R.K Gupta, J.M:— This is an appeal by department against canceling the levy of penalty under section 271(1)(c) relating to assessment year 2006-2007.

2. The brief facts of the case are that the return of income was filed showing an income of Rs. 2410415/- which was assessed at Rs. 55232220/-. In first appeal relief of Rs. 45296225/- was allowed. An addition of Rs. 75 lacs was sustained on account of unexplained, excess stock found during survey. On this confirmed addition, penalty u/s. 271(1)(c) was levied.

2.1 Survey u/s. 133A was carried out on 19.7.05 in the assessee's case and cost of excess physical stock found was ascertained at Rs. 60927252/- after reducing the stock by applying g.p rate of 12% from the total cost. The value of un explained excess stock was determined at Rs. 52227982/-. The assessee made surrender of Rs. 54228792/- but while filing return of income, the appellant retracted from disclosure earlier made. During the assessment proceedings, it was pointed out by the AR that a sum of Rs. 5240761/- has been considered in Assessment Year 2005-2006 out of total unaccounted stock determined at Rs. 52227982/-. The AO accordingly, excluded this value from the unaccounted stock. Further, reduction of Rs. 256202/- was allowed due to calculation error. With this, unaccounted stock of Rs. 46731019/- was determined. In first appeal, addition of Rs. 75 lacs was confirmed against which second appeal is pending before, the Hon'ble ITAT.

2.2 During the penalty proceedings, the AO held that the loose papers impounded-from business premises of the assessee undisputedly established that the assessee indulged in unaccounted purchase and sales. During the course of survey the assessee also confessed. The stock taking was done in the presence of the assessee and his employees and, therefore, the excess stock determined after considering arithmetical calculation errors came to Rs. 46731019/- which was confirmed in first appeal. The assessee ought to have declared this income in the return, voluntarily but by not showing in the return of income, the assessee concealed particulars of his true income. The AO has relied on the decision of Hon'ble Supreme Court in the case of Union of India v. Dharmendra Textile Processors wherein the principle was laid down that willful concealment is not essential ingredient for attracting civil liability as is the case in the matter of prosecution u/s. 276C. Mensrea is not an essential ingredient of section 271(1)(c) for the purpose of imposition of penalty u/s. 271 c). In the present case, the assessee was found furnishing inaccurate particulars of his income willfully though he was aware that unexplained stock surfaces as a result of survey operation represents his undisclosed income which was liable to be included in the total income. As the assessee refrained from disclosing such income, true particulars of his income were not disclosed in the return and, therefore, penalty u/s. 271(1)(c) levied @ 200% of tax sought to be evaded.

3. It was contended before ld. CIT(A) that the assessee deals in hardware goods and fittings items. A survey u/s. 133A was carried out on 19.7.05 Penalty of Rs. 5049000/- was levied u/s. 271(1)(c) on the alleged concealed income of Rs. 75 lacs being excess stock as upheld by the CIT(A).

3.1 Only on 8.7.08 i.e after 3 years from survey, copies of inventory list prepared by the survey team were provided and then assessee could verify the same. The mistake and errors committed by the survey team in quantifying sales valuing the stock were noticed and if the same are considered there are no excess or short stock available with the assessee.

3.2 Further, while upholding the addition of Rs. 75 lacs the CIT(A) observed that the AO's working of excess stock found during the course of survey could not be accepted but at the same time valuation given by the assessee was not fully checked by the AO and, therefore, in the interest of justice, it will be more logical if a lump sum addition on this account of excess stock found is made. Thus, it is evident that in first appeal, errors and omissions in the inventory and valuation of stock prepared by the survey team were accepted and only for the possible leakages of revenue, a lump sum addition was made. This addition is not based on any material but is mere estimation for which penalty cannot be levied. The ITA T has also confirmed the finding of CIT(A) and has reduced the addition of Rs. 75 lacs made in first appeal to Rs. 60 lacs, on estimate basis without any adverse view that the assessee has furnished any inaccurate particulars of income. The ITAT has observed that the survey party has inventorised the stock in hurried manner, reduction on account of gross profit rate was allowed @ 12% whereas in the immediately preceding year the g.p rate was 16%. From the observations of Hon'ble ITAT, it is clear that the addition on account of excess stock was sustained only on estimation basis without giving any adverse view that the assessee has furnished inaccurate particulars of income. The AO's observations that the assessee has indulged in unrecorded purchases/sales on the basis of statement recorded during the course of survey are nothing but only assumptions. The case laws relied upon by the AO while imposing penalty are clearly distinguishable. The AO has imposed penalty @ 200% without any logical ground.

