×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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This is an appeal preferred by the revenue against the order of the ld. CIT (Appeals) [ in short, ld. CIT(A) ], 21 Kolkata dated 04-07-2017 deleting the penalty levied by the AO u/s. 271AAB of the Income-tax Act, 1961 ( in short, the Act’’).
2. The brief facts of the case as noted by AO while passing the assessment order ( not dated) for the A Y 2015-16 is that the assessee filed its return of income on 30.09.2015 disclosing the total income of Rs. 6,59,23,930/- and thereafter, the AO with reference to the assessee’s disclosure made of Rs. 6,04,95,912/- in respect of under valuation of stock observed as under:-
“4. Disclosure made of Rs.6,04,95,912/· in respect of undervaluation of stock. The assessee was requested to-show cause as to why the undervaluation of physical stock of Rs. 10.75 Crore, detected during the course of search in respect of the main companies of the group viz. New Horizon Ltd and Industrial Safety Products Pvt. Ltd., should not be treated as suppression of profit made by the assessee company during the year under consideration and added back to the total income of cause the assessee stated that,
The excess stock found on physical verification that is related to the company is amounting to Rs. 6,04,95,912/- and have been properly accounted for in the books for financial year 2014-15. The same has also been disclosed in the disclosure petition dated 06.05.2015. The excess stock found during 'the course of physical verification has been duly accounted and hence there is no question of suppression of profit made by the company and the profit reflected in Statement of profit & Loss includes the same. We would like to draw attention to Note No.37 of the Financial Statement in this respect."
It is observed fro note 37 that the auditor has stated the following:
“On 20th March, 2015, search proceedings u/s 132 of the Income-tax Act 1961 were undertaken in respect of the company. The search proceedings were effectively concluded vide panchnama dated 20th day of March 2015. The surplus stock of leather measuring 1356456 sq ft. of Rs.6,04,95,915/- found during the course of physical verification of inventory during the month of January -February was subsequently disclosed in the statement recorded in course of proceedings u/s 132 of the Income tax Act 1961 has been duly accounted for in books of accounts"
It is observed that disclosure for the balance amount of stock amounting to Rs. 4,70,54,450/- was disclosed in the group company namely M/s New Horizon Ltd. in view of the above, penalty proceedings u/s 271AAB of the I.T.Act is initiated. “
3. Along with the order of assessment, the AO issued notice u/s. 274 read with section 271 of the Act wherein the AO put the assessee on notice for offence u/s. 271 (1) ( c) of the Act ( which is per-se-defective because both the limbs of the section 271(1) ( c) has been given without striking out which specific offence is proposed to be charged against the assessee) as well as against levy of sec. 271AAB of the Act vide notice dt. 31.3.2016 ( refer to page 63 of paper book) and, thereafter, the AO levied the penalty u/s. 271AAB of the Act after observing as under:-
3. The submission of the assessee has been carefully perused. It was seen that the stock was taken on 20.03.2015 and the valuation of the stock was found to be Rs. 6,04,95,915/- more than the valuation as per the books of the assessee in respect of this assessee company as on the date of the Search & Seizure operation. It is pertinent to say that only 10 days were left from the end of the financial year. So the assessee's submission that "the stock taking exercise resulting in identification of excess stock was conducted by the company voluntarily and same was done which prior to the date of Search" is not at all acceptable. It is only because of the Search & Seizure operation that the huge undisclosed stock was found and inventoried. It is quite a common process that the staff of the assessee whose premises has been searched often assists the officers conducting the valuation of stock as they are well conversant with the qualities, quantities and price of the items. This does not mean that the assessee has voluntarily made the valuation of stock. No evidence could be submitted by the assessee showing that the assessee was in the process of entering the huge undisclosed stock in his books-ofaccounts. The submission of the assessee regarding that stock was at different premises is also not correct. In Schedule 13 of the audited accounts, it is seen that that the stock of raw-materials as on 31.03.2014 was Rs. 8,94,66,761/- whereas stock of raw-materials as on 31.03.2015 was Rs. 14,03,00,966/- which is more than 5.1 crores than the last year's figure. In respect of finished goods, the closing stock as on 31.03.2014 was Rs. 2,96,304/- and as on 31.03.2016 it is Rs. 1,26,64,946/-. So it is more by 1.24 crores and about 42 times of the last year's figure. There is no reason for such huge increase in closing stock during the normal course of business. It is only due to the Search & Seizure operation, the assessee was forced to disclose the exact closing stock as on 31.03.2015 as only 10 days back during the Search & Seizure operation on 20.03.2016 the actual stock was taken during the Search & Seizure operation.
4. In view of above discussion the value of stock difference clearly represents undisclosed income coming under the purview of explanation (c) to section 271AAB, as it was not recorded in the books of accounts on or before the date of search. The year in question being a specified year, I consider it a fit case for imposition of penalty u/s 271AAB. It is seen that the assessee paid advance tax Rs. 1.5 crores and TDS was Rs. 7,07,027/-. After the assessment, there was a demand of Rs. 1,06,834/-, though the assessment was completed as per the returned income of the assessee including the undisclosed stock accounted and added in income. This show that the assessee has not deposited the entire tax and interest on the disclosed income. Hence, it falls within the purview of the Section 271AAB(c). Moreover, the assessee could not submit any explanation as to how the surplus of such huge stock was there. It is often the raw skin are being purchased in cash through the traders. The assessee has failed to submit any explanation or evidence or mode showing the relevant purchases which resulted in the undisclosed stock. Hence, penalty is imposed u/s 271AAB(c). “
4. Aggrieved, the assessee preferred an appeal before the ld. CIT(A), who was pleased to delete the same by observing as under:-
On examination of the penalty order in juxtaposition with the assessment order, I however note that the AO's findings in the assessment order are