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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SMT.ANNAPURNA GUPTA & SHRI T.R. SENTHIL KUMAR
(Applicant) (Responent) : Shri Biren Shah, AR Assesseeby Revenue by : Ms.Saumya Pandey Jain, Sr.DR सुनवाई क� तार�ख/Date of Hearing : 31/10/2023 घोषणा क� तार�ख /Date of Pronouncement: 19/01/2024 आदेश/O R D E R PERANNAPURNA GUPTA, ACCOUNTANT MEMBER The present appeal has been filed by the assesseeagainst order passed by the Ld.Commissioner of Income Tax(Appeals), National Faceless Appeal Centre (NFAC), Delhi(hereinafter referred to as “ld.CIT(A) dated 15.12.2022 under section 250(6) of the Income Tax Act, 1961 ("the Act" for short) confirming the levy of penalty imposed by the AO under section 271(1)(c) of the Act pertaining to Assessment Year 2015-16.
The grounds raised by the assessee are as under:
i) In the facts and in the circumstances ui me case, the Ld. CIT (A) has erred in rejecting the appellant's plea that the penalty order u/s. 271(1)(c) passed by the Assessing Officer was bad in law. ii) The Ld. CIT (A) has failed to appreciate that the Assessing Officer has to give a clear finding as to whether the case is that of concealment of income or that of furnishing inaccurate particulars of income. In the absence of such specific finding, the penalty order was bad in law. iii) In the facts and in the circumstances of the appellant's case, the Ld. CIT (A) has erred in upholding the levy of penalty of Rs. 10,69,141/-. 2.1 The Ld. CIT (A) ought to have appreciated that i) The appellant had provided all the necessary facts and working of closing stock of work-in-progress before the Assessing Officer and the Assessing Officer had taken a different working ii) The increase in the value of closing stock would result into increase in value of opening stock of next year and thus, it tax neutral addition, particularly when the appellant is being assessed at maximum marginal rate. iii) The appellant's contentions for increase of the value of the opening stock in the next year are accepted by the CIT (A) in quantum appeal. iv) Thus, the appellant had given a bonafide explanation and the said explanation has not been found to be false v) Thus, having regard to the various decisions, the levy of penalty was not justified in the facts of the appellant's case. 2.2 Having regard to the facts and circumstances of the appellant's case, the Hon'ble ITAT may please direct for deleting the penalty u/s.271(1)(c) levied in the present case. The appellant craves leave to add to amend or to raise any further grounds of appeal as case may arise.
3. Before us arguments were made solely with respect to the merits of the case, and the appeal, accordingly, is disposed of after hearing both the parties.
4. Wehave gone through orders of the Assessing Officer (AO) and the ld.CIT(A) both in the quantum proceedings, wherein additions were made to the income of the assessee, and in the penalty proceedings, wherein penalty u/s 271(1)(c) of the Act was levied for concealing/furnishing inaccurate particulars of income with respect
3 to the additions so made and confirmed in the quantum proceedings. We have also heard contentions of both the parties before us.
As transpires from the orders of the Revenue authorities in penalty proceedings, the impugned penalty was levied by the AO on account of addition made to the income of the assessee for short valuation of closing stock to the tune of Rs.24,53,100/-.
We hold the penalty so levied not sustainable in law for various reasons, which are being dealt with by us, hereinafter.
