M/S HAPPY STEEL PRIVATE LTD.,LUDHIANA vs. DCIT CC-2, LUDHIANA
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Income Tax Appellate Tribunal, CHANDIGARH BENCH, ‘A’, CHANDIGARH
Before: SHRI A.D. JAIN & DR KRINWANT SAHAY
Per Dr. Krinwant Sahay, A.M.:
The appeal in this case has been filed by the Assessee against the order dated 24.05.2023 passed u/s Section 271 (1) (c) of the Income Tax Act, 1961 (in short 'the Act') by the ld. Commissioner of Income Tax (Appeals)-5, Ludhiana [hereinafter referred to as’ CIT(A)’.
The Grounds of appeal are as under: -
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That order passed u/s 250(6) by the ld. Commissioner of Income Tax (Appeals)-5, Ludhiana is against law and facts on the file in, as much as he was not justified to arbitrarily uphold the levy of penalty u/s 271(1)(c) at Rs. 3,80,242/-
That levy of penalty and upholding the same is bad in law in as much as no specific charge has been made out while issuing the penalty notice and while levying penalty u/s Section 271 (1) (c).
Brief facts of the case are that the Assessee company is engaged in the business of manufacturing of Auto parts. A search operation u/s 132 of the Act was conducted at the premises of the Assessee company on 27.8.2015. During the search operation, physical verification of stock was done by the Department and as per the Department’s contention, excess stock of finished goods was found in excess of about Rs. 1.20 crores. During the search operation, the Assessee surrendered an amount of Rs. 25,00,000/- as the cost of excess stock of finished auto parts. A return of income was filed at Rs. 2,99,36,300/- but the Assessing Officer made an addition of the remaining amount of excess stock found of Rs. 88,86,872/-. Aggrieved with the findings of the Assessing Officer, the Assessee preferred an appeal before the ld. CIT(A), who accepted the contention of the Assessee and gave a relief of Rs. 77,36,822/- and 397-Chd-2023 – M/s Happy Steel Pvt. Ltd., Ludhiana 3
upheld the addition of Rs. 11,50,050/- on account of excess stock of finished product of auto parts.
Aggrieved with the order of the ld. CIT(A), the Department preferred an appeal before the Tribunal. The Tribunal in ITA No.387/Chd/2019, order dated 22.08.2019 dismissed the Departmental appeal because of low tax effect in view of the CBDT’s Circular dated 8.8.2019. The Assessing Officer took the amount of Rs. 11,50,050/-, i.e., addition upheld by the ld. CIT(A) and levied penalty u/s Section 271 (1) (c) of the Act of Rs. 3,80,242/- for Assessee’s action of concealing particulars of its income. Aggrieved with the order of the Assessing Officer u/s Section 271 (1) (c) of the Act, the Assessee preferred an appeal before the ld. CIT(A) who in his order dated 24.5.2023 held that as per the appellant, the above addition was made merely because the Department had wrongly considered the stock as finished goods which was actually a scrap / rejected goods. The ld. CIT(A) did not accept the arguments of the Assessee and confirmed penalty u/s Section 271 (1) (c) of the Act on addition of Rs. 11,50,050/- which was sustained on factual basis of the physical verification of stock taken by the department at the time of search.
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Aggrieved with the order of the ld. CIT(A), the Assessee has filed this appeal before the Tribunal. During the course of hearing, the ld. Counsel for the Assessee has brought it on record that the Assessing Officer has levied penalty u/s Section 271 (1) (c) of the Act on the alleged difference of Rs. 11,50,050/- without brining out any specific charge of levying penalty u/s Section 271 (1) (c) in this case. The ld. counsel of the Assessee further argued that it was only a stock inventory drawn on the date of search and the tentative trading account prepared on the date of search that brought out alleged difference in stock. The ld. Counsel further argued that the scrap / rejected items of auto parts were taken as finished goods product and therefore, valuation was taken at the rate of finished stock that made all the difference.
