RAJHANS IMPEX PRIVATE LTD,JAMNAGAR vs. THE INCOME TAX OFFICER, WARD - 1(3), JAMNAGAR, JAMNAGAR

The grounds of appeal raised by the assessee are as under: 1. The penalty order u/s. 271(1)(c) of the Act is bad in law. 2. The learned Assessing Officer has erred on facts and in law in imposing penalty of Rs.43,805/- u/s. 271(1)(c) of the Act and the learned CIT(A) has erred in confirming it.”

The brief facts qua the issue are that the appellant is a private limited company which is engaged in the business of manufacturing and exporting of copper and copper alloys Extrusion, Ingots and Billets. A search u/s. 132 of the Act was carried out at the business premises of the appellant on 23.08.2012, the difference in physical stock vis-à-vis book stock of Rs.2,29,886/- was found. The appellant filed its return of income for A.Y. 2013-14 on 29.09.2013 declaring total income at Rs. Nil as per the normal provisions of the Act and book profit of Rs.33,66,197/- u/s. 115JB. The appellant included difference of stocks on income in the return of income for AY 2013-14. Stock difference of Rs.2,29,886/- to the book profit u/s. 115JB of the Act, with a view that the appellant ought to have recorded the said difference in the books of account. The A.O. initiated penalty proceedings u/s. 274 r.w.s. 271(1)(c) of the Act for furnishing inaccurate particular of income.

During the course of penalty proceedings, the assessee has submitted that the appellant included the stock difference amounting to Rs.2,29,886/- as income under the Act in the return of income filed for the AY 2013-14. Penalty levied on account of aforesaid variation made by the A.O. to the book profit u/s. 115JB. The same cannot be considered as furnishing of inaccurate particulars with any intention to evade tax on such stock difference by not including the same in the books of account and thereby to book profit u/s. 115JB, because (i) the appellant would have got higher opening stock in the next year (which ultimately neutralizes the accounting effect) had the alleged excess stock been accounted for in the books of account and (ii) the appellant would have also got higher MAT Credit u/s. 115JAA.

It is seen that, the same is not forming part of the P&L account. This difference is just mentioned in the computation of income. However, since the assessee is having substantial b/f losses and unabsorbed depreciation, the tax effect on account of this disclosure has been nullified. But, had the same been recorded in the Trading / P&L account, then this amount would have been included in the Book profit for the purpose of MAT. Therefore, by not showing it in the P&L account, the Book profit has been shown less to the extent of Rs.2,29,886/-. Accordingly, the book profit for the purpose of book profit u/s. 115JB is enhanced by Rs.2,29,886/-. Penalty proceedings u/s. 271(1)(c) is initiated for furnishing of inaccurate particulars of income.

The assessee filed an appeal against the order before CIT(A), which was dismissed by order dtd. 18.02.2025 by Ld. CIT(A).

The assessee filed an appeal against the impugned order dt. 18.02.2025 before this Tribunal. (a) During the course of argument, Ld. AR submitted that the difference of stock shown in the return of income filed before the AO no inaccurate particular of income furnished. The penalty order may kindly be quashed. (b) On the contrary the Ld. DR relying on the order of CIT(A).

We have heard, both the parties and perused the material available on record. We note that during the course of search, stock difference of Rs.2,29,886/- was found. The assessee offered this as profit earned during the year, however, the amount not shown in P&L account. Since, the assessee is having substantial brought forward losses and unabsorbed depreciation, the tax effect on account of this disclosure has been NIL. Therefore, by not showing it in the P&L account, the Book profit does not have imposed in the income of assessee. The AO initiated penalty proceedings u/s. 271(1)(c) is initiated for furnishing of inaccurate particulars of income.

We note that the assessee has filed the income tax return for AY 2013-14, wherein that difference of stocks amounted to Rs.2,29,886/- was duly shown in the income tax return. That we note that the appellant included the stock difference of Rs.2,29,886/- in the computation of total income of the assessee for AY 2013-14. The return of income duly accepted by the Assessing Officer. We note that the levied of penalty was only because of that it was not shown in the book profit under section-115JB of the Act. 9. The assessee has relied the judgements:  CIT vs. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158.

Therefore, it is obvious that it must be shown that the conditions under section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the Return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise.

Considering the above facts and circumstances of the case, we are therefore delete the penalty.

In the result, the appeal of the assessee is allowed.