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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ NEW DELHI
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
This appeal has been filed by the assessee against the order dated 23.09.2013 of Ld. CIT(A)-I, Muzaffarnagar wherein he has confirmed the levy of penalty of Rs. 1,62,656/- imposed u/s 271(1)( c) of the Act for assessment year 2009-10.
The facts, in brief, are that the assessee is a private limited company engaged in sale and manufacture of HDPE pipes.
Return declaring income of Rs. 31,26,512/- was filed on 29-09-2009. Assessment in this case was completed u/s 143(3) of the Act on 15-12-2011 wherein following additions were made:-
I.T.A. 314/D/2014 Assessment Year 2009-10 Rs.4,21,972/- (i) On account of difference in stock Rs.1,01,922/- (ii) On account of VAT difference Rs. 16,946/- (iii) On account of ESI & PF not paid by Rs. 2,500/- due date (iv) On account of Charity & Donation Thus, total addition of Rs. 5,43,340/- was made to the returned income and income of the assessee was assessed at Rs. 36,69,852/-. A survey u/s 133 A of the Act was conducted on 16-01-2009, the value of scrap in the books of the assessee was 4.155 Tonnes whereas the survey team on physical verification found it to be 15000 Kgs. Hence, there was difference in stock of scrap at 10845 Kgs. During the course of assessment proceedings, the AO required the assessee to justify the reason for difference in stock. In response, the assessee submitted that the weight taken by survey team was on estimate basis and actual weight of scrap was about 1500 Kgs. However, the AO rejected the submissions made by the assessee on the ground that as per stock register, the weight of scrap was shown at 4155 Kgs. The Assessing Officer, after considering the reply of the assessee, adopted the weight of scrap at 10,000 Kgs. which resulted in an addition of Rs.4,21,972/- on account of difference in the value of stock at 5116 Kgs. @ 82 per Kg. Thus, it was held by the AO that the assessee had underestimated the stock of I.T.A. 314/D/2014 Assessment Year 2009-10 scrap in its books to suppress the profit. According to the Assessing Officer, the assessee was following mercantile system of accounting and the scrap generated during the relevant financial year should have been reflected in the books of account maintained by the assessee. However, on physical verification it was gathered that the assessee had undervalued the scrap and as such had concealed its income.
In the Profit & Loss Account under the head administrative & selling and general expenses, it was gathered by the AO that an amount of Rs.6,23,216/- was debited under rebate & discount. Further, the amount of Rs. 1,01,922/- was debited to SDE MS (TXP) Store, O/o DET MS(TXP), Lucknow. On verification of the journal voucher, it was gathered by the AO that the amount was reflected due to VAT discount in respect of which the assessee submitted that VAT had been paid on account of BSNL, Lucknow which had not been received back and hence, the impugned sum was debited under the head VAT discount. However, the AO rejected the submissions made by the assessee on the ground that the assessee was following mercantile system of accounting and as such the impugned sum should not have been debited to the Profit & Loss Account. It 3 I.T.A. 314/D/2014 Assessment Year 2009-10 was held by the AO that the assessee deliberately debited the amount of Rs. 1,01,922/- to inflate its expenses and to reduce the profit.
On the perusal of audit report, it was gathered by the AO that the assessee had made payments of Employee’s Contribution towards PF at Rs. 14,773/- & ESI at Rs.2,173/- totaling to Rs. 16,746/- which were paid beyond the due date (including grace period). The AO disallowed the impugned sum which was added to the income of the assessee u/s 36(1)(va) of the Act.
An amount of Rs. 2,500/- was debited under the head charity & donation but in the absence of any evidence the same could not be verified by the AO. Thus, it was held by the AO that the assessee had deliberately inflated expenses to such extent to reduce profit.
The Assessing Officer, on the basis of facts mentioned in the assessment order, held that the assessee had deliberately furnished inaccurate particulars to avoid incidence of tax. Based on such inference, the AO imposed penalty u/s 271(l)(c) of the Act amounting to Rs.1,62,656/-.
I.T.A. 314/D/2014 Assessment Year 2009-10 7. Aggrieved, the assessee approached the First Appellate Authority who confirmed the imposition of penalty. Now the assessee has preferred this appeal before the Tribunal and has raised the following grounds of appeal:-
“1. The Ld. CIT(A) has erred in confirming the penalty order passed by the Assessing Officer u/s 271(1)(c) imposing penalty of Rs. 1,62,656/-. 2. The order of the Ld. CIT(A) is against law and facts of the case.” 8. The Ld. AR submitted that as regard addition of Rs.
