ITO 25(3)(2), MUMBAI vs. JAIN ASSOCIATES, MUMBAI

The present appeals is directed against the order of ld. the CIT (A)-25, Mumbai dated 20.12.2013 for the assessment year 2006-07 whereby allowing the appeal filed by the assessee against the penalty order passed by the AO dated 29.3.2011 u/s 271 (1)( c ) of the Income Tax Act, 1961 (the Act).

The Revenue has raised two issues in this appeal which are as under : a) Deletion of penalty of Rs.3,61,845/- levied by the AO u/s 271(1)( c ) and; b) Valuation of films rights purchased and valuation of closing stock of rights of films purchased from different parties.

Briefly stated relevant facts of the case are that the assessee is engaged in the business of dealing in rights and copy rights of motion pictures. The assessee filed its return of income on 20.10.2006 declaring total income of Rs.1,12,700. The AO completed the assessment under section 143(3) of the Act and added following additions :

During the course of assessment proceedings, the AO noticed that the assessee has shown sundry creditors of Rs.31,11,111/- and Rs.31,00,000/- in the name of M/s Mukta Arts Ltd and M/s Tips Industries Ltd respectively. As per the agreements with these parties, the assessee was to receive the amount during the year under consideration. Therefore, the amount of Rs.35,00,000/- and Rs.37,50,000/-received from M/s Mukta Arts Ltd and M/s Tips Industries Ltd. Respectively are treated by the AO as income of the assessee for the year under consideration and added the same to the income of the assessee.

During the course of assessment proceedings, the AO also noticed that the assessee has shown closing stock of Rs.17,75,000/- and made purchases of Rs.7,50,000/- Rs.21,00,000/- and Rs.40,00,000/- from Film Dhara, RDB Enterprises and Hiravat Jain and Co, respectively. The AO, after taking into consideration average cost of rights of the movie at Rs.2,50,000/- made an addition of Rs.13,25,000/-.

Aggrieved by this order, the assessee had preferred an appeal before the ld. CIT(A) challenging the addition made by the AO on above said account and the ld.CIT(A) in the quantum appeal deleted the addition of amount received from of M/s Mukta Arts Ltd and M/s Tips Industries Ltd.

In respect of addition on account of closing stock of Rs.13,25,000/-, the ld. CIT(A) in quantum appeal has given relief of Rs.2,50,000/- and sustained the balance amount of Rs.10,75,000/-. The AO was of the view that since the ld.CIT(A) sustained the addition of Rs.10,75,000/-, the assessee has concealed the particulars of income and furnished inaccurate particulars of income. Accordingly, the AO proceeded to invoke the provisions of section 271(1)(c) of the Act and imposed the penalty of Rs.3,61,845/- 100% of the tax sought to be evaded. Aggrieved by this, the assessee has filed the appeal before the ld. CIT(A). The ld.CIT(A) directed the AO to delete the penalty by holding that there was no case of “concealment of income” or furnishing “inaccurate particulars” of income since the valuation of closing stock was disclosed though opinion may vary in terms of method of valuation. However, it cannot be the case that the assessee has not revealed all the particular during the course of filing of return or during the course of assessment proceedings. Accordingly, the ld. CIT(A) allowed the appeal of the assessee and directed the AO to delete the penalty. Aggrieved by this the Revenue has preferred this appeal before this Tribunal.

The ld.DR represented the case of the revenue and reiterated the fact. He submitted that the assessee has furnished inaccurate particulars of closing stock and concealed income by way of not including the closing stock rights of films in the case of assessee is a debatable issue as the AO has already given clear cut finding with reasoning in the assessment order which was later on confirmed by the ld. CIT(A). The ld. DR also submitted that the ld.CIT(A) has sustained the addition of Rs.10,75,000/- on the ground that assessee has taken the valuation of closing stock at market cost and the AO has taken it at cost. Therefore, the order passed by the ld.CIT(A) be set aside and the order of the AO be upheld.

The ld. AR submitted that merely because certain disallowance made in the assessment order and also upheld by the ld. CIT(A) does not automatically lead to a conclusion that the assessee had concealed its income or furnished inaccurate particulars in respect of such income. He submitted that there is no finding by the AO that the alleged undervaluation of closing stock was detected from some documents which were not part of the books of account or return of income. The ld. AR submitted that valuation of right of films is always matter of dispute and debate and there may be difference of opinion about the valuation of the same. In support of this submissions the ld. AR has placed reliance on the decision of Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts (Supreme Court). (2010) 322 ITR 158 (SC) and submitted that the order of the ld.CIT(A) be upheld.

In the result, appeal of the Revenue is dismissed.