3.3 Reliance was placed on the decision in the case of Commissioner Of Income-Tax v. Super Metal Re-Rollers 265 ITR 82 (Del) wherein it was held that condition precedent for levy of penalty is the satisfaction of AO that there has been concealment of income which must be clearly spelt out. The AO has miserably failed to establish conscious concealment and has acted in deliberate defiance of law. The assessee has filed every precise detail as required during the course of assessment proceedings. The AO has not brought on record any material to prove that the assessee has in any manner furnished inaccurate particulars of his income or had in any manner committed a fraud or concealment of income. With this, it was submitted that the penalty levied may be deleted. Reliance was also placed on various case laws including the followings:

1. 110 ITR 602 (Mad)

2. 258 ITR 85 (P&H)

3. 125 ITR 700 (Raj)

4. 291 ITR 519 (SC)

4. After considering the same and perusing the material placed on record, the ld. CIT(A) held that the levy of penalty is not justified. Accordingly he cancelled the levy of penalty.

5. Now the department is in appeal here before the Tribunal.

6. The ld. D/R firstly placed reliance on the order of the AO. Brief note of written submission was also filed. It was further added that the additions were made on the basis of surrender made during the course of survey conducted under section 133A. Therefore, the AO was correct in levying penalty @ 200% of the tax evaded. It is also mentioned in the written submission by ld. D/R that the quantum additions were reduced by ld. CIT(A) to Rs. 75,00,000/- against the total addition made by the AO at Rs. 4.67 crores or odd. On further appeal by department and assessee, the quantum addition was reduced to Rs. 60,00,000/- by the Tribunal. It was further submitted that the AO has levied a penalty on the amount of Rs. 75,00,000/- in view of the order of ld. CIT(A) who reduced the addition to Rs. 75,00,000/-. Now, as the Tribunal has reduced the addition to Rs. 60,00,000/-, therefore, at the best the penalty levied by AO on the basis of addition of Rs. 75,00,000/- can be reduced on the amount of addition of Rs. 60,00,000/-. Further, reliance was placed on the written submissions filed during the appellate proceedings.

7. On the other hand, the ld. Counsel of the assessee placed reliance on the order of ld. CIT(A). It was further submitted that the issue has been discussed in detail by the ld. CIT(A) while reducing the addition by the ld. CIT(A) while reducing the addition to Rs. 75,00,000/-. It was also submitted that it is a settled position of law that the statement recorded during the course of survey under section 133A cannot be treated as a piece of evidence if there is no corroborative evidence. It was submitted that when the survey was conducted and the stock inventory was prepared in 178 pages and the survey team has completed the survey proceedings within 6 hours, it was not possible to take a right valuation at the time of survey. The assessee was not in a sound statement of mind and, therefore, he surrendered the amount and offered for taxation. Thereafter, he requested the department to give copy of statement recorded during the course of survey along with other materials. However, it took three years to supply the record and statement and when it was given to the assessee, the reconciliation of statement was prepared and filed during the assessment proceedings. However, the AO had made addition on the basis of statement recorded during survey proceedings. The ld. CIT(A) who reduced the quantum addition to Rs. 75,00,000/- have dealt with the issue in detail and after ascertaining full facts of the case, then only addition made by the AO was reduced to Rs. 75,00,000/-. Thereafter on further appeal by department as well as by assessee, the Tribunal has further reduced the addition to Rs. 60,00,000/- against Rs. 75,00,000/- reduced by ld. CIT(A). Accordingly it was submitted that this is a pure case of estimation of income by applying provisions of section 145(3) and, therefore, on estimation of income penalty cannot be levied. Accordingly, the ld. CIT(A) was justified in canceling the levy of penalty. A copy of written submissions was filed by ld. A/R which is placed on record.

