeals filed by the assessee in & 1842/CHNY/2019 for assessment year 2013-2014 stand dismissed.
Order pronounced on 4th day of December, 2019, at Chennai.