IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI T.K. SHARMA (JM) AND SHRI A.L. GEHLOT ( AM) I.T.A. NO.370/RJT/2007 (ASSESSMENT YEAR 1998-99) DY.CIT, CIR.1 VS M/S BACKBONE PROJECTS LTD RAJKOT EKTA HOUSE, JALARAM SAURASHTRA UNIVERSITY ROAD RAJKOT PAN : AABCB1582E (APPELLANT) (RESPONDENT) DATE OF HEARING : 04-11-2011 DATE OF PRONOUNCEMENT : -12-2011 REVENUE BY : SHRI AVINASH KUMAR ASSESSEE BY : SHRI DM RINDANI O R D E R PER T.K. SHARMA (JM) THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DA TED 30-03-2007 PASSED BY THE CIT(A)-I, RAJKOT CANCELING PENALTY OF RS. 13 ,27,306 FOR THE ASSESSMENT YEAR 1998-99. 2. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE IS A COMPANY. THE ASSESSING OFFICER, VIDE ORDER DATED 20/10/2006 LEVI ED THE PENALTY OF RS. 13,27,306 U/S 271(1)(C) IN RESPECT OF ADDITION TO T HE EXTENT OF RS.39,81,918 CONFIRMED BY TRIBUNAL IN RESPECT OF NET ADDITION RE LATING TO WORK IN PROGRESS. ON APPEAL, THE LD.CIT(A)-I, RAJKOT VIDE ORDER DATED 30 /03/2007 CANCELLED THE PENALTY FOR THE DETAILED REASON GIVEN AT PARAGRAPH 3.3 WHIC H READS AS UNDER: ITA NO.370/RJT/2007 2 3.3 I HAVE GONE THROUGH THE FACTS OF THE CASE AND HAVE CONSIDERED THE SUBMISSION MADE BY THE AR. THE ASSE SSING OFFICER HAS CONSIDERED THE FACT THAT THE WORK DONE AFTER IS SUE OF LAT RA BILL IS COVERED IN THE FIRST RA BILL RAISED IN THE NEXT FOLLOWING YEAR. THE CIT(A) HAS, WHILE DECIDING THE QUANTUM APPEAL, CONS IDERED THE VERY FACT AND DIRECTED TO EXCLUDE GP MARGIN FROM TH E PROPORTIONATE VALUE OF WORK-IN-PROGRESS DETERMINED ON THE BASIS O F FIRST RA BILL RAISED IN SUBSEQUENT ACCOUNTING YEAR. APPARENTLY, THE VALUE OF WORK-IN-PROGRESS HAS BEEN INCLUDED IN THE FIRST RA BILL RAISED IN THE NEXT FOLLOWING YEAR AND SO ON. FURTHER, SUCH PROPO RTIONATE VALUE IS DETERMINED ON THE BASIS OF LAST RA BILL RAISED IN T HE NEXT FOLLOWING YEAR. THERE IS NO ELEMENT OF FURNISHING INACCURATE PARTICULARS OF INCOME. HONBLE KERALA HIGH COURT IN THE CASE OF C IT VS. PAWAN KUMAR DALAMIA (1987) 168 ITR 1 (KER) HAS HELD THAT THE WORD CONCEALMENT IN LAW MEANS THE INTENTIONAL SUPPRESS ION TO TRUTH OR FACT KNOWN TO THE JURY OR PREJUDICE OF ANOTHER. TH E OFFENCE OF CONCEALMENT IS A DIRECT ATTEMPT TO HIDE AN ITEM OF INCOME OR A PORTION THEREOF FROM THE KNOWLEDGE OF THE INCOME-TA X AUTHORITIES. THE ASSESSING OFFICER HAS FALL BACK ON THE FINDINGS LEVELED IN THE ASSESSMENT ORDER. IN THE CASE OF CIT VS ANVAR ALI (1970) 76 ITR 696 (SC), IT HAS BEEN HELD THAT THE FINDING GIVEN I N THE ASSESSMENT PROCEEDINGS FOR DETERMINING OR COMPUTING THE TAX IS NOT CONCLUSIVE. HOWEVER, IT IS GOOD EVIDENCE. BEFORE PENALTY CAN B E IMPOSED THE ENTIRETY OF CIRCUMSTANCES MUST REASONABLY POINT