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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
This appeal by the assessee is directed against the order of the CIT(A)-III, Kochi dated 22/05/2019 and pertains to the assessment year 2007-08.
The assessee has raised the following grounds of appeal:
1) The order of the Commissioner of Income Tax (Appeals)-III, Kochi , is against law, facts and circumstances of the case.
2) The CIT(A) has erred in confirming the penalty order passed by the ACIT, Central Circle, Kollam, imposing a penalty of Rs 97250/- u/s. 271 (1) (c) of the I.T. Act.
3) The CIT Appeals should have appreciated that the addition to the income returned of the Appellant was on account of valuation of closing stock of rejection kernels , which was valued by the Appellant based on the sale value obtained by Rs 3.25 per kg to Rs 6 per kg. In the Quantum Appellate Order of the CIT Appeals, he has admitted this fact after verifying the sale bills, produced by the Appellant and also confirmed that in most of the cases , it is seen sold at Rs 4 per kg.
4) The Appellant had valued the rejection kernels at Rs 4.41 per kg , which was above the sale price of Rs 4 per kg realized by her for most of the sales made during the previous year.
5) The CIT Appeals should have noted that the Appellant , the ACIT and the CIT Appeals made an estimation of the sale price which was not sufficient to warrant penalty U/s 271 (1) (c) , since the addition was in the nature of an estimate and no concealment of income was involved therein.
6) The rejection kernels will fetch different prices according to its quality i.e bakery variety and cattle field variety and the quality of the stock on hand as on 31.03.2007 was only known to the Appellant and her judgment of the price of the product was more realistic than fixed by the CIT Appeals.
7) The CIT Appeals also erred in not following the decision of the Kerala High Court in R. Madhavan Nair's case 87 ITR 362.
8) The CIT Appeals should have noted that the A.O only mentioned in the assessment order that penalty proceedings U/s 271 (1) (c) will be initiated separately. From this it was very clear that no opinion was formed and no satisfaction was recorded by the A.O before or at the time of initiation of the penalty proceedings. Ref 278 ITR 32 (Del) and 280 ITR 412 (Del).
9) The Appellant craves leave to adduce additional grounds at the time of hearing.
The facts of the case are that assessment order was made u/s. 143(3) of the Act on 29/12/2009 assessing the total income at Rs.40,69,300/-. Among various additions made to total income, an amount of Rs.8,71,680/- was added on the basis of revaluation of closing stock of rejection quality of kernels @ Rs.5 per kg and so addition to the extent of Rs.3,24,142/- was sustained. Having confirmed the additions, penalty proceedings u/s 27l(1)(c) of the I.T. act were initiated vide letter dated 23.02.2012, and it was proposed to levy 200% penalty in the quantum of 2
income concealed/for which inaccurate particulars were given. The assessee vide reply dated 24.02.2012 stated that the addition and disallowances sustained in appeal does not warrant imposition of penalty. The relevant points in assessee’s reply are given below:
(i) The sale value adopted for rejection quality kernels was not proved by assessing officer.
(ii) Based on Hon’ble Supreme Court decision in Reliance Petro Products case (230 CTR 320) there is no concealment of income.
(iii) Mere addition or disallowance would not warrant imposition of penalty.
3.1 The Assessing Officer noticed that the additions to total income were based on material found out during the course of assessment. According to the Assessing Officer for the valuation of closing stock which is essential for arriving at the correct gross profit, the assessee adopted a lesser sale value to suppress her true facts of total income which has been proved by CIT(A) order which is as follows:.
In the case of the appellant, the value of the rejected kernels was adopted at Rs. 4.50 per kg for the asst. year 2006-07. However, for the year under consideration, the valuation has been enhanced to Rs.6 per kg. The appellant has furnished copies of the bills etc. in which it has been seen that rejected kernels have been sold @ between Rs. 3.25 per kg and Rs. 6 per kg. In most of the cases, it is seen sold at Rs. 4 per kg. Hence the valuation on an average sale would come to Rs. 5 per kg. This rate seems quite reasonable in view of the fact that last year the value adopted was Rs.4.50 per kg. Accordingly, I direct that value rejected kernels be adopted at Rs.5 per kg. instead of Rs.6 per kg as adopted in the assessment order. This ground of the appellant is partly allowed.
3.2 Thus, penalty u/s 271(l)(c) was imposed. The Assessing Officer relied on the decision of Madras High Court in Sri Nityakalyani Textiles Ltd. vs. DCIT (282 ITR 154) which justified levy of penalty on under-valuation of closing stock. Further, it 3 was noticed that the assessee had failed to furnish reasonable cause as envisaged in section 273B for under valuation of closing stock which resulted in understatement of taxable income. Thus, the Assessing Officer held that the condition stipulated by section 271(1)(c) was applicable m this case and so a minimum penalty of Rs.97,250/- was levied.
Before the CIT(A), the assessee was requested to furnish a copy of the order of the Tribunal in the case of the assessee for the quantum addition made for the same AY i.e. 2007-08. The Tribunal vide order in dated 20.07.2012 confirmed the order of the CIT(A) and the quantum on which the penalty order was passed by the AO vide order dated 28.03.2012.
4.1 The CIT(A) observed that even at the appellate stage the assessee had not been able to furnish reasonable cause for under valuation of the closing stock which had resulted in the understatement of taxable income. According to the CIT(A), the assessee had been regularly carrying on the business of cashew export for many years and the contention that she had fixed the rate of the rejection of cashew kernels according to the quality which she was aware of does not seem reasonable and therefore, the levy of minimum penalty of Rs.97,250/- by the AO was reasonable and legally tenable.
Against this, the assessee is in appeal before us. The Ld. AR reiterated the submissions made before the CIT(A).
he Ld. DR relied on the order of the authorities below.
We have heard the rival submissions and perused the record. In the present case, the assessee valued the rejected cashew kernels at Rs.4.41 per kg. during the assessment year 2007-08. However, the same was valued at Rs.4.50 per kg. during the assessment year 2006-07. Against this, the Assessing Officer adopted the value of rejected cashew kernels at Rs.6 per kg. In the quantum appeal, the CIT(A) directed the Assessing Officer to adopt the value of rejected cashew kernels at Rs.5
per kg. The assessee furnished the copies of bills before the lower authorities wherein the assessee sold the rejected cashew kernels at the rates between Rs.3.25
per kg. and Rs.6 per kg. On this basis, the CIT(A) adopted the value of Rs.5 per kg.
Being so, there is no conclusive evidence brought on record by the authorities concerned to determine the value of the rejected cashew kernels. The entire addition in the assessment was made on estimate basis which is because of difference of opinion between the assessee and the Department and that reason cannot be basis for the levy of penalty u/s. 271(1)(c) of the I.T. Act. In our opinion, unless positive concealment of income is found, no penalty can be levied on the addition made on estimate basis. It is to be noted that on account of mere difference of opinion with regard to the valuation of stock of rejected cashew kernels, penalty cannot be levied u/s. 271(1)(c) of the Act. Since the assessee and the Department adopted different rates for rejected cashew kernels for ascertaining the income of the assessee, it cannot be said that the assessee concealed the particulars of her income or furnished inaccurate particulars of her income so as to attract penalty u/s. 271(1)(c) of the I.T. Act. Being so, we are of the opinion that it is not a fit case for levy of penalty u/s. 271(1)(c) of the I.T. Act imposed by the AO and confirmed by the CIT(A). Hence, the penalty levied u/s. 271(1)(c) of the Act is deleted. Thus, the grounds of appeal of the assessee are allowed.