4,21,972/- on account of difference in the stock, the survey team had found a small heap of scrap which was only about 1500Kg but the survey team wrongly estimated the weight of scrap at 15000 Kgs. It was further submitted that the HDPE Pipe is an excisable item and the assessee had duly maintained stock register of scrap in Form No.-4 and RG-1 as prescribed by the Central Excise Department. The Stock as per Stock register was 4.155MT which included the stock of scrap in heap and scrap lying in the bags. The Ld. AO estimated the scrap at l0000 Kg and made the addition of Rs. 4,21,972/-. The above addition was made only on account of excess estimation of stock of scrap, otherwise the assessee has neither concealed the particular of his income nor filed the inaccurate particular of such income. As 5 I.T.A. 314/D/2014 Assessment Year 2009-10 such, the assessee was not guilty of fraud or gross or wilful neglect. It was submitted that the addition made by the Ld. AO was arbitrary and without any basis. The Ld. AO has not pointed out any sale and purchase made by the assessee out of books.
The assessee had agreed to pay tax just to purchase peace of mind, to cooperate with the department and to avoid litigation.
The submissions and explanations given by the assessee were bona fide, and therefore, keeping in view the provision of sec.271(l(c), no penalty was exigible. As regards addition on account of difference in VAT account, it is submitted that during the year, the assessee has supplied goods to the BSNL Delhi against 2% CST. The BSNL Department has directed to give supply of some goods in UP. The VAT rate in UP was 4%. The difference of VAT paid by the assessee amounting to Rs. 1,01,922/- was not refunded by the BSNL department, as such the difference of VAT was debited to P & L account under the head rebate and discount. The above expenses are wholly and exclusively for the purpose of business and are allowable as per law. The other addition of Rs. 16946/- is on account of PF & ESI not paid by due date and Rs. 2,500/- on account of non- production of proof of payment of charity and donation. The I.T.A. 314/D/2014 Assessment Year 2009-10 penalty u/s 271(l)(C) is not leviable on account of disallowance of expenses
Ld. DR supported the orders of the lower authorities and submitted that the penalty has been rightly levied and deserves to be upheld.
We have heard the rival submissions and have perused the relevant material available on record. It is seen that penalty has been imposed mainly on the basis of difference in the weight of scrap shown by the assessee and as estimated by the Assessing Officer. Apart from that, there is nothing to prove that the assessee has, in fact, concealed its income or furnished inaccurate particulars of income.
It is an admitted position that the assessee accepted the addition and did not challenge it further. But the mere fact that an addition has been accepted or is confirmed in quantum proceedings cannot be conclusive for the imposition of penalty.
Further, the only basis of addition is the estimate of weight made by the Assessing Officer in valuing the scrap. Apart from the estimation made by the Assessing Officer, there is nothing to show that the assessee had valued the scrap incorrectly. It is a settled legal position that when income is estimated, there can be I.T.A. 314/D/2014 Assessment Year 2009-10 no question of imposing penalty u/s 271(1)(c) of the Act. The Hon'ble Delhi High Court in CIT vs Aero Traders (P) Ltd. 322 ITR 316 (Del) has held that no penalty u/s 271(1)(c) can be imposed when income is determined on an estimate. It is apparent that in the instant case, the bedrock of penalty is estimation of scrap, hence, the penalty on this issue cannot be sustained.
As far as the penalty on difference in VAT account is concerned, it is seen that the amount of Rs. 1,01,922/- disallowed as expenditure pertains to difference in VAT rates in Delhi and U.P. It is not the case of the Department that the assessee had made a bogus claim of the expense. The disallowance was made on the basis that since the assessee followed mercantile system of accounting, the amount remaining outstanding could not be written off as an expense. The assessee’s act of debiting the outstanding amount as discount/rebate at worst can be termed as ‘a claim not accepted’ but the inference of concealment of income or furnishing of inaccurate particulars of income does not hold good.
The Hon’ble Madhya Pradesh High Court in the case of Narendra Kumar Rajendra Kumar Jain vs CIT 174 ITR 479 (MP) has held on similar facts, “that, before an assessee could be held I.T.A. 314/D/2014 Assessment Year 2009-10 liable for penalty u/s 271(1)(c), it must be found that the assessee has consciously concealed the particulars of his income. The Tribunal had not found that the expenditure claimed by the assessee was not incurred at all or that it was claimed in earlier years or that the assessee deliberately made a false claim of deduction in the assessment year in question. Therefore, the Tribunal was not justified in holding that the assessee was liable to pay penalty under section 271(1)(c)”. Hence, in our considered opinion, the levy of penalty on this issue also cannot be sustained.
The other two items on which the penalty has been imposed are Rs. 16,946/- on account of late deposit of PF & ESI dues and Rs. 2,500/- on account of charity and donation remaining unverifiable. In our opinion, additions on these two accounts also do not justify imposition of penalty as no case of furnishing of inaccurate particulars or concealment is made out.
Hence, imposition of penalty on these two issues also cannot be sustained.
We accordingly direct the deletion of the entire penalty of Rs. 1,62,656/-.
In result, the appeal of the assessee is allowed.
I.T.A. 314/D/2014 Assessment Year 2009-10 Order pronounced in the Open Court on 30th of March, 2016.