BAITON CABLES (P) LTD. v. INCOME TAX OFFICER
[Citation -1984-LL-1105]

Citation 1984-LL-1105
Appellant Name BAITON CABLES (P) LTD.
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 05/11/1984
Assessment Year 1970-71 , 1971-72,
Judgment View Judgment
Keyword Tags unabsorbed depreciation • concealment of income • imposition of penalty • mala fide intention • undisclosed source • development rebate • gross profit rate • positive income • trading account • stock register • purchase price • quantum appeal • closing stock • opening stock • excess stock • raw material • transit loss
Bot Summary: The copper having been issued was shown as such in the stock register and the stock record thus showed a nil balance. At the year end, stock balance as per stock records, was extracted and valued and the fact that the copper belonging to the company was issued for extrusion, was overlooked. Had there been any deliberate intention to exclude the stocks, why would any entry be made in the next year's stock records Mr. Borad questioned. 1973 92 ITR 276 and CIT v. Meghraj Ramchandra 1974 97 ITR 559, for the proposition that it is by genuine mistake that the stocks were excluded in the assessment year 1970-71 as the same were included in stocks for the assessment year 1971-72. The company, during the course of proceedings for the assessment year 1971-72, volunteered that the goods being purchased in 1970-71, the stocks be included in the assessment year 1970-71. In the instant case, the stock had been omitted due to stock being valued as per balance shown in the stock records; neglect o f making an entry in the stock register of the processed copper, when it was received in January 1970; lack of proper care by stores in not comparing the physical stocks into the balance as per stock register; care not being physical stocks into the balance as per stock register; care not being exercised by the accounts department properly by making a financial entry of the goods having been issued for conversion; care not being taken for examining and comparing the income earned with the materials purchased and issued. As regards the excess stock, we observe from the order of the Tribunal as well as of the ITO that the total quantity of opening stock and purchases are as under: Kgs. Opening stock 12,546.


These appeals are by assessee and they are directed against imposition of penalties under sections 271(1)(c) and 273 of Income-tax Act, 1961 ('the Act'). For sake of convenience, they are being disposed of by this common order. assessment years involved are 1970-71 and 1971-72. 2. Assessment year 1970-71: Mr. M.L. Borad, learned representative of assessee-company, submitted that in year, copper weighing 9,149 kgs. was purchased for value of Rs. 1,28,065. This was duly entered in stock register. entire copper purchased was issued for conversion to Extrusion India (P.) Ltd., Jaipur. copper having been issued was shown as such in stock register and stock record thus showed nil balance. At year end, stock balance as per stock records, was extracted and valued and fact that copper belonging to company was issued for extrusion, was overlooked. This resulted in omission of copper from stocks. This mistake was detected by company only during course of assessment proceedings for assessment year 1971-72. accounting years of company ended on 31- 12-1969 and 31-12-1970 for assessment years 1970-71 and 1971-72, respectively. ITO was explained that there was no deliberate attempt on part of assessee not to include stocks. omission was made as stock was excluded from stock register, which showed nil balance. same was included in stock register for assessment year 1971-72 by mistake on part of stores department. Had there been any deliberate intention to exclude stocks, why would any entry be made in next year's stock records? Mr. Borad questioned. He further relied on CIT v. Khoday Eswarsa & Sons [1972] 83 ITR 369 (SC), Addl. CIT v. Sadiq Ali & Bros. [1973] 92 ITR 276 (J&K) and CIT v. Meghraj Ramchandra [1974] 97 ITR 559 (Pat.), for proposition that it is by genuine mistake that stocks were excluded in assessment year 1970-71 as same were included in stocks for assessment year 1971-72. Mr. Borad further stated that even after including value of these stocks in assessment year 1970-71, assessed income is nil as company had unabsorbed depreciation, development rebate as well as brought forward losses. When company was not to pay any taxes due to losses of earlier years, there could be no mala fide intention for furnishing inaccurate particulars. Mr. Borad relied on CIT v. Jaora Oil Mill [1981] 129 ITR 423 (MP) for proposition that when assessed income is nil, there can be no levy of penalty for concealment. He further stated that penalty could not be levied on basis of certain observations in assessment order. For this proposition, he relied on CIT v. V.L. Balakrishnan [1981] 130 ITR 138 (Mad), Addl. CIT v. Noor Mohd. & Co. [1974] 97 ITR 705 (Raj.). Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) and Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC), and some Tribunal judgments. He, therefore, pleaded that penalty has been wrongly levied and orders must be quashed. 