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Income Tax Appellate Tribunal, DELHI BENCHES: BENCH “D” NEW DELHI
Before: SRI R.K.PANDA & SMT. BEENA A PILLAI
PER BEENA A PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dt. 27.01.2016 passed by Ld.CIT(A)-I, Noida for A.Y. 1996-97 on the following grounds of appeal. “The under mentioned Grounds of Appeal are without prejudice to each other -
1. That on the facts and circumstances of the case and in law, the Ld Commissioner of Income Tax (Appeals) - I, Noida [hereinafter referred to as CIT (A)] grossly erred in upholding the contention of the Assessing Officer for levying penalty under section 271(1)(c) of the Income Tax Act, 1961 amounting ITA 2173/Del/2016 A.Y.:1996-97 Silvia Apparel Ltd. vs. ACIT to Rs. 4,82,260/-, which is bad in law and not called for.
That on the facts and circumstances of the case and in law, Both the Learned CIT(A) and the Assessing Officer erred in holding that the assessee has deliberately furnished inaccurate particulars of income, which is arbitrary, bad in law and not called for. That the appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal.”
2. Facts of the case in brief: Assessee filed its return of income for A.Y. under consideration on 28.11.1996 declaring loss of Rs.1,35,71,010/-. Return was processed u/s 143(1)(a) of the Income Tax Act, 1961 (the Act) and statutory notices u/s 143(2) r.w.142(1) along with questionnaire was issued to assessee. In response to the notices, Representatives of assessee appeared and filed requisite details. The assessment was completed u/s 143(3) of the Act vide order dt. 15.02.1999 on a loss of Rs.1,12,52,500/- by making following additions. Adjustment made u/s 143(1 )(a) Rs, 93,702 Rs. 1,00,000 Disallowance out of vehicle expenses, Disallowance out of conveyance and traveling exp. Rs. 1,00,000 Addition on account of suppression of closing stock. Rs.19,24,804 Disallowance out of building repair and other assets. Rs. 1,00,000 Aggrieved of the aforesaid additions, the assesses preferred appeal before the Ld. CIT (Appeal), Ghaziabad. The Ld. CIT (Appeal), Ghaziabad, vide order dated 30-07-2002, has allowed the following relief:- Against the disallowance out of vehicle expenses Rs. 70,000 Against the disallowance out of conveyance and Traveling expenses Rs. 50,000 Against the disallowance out of suppression of closing stock. Rs. 9,06,408 Against the disallowance out of building repair & other assets Rs. NIL Adjustment u/s 143(1 )(a) Rs.NIL Aggrieved of the order of the Ld. CIT(Appeal), Ghaziabad, the assessee further preferred appeal before the Horrible ITAT, New Delhi. The department also fried second appeal against the relief allowed by the Ld. CIT (Appeal), Ghaziabad. The Hon’ble IT AT, vide its common order dated 31-08-2007, has further deleted the following additions:- Disallowance out of conveyance and traveling exp. Rs.50,000 Disallowance out of building repair & other assets Rs.1,00,000 The issue relating to (1) suppression of closing stock and (2) vehicle expenses has been set aside to the stage of A.O. with the direction to reframe the assessment after affording proper opportunity of hearing to assessee company.
