IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. 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 MITTAL HON'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 and 472 of 2007, filed by the revenue under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as `the Act'), which are arising from the common order dated 19.3.2007, passed by the Income Tax Appellate Tribunal, Chandigarh, Bench `B', Chandigarh (hereinafter referred to as `the ITAT'), passed in ITAs No. 234 and 235/CHANDI/2006, in case of the assessee for the Assessment Years 1992-93 and 1993-94, respectively. In both these appeals, the following substantial question of law has been raised for consideration of this Court:- ITA No. 470 of 2007 -2- Whether on the facts and in the circumstances of the case, the ITAT was right in law in deleting the penalty imposed under Section 271 (1) (c) of the Income Tax Act ignoring its own finding of the fact that the assessee had concealed its income by not recording certain sales which were evident from the invoices and G.Rs found and seized? In both these appeals, common issue is involved which revolves around the penalty levied by the Assessing Officer under Section 271 (1) (c) of the Act, which has been confirmed by the Commission of Income Tax (Appeals) [hereinafter referred to as `the CIT (A)]. The facts are being taken from ITA No. 470 of 2007. For the assessment year 1992-93, the assessee filed return of income on 30.12.1992 showing income of Rs. 65,18,970/-. The return was duly verified by one of the Directors of the Company and was accompanied by copies of profit and loss account, Trading Account and Balance Sheet and other annexures duly audited by a Chartered Accountant. During the assessment proceedings, the Assessing Officer came to know that the Central Enforcement Wing of Excise & Taxation Department carried out inspection of the business premises of the assessee on 23.1.1993 and seized certain documents. On scrutiny of those documents, the Assessing Officer noticed that in one invoice book containing five sale vouchers, original copies of four bills were found torn and the duplicate and triplicate copies were available. By taking into consideration the said material and the ITA No. 470 of 2007 -3- statement of the Director of the Company, the Assessing Officer arrived at a conclusion that the books of accounts of the assessee were not reliable and did not reflect its true income. Accordingly, the Assessing Officer rejected the accounts of the assessee and concluded that the assessee had made unaccounted sales. While completing the assessment, the Assessing Officer, in order to arrive at the quantum of such unaccounted sales, extrapolated the average sale price in 4 invoices to 53 invoices and proceeded to make an addition of Rs. 66,16,865/-. The said order passed by the Assessing Officer was challenged by the assessee in appeal before the CIT (A), who endorsed the conclusion that the assessee had made un-accounted sales and was indulged in sales outside the books of account. The CIT (A), therefore, proceeded to apply yield of 93.13% shown by the assessee in the immediately preceding year as against the yield of 92.57% shown by the assessee for the year under consideration. Accordingly, the addition of Rs.15,50,000/- was made. The assessee challenged the said order passed by the CIT (A) before the ITAT, who vide its order dated 11.7.2003 upheld the order of the CIT (A) and the addition sustained by the CIT (A) was confirmed. Subsequently, the Assessing Officer on the basis of the addition having been confirmed, issued notice under Section 271 (1) (c ) of the Act for imposing penalty for concealing of income in respect of additions made on account of un-accounted sales. The Assessing Officer, while rejecting the contentions of the assessee that the penalty proceedings ITA No. 470 of 2007 -4- are distinct and separate from assessment proceedings, therefore, the conclusion of the findings in assessment proceedings were not conclusive for penalty proceedings; that there was no evidence of any goods having moved from assessee's premises; no discrepancy had been found in the books of account; the fact that there was no finding that the invoices seized by the Sales Tax authorities were made by the management; and that the income in respect of alleged sales had been earned by the assessee and there was no evidence of any actual funds being received by the assessee in respect of those sales, came to the conclusion that that the assessee had unaccounted sale amounting to Rs.15,50,306/- and on this income, the assessee evaded a tax of Rs.7,84,170/-. Accordingly, the penalty equivalent to the tax evaded was levied. The assessee filed an appeal against the said order before the CIT (A), which was dismissed. Feeling aggrieved against the said order, the assessee filed an appeal before the ITAT, which was allowed and the penalty levied by the Assessing Officer and confirmed by the CIT (A) was deleted, while observing as under : “In the present case, it is not in dispute that the addition had been made by the Assessing Officer by estimating the sales outside the books of account. Ld. CIT (A) estimated the yield and worked out the additional production, on this estimated additional production, he applied average sale rate and worked out the additional sale at Rs. 15,50,306 which was rounded off ITA No. 470 of 2007 -5- to Rs. 15,50,000 and added to the income of the assessee. The ITAT also estimated the yield on the basis of preceding year and the addition made by the Ld. CIT (A) had been sustained. It is true that the assessment proceedings and penalty proceedings are two different and distinct proceedings. It is also well settled that the addition made in assessment proceedings can be material but not a conclusive and concrete evidence that the assessee, in fact, had concealed the particulars of income or furnished inaccurate particulars of income to the extent of the addition made. In the present case, the addition had not been made on the basis of alleged sales outside the books of account but the addition had been sustained by estimating the yield on the basis of yield of preceding year. It is true that the yield in a particular year depends upon many factors like quality of raw material, weather condition, condition of machinery, skill of workers and proper management etc. So, it is very rare when the yields for two different years remain identical. 9.1 As regards to the issue relating to making the addition is concerned, no one will disagree that the fair and reasonable estimate can be made when the books are not showing true picture. However, for levying the penalty, there should be conclusive evidence that the assessee had concealed the particulars of income or furnished inaccurate particulars of ITA No. 470 of 2007 -6- income. In the present case the Assessing Officer made the addition by estimating the sales outside the books of account, the estimate was made only on the basis that in one “invoice book” original copies of the invoices in respect of four invoices were not available. However, no evidence was brought on record that the assessee vide those invoices made the sales outside the books of account. It was also not brought on record that if any sale was outside the books of account to whom that sale was made. It is true that the circumstances were such that some sales might have been made outside the books of account, however, there was no conclusive evidence that the sales estimated by the Assessing Officer to the extent of Rs.66,16,865 were made outside the books of account and to that extent the assessee earned income outside the books of account. For that reason, the Ld. CIT (A) estimated the addition to the extent of Rs. 15,50,000, the ITAT confirmed the addition by taking into consideration the yield of preceding year vis-a- vis the yield of the year under consideration. So, it cannot be held that there was conclusive evidence that the assessee, in fact, concealed the income to the extent of the addition sustained by the ITAT.” We have heard counsel for the appellant and have gone through the impugned order. ITA No. 470 of 2007 -7- The order passed by the ITAT is based upon two decisions of this Court in CIT v. Ravail Singh & Co. (2002) 254 ITR 191 and Hari Gopal Singh v. CIT (2002) 258 ITR 85. In both these decisions, this Court has held that in order to attract clause (c) of Section 271 (1) of the Act, it is necessary that there must be concealment by the assessee of the particulars of his income or furnishing of inaccurate particulars of such income. The provisions of Section 271 (1) (c) of the Act are not attracted to cases where the income of an assessee is assessed on estimate basis and additions are made therein. It was held that when the addition had been made on the basis of estimate and not on account of any concrete evidence of concealment, then the penalty was not leviable. The similar view was also taken by this Court in CIT v. Dhillon Rice Mills, (2002) 256 ITR 447, where the addition was made by the Assessing Officer by estimating the yield of super phak as well as of chhilka and also the price of chhilka, that addition was reduced by the CIT (A). However, the penalty levied by the Assessing Officer was deleted by the CIT (A). The order of CIT (A) was confirmed by the ITAT and the appeal filed by the revenue against the said order of the ITAT was dismissed by this Court, on the ground that the Assessing Officer had made the additions on the basis of estimate of the yield of phak and chhilka and an estimate of the price and that the estimate would not ipso-facto lead to penalty. In view of the aforesaid factual and legal position, we are of the opinion that no substantial question of law is arising from the order passed ITA No. 470 of 2007 -8- by the ITAT. Dismissed. ( SATISH KUMAR MITTAL ) JUDGE February 19, 2008 ( RAKESH KUMAR GARG ) ndj JUDGE