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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
Before: SHRI RAMESH. C. SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 1451/JP/2018
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Jh jes’k lh0 ’kekZ] ys[kk lnL; ,oa Jh fot; iky jko] U;kf;d lnL; ds le{k BEFORE: SHRI RAMESH. C. SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 1451/JP/2018 fu/kZkj.k o"kZ@Assessment Year : 2014-15 cuke Shri Radhey Shyam Khandelwal The ITO, Vs. C-184, Road No. 9, VKI Area, Ward-4(2) Jaipur-302013. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADRPK 7193 G vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by: Shri Mukesh Khandelwal (C.A.) jktLo dh vksj ls@ Revenue by : Shri A. S Nehra (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 29/01/2019 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 04/02/2019 vkns'k@ ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 31.10.2018 of CIT(A), Jaipur arising from penalty order passed U/s 271(1)(c) of the IT Act for the assessment year 2014-15. The assessee has raised the following ground:-
“1. That under the facts and circumstances of the case, the ld. CIT (A) erred in law and on facts in confirming penalty of Rs. 1,89,589/- levied by the ld. AO u/s 271(1)(c) of the Income Tax Act, 1961. Relief may kindly be given by deleting the same.”
Shri Radhey Shyam Khandelwal vs. ITO
The assessee is an individual engaged in the business of manufacturing of Pulses (Dal) and trading of Gemstones and assessee is also earning rental income. During the course of assessment proceedings U/s 143(3) of the Act the AO made an addition on account of undervaluation of closing stock of various Dals by taking the value at cost instead of the valuation adopted by the assessee at market rate.
Thus, the AO made an addition of Rs. 6,80,767/-. The assessee did not challenge the said addition made by the AO. Subsequently the AO initiated the proceedings for levy of penalty U/s 271(1)(c) of the Act and levied the penalty of Rs. 1,89,589/- @ 100% of tax sought to be evaded. The assessee challenged the action of the AO before the ld. CIT(A) and contended that the valuation of the closing stock does not affect profit of the business of the assessee as it becomes opening of stock of the next year and therefore, it cannot be treated as furnishing of inaccurate particulars of income. The ld. CIT(A) was not impressed with the explanation of the assessee and confirmed the penalty levied U/s 271(1)(c) of the Act.
Before us, the ld. AR of the assessee has submitted that the assessee in its audit report in From 3CD has disclosed the method of valuation being at cost in respect of Gemstones and at market price for 2 Shri Radhey Shyam Khandelwal vs. ITO closing of foodgrains (Dal). The assessee has been following the consistent method of valuation and therefore, the valuation of closing stock at the market price does not affect the Revenue or profit of the assessee as the same value will be taken as opening stock of the next year. Further, the AO has arrived the valuation by taking cost of the inventory and further, applying the FIFO method. The ld. AR has thus submitted that the valuation of the closing stock by adopting a different method by the AO that of the assessee would not amount to furnishing of inaccurate particulars of income or concealment of income when the closing stock will be taken as opening of the stock of the subsequent years. Further, the assessee has not revised its opening stock of the subsequent year based on the valuation done by the AO, hence, the assessee has not taken the benefit of the enhanced valuation of the closing stock made by the AO. In support of his contention, he has relied on the order of the Coordinate Bench dated 29.08.2018 in case of Janta Construction Co. vs ACIT in ITA No. 578/JP/2018. Thus, the ld. AR of the assessee has submitted that an identical issue was considered by this Tribunal where the penalty was levied by the AO against the addition made on account of valuation closing stock. Shri Radhey Shyam Khandelwal vs. ITO
On the other hand, the ld. DR has referred to the order of the Assessing Officer and submitted that the AO clearly mentioned that the assessee in his audit report has mentioned that the closing stock is valued at cost, however, the AO has found that the closing stock in respect of foodgrains (Dal) is undervalued and consequently there is an addition on account of undervaluation of the closing stock. Thus, it is a clear case of under reporting of the income which amounts to furnish inaccurate particulars of income or concealment of income. He has relied on the orders of the authorities below.