The most glaring aspect, which comes out from a bare perusal of the assessment and appellate orders is of the fact that the penalty hasbeen levied without any application of mind and confirmed by the ld.CIT(A) also without any application of mind. This is evident from the fact that while the AO began his penalty order noting the fact that the addition in the quantum proceedings was made to the income of the assessee on two counts –
i) Addition of closing WIP Rs.24,53,100/- ii) Addition under section 36(1)(iii) Rs.10,06,905/- Rs. 34,60,005/-
And further notes the fact that the ld.CIT(A) confirmed the addition only on account of addition of closing stock. He thereafter goes on to levy penalty on account of addition confirmed by the ld.CIT(A), but in the calculation of the penalty levied, which forms part of the order of the AO, the AO levies penalty on other addition made under section 36(1)(iii) of the Act also, which addition as per his own admission, was deleted bythe ld.CIT(A). This fact emanates from para-1 to 4 of the penalty order passed under section 271(1)(c) of the Act, wherein at para-4, the AO clearly mentions that he has reasons to believe that the assessee has furnished inaccurate particulars of income pertaining to the valuation of closing stock amounting to Rs.24,53,100/-. The same is reproduced hereunder:
“4. As brought out in the assessment order, the assessee has not worked out valuation of closing stock accordingly, addition of Rs.24,53,100/- was made on this ground to the total income of the assessee. The CIT(A) confirmed the addition of Rs. 24,53,1000/- I have therefore reason to believe that the assessee has furnished inaccurate particulars of income and thereby concealed the particulars of Its Income. Therefore, it clearly emerges that the particulars filed in the Return of Income by the Assessee is found to be inaccurate, erroneous or false and which has an impact on total income returned by the assessee and therefore, it attracts liability for penalty u/s.271(1)(c) for concealment of particulars of income. Here, it is pertinent to discuss the legal position on the issue:
However, at para-5.3 of the same order, wherein he levied penalty at the rate of 100% of the tax sought to be evaded, he calculated concealed income at Rs.34,60,005/- which includes the addition made under section 36(1)iii) of the Act, which stood deleted by the ld.CIT(A). Para 5.3 is reproduced hereunder:
This clearly shows the total non-application of mind by the AO while levying the penalty. This fact of addition made by the AO in 5 quantum proceedings and confirmed by the ld.CIT(A) has been corroborated by the orders of the AO and the ld.CIT(A) in quantum proceedings, which were placed before us.
The ld.CIT(A) while confirming the penalty levied by the AO, also seems to have not applied his mind to the issue. While he also notes that in appeal in quantum proceedings only the addition of valuation of closing stock at Rs.24,53,100/-was sustained, at para 5.1 of his order, butwhile confirming the penalty levied ,at para 5.6 of his order, he notes inaccurate particulars of income furnished by the assessee to be amounting to Rs.34,60,005/-.Para 5.1 and 5.6 of the CIT(A)’s order are reproduced hereunder:
It is clearly evident that both the authorities i.e. the AO and the ld.CIT(A) have levied and confirmed the penalty mechanically without even applying their mind to the facts of the case.
Other glaring aspect which comes out from the assessment order is that both the AO and the ld.CIT(A) have not given any reasons as to how the mere addition on account of valuation of closing stock made to the income of the assessee tantamounted to furnishing inaccurate particulars/concealmentof the income related to the same.
On going through the order of both the AO and the Ld.CIT(A), we are unable to understand what the addition exactly pertained to in relation to the valuation of the closing stock. The penalty order passed by the AO makes no mention eitherof the facts or the basis for the addition made. Therefore, there is no method forunderstanding as to how he arrived at the conclusion that the addition made on account of valuation of closing stock
8 tantamounted to furnishing inaccurate particulars of income for the levy of penalty under section 271(1)(c) of the Act.
Even the ld.CIT(A)’s order does not throw any light on this aspect except for reproducing the portion of the order of the ld.CIT(A) confirming the addition on accountof valuation of stock in quantum proceedings, which is evident from the order of the ld.CIT(A) at para 5.1 which is reproduced above.
Therefore, the basis for arriving at the finding that the addition on account of valuation of closing stock tantamounted to furnishing inaccurate particulars of income for the levy of penalty under section 271(1)(c) of the Act, is completely absent both in the assessment order and even in the ld.CIT(A)’s order.
It appears that both the authorities have proceeded on the assumption that the addition made to the income of the assessee automatically tantamount to concealment/furnishing of inaccurate particularsof income, which is contrary to the law, which has been settled by the Hon’ble Apex Court in the case of CIT Vs. Reliance CIT Vs. Reliance Petro Products Pvt. Ltd. [322 ITR 158].
To sum up there is, we find, total non-application mind both by the AO and the ld.CIT(A) while levying and confirming the levy of penalty, • levying penalty partlyon addition to income which admittedly was deleted by Ld.CIT(A) and • stating neither the facts of the addition to the income on which penalty was levied , nor the basis for finding it a fit case for levy of penalty u/s 271(1)(c) of the Act.
9 Therefore, we hold, the penalty is not sustainable.
Even otherwise, despite the AO and the CIT(A) making no effort to bring out the facts of the case leading to the addition made on account of valuation of the closing stock, the same were gone into by us from the assessment order and the order of the ld.CIT(A) in quantum proceedings. We find, on going through the same, that even on merits there is no case for charging the assessee with having concealed/furnished inaccurate particulars of income with regard to the valuation of the closing stock additionmade so as to justify the levy of penalty under section271(1)(c) of the Act.
What transpires from the orders of the authorities below in quantum proceedings is that the Revenue authorities found that the assessee’s basis of valuation of its WIP was incorrect and adopting a different method the Revenuearrived at a different valuation of WIP resulting in addition to the income of the assessee to the tune of Rs.24,53,100/-. The order of the ld.CIT(A) in quantum proceedings and the AO reveals that the assessee was found tobe a real estate developer, developing four schemes during the relevant period. The assessee had submitted that it was recognizing revenue on the basis of execution of sale deed i.e. project completion method. The assessee had stated to have incurred total project cost of Rs.4.37 crores and total area of the project was noted to be 2,915 sq.yards. The AO, on the basis of estimated cost of the total project, determined first the cost per square yard tobe incurred on the project and on this basis, he allocated the actual cost incurred by the assessee during the year to the completed projects which were admittedly sold by the assessee during the year, and the balance of the cost was allocated to the WIP remaining. On this basis, he arrived at a valuation of the WIP at Rs.2,59,79,970/- while the 10 assessee had shown the valuation to be Rs.2,35,26,870/- and the difference of Rs.24,53,100/- was accordingly added to the income of the assessee. All these facts, are mentioned at page no.15 of the order of the ld.CIT(A).
We have noted that during appellate proceedings, before the ld.CIT(A), the assessee had offered an explanation that it had allocated cost to the project completed on actual basis and the remaining cost incurred during the year had been added to the valuation of WIP, and hence the difference in the valuation adopted by the assessee and the department. This submission of the assessee finds mention at para 6.1 of the CIT(A)’s order. The ld.CIT(A) however without finding any infirmity in the explanation of the assessee, confirmed the addition made by the AO and hisfinding is at para 6.2 of his order.
What transpires, therefore, is that the addition on account of valuation of closing stock is merely on account of difference in the basis of valuation of WIP adopted by the department and that adopted by the assessee. The assessee’s justification for the method adopted by it, has not been countered or found fault in the same by the Revenue. We have noted that the assessee’s explanation was that it had allocated actual cost, while the department’s stand was that it ought to have allocated cost on estimate basis. The explanation of the assessee appears to be bona fide to us regarding the valuation of closing stock adopted by it. Therefore, in these facts and circumstances, merely because the addition on account of valuation of closing stock has been confirmed by the ld.CIT(A) the assessee cannot be said to have concealed or furnished inaccurate particulars of income. It is at most a case of the Revenue not being convinced with the explanation of the assessee, but there is no 11 factual or legal infirmity noted by the Department while rejecting the assessee’s explanation. Therefore, even on merits, we find that there is no case for levy of penalty, and the same is, therefore, held to be not sustainable in law.
In conclusion both the authorities below have levied and confirmed penalty on two additions –
• One an addition which admittedly was deleted by the ld.CIT(A) i.e. addition made under section 36(1)(iii) of the Act amounting to Rs.10,06,905/-. The levy of penalty on this addition has no legs to stand on and is clearly not sustainable. • The other addition on which penalty was levied, being on account of valuation of closing stock, is also found to be unsustainable due to detailed reasons stated by us above.
The penalty, therefore levied in the present case amounting to Rs.10,69,141/- is directed to be deleted.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 19th January, 2024 at Ahmedabad.