8. We have heard rival submissions and considered them carefully. We have perused the material on record on which our attention was drawn along with written submissions filed on behalf of the department as well as on behalf of the assessee. After going through all the material and the order of ld. CIT(A) including the order of AO who levied the penalty, we find that ld. CIT(A) was justified in cancelling the levy of penalty. Findings of ld. CIT(A) have been recorded at pages 4 & 5 of his order are as under:—

“Contention of the AR is considered. At the time of survey, excess stock of Rs. 52227982/- was determined. Later on being pointed out by the AR further reductions of Rs. 5240761/- and Rs. 256202/- were allowed and unaccounted stock of Rs. 46731019/- was determined. This was further reduced to Rs. 75 lacs in first appeal and finally Rs. 60 lacs by Hon'ble ITAT in second appeal. Thus, at various stages quantum of unaccounted stock was disturbed and finally what was determined was only on estimation. In first appeal, against the quantum addition, it was held that the AO's working of excess stock found during the course of survey was not acceptable but as in the remand report also the AO failed to check the working given by the appellant, in the interest of justice, a lump sum addition was sustained. This addition sustained was mainly because the working given by the appellant could not be verified by the AO. Various discrepancies in calculation of the AO were noticed by Hon'ble ITAT like-to determine the stock as per book, gross profit rate was wrongly applied and the inventory was prepared in hurried manner. Thus the addition sustained was only on estimate basis and not on the basis of any material found during the course of survey. The AO has not pointed out any case of unrecorded purchase or sale though he has made a general observation. It is a very settled law that assessment proceedings and penalty proceedings are separate and independent from each other. While levying penalty the AO has merely relied upon the inventory prepared during the course of survey and the addition confirmed in first appeal. No independent material has been brought on record to levy penalty. It is not a case of furnishing inaccurate particulars of income as all the facts are available on record. The AO has relied upon the decision of Hon'ble S.C in the case of Union of India v. Dharmendra Textile Processors and observed that willful concealment is not essential ingredients for attracting civil liability. In the case of CIT v. Sidharth Enterprises (2009) 184 Taxman 460, the Hon'ble P&H Govt. has held the decision of S.C in Union of India v. Dharmendra Textile Processors (2008) 306 ITR 277 cannot be read as lay down that in every case where particulars of income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal law liability u/s. 273C and penalty u/s. 271(1)(c) has to be kept in mind. Even so concept of penalty has not undergone change by virtue of said judgment. Penalty is imposed when there is some element of deliberate default and not for mere mistake. The present case is not case of filing of inaccurate particulars of income but is a case of change of opinion at various stages and thereby reducing the quantum of addition. As held by various Courts, penalty for concealment is not leviable when addition is made on estimation. Making a claim which is found to be unacceptable in law, cannot be treated as furnishing of inaccurate particulars of income, as held by Hon'ble SC in the case of CIT v. Reliance Petroproducts (P.) Ltd. (2010) 322 ITR 158 (SC). Unless there is a finding that details supplied by appellant in return of income were found to be incorrect or erroneous or false, there would be no question of initiating penalty proceedings u/s. 271(1)(c). The AO is, therefore, directed to delete the penalty levied u/s. 271(1)(c).”

