The Commissioner Of Income Tax, Patiala v. M/S Sangrur Vanaspati Mills Ltd., Jind Road, Sangrur

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A.s No. 470 & 472 of 2007 DATE OF DECISION : 19.02.2008 The Commissioner of Income Tax, Patiala .... APPELLANT Versus M/s Sangrur Vanaspati Mills Ltd., Jind road, Sangrur ..... RESPONDENT CORAM :- HON'BLE MR. JUSTICE SATISH KUMAR MITTALHON'BLE MR. JUSTICE RAKESH KUMAR GARG Present:Mr. Yogesh Putney, Advocate, for the appellant-revenue. * * * SATISH KUMAR MITTAL, J. This order shall dispose of Income Tax Appeals No. 470 and472 of 2007, filed by the revenue under Section 260-A of the Income TaxAct, 1961 (hereinafter referred to as `the Act'), which are arising from thecommon order dated 19.3.2007, passed by the Income Tax AppellateTribunal, Chandigarh, Bench `B', Chandigarh (hereinafter referred to as `theITAT'), passed in ITAs No. 234 and 235/CHANDI/2006, in case of theassessee for the Assessment Years 1992-93 and 1993-94, respectively. Inboth these appeals, the following substantial question of law has been raisedfor consideration of this Court:- Whether on the facts and in the circumstances of the case,the ITAT was right in law in deleting the penalty imposedunder Section 271 (1) (c) of the Income Tax Act ignoringits own finding of the fact that the assessee had concealedits income by not recording certain sales which wereevident from the invoices and G.Rs found and seized? In both these appeals, common issue is involved whichrevolves around the penalty levied by the Assessing Officer under Section271 (1) (c) of the Act, which has been confirmed by the Commission ofIncome Tax (Appeals) [hereinafter referred to as `the CIT (A)]. The factsare being taken from ITA No. 470 of 2007. For the assessment year 1992-93, the assessee filed return ofincome on 30.12.1992 showing income of Rs. 65,18,970/-. The return wasduly verified by one of the Directors of the Company and was accompaniedby copies of profit and loss account, Trading Account and Balance Sheetand other annexures duly audited by a Chartered Accountant. During theassessment proceedings, the Assessing Officer came to know that theCentral Enforcement Wing of Excise & Taxation Department carried outinspection of the business premises of the assessee on 23.1.1993 and seizedcertain documents. On scrutiny of those documents, the Assessing Officernoticed that in one invoice book containing five sale vouchers, originalcopies of four bills were found torn and the duplicate and triplicate copieswere available. By taking into consideration the said material and the statement of the Director of the Company, the Assessing Officer arrived at aconclusion that the books of accounts of the assessee were not reliable anddid not reflect its true income. Accordingly, the Assessing Officer rejectedthe accounts of the assessee and concluded that the assessee had madeunaccounted sales. While completing the assessment, the Assessing Officer,in order to arrive at the quantum of such unaccounted sales, extrapolated theaverage sale price in 4 invoices to 53 invoices and proceeded to make anaddition of Rs. 66,16,865/-. The said order passed by the Assessing Officerwas challenged by the assessee in appeal before the CIT (A), who endorsedthe conclusion that the assessee had made un-accounted sales and wasindulged in sales outside the books of account. The CIT (A), therefore,proceeded to apply yield of 93.13% shown by the assessee in theimmediately preceding year as against the yield of 92.57% shown by theassessee for the year under consideration. Accordingly, the addition ofRs.15,50,000/- was made. The assessee challenged the said order passed bythe CIT (A) before the ITAT, who vide its order dated 11.7.2003 upheld theorder of the CIT (A) and the addition sustained by the CIT (A) wasconfirmed.Subsequently, the Assessing Officer on the basis of theaddition having been confirmed, issued notice under Section 271 (1) (c ) ofthe Act for imposing penalty for concealing of income in respect ofadditions made on account of un-accounted sales. The Assessing Officer,while rejecting the contentions of the assessee that the penalty proceedings are distinct and separate from assessment proceedings, therefore, theconclusion of the findings in assessment proceedings were not conclusivefor penalty proceedings; that there was no evidence of any goods havingmoved from assessee's premises; no discrepancy had been found in thebooks of account; the fact that there was no finding that the invoices seizedby the Sales Tax authorities were made by the management; and that theincome in respect of alleged sales had been earned by the assessee and therewas no evidence of any actual funds being received by the assessee inrespect of those sales, came to the conclusion that that the assessee hadunaccounted sale amounting to Rs.15,50,306/- and on this income, theassessee evaded a tax of Rs.7,84,170/-. Accordingly, the penalty equivalentto the tax evaded was levied. The assessee filed an appeal against the saidorder before the CIT (A), which was dismissed. Feeling aggrieved against the said order, the assessee filed anappeal before the ITAT, which was allowed and the penalty levied by theAssessing Officer and confirmed by the CIT (A) was deleted, whileobserving as under : “In the present case, it is not in dispute that the addition hadbeen made by