ITA 2173/Del/2016 A.Y.:1996-97 Silvia Apparel Ltd. vs. ACIT 2.1. In compliance to the directions by this Tribunal vide order dt. 31.8.2007 Ld.AO issued notice to assessee and asked to furnish details/reply regarding valuation of balance closing stock and use of vehicle by Directors. Assessee was directed to furnish terms of appointment of Directors and the log book for the same. In respect of valuation of balance closing stock assessee vide letter dt. 4.6.1997 filed details of stock inventories hypothecated to bank as on 31.03.1996. It was submitted that the value adopted by assessee while submitting the same to the bank was at cost whereas in the books, stock was valued at cost or net realisable value whichever is less. Assessee furnished copies of invoice in respect of the stock amounting to Rs.30,55,493/- which was subsequently reduced by Ld.CIT(A) to Rs.10,18,396/- due to the defective stock. Ld.AO in the remand proceedings confirmed addition of Rs.10,18,396/- in terms of suppression of valuation of stock. Regarding vehicle running expenses addition of Rs.30,000/- was confirmed as assessee did not furnish terms of appointment of Directors and the log book maintained for vehicles. 2.2. Aggrieved by the addition of Ld.AO in quantum proceedings, assessee did not prefer any appeal before Ld.CIT(A). Subsequently Ld.AO initiated penalty proceedings on the basis of quantum assessment order passed in the second round of assessment proceedings. Penalty amounting to Rs.4,82,260/- was imposed. 2.3. Aggrieved by penalty levied by Ld.AO, assessee preferred ITA 2173/Del/2016 A.Y.:1996-97 Silvia Apparel Ltd. vs. ACIT appeal before Ld.CIT(A), who confirmed the penalty levied by Ld.AO. 2.4. Ld.AR submitted that addition made by Ld.AO in the quantum assessment proceedings towards suppression of valuation of closing stock was reduced by Ld.CIT(A) to an extent of Rs.9,06,408/-. It was thus submitted that the cost of defective stock could be valued on an estimate basis. Ld.A.R. submitted that the fabrics which were found defective and rejected by the client of assessee, could be of no use and was lying for more than a year. Assessee therefore valued the defective stock at 75% of original cost, being estimated realisable value, which was not acceptable to A.O. and Ld.AO valued at 25%. Ld.AR submitted that the entire dispute of addition is upon the rate to be adopted for valuation of stock lying defective and, therefore, there cannot be any concealment or filing of inaccurate particulars in respect of the same. There has been no material brought on record by Ld.AO to establish that assessee had undervalued the defective stock and, therefore, such addition cannot attract penalty u/s 271(1)(c ). He placed reliance upon the decision of Hon’ble Allahabad High Court in the case of CIT vs. Devi Dayal Alluminium Industries P.Ltd. reported in 171 ITR 638 and decision of Hon’ble Punjab High Court in case of CIT vs. Modi Industrial Corporation reported in 195 Taxman 68.
Regarding vehicle running expenses Ld.AR submitted that the disallowance is based on mere estimation and surmises and no material has been brought on record to substantiate that ITA 2173/Del/2016 A.Y.:1996-97 Silvia Apparel Ltd. vs. ACIT the vehicles were used by the Directors for their personal purposes. 3.1. On the contrary Ld.DR strongly argued for levy of penalty as assessee has wilfully concealed the income by furnishing inaccurate particulars. He placed reliance on the orders of authorities below for the same.
We have perused the submissions advanced by both the sides in the light of the records placed before us.
Admittedly, assessee has not challenged addition made by Ld.AO in quantum proceedings. But in our considered opinion it does not ipso facto follow that penalty for concealment or furnishing of inaccurate particulars could be imposed. It is apparent from the language of Explanation 1 to section 271 (1)(c) of the Act, that the word ‘conceal’ inherently and per se refers to element of mens rea, albeit the expression ‘furnishing of inaccurate particulars’ which is much wider in scope. In the present case, Ld.AO levied penalty for concealment. The issue that arises for consideration is whether the conduct of assessee was bona fide. The test of bona fide has to be applied keeping in mind the position as it existed, when the return of income was filed.
Regarding valuation of defective stock, we are of the opinion that the addition is based on estimation. Value adopted by assessee was based on the day-to-day business prudence which was not acceptable to Ld.AO. There is no case of any concealment/filing of inaccurate particulars that has been established by Ld.AO. Ld.AO neither disputes defective stock available with assessee nor the purchases. In so far as the vehicle running expenses are concerned, assessee did not provide log book maintained for vehicles and terms of appointment of Directors for which the addition was made. Thus ITA 2173/Del/2016 A.Y.:1996-97 Silvia Apparel Ltd. vs. ACIT the addition was made on estimate basis on the pretext of non- furnishing of details called by Ld.AO, penalty could not be levied as these were the expenses of a company and A.O. did not have any material to establish that the Directors have used the vehicles for their personal purposes. In fact it is observed that addition has been made on an estimate basis.
Thus in our considered view keeping the entirety of the facts, and in view of explanation offered by assessee, penalty levied under section 271(1)( c ) of the Act for alleged addition of valuation of stock and vehicle running expenses stands deleted, 8. Accordingly the grounds raised by assessee are partly allowed. In the result appeal filed by the assessee stands allowed. Order pronounced in the open court on 07th June, 2018.