Jagdamba Sahakari Sakhar Karkhana ... vs Assessee

Jagdamba Sahakari Sakhar .......... अपीलाथ / Karkhana Limited, Appellant A/P. Rashin, Taluka Karjat, Dist : Ahmednagar PAN No.AAAAS3208H

बनाम v/s

ACIT, Ahmednagar Circle, Ahmednagar .......... यथ / Respondent

अपीलाथ क ओर से / Appellant by : None यथ क ओर से / Department by : Shri B.C. Malakar P. Singh

सन ु वाई क तार ख / घोषणा क तार ख / Date of Hearing : 09.07.2015 Date of Pronouncement: 10.07.2015

आदे श / ORDER

PER R.K. PANDA, AM :

This appeal filed by the assessee is directed against the order

dated 09-02-2012 of the CIT(A)-I, Pune relating to Assessment Year

1989-90.

2. This appeal was first fixed for hearing on 01-10-2013. At the

request of the Ld. Counsel for the assessee Shri Pramod Shingte the

hearing of the case was adjourned to 19-12-2013. Since on 19-12-

2013 the bench did not function the case was adjourned to 05-03- 2 ITA No.1690/PN/2012

2014. On 05-03-2014, at the request of the Ld. Counsel for the

assessee the hearing of the case was adjourned to 25-03-2014. On

25-03-2014 the case was adjourned to 02-07-2014. On 02-07-2014 at

the request of the Ld. Counsel for the assessee the hearing of the case

was adjourned to 08-10-2014. On 08-10-2014 the case was again

adjourned to 02-02-2015. On 02-02-2015 the Ld. Counsel for the

assessee sought adjournment on the ground that the quantum

appeals are pending, accordingly the hearing of the case was

adjourned to 27-04-2015. On 27-04-2015 nobody appeared on behalf

of the assessee for which the hearing of the case was adjourned to 09-

07-2015 by issue of notice through RPAD which was duly served on

the assessee and the acknowledgement is placed on record. When the

name of the assessee was called none appeared on behalf of the

assessee. It is seen from the record that nobody has appeared before

the CIT(A) also for which he has passed an exparte order. Accordingly,

the appeal is being decided on the basis of material available on record

and after hearing the Ld. Departmental Representative.

3. Levy of penalty of Rs.44,53,000/- u/s.271(1)(c) of the I.T. Act is

the only issue raised by the assessee in the grounds of appeal.

4. Facts of the case in brief are that the assessee society filed its

return of income on 31-10-2009 declaring loss of Rs.1,26,90,560/-.

The AO passed the order u/s.143(3) on 10-03-2013 after making

various additions against which the assessee went in appeal. The

CIT(A) vide order dated 03-11-1995 granted part relief against which

the assessee as well as the revenue preferred appeal before the

Tribunal. The Tribunal decided the appeals on 26-07-2001 and 20-

09-2001 by restoring some of the issues to the file of the AO for further 3 ITA No.1690/PN/2012

verification and order. Accordingly, the AO passed the order

u/s.143(3) r.w.s. 254 on 20-03-2003 in which addition of

Rs.1,90,32,050/- for sale of bagasse outside books of accounts and

Rs.9,62,150/- for shortage of molasses were made. The AO thereafter

initiated penalty proceedings u/s.271(1)(c) of the IT. Act while giving

appeal effect to the order of the Tribunal. Rejecting the various

explanations given by the assessee the AO levied penalty of

Rs.44,53,000/- being 100% of tax sought to be evaded u/s.271(1)(c) of

the IT. Act. While doing so, he observed that the assessee was unable

to explain the shortage of molasses found during the assessment

proceedings and the sale of bagasse made outside books of account.

5. The assessee preferred an appeal before the CIT(A). Despite

service of notice given for a number of times none appeared before the

CIT(A) on behalf of the assessee. However, a written submission dated

12-05-2009 was filed. Considering the non-appearance of the

assessee and the written submission filed before him earlier the CIT(A)

confirmed the penalty levied by the AO by observing as under :