We have considered the rival submissions as well as relevant material on record. The Assessing Officer has made an addition of Rs. 6,80,767/- on account of valuation of closing stock of foodgrains (Dal). The AO was found that the assessee has not valued closing stock at cost and also not applied FIFO method for valuation of the same. Thus, the AO applied FIFO method and valued the closing stock at cost which has resulted an addition of Rs. 6,80,767/-. We find that in Form No. 3CD the assessee in column No. 14(a) has specified the method of valuation of closing stock employed during the year “gem stones at cost and foodgrains at market price”. Since, closing stock of foodgrains 4 Shri Radhey Shyam Khandelwal vs. ITO were valued at market price, therefore, there was no question of adopting the FIFO method for the purpose of valuation. Further, the AO has not pointed out any inconsistency in the method adopted by the assessee in comparison to the earlier years and in the subsequent years. Thus, once the assessee has been consistently valuing its closing stock of foodgrains (Dal) at market price then, effect it will be Revenue neutral as the closing stock of preceding year is taken as opening stock of the subsequent year.
Apart from applying a different method the AO did not find any other discrepancy or deficiency in the closing stock of the assessee. We note that the Coordinate Bench of this Tribunal in case of M/s Janta Construction Co. vs. ACIT (supra) while considering the issue of penalty U/s 271(1)(c) against the addition on account of valuation of closing stock has held in para 4 as under:-
“4. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the addition made by the AO of Rs. 14,25,059/- on account of suppression of closing work in progress has attained the finality. However, the said addition was made by the AO on the basis of details obtained from the departments for which the assessee has carried out the work contract and received the payments. As per the details given by the AO, the total receipts 5 Shri Radhey Shyam Khandelwal vs. ITO during the year was shown at Rs. 4,26,84,832/- whereas the assessee declared the total receipts in its books of accounts at Rs. 4,61,66,265/- . The AO after analyzing the purchases made by the assessee during the month of March and measurement of the work by the department on 8th March, 2009 has come to the conclusion that the closing stock of the assessee should have been at Rs. 24,03,399/- as against the declared closing stock of Rs. 9,78,340/-. Therefore, the difference of Rs. 14,25,059/- was added as suppression of closing work in progress. Considering these facts along with the total receipts declared by the assessee which is more than Rs. 4.61 crores as compared to the total receipts as per the information received from the departments at Rs. 4,26,84,832/-, the difference amount can be part of the declared receipts of the assessee. However, without going into the said issue, when it is not disputed that the assessee has not claimed the said amount of Rs. 14,25,059/- as part of the opening balance of work in progress of subsequent year then the addition made by the AO for the year under consideration would not ipso facto amount to concealment of particulars of income. The explanation of the assessee that there may be a discrepancy in the information obtained by the AO and analyzing the same when the assessee has already declared the total receipts more than the total receipts as per the information furnished by the departments, then in considering the totality of the facts and circumstances of the case, we find that all these explanations of the assessee would constitute a bonafide explanation though the same may not be accepted for the purpose of addition in quantum proceedings. Hence in the facts and circumstances of the case, we delete the penalty levied under section 271(1)(c) of the Act.”
Shri Radhey Shyam Khandelwal vs. ITO The assessee before us has also not taken the benefit of the higher valuation of closing stock by revising its opening stock of the subsequent year, therefore, the addition made by the AO in the year under consideration will not ipso facto amount to furnishing of inaccurate of income or concealment of particulars of income. Even otherwise when it is a regular and consistent method applied by the assessee and not a case of any change of method for valuation of closing stock during the year under consideration then, the mere addition on account of valuation of closing stock by adopting a different method will not attract the penalty U/s 271(1)(c) of the Act. Following the order of the Coordinate Bench in case of M/s Janta Construction Co. vs. ACIT (supra), we deleted the penalty levied U/s 271(1)(c) of the Act.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 04/02/2019