TO THE CONCLUSION THAT THE DISPUTED AMOUNT REPRESENTED INCOME AND THA T THE ASSESSEE HAS CONSCIOUSLY CONCEALED THE PARTICULARS OF INCOME OR HAS DELIBERATELY FURNISHED INACCURATE PARTICULARS. IN THE CASE OF K.C. BUILDERS VS. ACIT (2004) 265 ITR 562 (SC), THE PROPOSITION IS LAID DOWN THAT THE CONDUCT MUST BE CONSCIOUS. THE VERY INGREDIENTS ARE MISSING IN THE CASE OF APPELLANT. THE APPELLANT WAS ENTITLED TO HOLD A BONA FIDE BELIEF THAT THE UNCERT IFIED WORK-IN- PROGRESS WAS NOT LIABLE TO BE TREATED AS A TAXABLE ITEM, SINCE IT WAS REFLECTED IN THE NEXT FOLLOWING YEAR. THE APPELLAN T CANNOT BE HELD TO BE GUILTY OF ANY CONTUMACIOUS CONDUCT OR ANY GROSS OR WILLFUL NEGLECT SO AS TO BE VISITED WITH PENALTY OF CONCEAL MENT. THE LEVY OF PENALTY IS UNJUSTIFIED ON FACTS AND IN LAW. THE PE NALTY IS CANCELLED. THE GROUND OF APPEAL IS ALLOWED. 3. ON FURTHER APPEAL BY THE REVENUE, THE TRIBUNAL V IDE ORDER DATED 19 TH DECEMBER, 2008 FOLLOWING THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF UOI VS DHARMENDRA TEXTILE PROCESSORS & ORS REPOR TED IN 306 ITR 277 (SC) ITA NO.370/RJT/2007 3 RESTORED THE ORDER OF THE ASSESSING OFFICER LEVYING THE PENALTY OF RS. 13,27,306 U/S 271(1)(C) OF THE ACT. 4. AGAINST THE AFORESAID ORDER OF THE TRIBUNAL, THE ASSESSEE PREFERRED AN APPEAL U/S 260 (1) OF THE ACT. THE HONBLE GUJARAT HIGH COURT, VIDE ORDER DATED 14-02-2011 IN TAX APPEAL NO.999 OF 2009 QUASHED AND SET ASIDE THE ORDER OF TRIBUNAL AND RESTORED THE ITA NO.370/RJT/2007 TO TH E FILE OF THE TRIBUNAL FOR DECIDING THE SAME AFRESH IN ACCORDANCE WITH LAW. I N PURSUANCE OF THIS ORDER OF THE HONBLE GUJARAT HIGH COURT WE PROCEED TO DECIDE THIS APPEAL AFRESH. 5. SHRI AVINASH KUMAR, THE LD.DR CONTENDED THAT THE ASSESSEE HAS FURNISHED THE INACCURATE PARTICULARS IN UNDER VALUING THE CLO SING STOCK. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY LEVIED THE PENALTY U/ S 271(1)(C) OF THE ACT. 6. SHRI RM RINDANI APPEARED ON BEHALF OF THE ASSESS EE AND POINTED OUT THAT THE ORDER OF LD.CIT(A) CANCELING THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT BE UPHELD FOR THE FOLLOWING REASONS: (I) ALTHOUGH THE WORK-IN-PROGRESS ADDITION IS SUSTA INED, THE ORIGINAL ADDITION ITSELF WAS MADE ON A PROPORTIONAT E BASIS AND THE SAME WAS FINALLY VALUED BY REDUCING AN ESTI MATED RATE OF PROFIT AND AT ESTIMATED COST OF WORK-IN-PRO GRESS. (II) THERE WAS NO PHYSICAL SUPPRESSION OF CLOSING S TOCK AND IT IS ONLY DUE TO CHANGE IN METHOD OF STOCK ADOPTED BY TH E A.O. AS AGAINST THE BONAFIDE BELIEF OF THE ASSESSEE THAT UNCERTIFIED WORK-IN-PROGRESS DOES NOT FORM PART OF CLOSING STOCK. ITA NO.370/RJT/2007 4 (III) IT IS WELL RECOGNIZED THAT ADDITIONS MADE ON ESTIMATED BASIS