JAIN NILESH SHANTILAL,,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,,

आदेश / ORDER

PER ANIL CHATURVEDI, AM :

This appeal filed by the assessee is emanating out of the order 1. of Commissioner of Income Tax (A) – 3, Pune dt.20.10.2015 for the assessment year 2010-11.

2.1 Assessee is an individual and Proprietor of M/s. Modern Jewellers engaged in trading on Gold and Silver on retail basis. A

survey action u/s 133A of the Act was conducted in assessee’s case

on 09.10.2009. The assessee disclosed unaccounted income of

Rs.90,00,000/- on account of excess stock of gold and silver.

Assessee filed his return of income for A.Y. 2010-11 on 26.09.2011

declaring total income of Rs.98,55,990/- including the income

disclosed during the course of survey. The case was taken up for

scrutiny and thereafter assessment was framed u/s 143(3) of the Act

vide order dt.28.12.2012 and the total income was determined at

Rs.1,76,73,902/- wherein addition on account of under valuation of

excess stock of gold (of Rs.66,88,392/-) silver (Rs.7,72,178/-),

unaccounted debtors (Rs.3,49,480/-) and disallowance u/s 14A of the

Act (Rs.7,861/-). Thus, disallowance aggregating to Rs.1,77,52,357/-

was made. On the addition of Rs.74,60,570/- made on account of

under valuation of excess stock of gold and silver and disallowance of

Rs.3,49,480/- made on account of unaccounted debtors, AO vide

order dt.27.06.2013 levied penalty of Rs.24,13,305/- u/s 271(1)(c) of

the Act. Aggrieved by the penalty order of AO, assessee carried the

matter before Ld.CIT(A), who vide order dt.20.10.2015 (in appeal

No.PN/CIT(A)-3/DCIT Cir-8,Pn/788/2014-15) dismissed the appeal of

the assessee. Aggrieved by the order of Ld.CIT(A), assessee is now in

appeal before us, and has raised the following effective ground :

“The learned CIT-A erred on facts and in law in making penalty of Rs.24,13,305/- u/s 271(1)(c) of the Income Tax Act, 1961.”

and Ld.CIT(A) and further submitted that the addition made by the

AO is basically on account of the valuation of stock. Assessee had

valued the stock on the basis of average basis which was the method

being regularly followed by him since many years but the Department

valued it on the basis of the market value. She submitted that to the

extent the amount of undisclosed income on account of stock that has

been accepted by the assessee in the return of income, no penalty has

been levied but has only been levied on the difference of valuation.

Ld.A.R. therefore submitted that the difference in valuation is on

account of difference of opinion and in such cases, no penalty is

leviable. She also placed reliance on the decision in the case of ACIT

Vs. Ritesh Agrawal reported in [2014] 50 taxmann.com 93 (Indore

Trib.). As far as the addition on account of unaccounted debtors is

concerned she submitted that the amount was due from debtors but

since assessee could not produce the debtors before AO, the assessee

offered the balance of debtors as income. She further submitted that

there is no furnishing of inaccurate particulars of income or

concealment of income and therefore the penalty levied by the AO be

deleted. She further submitted that while recording satisfaction in

the assessment order AO has recorded that assessee has filed

inaccurate particulars of income but in the penalty order passed u/s

271(1)(c) of the Act, AO has levied penalty on both the limbs namely

filing of inaccurate particulars of income and concealment of income.

She therefore relying on the decision of Hon’ble Bombay High Court in

the case of CIT Vs. Samson Perinchery (ITA No.1154 of 2014 order

dt.05.01.2017), submitted that no penalty is leviable. Ld.D.R. on the

other hand, supported the order of lower authorities.

on record. The issue in the present case is with respect to levy of

penalty for inaccurate particulars of income and concealing the

income.

particulars of income and furnishing of inaccurate particulars of

income. The perusal of assessment order passed u/s 143(3) of the Act

reveals that AO had initiated penalty for furnishing of inaccurate

particulars of income. Thereafter in the penalty order passed u/s

271(1)(c) of the Act, AO held that assessee had furnished inaccurate

particulars of income and had concealed the income u/s 271(1)(c) of

the Act. It is a settled law that while levying penalty for

concealment, the AO has to record satisfaction and thereafter come to

a finding in respect of one of the limbs, which is specified under

section 271(1)(c) of the Act. The first step is to record satisfaction

while completing the assessment as to whether the assessee had

concealed its income or furnished inaccurate particulars of income.

Thereafter, notice u/s 274 read with Section 271(1)(c) of the Act is to

be issued to the assessee. The Assessing Officer thereafter has to levy

penalty under Section 271(1)(c) of the Act for non-satisfaction of either

of the limbs. While completing the assessment, the Assessing Officer

has to come to a finding as to whether the assessee has concealed its

income or furnished inaccurate particulars of income. The Hon’ble

Bombay High Court in CIT Vs. Shri Samson Perinchery in ITA

No.1154 of 2014 with other ITA Nos.953 of 2014, 1097 of 2014 and

1226 of 2014, vide judgment dated 05.01.2017 held that where

initiation of penalty is one limb and the levy of penalty is on other

limb, then in the absence of proper show cause notice to the assessee,

there is no merit in levy of penalty.

gold and silver, the assessee’s submission that the difference has

arisen on account of methodology of valuation of stock and not on

account of quantity difference has not been controverted by Revenue.

More so, Revenue has not levied penalty on the amount of income

offered by the assessee. In such a situation, we are of the view that

the addition of account of difference of method of valuation, cannot be

a ground for levy of penalty u/s 271(1)(c) of the Act and therefore we

direct the deletion of penalty.

is concerned, it is the submission of the assessee that since the

assessee could not produce the debtors before AO, it had offered the

amount representing the debtors as its income. The aforesaid

submission of the assessee has not been found to be untrue / false.

Further no material has been brought on record by Revenue that the

debtors are bogus and further the Revenue has accepted the

corresponding sales as income. Merely because the assessee has

offered the debtors as income cannot be ground for levy of penalty u/s

271(1)(c) of the Act more so when it is a settled law that penalty

proceedings and assessment proceedings are distinct and separate

and that for levy of penalty, Revenue has to convincingly prove that

there is concealment of income or furnishing of inaccurate particulars

of income. In the present case, the aforesaid requirement for levy of penalty is missing. In view of the aforesaid facts we are of the view that no penalty is leviable in the amount of debtors added as income. Thus, the grounds of the assessee are allowed.

Order pronounced on 7th day of February, 2018.

Sd/- Sd/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 7th February, 2018. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :

आदेशानुसार/ BY ORDER

// True Copy // // True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.