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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
O R D E R PER C. M. GARG, J. M.:
1. 1. This appeal has been filed by the assessee against the order of the ld CIT(A), Karnal dated 05.09.2011 for AY 2009-10.
2. The assessee has raised the following grounds of appeal:- “1. That on the facts & in the circumstances of the case The A.O. has wrongly & arbitrarily imposed penalty of Rs. 332255/- and The Learned CIT(A) erred in confirming the part of penalty.
2. That the A.O. has not brought anything on record to prove the real fault of the assessee as such penalty imposed is illegal and The Learned CIT(A) erred in confirming the part of penalty.”
Brief facts of the case as per statement of facts submitted by the assessee are that the appellant is a defunct private limited company, Appraisal period is 2006-07 financial year relevant to 2007-08 assessment. Company was running in losses and stopped business in the middle of the year. Company was Mfg. & dealing in shoddy woolen waste & yarn. Due to heavy rains factory shed was blown up and cotton & waste were fully damaged destroyed and mixed up with mud and were not of any use. Sales tax department accepted the accounts. And waste stock was not covered by insurance i.e. loss caused by rainfall. In assessment proceedings. The A.O. arbitrarily rejected the accounts & statements of the assessee. Thus initiated penalty proceedings and imposed penalty of Rs. 332255/- and the Learned CIT(A) partly deleted & partly withheld against which appeal is preferred.
The ld counsel of the assessee submitted that the AO has wrongly and arbitrarily imposed penalty of Rs. 3,32,225/- on the assessee and the ld CIT(A) has also erred in confirming the part penalty based on the addition of Rs. 6,95,065/- on account of wrong claim of loss of stock. The ld counsel submitted that during the quantum proceedings the assessee explained that the officers of Sales Tax department having disputed the claim of assessee on account of loss of stock due to heavy rains and factory shed which was blown up and cotton waste were fully damaged and destroyed and mixed up with mud and not of any use. The ld counsel submitted that merely because the claim of assessee of said loss was not accepted and found to be acceptable by the ld AO the penalty provision of section 271(1)(c) of the Act cannot be applied automatically on the assessee. The ld counsel vehemently pointed out that the loss claimed by the appellant has not been proved to be incorrect or false and at most it was a case of negligence or omission to maintain stock register properly. The ld counsel submitted that the Sales Tax Department had not disputed with regard to stock and loss of the assessee and the assessee could not claim the loss before the insurance authorities since the insurance policies had expired at the time of incident wherein, the loss occurred. The ld counsel submitted that the issue of imposing penalty is separate from addition made during the assessment and no concrete evidence has been brought on record by the AO to establish that the assessee as either furnished inaccurate particulars of income or had concealed particulars of income therefore, in view of various judgment of Hon'ble Supreme Court, Hon'ble High Court and coordinate bench of Tribunal including the judgment of Hon'ble Supreme Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd [2010] 322 ITR 158 and judgment of Hon’ble Jurisdictional High Court of Punjab and Haryana in the case of Dhillon Rice Mills reports as (2002) 256 ITR 447 P H3 the penalty may kindly be cancelled.
Replying to the above, the Sr. DR supported the penalty as well as first appellate order confirming the penalty and submitted that since the addition had been confirmed and there was no doubt that the income to the extent of claim of loss has been concealed by the assessee therefore, penalty u/s 271(1)(c) of the Act was rightly imposed on the assessee.
On careful consideration of the above submissions, first of all, we note that the AO made two additions first on account of wrong claim on account of loss of stock. The ld CIT(A) deleted the penalty relates to the GP estimation by observing that the penalty u/s 271(1)(c) of the Act is not justified where estimated addition was made. Now the sole issue for our adjudication is penalty imposed by the AO and confirmed by the ld CIT(A) on the allegation of wrong claim of loss of stock.
From the rival submissions, first of all we note that the claim of loss made by the assessee was rejected by the AO and the ld CITA) upheld the same in the first appellate order dated 05.09.2011 wherein para 1.04 the ld CIT(A) recorded the findings that the AO disallowed the claim of loss on sale of opening stock on the ground that no claim for insurance was made though the stock was covered in the insurance and that no evidence in support its claim that stock was got rotten up could be brought on record. The ld CIT(A) in the quantum appeal further noted the findings of the AO on the basis of which loss claimed by the appellant was disallowed. From the order of the quantum proceedings it is clear that the AO disallowed the claim of assessee on two grounds that no claim for insurance was made that the stock was covered under the insurance and no evidence in support its claim that stock got rotten up should brought on record. But there is no findings of the authorities below that the claim of assessee was incorrect or false to allege that the assessee has either furnished incorrect particulars of income or has concealed particulars of income to alleged penalty provisions of section 271(1)(c) of the Act.
We are unable to ignore the claim of loss of stock has not been disputed by the Sales Tax Department and no discrepancy has been pointed out by the Sales Tax Authorities to the claim of loss of stock. In the case of Reliance Petro (supra) Hon'ble Supreme Court held that merely because the claim of assessee was not accepted or not found to be acceptable by the tax authorities does not entitle the AO to impose penalty u/s 271(1)(c) of the Act. The AO was imposing penalty has held that the penalty was leviable in the case of concealed income represents the returned loss. In para 8 the AO while imposing the penalty recorded findings that the penalty is being imposed for furnishing inaccurate particulars of income or concealed income which shows that even at the time of imposition of penalty the AO himself was not clear as to whether the assessee has furnished inaccurate particulars of income or has concealed particulars of income. The ld CIT(A) in para 2.2 while confirming part penalty alleged that there is no doubt that the income has been concealed.
On the basis of foregoing discussion, we reached to a logical conclusion that the penalty imposed by the AO and confirmed by the ld CIT(A) on account of loss to stock is not sustainable in view of the fact and circumstances instant case and proposition rendered by the Page | 4 Hon'ble Supreme Court in the case of Reliance Petro (supra) and Hon’ble Punjab and Haryana High Court in case of Dhillon Rice Mills (supra). Accordingly, sole ground of assessee is allowed and AO is directed to delete the penalty.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 10/08/2023.