the Assessing Officer by estimating the salesoutside the books of account. Ld. CIT (A) estimated the yieldand worked out the additional production, on this estimatedadditional production, he applied average sale rate and workedout the additional sale at Rs. 15,50,306 which was rounded off Feeling aggrieved against the said order, the assessee filed anappeal before the ITAT, which was allowed and the penalty levied by theAssessing Officer and confirmed by the CIT (A) was deleted, whileobserving as under : “In the present case, it is not in dispute that the addition hadbeen made by the Assessing Officer by estimating the salesoutside the books of account. Ld. CIT (A) estimated the yieldand worked out the additional production, on this estimatedadditional production, he applied average sale rate and workedout the additional sale at Rs. 15,50,306 which was rounded off to Rs. 15,50,000 and added to the income of the assessee. TheITAT also estimated the yield on the basis of preceding yearand the addition made by the Ld. CIT (A) had been sustained. Itis true that the assessment proceedings and penalty proceedingsare two different and distinct proceedings. It is also well settledthat the addition made in assessment proceedings can bematerial but not a conclusive and concrete evidence that theassessee, in fact, had concealed the particulars of income orfurnished inaccurate particulars of income to the extent of theaddition made. In the present case, the addition had not beenmade on the basis of alleged sales outside the books of accountbut the addition had been sustained by estimating the yield onthe basis of yield of preceding year. It is true that the yield in aparticular year depends upon many factors like quality of rawmaterial, weather condition, condition of machinery, skill ofworkers and proper management etc. So, it is very rare whenthe yields for two different years remain identical. 9.1As regards to the issue relating to making the addition isconcerned, no one will disagree that the fair and reasonableestimate can be made when the books are not showing truepicture. However, for levying the penalty, there should beconclusive evidence that the assessee had concealed theparticulars of income or furnished inaccurate particulars of income. In the present case the Assessing Officer made theaddition by estimating the sales outside the books of account,the estimate was made only on the basis that in one “invoicebook” original copies of the invoices in respect of four invoiceswere not available. However, no evidence was brought onrecord that the assessee vide those invoices made the salesoutside the books of account. It was also not brought on recordthat if any sale was outside the books of account to whom thatsale was made. It is true that the circumstances were such thatsome sales might have been made outside the books of account,however, there was no conclusive evidence that the salesestimated by the Assessing Officer to the extent ofRs.66,16,865 were made outside the books of account and tothat extent the assessee earned income outside the books ofaccount. For that reason, the Ld. CIT (A) estimated the additionto the extent of Rs. 15,50,000, the ITAT confirmed the additionby taking into consideration the yield of preceding year vis-a-vis the yield of the year under consideration. So, it cannot beheld that there was conclusive evidence that the assessee, infact, concealed the income to the extent of the additionsustained by the ITAT.” We have heard counsel for the appellant and have gone throughthe impugned order. We have heard counsel for the appellant and have gone throughthe impugned order. The order passed by the ITAT is based upon two decisions ofthis Court in CIT v. Ravail Singh & Co. (2002) 254 ITR 191 and HariGopal Singh v.CIT(2002) 258 ITR 85. In both these decisions, this Courthas held that in order to attract clause (c) of Section 271 (1) of the Act, it isnecessary that there must be concealment by the assessee of the particularsof his income or furnishing of inaccurate particulars of such income. Theprovisions of Section 271 (1) (c) of the Act are not attracted to cases wherethe income of an assessee is assessed on estimate basis and additions aremade therein. It was held that when the addition had been made on the basisof estimate and not on account of any concrete evidence of concealment,then the penalty was not leviable. The similar view was also taken by thisCourt inCITv.Dhillon Rice Mills,(2002) 256 ITR 447, where the additionwas made by the Assessing Officer by estimating the yield of super phak aswell as of chhilka and also the price of chhilka, that addition was reduced bythe CIT (A). However, the penalty levied by the Assessing Officer wasdeleted by the CIT (A). The order of CIT (A) was confirmed by the ITATand the appeal filed by the revenue against the said order of the ITAT wasdismissed by this Court, on the ground that the Assessing Officer had madethe additions on the basis of estimate of the yield of phak and chhilka and anestimate of the price and that the estimate would not ipso-facto lead topenalty. In view of the aforesaid factual and legal position, we are of theopinion that no substantial question of law is arising from the order passed ITA No. 470 of 2007 by the ITAT. Dismissed. February 19, 2008 ndj ( SATISH KUMAR MITTAL )JUDGE ( RAKESH KUMAR GARG )JUDGE