3. For department, Mr. S.S. Ruhela, submitted that omission of stocks was detected by ITO at time of assessment. company, during course of proceedings for assessment year 1971-72, volunteered that goods being purchased in 1970-71, stocks be included in assessment year 1970-71. This clearly proves mala fide intention of assessee and, therefore, has been rightly observed as furnishing of inaccurate particulars. Similarly, in next year also, ITO detected omission of stocks of value of Rs. 43,000. Mr. Ruhela further argued that in penalty matter, Tribunal cannot come to contrary view from one taken by it in quantum appeal. For this proposition, he relied on 110 ITR (Mad.) (sic). He also stated that penalty having been levied after 1-4-1976, Explanation 1 to section 271(1)(c) is attracted and, therefore, penalty has been rightly levied. For this, he relied on James Finlay & Co. Ltd. v. CIT [1983] 144 ITR 423 (Cal.). 4. We have heard parties. Basically, penalty for concealment can be levied only when there is any concealment; concealment always presupposes deliberate intention. All omissions need not be concealments, while all concealments are always omissions. This important distinction must always be borne in mind while deciding issue as to whether it is omission or concealment. term omission has been defined as something that has been left out or something that has been neglected, while concealment means to place something out of sight. In instant case, stock had been omitted due to (a) stock being valued as per balance shown in stock records; (b) neglect o f making entry in stock register of processed copper, when it was received in January 1970; (c) lack of proper care by stores in not comparing physical stocks into balance as per stock register; (d) care not being physical stocks into balance as per stock register; (d) care not being exercised by accounts department properly by making financial entry of goods having been issued for conversion; (e) care not being taken for examining and comparing income earned with materials purchased and issued. Had accounts department been more vigilant by recording financial entry in respect of goods which are issued to outsiders for conversion, this omission could have been avoided. omission could have come to light, had company made financial adjustment entry in year when processed goods were received. This lack of effective system and procedure has resulted in comedy of errors. error was, thus, unintentional and, therefore, not deliberate. ITO as well as Commissioner (Appeals) have failed to appreciate this factual position. We, therefore, are of view that this was purely mistake and not deliberate attempt to furnish inaccurate particulars or with view to conceal income. Explanation 1 to section 271(1)(c), effective from 1-4-1976, reads as under: " Where in respect of any facts material to computation of total income of any person under this Act,--- (A) such person fails to offer explanation or offers explanation which is found by Income-tax Officer or Appellate Assistant Commissioner or Commissioner (Appeals) to be false, or (B) such person offers explanation which he is not able to substantiate, then, amount added or disallowed in computing total income of such person as result thereof shall, for purposes of clause (c) of this sub- section, be deemed to represent income in respect of which particulars have been concealed. " We have already held earlier that stocks have come to be omitted by sheer mistake and there was no deliberate attempt. ITO had come to conclusion that there was deliberate attempt to conceal as it was at his instance, mistake came to be located. omission having happened due to lack of effective accounting procedures, it cannot be given colour of deliberation. explanation offered has also not been found to be false nor assessee had failed to substantiate explanation offered by it. We are, therefore, of view that Explanation 1 to section 271(1)(c) does not get attracted and, accordingly, we quash penalty imposed of Rs. 1,30,000 for assessment year 1970-71. 5. Assessment year 1971-72: In this year, facts are: (a) In quantum appeal, Commissioner (Appeals) had observed that: (i) assessee had conceded in writing that it has no objection to estimation of gross profit rate at rate of 14 per cent, as against declared gross profit rate at 7.72 per cent---addition made to trading account Rs. 1,04,950. (ii) Excess stock of 2,710 kgs. of copper was found in excess, which was taken at average purchase price of Rs. 18 per kg.---addition made undisclosed source Rs. 42,820 (sic). (b) In penalty appeal, Commissioner (Appeals) observed that: (i) Excise authorities had conducted search of premises and have found that records maintained by assessee as not reliable. (ii) Since assessee had not appealed to Tribunal against addition made to trading account and having promptly conceded to gross profit rate being adopted at 14 per cent for fear of further enhancement, it is thus obvious that rate applied by ITO is very reasonable. Since income assessed being more by 20 per cent than returned incomes, Explanation to section 271(1)(c) gets attracted, and assessee having not discharged his onus that difference is not due to any fraud, etc., he confirmed penalty of Rs. 1,04,950, which is equal to trading addition made. (iii) For excess stock found, assessee has stated that burning loss, etc., has not been considered, which explanation was found to be incorrect as stock was in excess and not short. amount added as undisclosed sources of Rs. 42,820 was also held as concealed and penalty to that extent was also upheld. (iv) Thus, total penalty levied of Rs. 1,50,000 was upheld. 6. Mr. Borad for assessee submitted as under: (i) There was no positive concealment of income. (ii) Various judicial pronouncements had held that routine trading additions cannot be basis for levy of penalty under section 271(1)(c). (iii) assessee had discharged his onus in explaining fall in gross profit by fact of increase in raw material prices, increase of discount allowed to buyers from five per cent to ten per cent and further entire sales are vouched and stock register maintained. (iv) excess stock arrived at by ITO is due to peculiar method of working. (v) assessee being company is artificial juridical person, is incapable of any conscious concealment of income or furnishing inaccurate particulars. (vi) penalty has been levied without full satisfaction of ITO. (vii) penalty, therefore, needs to be quashed. 