IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH, AHMEDABAD

ITA No.811/Ahd/2012 Assessment Year: 2005-06
M/s. Cera Sanitaryware Ltd (Appellant) vs Dy. Commissioner of Income-tax (OSD) (Respondent)
Date of Order : 06-11-2015

ORDER

Per Pramod Kumar AM:
1. By way of this appeal, the assessee appellant has challenged correctness of learned CIT(A)’s order dated 3rd February 2010, upholding penalty of Rs.15,22,969/- imposed on the assessee under section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2005-06. Grievance of the assessee, in substance, is that learned CIT(A), on the facts and in the circumstances of the case, erred in confirming the impugned penalty.

2. The relevant material facts are as follows. During the course of assessment proceedings, the Assessing Officer made, inter alia, the following additions:-

(i) Difference in stock as per bank statement                           8,85,620/-
     vis-a-vis books of the assessee
(ii) Depreciation on Bangalore display unit                                   53,348/-
(iii) Write off of advances                                                         32,23,000/-

3. It was in this backdrop that the Assessing Officer required the assessee to show cause as to why penalty under section 271(1)(c) not be imposed by treating the above income as concealed income and the income for which inaccurate particulars are filed in respect of which no explanation has been given by the assessee. It was submitted by the assessee that the penalty proceedings be kept in abeyance till the disposal of related appeal by the Tribunal. This plea was rejected by the Assessing Officer. He thus proceeded to impose the penalty, and, while doing so, he also observed as follows:-

“The submission of the assessee in respect of the merits of the undisclosed investment in stock, depreciation on display centre and write off of advances has already been examined and adjudicated upon in the assessment and the order of the CIT(A). In view of the same, there is no need of fresh comments on the contentions forwarded by the assessee in this respect of these issues.”

4. The Assessing Officer then proceeded to set out the reasons as to why penalty should be imposed on facts of this case. He noted that the assessee has shown less value of stocks than the value stated in the accounts, and since the correct facts were in his knowledge, he ought to have set out the same in the income tax return. He further noted that the assessee had claimed write off of capital advances which were patently inadmissible. This claim of deduction was thus treated as furnishing of inaccurate particulars. As for the depreciation claim on display unit in Bangalore, since related penalty stands deleted, it is not really necessary to deal with the observations in detail. Aggrieved by the penalty so imposed assessee carried the matter in appeal before the CIT(A) but without complete success. Confirming the penalty in respect of addition for difference in bank statement vis-a-vis books of accounts and in respect of write off of debts, learned CIT(A) observed as follows:-

“As regard penalty on difference between book stock and bank stock, it was specifically asked to the counsel of the appellant whether the difference is on account of value or quantity. Appellant’s counsel could not explain the difference on account of higher valuation of stock given to the bank. There are several decisions in which it is held that if the quantity disclosed to the bank is more, it amounts to unexplained stock and addition on account of the same is justified. Since appellant was not able to explain the difference in stock with proper explanation, the addition is deemed to be concealed income as per explanation 1 to section 271(1)(c) of IT act. Again it is not the case of two opinions. Penalty levied by the assessing officer on this addition is accordingly confirmed.
Penalty levied by the AO on appellant's claim of business loss on writing off of capital advances is elaborately discussed in the penalty order. Appellant advanced to a company for possible tie-up, This advance was not made for the purpose of appellant's existing business. Even this advance was not given in the course of carrying on of appellant's existing business. In view of this, such loss can never be considered as business loss. Despite the fact that such loss had nothing to do with appellant's business, appellant still claimed this loss. This is nothing but furnishing of inaccurate particulars of income. Appellant is not able to justify its claim of business loss by any explanation and therefore this is also deemed concealment. The decisions relied upon by the appellant are not applicable to the facts of this case. Appellant claimed patently not allowable claim for which it does not have any explanation. How any advance given for new business to be set up by another company can be business loss of the appellant during the year? If the assessment would not have been in the scrutiny, appellant would have evaded taxes by making such a wrong claim. Therefore the decisions do not help the appellant in getting away from making such a wrong claim. Accordingly, I confirm the penalty levied by the assessing officer of this addition also. In the final result appeal is dismissed.”

5. The assessee is aggrieved and is in further appeal before us.

6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.

7. We find that so far as addition in respect of difference in value of stock in stock statement vis-a-vis accounts of the assessee is concerned, it proceeds on the basis that difference between these two figures represents concealed income. That view is not entirely free from doubt as it is a ground reality that bank statements at times reflect inflated value of stocks so as to avail higher credit limits. There is nothing more than bank statement figure which is put against the assessee. Whatever be the merits of upholding addition on such facts, in our considered view, an addition of this nature cannot be visited with penalty proceedings. Hon’ble jurisdictional High Court’s judgment, in the case of CIT Vs Sachidanand Pulse Mills [(2013) 39 taxman.com 159 (Guj.)] holds so. As for the penalty in respect of declining deduction for write off of Rs.32,23,000/- due to joint venture having been aborted, we find that the Tribunal has confirmed the quantum addition. While doing so, the Tribunal, vide order dated 22.02.2013, had observed that “the resolution also passed after the financial year by the appellant and no copy of MOU dated 15.11.2003 has been furnished before any of the authorities below”. The aspect regarding joint venture having been aborted was rejected on technical grounds. Such a loss, if it is indeed found to be on aborted joint venture, is generally allowable. It is also important to bear in mind that the AO did not even bother to given an opportunity of hearing because, as it appears from his observations extracted earlier in the order, he was of the view that findings in the assessment proceedings were good enough for imposing penalty as well. That is clearly an erroneous approach. In view of these discussions, the penalty in respect of write off of Rs.32,23,000/- was not justified either. The penalty in respect of depreciation already stands deleted and the AO is not in appeal. For all these reasons, as also bearing in mind entirety of the case, we deem it fit and proper to delete the impugned penalty. The assessee gets the relief accordingly.

8. In the result, the appeal is allowed. Pronounced in the open Court on this 6th day of November, 2015.

    Sd/-                                  Sd/-
Kul Bharat                                Pramod Kumar
(Judicial Member)                    (Accountant Member)