L K SONS ALLOY PVT. LTD. ,PUNE vs. ACIT, CIRCLE-9, PUNE, PUNE

The appeal of the assessee against the penalty order passed by the Ld. AO has been confirmed by the Ld. CIT(A) vide his impugned order dated 08.02.2019 observing as under: “2. The grounds of appeal object to levy of penalty of Rs. 14,53,890/- u/s. 271(1)(c). During the course of assessment proceedings, the AO noticed from the quantitative details of the stock filed with balance sheet that the average value of the closing stock was lower than the average value of the purchase made during the year. It was claimed by the assessee that the high value purchases were sold as compared to the low value purchases resulting in the lowering of the average cost of the closing stock. However, the assessee failed to furnish any evidence to establish its claim that a major portion of the opening stock was lying at this end s the end of the year and that the same was defective/inferior quality. The AD found that in respect of Cr MO steel which formed the bulk of the trading activity, the assessee had valued closing stock @54.86 per Kg. However, the average price of opening stock and purchase of chrome moly steel was Rs.61.57 per kg. Accordingly, the AO adopted the price 61.57 per kg for this material and worked out the difference at Rs.42.77,408 Penalty proceedings u/s 271(1) was initiated by issuing a notice u/s 274 r.ws. 271(1)(c) of the Income Tax Act, 1961 on 12/03/2014, In response to the said notice, the assessee filed its submission stating that the assessee has preferred an appeal before the CIT(A) Hence, the penalty proceedings were kept in abeyance till the decision of appeal. The Ld. CIT(A)-6, Pune vide his order dated 31/01/2017 has dismissed the appeal of the assessee by observing that the AO was night in reworking the closing stock valuation of Cr MO steel and thus the various decisions relied upon by the assessee would not be applicable to the facts of this case. In the instant case, the assessee has not made any claim rather the assessee has undervalued its stock by Rs.42.77,408/- Undervaluation of stock is a deliberate attempt to suppress the taxable income. Hence, facts of the case and case laws produced by the assessee are distinct and separate. Further, the very dismissal of the appeal proves that the valuation of stock adopted by the assessee is incorrect and this amounts to furnishing of inaccurate particulars of income as per provisions of income tax Act, 1961. Penalty levied of Rs. 14,53,890/-u/s 271(1)(c) is confirmed.”

Aggrieved thereby, the assessee is in appeal before the Tribunal and all the grounds of appeal relate thereto.

The Ld. DR conceded with the above submission of the Ld. AR.

We have heard the Ld. Representative of the parties and perused the material available on record. The Ld. AR brought on record order of the Tribunal in dated 08.12.2020 in the case of the assessee, L.K. Sons Alloy Pvt. Ltd. Vs. Addl. CIT, Range-9, Pune for AY 2011-12. Perusal thereof, reveals that the assessee had gone in appeal before the Tribunal against the order dated 30.01.2017 of the Ld. CIT(A)-6, Pune in which the Ld. CIT(A) had confirmed the addition of Rs. 42,77,408/- made by the Ld. AO on account of valuation of closing stock. The Tribunal vide its order (supra) deleted the said addition and allowed the appeal of the assessee by observing as under: “4. We have heard the rival submissions through virtual court and gone through the relevant material on record. At the outset, we want to make it clear that the dispute in the instant appeal is not on the quantitative aspect of inventory but only on the valuation of a particular item of stock, namely, Chrome Moly Steel. The assessee valued the stock of Chrome Moly Steel by considering left over stock from the Opening Stock to the tune of 3,93,250 kg at Rs.48.94 per kg and out of purchases during the year of 2,44,566 kg valued at Rs.64.33 per kg. As against that, the AO averaged the opening stock and purchases to work out the per kg rate of Rs.61.57. In this regard, it is seen that the assessee has maintained complete item-wise stock tally, relevant parts of which has been placed on record. Page 40 onwards is a copy of Register of Chrome Moly Steel indicating Inward quantity, Outward quantity and Closing stock quantity. The assessee took physical verification of the stock at the end of the year, whose details are available at page 35 onwards of the paper book. Such details are backed by the relevant invoices. There cannot be any hard and fast formula of valuing stock only on the basis of FIFO if stock register indicates the position otherwise. When the assessee gave copious details of the inventory with the relevant value coming either from the opening stock or from fresh purchases during the year, the AO, in our considered opinion ought to have accepted the same. The assessee has been consistently following this method of valuation which has been accepted by the AO during the course of scrutiny proceedings for the assessment years 2008-09, 2009-10, later assessment years 2013-14 and 2014-15 as well. Copies of the relevant assessment orders have been placed on record. In view of the foregoing discussion, we are satisfied that the authorities below were not justified in rejecting the valuation done by the assessee and adopting the method of valuing the stock on the basis of average of opening stock and purchases. We, therefore, order to delete the addition.”

It is therefore, obvious that the impugned addition/disallowance which formed the basis of imposition of the penalty under section 271(1)(c) of the Act do not survive. Accordingly, the impugned penalty has no legs to stand and is hereby deleted. The order of the Ld. CIT(A) is set aside. The grounds raised by the assessee are accordingly allowed.

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