7. Mr. Ruhela reiterated fact brought out by Commissioner (Appeals) as well as ITO and pleaded that penalty has been rightly levied. 8. We have heard parties. In this year, for two basic reasons of fact, penalty has been levied: (i) assessee-company conceding to gross profit rate of 14 per cent being applied to estimated sales of Rs. 16 lakhs which resulted in trading addition of Rs. 1,04,950. (ii) total of stocks of copper issued for manufacture and that on hand at year end was found to be more by 2,710 kgs. over to aggregate of opening stock and purchases. opening stock and purchases. 8.1 We shall take up penalty levied equal to quantum of trading addition. following question arises in this regard. Can it be said that duty and obligation of assessee in explaining fall in gross profit by mere reasons comes to end? answer is emphatically 'No'. assessee could have very easily substantiated increase in prices of raw materials purchased by furnishing statement showing comparative prices of two years along with quantities. statement would have brought out increase in prices, had (a) same quantity of materials as that of last year was purchased in year; and (b) increase in prices due to additional quantity purchased. sum total of (a) and (b) would indicate amount by which there would be reduction in gross profit. Similarly, statement of discount provided to buyers, would have shown (a) additional discount provided on same quantity of sales as of last year; and (b) and discount provided due to additional sales in year. sum total of (a) and (b) again would have indicated amount by which gross profit stands reduced. assessee, instead of carrying out its duties of putting facts properly either during course of assessment proceedings or penalty proceedings, points out legal proposition that penalty cannot be levied in respect of routine trading additions. It is beyond our comprehension that non-acceptance of results, as per accounts duly audited, could be termed as routine addition. trading addition cannot be routine addition at all in present case especially when addition has been conceded to by assessee. This tantamounts to acceptance of concealment or furnishing of inaccurate particulars of income. We, therefore, uphold penalty levied on this account. 9. As regards excess stock, we observe from order of Tribunal as well as of ITO that total quantity of opening stock and purchases are as under: Kgs. Opening stock (after including 9,149 kgs. of copper included as closing stock for 1970-71) 12,546.237 Purchases 70,405.800 --------------------------- 82,952.037 (A) --------------------------- total quantity of issues and closing stock is as under: Issues 47,550.960 Closing stock 38,111.916 --------------------------- 85,662.876 (B) --------------------------- (B) is excess over (A) by 2,710 kgs. What was asked from assessee was how total of issues and closing stock of raw material exceeded total quantity of opening stock and purchases of raw material? reply by assessee was that method adopted by ITO was peculiar and that he had failed to take note of burning wastage, transit loss, etc. Can it be said that explanation offered by assessee is reasonable or plausible? answer has to be 'No'. How can any one issue more quantity than what he has in stores? This can happen only in one situation, when purchases of materials are not recorded in books. Here again, company had failed to provide quantitative tally of materials stock on opening date purchases of year, issues for production and closing stocks with stock records and production records. Even before us, company has not made any effort in this regard from which only construction could be that company through its officers, who conduct its affairs, had deliberately furnished inaccurate particulars. penalty on this account is also upheld. total penalty levied of Rs. 1.50 lakhs is, therefore, confirmed. upheld. total penalty levied of Rs. 1.50 lakhs is, therefore, confirmed. 10. Penalty under section 273 for assessment year 1971-72: Mr. Borad submitted that imposition of penalty under section 273(1) of Rs. 2,600 for assessment year 1971-72, was as consequence of assessments made on income of Rs. 52,820 as against returned loss of Rs. 94,950. Penalty has been imposed for wrong filing of estimate for advance tax. loss has been turned into positive income due to additions made, which additions were unexpected of by assessee. estimate filed was on basis of assessee's records. Therefore, no penalty is leviable at all as income-tax becomes payable as consequence of additions only. 11. Mr. Ruhela for department submitted that assessee had conceded to trading addition of Rs. 1,04,950 and excess stock found could not be explained. This clearly establishes fact that assessee had filed wrong estimate and that penalty has been rightly imposed. 12. parties have been heard. Since this appeal follows penalty appeal under section 271(1)(c) for reasons recorded in paras 8, 9, 10 above, we hold that estimate filed was improper and inaccurate and, therefore, confirm t h e penalty of Rs 2,600. result is, that assessee's appeal for assessment year 1970-71 is allowed and that of 1971-72 is dismissed. *** BAITON CABLES (P) LTD. v. INCOME TAX OFFICER
Report Error