"6.1. I have carefully considered the facts of the case and the law and also the material available on record. The relevant details in respect of the above appeal have already been given in the earlier paragraphs. The only issue which is available for adjudication is in respect of penalty levied u/s 271(1)(c) of the IT. Act at almost the minimum rate of @100% of the tax sought to be evaded in this assessment year. The brief facts are that the appellant company had filed its return of income at loss of Rs.1,26,90,560/- on 31-10-1989 (as noted in the penalty order). The original assessment was completed on 10.3.1992 after making various additions, against which the appellant had gone in appeal. The Assessing Officer also had initiated penalty proceedings u/s 271(1)(c) of the IT. Act. The Ld. CIT(A), Nasik before whom the appeal was filed [decided the appeal on 3.11.1995 granting part relief. Department as well as the appellant went in appeal before the ITAT and both these appeals were decided on 26.7.2001 and 20.9.2001. Some of the issues in both these orders were restored to the Assessing Officer for further verification and order. The Assessing Officer completed the order u/s 143(3) r.w.s. 254 on 20.3.2003 and in aforesaid order additions of Rs.1,90,32,050 for sale of bagasse outside books of accounts and Rs.9,62,150 for shortage of molasses, were made. Penalty u/s 271(1)(c) was again initiated while 4 ITA No.1690/PN/2012

giving the appeal effect to the order of the ITAT. In response to the said notice u/s 271(1)(c), the appellant company requested to keep the penalty proceedings in abeyance on the ground that appeal was filed again with CIT(A)-I, Pune. The Assessing Officer kept the penalty proceedings under absence till finalization of the appeal by CIT(A)-I vide order No. Pn/CIT(A)-l/AC Cir.AN/36/03-04 dated 21.2.2005. Notice was again issued by the Assessing Officer on 17.2.2006 by the registered post but the same was returned as none received the notice. The Assessing Officer took the service as valid and decided the penalty on the materials available before him. The Assessing Officer noticed that the addition of Rs. 1,19,32,050 was for the income concealed on sale of bagasse made outside books of accounts and similarly, the another addition of Rs.9,62,150 was for not being in a position to explain the shortage of molasses found during the assessment proceedings. In view of this materials available before him, the Assessing Officer levied the penalty u/s 271(1)(c) r.w. Explanation 1 of section 271(1)(c). However, he has decided to levy almost the minimum of the penalty leviable u/s 271(1)(c) of the IT. Act. The detailed discussions made by the Assessing Officer in the penalty order can be seen from the earlier paragraph. Appellant has not made any compliance in response to the notice issued on 3.1.2012 fixing the compliance on 19.1.2012, however, the materials submitted by the appellant vide their letter dated Nil filed on 12.5.2009 were considered. It is noted from the materials placed on record that the appellant has sought to explain the difficulty it has been facing in running the factory due to short supply of raw materials and also by placing on record materials to explain the additions made for bagasse and shortage of molasses. No doubt it is an established fact that assessment proceedings and penalty proceedings are separate but in the present case it is evident that the additions are of income kept outside books of accounts, for which no explanation or evidence were available during assessment or even during the penalty levied by the Assessing Officer. Therefore, any evidence or claim now being made to explain the basis of additions, has to be treated as an afterthought, which cannot be accepted.

6.2. On careful consideration of the facts of the case and the law, it is seen that the penalty u/s.271(1)(c) was imposed in the present case in respect of additions made for unaccounted income from sale of bagasse and also for unexplained shortage of molasses stock found during assessment. On that basis the Assessing Officer has concluded that the appellant has concealed its income and therefore, to that extent furnished inaccurate particulars of income. The Assessing Officer therefore has also invoked Explanation 1 to sec. 271(1)(c) for levying the penalty. Sec. 271(1)(c) of the IT. Act provides for imposition of penalty when the assessee has concealed income or when the assessee has furnished inaccurate particulars of income. As the Courts required the Department to not only prove the concealment and/or filing of inaccurate particulars of income but even the existence of mens rea, the legislature amended the provisions to relieve the revenue from the burden of proving the mens rea in certain cases as defined in different explanations introduced in this section from time to time. The explanations created rebuttable presumption of concealment/ filing of inaccurate particulars on the assessee to establish that it should not be deemed to have conceal the income or file inaccurate particulars of income. One such a deeming fiction exists under Explanation 1 to sec.. 271(1)(c). This Explanation envisages two situations--(a) first, where in respect of any facts material to the 5 ITA No.1690/PN/2012

computation of total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the AO or the CIT(A); and (b) second, where in respect of any facts material to the computation of total income under the provisions of this Act, the assessee is not able to substantiate the explanation and the assessee fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by the assessee. In the first situation, the deeming fiction is triggered by the inaction of the assessee by his not giving the explanation with respect to any fact material to the computation of total income, or by action of the AO or the CIT(A) by giving categorical finding to the effect that the explanation given by the assessee is false. In the second situation, the deeming fiction is triggered by the failure of the assessee leading to satisfaction of conditions laid down in cl. (B) of Explanation'1 namely that the assessee is not able to substantiate an explanation in respect of any fact material to the computation of total income, and the assessee is also not able to prove that such explanation was bona fide and all the facts relating to the same and material to the computation of total income have been disclosed by the assessee.

