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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI PRADIP KUMAR KEDIA
The captioned appeal has been filed by the assessee against the order of the CIT(A)-1, Baroda (‘CIT(A)’ in short), dated 09.07.2014 arising in the penalty order passed by the AO dated 22.03.2013 under s. 271(1)(c) of the Income Tax Act, 1961 (the Act) concerning A.Y. 2008-09.
Jewellers Pvt. Ltd. vs. DCIT] A.Y. 2008-09 - 2 -
Briefly stated, the assessee filed return of income for A.Y. 2008-09 declaring total income at Rs. 2,43,00,960/-. In the course
inter alia of the assessment proceedings, the AO made additions/disallowance on two items namely (a) under valuation of closing stock of jewellery to the extent of Rs. 44,93,791/-, (b) wrong claim of depreciation on building to the extent of Rs. 6,08,307/-. As a consequence, the AO initiated penalty proceedings under s. 271(1)(c) for wrongful claim on above counts and imposed penalty @ 100% on the tax evade on such concealment of income.
Aggrieved, the assessee preferred appeal before the Ld. CIT(A) without any success.
Further aggrieved, the assessee preferred appeal before the Tribunal.
The Ld. AR for the assessee referred to the assessment order dated 29.10.2010 passed under s. 143(3) of the Act in the quantum proceedings and submitted that the very premise of alleging under valuation of closing stock is incorrect. The Ld. AR submitted that the AO has observed that the closing stock namely Gold, Silver and Diamond etc. are valued at ‘lower of average cost on market value’ whereas the method of account adopted by the assessee was Jewellers Pvt. Ltd. vs. DCIT] A.Y. 2008-09 - 3 - ‘weighted average cost on market value’ whichever is lower. The Ld. AR next submitted that there was no error in so far as the quantity of closing stock declared by the assessee. The only dispute relates to valuation thereof. The assessee in the past had adopted simple average cost for the purposes of valuation which was modified to weighted average by the AO. In such a situation, the assessee has simply modified the method of valuation in tune with the approach of AO. The Ld. AR thus submitted that the action of the assessee cannot be treated as mala fide per se so as to warrant imposition of penalty. The Ld. AR further contended that the closing stock declared by the assessee is as high as which 6.29 crore as against which the alleged difference is of Rs. 44.93 lakhs in terms of valuation. Such difference is quite meager i.e. about 2.75% only which further shows possible inadvertence in the action of the assessee.
As regards wrong claim of depreciation on building, the Ld. AR pointed out that depreciation was claimed for the full year by the assessee as the building was purchased as per sale deed dated 27.09.2006. However, the AO as allowed depreciation for half year as it was assumed to be put to use for less than six months on the ground that the office/showroom was inaugurated in January 2008 and consequently put to use thereafter. The Ld. AR submitted that Jewellers Pvt. Ltd. vs. DCIT] A.Y. 2008-09 - 4 - the claim of the assessee is not entirely wrong and the action of the Revenue is ultimately taxed neutral as depreciation of lesser figure allowed would results in consequent increase in depreciation of the equivalent amount in the years to ensue. The Ld. AR pleaded that no stringent action in the form of penalty justified for such technical defaults if any, notwithstanding ready acceptance of quantum assessment as made by the AO without litigation.
The Ld. DR on the other hand relied upon the order of the CIT(A) and submitted that the bona fide pleaded by the assessee was not proved.
We have carefully considered the rival submissions. The imposition of penalty under s. 271(1)(c) on account of ‘under- valuation of closing stock’ and ‘higher claim of depreciation’ is in question. We straightway notice that both the additions/disallowances are tax neutral over period of time and thus taxation cannot be escaped perennially on the aforesaid two items.
Over-Valuation of stock in one year would result in higher valuation of opening stock in other year and profit will be accordingly adjusted downwards in the subsequent assessment years. Same is the case with depreciation allowance. This apart, the assessee has independently offered explanation for such error which cannot be Jewellers Pvt. Ltd. vs. DCIT] A.Y. 2008-09 - 5 - bracketed in the realm of mala fide per se. The variation in the valuation of stock is less than 3%. The method of valuation adopted by the assessee in sync with the method adopted by the AO in the earlier years and is also a recognized method. Importantly, no difference in net quantitative tally has been brought on record. The valuation of stock embodies certain degree of subjectivity and is not an entirely objective process. Thus, where a fair and plausible explanation has been offered by the assessee for ascertainment of value of closing stock, the pre-requisites for invoking Explanation-1 to sec. 271(1)(c) are not, in our view, satisfied. A mere wrongful claim or a bona fide error could not automatically invite stringent penalty. The assessee in our view has successfully offered explanation which is reasonable & commensurate in the circumstances. The depreciation allowance also claimed for the full year is not entirely without any basis. The ownership of the property was actually transferred in favour of the assessee and such property was hold for more than 180 days. In such a situation, an error committed by higher claim of depreciation would not automatically lead to consequences in the form of penalty of stringent nature. We thus find merits in the plea of the assessee for cancelling the penalty on these additions. The order of the CIT(A)
Jewellers Pvt. Ltd. vs. DCIT] A.Y. 2008-09 - 6 - is accordingly set aside and the AO is directed to cancel the penalty on both counts.
In the result, appeal of the assessee is allowed.
This Order pronounced in Open Court on 11/07/2019 Sd/- Sd/- (RAJPAL YADAV) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 11/07/2019 TANMAY TRUE COPY आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद । 1.Date of dictation on 09.07.2019 2.Date on which the typed draft is placed before the Dictating Member 10.07.2019 3.Date on which the approved draft comes to the Sr. P.S./P.S. 11 .07.2019 4.Date on which the fair order is placed before the Dictating Member for pronouncement 11.07.2019 5.Date on which the fair order comes back to the Sr. P.S./P.S 12.07.2019 6.Date on which the file goes to the Bench Clerk 12.07.2019 7.Date on which the file goes to the Head Clerk…………. 8.The date on which the file goes to the Asstt. Registrar for signature on the order…………………… 9.Date of Despatch of the Order………