DO NOT LEAD TO LEVY OF PENALTY. (IV) THE DECISION OF DHARMENDRA TEXTILE PROCESSORS 306 ITR 277 (SC) HAS BEEN LATER EXPLAINED BY THE SUPREME COURT IN THE CASE OF UOI VS RAJASTHAN SPINNING AND WEAVING MILLS 224 CTR 01 TO THE EFFECT THAT THE EARLIER DECISION CANN OT BE SAID TO HOLD THAT PENALTY IS TO BE LEVIED IN EACH AND EV ERY CASE. (V) IN VIEW OF THE ADDITION BEING RELATED TO ESTIMA TED VALUATION ONLY FOR WHICH EXPLANATION WAS FURNISHED BY ASSESSE E THOUGH NOT ACCEPTED, IT DOES NOT AMOUNT T CONCEALME NT OF INCOME AND HENCE THE ORDER OF C.I.T.(APPEALS) CANCE LING THE PENALTY MAY KINDLY BE UPHELD. 7. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDER OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT AD DITION OF RS.37,92,307 WHICH IS CONFIRMED BY THE TRIBUNAL IS ON ACCOUNT OF VALUE OF CLOSING WORK-IN-PROGRESS. THE CLOSING WORK-IN-PROGRESS OF THE ASSESSMENT YEAR UNDER APPEAL IS OPENING WORK IN PROGRESS OF THE SUBSEQUENT ASSESSMENT YEAR. THEREFORE, THE ASSESSEE WAS ENTITLED TO HOLD A BONA FIDE BELIEVE THAT UNCER TIFIED WORK IN PROGRESS WAS NOT LIABLE TO BE TREATED AS TAXABLE ITEM, SINCE IT WAS REFLECTED IN THE FOLLOWING YEAR. WHILE CANCELING THE PENALTY, IN THE IMPUGNED ORDER, THE LD.CIT(A), RELYING UPON THE JUDGMENT OF THE HONBLE KERALA HIGH COURT IN TH E CASE OF CIT VS PAVAN KUMAR DALMIYA HAS HELD THAT THE WORD CONCEALMENT IN LAW MEANS INTENTIONAL SUPPRESSION OF TRUTH OR FACT KNOWN TO THE JURY OR P REJUDICE OF ANOTHER. IT IS TRUE THAT THE HONBLE SUPREME COURT IN THE CASE OF DHARM ENDRA TEXTILE PROCESSORS & ORS HAS HELD THAT WILLFUL CONCEALMENT IS NOT AN ESS ENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY BUT IN THE PRESENT CASE, THE ASSESS EE WAS OF THE BONA FIDE BELIEF THAT METHOD OF VALUATION OF THE CLOSING TOCK DEBITED IS FAIR AND REASONABLE BECAUSE UNCERTIFIED WORK IN PROGRESS CANNOT BE ADDED TO THE VALUE OF CLOSING STOCK. THOUGH THIS BELIEF OF THE ASSESSEE IS NOT LEGALLY C ORRECT, BUT ON NON ACCEPTANCE ITA NO.370/RJT/2007 5 OF THIS BELIEF, PENALTY U/S 271(1)(C) CANNOT BE LEV IED. WE, ARE THEREFORE, OF THE VIEW THAT THE LD.CIT(A) HAS GIVEN COGENT REASON FOR CANCELING THE PENALTY OF RS. 13,27,306 LEVIED BY THE ASSESSING OFFICER U/S 271(1 )(C) OF THE ACT. WE, THEREFORE, INCLINED TO UPHOLD THE ORDER OF LD.CIT(A). 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THIS ORDER HAS BEEN PRONOUNCED ON THE DATE AS MENTI ONED ABOVE. SD/- SD/- (A.L. GEHLOT) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER RAJKOT, DT : 02 ND DECEMBER, 2011 PK/- COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A)-I, RAJKOT 4. THE CIT-I, RAJKOT 5. THE DR, I.T.A.T., RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT