ASST CIT 19(2), MUMBAI vs. OM ANAND EXPORTS, MUMBAI

Facts that led to levy of penalty in both the years are stated in brief. The assessee is engaged in the business of purchase of rough diamonds, processing and export of cut and polished diamonds. During the course of assessment proceedings, the Assessing Officer asked the assessee to furnish the inventory of closing stock for each of the quality held by him. The assessee did not furnish the same. In the absence of quality details of closing stock, the 2 Om Anand Exports Assessing Officer took the view that the closing stock valuation done by the assessee is not reliable. Accordingly he rejected the books of account of the assessee and proceeded to estimate the value of closing stock on the basis of “cost of sale” as per books of accounts, i.e. sale value less gross profit shown in the trading account. Closing stock so arrived at by the Assessing Officer worked out at a higher figure than disclosed by the assessee. Accordingly he made an addition of ` 46.35 lakhs and ` 43.52 lakhs respectively in A.Y. 2006- 07 & 2005-06 treating the same as suppression in valuation of closing stock. The said addition came to be confirmed by the Tribunal also. Later the Assessing Officer levied penalty of ` 13.90 lakhs and ` 13.05 lakhs respectively for A.Y. 2006-07 & 2005-06 u/s. 271(1)(c) of the Act for furnishing of inaccurate particulars of income. The learned CIT(A) deleted the same and hence the Revenue has filed these appeals before us.

Learned Departmental Representative submitted that the quality details of diamonds are very much essential in diamond trade, since the price of same size of the diamonds would vary according to the quality. He submitted that the Assessing Officer has specifically asked the assessee to furnish quality- wise details of diamonds of closing stock, but the assessee did not furnish the same. He submitted that non-furnishing of quality wise details would amount to furnishing of inaccurate particulars of income. Accordingly, he submitted that the learned CIT(A) was not justified in deleting the penalty levied by the Assessing Officer u/s. 271(1)(c) of the Act. In this regard, learned DR placed reliance on the decision reported in 15 ITR 445, 31 ITR 705 & 50 ITR 487.

On the contrary, learned AR submitted that the assessee has been following method of valuing of closing stock at net realisable value. Learned AR submitted that the assessee is determining the net realisable value, on the basis of billing done in the subsequent period. The assessee’s method of valuing has been accepted by the Tribunal in A.Y.2004-05. However, the Tribunal has taken a different view in the years under consideration and accordingly upheld the valuation done by the Assessing Officer on the basis of 3 Om Anand Exports cost of sale. He submitted that the very fact that the Tribunal itself has taken two different views show that the valuation made by the AO is a debatable issue. Learned AR submitted that the addition came to be made in both the years due to change in the method of valuation only, since the AO has accepted the quantity details. Accordingly, learned AR submitted that there is no question of concealment of income or furnishing of inaccurate particulars of income since the Assessing Officer has only revised the value of closing stock which will be neutralized in the succeeding year. Accordingly learned AR submitted that the learned CIT(A) has rightly deleted the penalty by holding that the penalty will not be leviable on the additions made on estimate basis.

We have heard rival contentions and perused the record. It is a fact that the assessee did not furnish quality wise details of stock. However, it is the case of the assessee that he has been consistently following the method of valuing closing stock at Net realizable value, on the basis of billing done in the subsequent period. It was stated that the said method was accepted by the Tribunal also in AY 2004-05. We notice that the assessing officer has changed the method of valuation and he has determined the closing stock on the basis of “cost of sales” and has made the addition. Even though the addition came to be sustained by the Tribunal in the years under consideration, in effect, the AO has only substituted the value of closing stock by adopting different method of valuation. There is no dispute that there is no difference in the quantity of diamonds. The question as to which method of valuation is appropriate in the facts and circumstances of the instant case is, in our view, a highly debatable question. Hence the addition made by the AO, in our view, cannot lead to a case of furnishing of inaccurate particulars of income. Accordingly we do not find any reason to interfere with the orders passed by Ld CIT(A). Accordingly we uphold his orders passed for both the years under consideration deleting the penalty levied u/s 271(1)(c) of the Act.

In the result, both the appeals of the revenue are dismissed.