SURABI BULLION,COIMBATORE vs. DCIT 1, COIMBATORE

This appeal by the assessee is directed against the order passed by the learned Commissioner of Income Tax(Appeals)-18, Chennai, dated 01.08.2017 in for the assessment year 2011-12 passed U/s. 250(6) r.w.s. 271(1)(c) of the Act.

The assessee has raised eight grounds in its appeal. However, the crux of the issue is that the Ld. CIT(A) has erred in confirming the Ld. Assessing Officer who had levied penalty of Rs.3,71,603/- for undervaluing the closing stock of Rs.12,02,598/-.

The brief facts of the case are that the assessee is a firm earning income by trading of bullion. A search and seizure operation under section 132 of the Act was conducted on the partners of the firm M/s. Surabi Bullion. During the course of search, it was observed by the Ld. Assessing Officer that the assessee firm had undervalued the closing stock to the extent of Rs.12,02,598/- for the assessment year 2011-12. On query, the partners of the firm agreed to offer the amount of Rs.12,02,598/- as unaccounted income of the assessee firm. Accordingly, addition was made and penalty proceedings were initiated. Thereafter, the Ld. Assessing Officer levied penalty of Rs.3,71,603/- in the case of the assessee being 100% of tax sought to be evaded. While doing so, the Ld. Assessing Officer relied on the decision in the case of CIT v. Prasanna Duggal reported in 59 taxmann.com 99 (Kolkata) and decision rendered in the case of P. Rajaswamy, Raja Jewellery v. CIT, Trivananthapuram, reported in 174 Taxman 321 (Kerala) and held that the assessee has concealed as well as furnished inaccurate particulars within the meaning of section 271(1)(c) of the Act.

Before us, the ld. AR argued by stating that the assessee had disclosed its stock fully, however, the Ld. Assessing Officer was of the opinion that the value of the stock declared by the assessee is less compared to the market value. Therefore the Ld. Assessing Officer increased the value of the stock, consequently the profit was enhanced to the extent of Rs.12,02,598/-. Since the partners of the firm were against prolonged litigation they agreed for the addition, though, the entire quantum of stock was disclosed. The Ld. AR further vehemently argued by stating that the assessee is entitled to value the stock as per the original cost or market value whichever is less and accordingly they had valued the stock. It was further submitted that the addition was made based solely on the opinion of the Assessing Officer which the assessee did not wish to controvert in order to avoid protracted litigation. It was therefore, pleaded that the penal provisions of section 271(1)(c) of the Act may not be invoked in the case of the assessee. The Ld. AR further relied on the decision of the Hon’ble Apex Court in the case of CIT v. Reliance Petro products Pvt. Ltd. reported in 322 ITR 158 (SC) and the decision of the Hon’ble Apex Court in the case of M/s. Rajasthan Spinning and Weaving Mills reported in TIOL-63. On the other hand,

We have heard the rival submissions and carefully perused the materials on record. From the order of the Ld. Assessing Officer, it is evident that the addition was made towards undervaluation of stock and not for concealment of stock. Further, the Ld. Assessing Officer has not elaborated in his order the manner in which he has enhanced the value of the stock. Moreover there is no concrete finding by the ld. Assessing Officer as to how the stock is undervalued. Therefore, it appears that the ld. Assessing Officer has only made an ad-hoc addition based on presumption. Further, from the facts of the case, it appears that the assessee had agreed for addition in order to avoid prolonged litigation. Further as stated by the Ld.AR even if stock is undervalued, tax effect will only differ to the subsequent assessment year and there would be no escapement of income. Moreover, it is the prerogative of the assessee to prudently value the stock as per market value or the cost of acquisition, whichever is less. In the case of the assessee, neither the Ld. Assessing Officer nor the Ld. CIT(A) has come out with any concrete evidence to show as to how the assessee had undervalued the stock. Considering the facts and circumstances of the case and the decisions relied on by the assessee cited supra, we are of the considered view that in the case of the assessee, the penal provisions of section 271(1)(c) of the Act cannot be invoked. It is further pertinent to mention that the facts of the cases relied by the Revenue is not identical to the facts of the case of the assessee. Therefore, we hereby direct the Ld. Assessing Officer to delete the penalty of Rs.3,71,603/- imposed on the assessee.

In the result appeal of the assessee is allowed.