When this deeming fiction comes into play, which can only happen in one of the above situations, the related addition or disallowance made in computing the total income of the assessee, for the purposes of s. 271(1)(c), is deemed to represent the income in respect of which inaccurate particulars have been furnished. Thus, it is by virtue of Explanation 1 to sec. 271(1)(c) only that the Assessing Officer has been given a right to raise a presumption to deem certain sum added to income or disallowed in computing the income of a person, to represent the income in respect of which particulars have been concealed, if the assessee did not furnish an explanation or when explanation furnished was found to be false; and also when such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. The penalty under sec. 271(1)(c) is a penalty for concealment of income or for furnishing of inaccurate particulars, or, under the extended definition by the virtue of Expln.

1 to sec. 271(1)(c), for a deemed concealment of income. As a corollary to this legal position, unless it is established that there is concealment of income or furnishing of inaccurate particulars or it is established that, on the facts of the case, concealment of income can be deemed in accordance with the provisions of the Explanation, penalty cannot be imposed under section 271 (1)(c).

6.2. The facts of the present case are now tested vis-a-vis the above legal position to examine whether the present case is covered under the main part of the provisions or under the deeming provisions of Explanation 1 of section 271(1)(c) or not.

6.3. The necessary precondition for imposition of penalty under the main provisions of sec. 271(1)(c) is that the A.O. should satisfy himself that the appellant concealed its income or furnished inaccurate particulars of income. The expression 'concealment of income1 has not been defined in the Act, but the natural meaning of the expression 'concealment' is to keep from being seen, found, observed, or discovered'. It would, therefore, follow that the expression concealment of income, in its natural sense and grammatical meaning, implies an income which is being hidden, 6 ITA No.1690/PN/2012

camouflaged or covered up so that it cannot be seen, found, observed or discovered. In the present case, the Assessing Officer, has found during the assessment proceeding that the appellant has sold bagasse outside books of accounts and has no explanation for the shortage of molasses found during the scrutiny of the books. Therefore, it is apparent that the Assessing Officer has been able to fulfill the conditions prescribed in the main sec, 271(1)(c). Despite that the Assessing Officer has also invoked Explanation 1, to strengthen the penalty order and to plug any escape route that the appellant may try to find to escape from the levy of penalty. From the facts of the case it is apparent that the appellant had no explanation for either of the two additions made by the Assessing Officer during the two cycles of assessment and appeal through which this assessment order of A.Y. 1989-90 has passed through. The submissions; made by the appellant during appeal to claim that the bagasse was used to run the boiler on the basis of certain documents created by appellant itself cannot be accepted in the facts of this case. Such self serving evidences/ explanations at this late stage, can even be not considered for verification. The appellant can also be considered to have failed to have any acceptable explanation for the additions made and therefore, Explanation 1 also can be considered to be applicable in the facts of this case. For the above reason, Ground No. 1 of the appellant has to be dismissed. The decision of the Supreme Court given in the case of Dharmendra Textile Processors, even after the clarifications given in the case of Reliance Petro Products Ltd., can be considered to be applicable in this case, on the basis of which the penalty can be held to have been correctly levied. Ground No. 1 is dismissed.

