GREENFIELD TIMBER & PLYWOODS PVT. LTD.,CHENNAI vs. ACIT CENTRAL CIRCLE II(1) I/C, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -13, Chennai, dated 08.11.2017, for the assessment year 2003-04, confirming the penalty levied by the Assessing Officer under Section 271(1)(c) of the Income-tax Act, 1961 (in short 'the Act').

Ms. S. Sriniranjani, the Ld.counsel for the assessee, submitted that the Assessing Officer has not mentioned in the show cause notice issued to the assessee for levying penalty, whether he proposes to levy penalty for concealment of income or for furnishing inaccurate particulars of income. Therefore, according to the Ld. counsel, the penalty proceeding initiated by the Assessing Officer is not justified.

Coming to the merit of the appeal, Ms. S. Sriniranjani, the Ld.counsel for the assessee, submitted that there are two additions made by the Assessing Officer with regard to undervaluation of stock and unsecured loan. In respect of undervaluation of stock, the Assessing Officer made addition of ₹2,90,000/-. According to the Ld. counsel, the assessee explained before the Assessing Officer that the closing stock for assessment year 2003-04 was taken as opening stock for the assessment year 2004-05, therefore, there is a tax neutral. Moreover, out of total stocks, according to the Ld. counsel, some of the stocks were not marketable and no allowance was given while preparing the statement of valuation by the Accountant. The value of the stock disclosed before the Department was after giving disallowance to the unmarketable stocks. Therefore, according to the Ld. counsel, the difference has occurred and hence there was no concealment.

Coming to the unsecured loan on creditors, the Ld.counsel for the assessee submitted that the entire transaction was recorded in the books. According to the Ld. counsel, the balance amount outstanding in the books on the date could not be properly entered by the Accountant. The amounts repaid were entered in the books of account and the assessee itself offered to make addition. Therefore, according to the Ld. counsel, there cannot be any levy of penalty.

On the contrary, Shri AR.V. Sreenivasan, the Ld. Departmental Representative, submitted that the assessee could not produce any material before the Assessing Officer with regard to undervaluation of stock. In the absence of any proper explanation, according to the Ld. D.R., the Assessing Officer made addition of ₹2,90,000/-. In respect of sundry creditors and unsecured loan, according to the Ld. D.R., the assessee itself offered during the course of assessment proceeding, therefore, the CIT(Appeals) has rightly confirmed the penalty levied by the Assessing Officer.

We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the penalty was levied on two counts. One for undervaluation of stocks and another is for sundry creditors and loan creditors. In respect of undervaluation of stocks, the assessee claims that there were some unmarketable stocks which were not reduced while preparing the statement. However, while disclosing the statement, it was reduced. This explanation of the assessee was apparently made before the Assessing Officer which was rejected by both the authorities below. This Tribunal is of the considered opinion that when there were some unmarketable stocks, which were required to be reduced or the market rate of those products had to be taken into consideration while valuing the stocks, this cannot be construed as concealing the income of the assessee or furnishing inaccurate particulars for the purpose of levying penalty under Section 271(1)(c) of the Act.

Now coming to sundry creditors, the assessee admitted before the Assessing Officer that there were unsecured creditors and loans. Both were taken by cash and by cheque. The transactions were entered into the books. From the material available on record, it appears that some of the loans or creditors were repaid from unaccounted income of the assessee. Some of the loans were still outstanding. During the course of examination, the assessee offered the same for taxation. Therefore, the Assessing Officer made addition in the assessment proceeding.

It is a settled principle of law that assessment proceeding is independent and distinct from penalty proceeding. During the course of penalty proceeding, the Assessing Officer was expected to re-examine the material available on record. Every addition made by the Assessing Officer in the assessment order shall not automatically result in levy of penalty under Section 271(1)(c) of the Act. When the assessee explained that the sundry creditors to the extent of ₹1,96,357/- were outstanding and the same were offered for the next assessment year, this Tribunal is of the considered opinion that this is not a fit case for levy of penalty under Section 271(1)(c) of the Act. Therefore, this Tribunal is unable to uphold the orders of both the lower authorities. Accordingly, orders of both the authorities below are set aside and the penalty levied by the Assessing Officer under Section 271(1)(c) of the Act as confirmed by the CIT(Appeals) is deleted.

In the result, the appeal filed by the assessee is allowed.