The ld. DR, on the other hand, relied on the orders of the authorities below.
We have considered the findings given by the ld. CIT(A) in his order dated 24.5.2023 and we have also considered the facts and case laws brought on record. Initially, the Assessing Officer had made the addition of Rs. 88,86,872/- on account of excess stock of finished goods found during the search. Against that addition, the ld. CIT(A) substantially diluted this addition and gave a relief of Rs.
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77,36,822/- by upholding the addition of Rs. 11,50,050/- only. On this issue, we are of the considered opinion that it has always been an established practice to take both the assessment order and the penalty proceedings as separate and distinct proceedings. An issue may call for an addition during the assessment proceedings but it does not necessarily call for levy of penalty u/s Section 271 (1) (c) of the Act on the addition. Before levying penalty, it is to be established that the Assessee willfully concealed the particulars of its income or furnished inaccurate particulars of such income. In this case, there is no fixed or accurate figure arrived at the stage of assessment or before the ld. CIT(A) in the sense that while Assessing Officer made an addition of Rs. 88,86,872/- on account of excess stock, considering the same stock on the basis of differentiation between finished stock and rejected stock, the ld. CIT(A) deleted this addition substantially and upheld the addition of Rs. 11,50,050/- only. During the proceedings before the Tribunal, the ld. Counsel for the Assessee again reiterated that no specific item of unrecorded purchases or sales were found and nothing as such has been brought on record either by the Assessing Officer or by the ld. CIT(A). It is only the nature of stock which has been considered for making addition.
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During the process of proceedings, it has also been brought on record as under:- “The stand of the appellant gets further fortified by a review of the entire proceedings wherein authorities at. various levels of the hierarchy have held different opinions and arrived at correspondingly diverse findings with respect to the impugned addition on which penalty was initiated. The addition has arisen on account of varying perceptions of the authorities involved with respect to differing opinions and perceptions of the person appraising the evidence and the circumstances involved. In fact, the addition of INR 11,50,050/- sustained in the appellate proceedings is also owing to valuation of certain stock at the price of finished goods rather than at the scrap value as claimed in the assessment. The same is further supplemented by excise records maintained in the normal course of business which was being verified from time to time by the respective authorities. The same is not of the nature of concealment of particulars of income nand, consequently no penalty u/s 271(l)(c) of the Income- Tax Act, 1961 should be levied.”
After taking into account the findings of the ld. CIT(A) and the contention put before us by the ld. counsel of the Assessee, it is found that there is an element of subjectivity in considering an item, such as auto part, whether it is a finished good ready for sale or it is a rejected item of earlier years. The Assessee also put forward the argument that while both finished goods and rejected items look alike, it requires a technical knowledge to differentiate between a 397-Chd-2023 – M/s Happy Steel Pvt. Ltd., Ludhiana 7
finished good ready for sale or an item rejected by the consumer / retailer earlier. This subjectivity created all the problems of valuation of the stock found. Thus, it is clearly seen that the dispute is not confined to the quantity of extra stock found but it is more on the nature of auto part, whether it is to be considered as finished good ready for sale or an item rejected earlier by the consumer. Therefore, it seems, it is debatable to decide the nature of stock found. So, it is not a case of concealment or filing of inaccurate particulars of income on the part of the Assessee, therefore, levy of penalty u/s Section 271(1)(c) of the Act on this debatable issue, is not justified. Accordingly, the Assessee’s appeal is allowed.
In the result, the appeal of the Assessee is allowed. Order pronounced on 13.05.2024. ( A.D. JAIN ) Accountant Member “आर.के.” आदेश क" ""त"ल"प अ"े"षत / Copy of the order forwarded to : 1. अपीलाथ"/ The Appellant
""यथ"/ The Respondent 3. आयकर आयु"त/ CIT
"वभागीय ""त"न"ध, आयकर अपील"य आ"धकरण, च"डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड" फाईल/ Guard File
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आदेशानुसार/ By order, सहायक पंजीकार/