6.4. The appellant in their submissions has also claimed that the penalty is not leviable as per the ratio of the decision given by the Hon'ble Supreme Court in the case of Virtual Soft System Ltd. (2007) 289 ITR 83 (SC). The claim of the appellant is that the appellant had no positive income or taxable income in this year and in the absence of the same penalty cannot be levied. This aspect of the claim of the appellant was also considered. It is noted that the Courts have taken divergent views on this issue. Different Courts including the P&H High Court in the case of CIT.Vs. Prithpal Singh & Co. (1990) 183 ITR 69 (P&H) has held that the penalty cannot be levied in the case where the return income is at loss. However, divergent views were taken by other Courts including Kerala High Court in the case of CIT Vs. India Seafoods (1976) 105 ITR 708 (Ker). In this case the Kerala High Court while dealing with a case where the final income was a loss, upheld the levy of penalty with reference to the law as it stood in 1968, even when there was no Explanation 4. It was held that the Explanation is clarificatory in nature. This view was again followed by the Kerala High Court in the case of CIT Vs. Rowther Bros. (1979) 119 ITR

353. Though the decision of the P&H High Court was given without considering the decision of the Kerala High Court as to the effect of the change brought about in the law in 1968 or the Explanation introduced later but this view was more or less affirmed by the Supreme Court in Prithpal Singh & Co. (2001) 249 ITR 670 (SC). However, the Supreme Court in the case of Virtual Soft System Ltd. Vs. CIT, quoted above, considered the different aspects of this issue in detail and it has been upheld that the rule of Prithpal Singh & Co.'s case should apply for years prior to A.Y. 2003-04 where there is no positive total income even after additions. This amendment brought by Finance Act 2002 was held to be prospective in nature, applicable from A.Y. 2003-04. The notes and clauses 7 ITA No.1690/PN/2012

issued to claim that the amendment is clarificatory or declaratory in nature was not accepted. After this judgment of Hon'ble Supreme Court, it is now understood that no penalty can be levied where the loss is overstated upto A.Y. 1976-77. After the amendment made in 1976, if the loss get; converted into a positive income, the penalty can be held leviable as per the decision of the Modi Cement Ltd. Vs. Union of India (1972) 193 ITR 91 (Del). From A.Y. 2003-04 penalty can be levied even if the loss is over stated, irrespective of the fact whether the final outcome is a loss; or a income. In the present case, apparently the return was filed at a loss and the final assessed income became positive after the additions. In view of the above, since the case of the appellant is falling in A.Y. 1989-90, the penalty is required to be upheld in view of the decision of the Modi Cement Ltd., quoted supra. The finding of the Supreme Court given in the case of Virtual Soft System Ltd. will not apply in the sense has been claimed. For the reasons discussed, even on this consideration the Ground No. 1 of the appellant cannot be allowed and is treated as dismissed."

6. Aggrieved with such order of the CIT(A) the assessee is in appeal

before us.

7. We have heard the Ld. Departmental Representative and

perused the material on record and find no infirmity in the order of the

CIT(A) sustaining the penalty levied by the AO u/s.271(1)(c) of the IT.

Act. It is an admitted fact that in the instant case the assessee has

sold bagasse outside books of account amounting to Rs.1,19,32,050/-.

Similarly, the assessee was also unable to explain the shortage of

molasses stock at Rs.9,62,150/-. The explanation of the assessee

before the CIT(A) that assessee was facing difficulty in running the

factory due to short supply of raw materials in our opinion cannot be a

ground for making sales outside the books of accounts and non

submission of details for shortage of molasses stock. Since the order

of the CIT(A) in our opinion is a reasoned one which has been

reproduced in the preceding paragraphs, therefore, we find no

infirmity in the order of the CIT(A) confirming the levy of penalty

u/s.271(1)(c) of the IT. Act. Accordingly, the same is upheld and the

grounds raised by the assessee are dismissed.

8 ITA No.1690/PN/2012 8. In the result, the appeal filed by the assessee is dismissed.

Order pronounced in the open court on 10-07-2015.

Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) या!यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER

iq.ks Pune; दनांक Dated : 10th July, 2015. lrh'k

आदे श क' (!त*ल प अ+े षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant 2. यथ / The Respondent 3. आयकर आय$ ु त(अपील)-I, iq.ks / The CIT(A)-I, Pune 4. आयकर आय$ ु त-I, iq.ks / The CIT-I, Pune 5. 'वभागीय *त*न+ध, आयकर अपील य अ+धकरण, "बी" iq.ks / DR, ITAT, "B" Pune; 6. गाड/ फाईल / Guard file.

आदे शानस ु ार/ BY ORDER,

स या'पत *त //True Copy//

स या'पत *त //True Copy// व1र2ठ *नजी स+चव / Sr. Private Secretary आयकर अपील य अ+धकरण, iq.ks / ITAT, Pune