These findings of ld. CIT(A), in our view, are correct finding. The ld. D/R, however, has stated that ld. CIT(A) has deleted the penalty by observing that the unaccounted stock was finally determined only on estimation and, therefore, no penalty is leviable. In this regard it has been stated that the AO has also made addition only on estimation as he made the addition on the basis of valuation of stock made during the survey proceedings and accepted by the assessee. It was also mentioned that about the remand report sent by AO, the ld. CIT(A) has mentioned that AO failed to check the working given by assessee as the survey inventory was prepared hurriedly. In this connection it was submitted that it is not reasonable to expect the AO to verify the stock working after 4-5 years of survey in remand proceedings and why this claim was not made during the assessment proceedings. Therefore, the observations of ld. CIT(A) are not correct. Regarding the observations of ld. CIT(A) that no independent material was brought on record to levy the levy, it was submitted in the written submissions by ld. D/R that physical stock was found excess by Rs. 5.22 crores and stock inventory was prepared. Therefore, observations of ld. CIT(A) are not correct. It was further mentioned that ld. CIT(A) has placed reliance on the decision of Hon'ble Supreme Court in case of Reliance Petroproducts, 322 ITR 158. In this regard it was submitted that decision is in favour of the department and not in favour of the assessee. Therefore, reliance placed by ld. CIT(A) is not correct and there was admitted undisclosed investment in stock at Rs. 5.22 crores. It was further mentioned that ld. CIT(A) has relied upon the decision of Hon'ble Supreme Court in case of Dharmendra Textile Processors, 306 ITR 277. In this regard it was submitted that it relates to prosecution proceedings under section 276C and relates to certain duty infringement under Central Excise Act. Therefore, there is no direct reference to conspicuous default akin to the facts of the assessee's case.

8.1 We have considered this aspect and find that the argument of the department are not correct or acceptable. First of all we would like to mention that ld. CIT(A) has not placed reliance on the decision of Dharmendra Textile Processors (supra) but the AO has placed reliance on this decision. The ld. CIT(A) has observed in this regard that at the bottom of page 4 of his order that decision of Dharmendra Textile Processors cannot be read as lay down that in every case where particulars of income are inaccurate, penalty must follow and thereafter placing reliance on the decision of Hon'ble Supreme Court in case of Reliance Petroproducts Pvt. Ltd. (supra) wherein it is held that unless there is a finding that details supplied by assessee in the return of income were found to be incorrect or erroneous or false, there would be no question of initiating penalty proceedings. Accordingly we hold that it is incorrect to say that ld. CIT(A) has placed reliance on the decision of Apex Court in case of Dharmendra Textile Processors.

8.2 Regarding the decision of Apex Court in case of Reliance Petroproducts Pvt. Ltd., we find that this decision of Apex Court is applicable on the facts of the present case. No material whatsoever was found that assessee has concealed some income. Inventory of stock was prepared hurriedly which runs into 170 pages and it is impossible task to prepare stock inventory in six hours only. From this fact, it can be said that stock was hurriedly valued and no copy of statement was provided to the assessee at the time of survey. Copy of statement was provided after a gap of three years and then only the assessee has prepared reconciliation statement of stock and submitted to the AO. However, the AO did not accept and made the addition on the basis of surrender made by assessee during the course of survey. The Hon'ble Kerala High Court in case of Paul Mathew have clearly held that no much credence will be given to the statement recorded during the course of survey under section 133A unless there is corroborative evidence. Corroborative evidence furnished by the assessee was in favour of the assessee and then only the additions sustained by AO was reduced to Rs. 75,00,000/- by holding that since from the books of account true profit cannot be deduced and, therefore, on the basis of past history the trading addition was sustained at Rs. 75,00,000/- which was reduced by the Tribunal to Rs. 60,00,000/-. Therefore, this is a case of estimation of income and ld. CIT(A), in our view, was correct in holding that on estimation of income, penalty provisions under section 271(1)(c) are not attracted. This view is supported by various decisions i.e in case of Harigopal Sinvh, 258 ITR 85 (P&H), in case of Goswami Smt. Chandralata, 125 ITR 700 (Raj.), in case of Shiv Lal Tak, 251 ITR 373 (Raj.), in case of S. Rahamat Khan Birbalkhan Badruddin & Party, 240 ITR 778 (Raj.) and many others mentioned in the written submissions filed on behalf of the assessee. Therefore, without going into detail further, we hold that ld. CIT(A) was justified in canceling the levy of penalty. Accordingly, we confirm the order of ld. CIT(A).

9. In the result, appeal of the department is dismissed.