SHRI BHAVIN DHIRENKUMAR DOSHI,SURAT vs. THE INCOME TAX OFFICER, WARD-1(3)(1),, SURAT

Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2012-13, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-2, Surat [in short “the ld. CIT(A)”] in Appeal No. CAS/2/11/2017-18 dated 04.07.2018, which in turn arises out of a penalty order passed by the Assessing Officer under section 271 (1)(c) of the Income Tax Act, 1961 [hereinafter referred to as the “Act”].

Grounds of appeal

Succinct facts are that during the assessment proceedings on verification of trading account, it was noticed by assessing officer (AO) that total purchase as per the trading account is shown at Rs.45,66,530/-. On further verification of Profit and Loss account, it was observed by AO that transportation expenses of Assessment Year. 2012-13 Bhavin Dhirenkumar Doshi Rs.6,68,027/- and Customs duty of Rs.9,57,092/- were debited. Thus, the total expenses towards transportation and customs duty were claimed of Rs.16,25,119/-, which was approximately 35% of total purchases. While calculating the value of closing stock, the proportionate payments towards transportation and custom duty which comes to Rs.11,32,463/- required to be added to the value of closing stock. However, the same was not taken into consideration, while calculating the value of the closing stock. The assessing officer therefore issued a show cause notice and was asked to explain the said difference with supporting evidence.

In response to the said show cause letter, assessee furnish the reply dated 24.02.2015. However, the assessing officer rejected the reply of the assessee and held that considering the unreliability, incompleteness and incorrectness of the accounts, the suppression of stock amounting to Rs.11,32,463/- was added to the total income of the assessee and Penalty proceedings u/s 271(1)(c) of the IT Act was initiated for furnishing inaccurate particulars.

Based on the above facts, assessing officer levied minimum penalty to the tune of Rs.3,38,715/- (being 100% of tax sought to be evaded).

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the action of the Assessing Officer. Aggrieved, the assessee is in further appeal before us.

We have heard both the parties and perused the material available on record. Learned Counsel for the assessee submits before us that valuation of closing stock is just an estimation. The penalty should not be levied on estimation. The ld Counsel submits that assessee has got his accounts audited and filed his return of income well within time. The method of valuation of closing stock were as per the generally acceptable accounting principles. The method of valuation of closing stock adopted by assessee was accepted by the auditor and assessee has been following the same method consistently. The method of valuation of closing

On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

We note that assessee is engaged in the business of importing textile parts and selling them in local market Surat. During the year under consideration, import of Rs.45,66,530/- was debited in profit and loss account on which transportation and custom duty amounting to Rs.16,25,119/- was incurred, which is approximately 35% of the purchases. The same was also debited in profit and loss account as an expenditure. Method of valuing closing stock adopted by assessee is “at cost or market value whichever is less, ( i.e.Lower of cost or net realizable value)”. The same was clearly mentioned in notes to accounts by the auditor in audit report. At the year end, the assessee has valued the closing stock at Rs.32,35,611/-, at net realizable value instead of cost, as assessee has sold the goods at loss in subsequent year, as such goods were of deteriorate quality. The goods laying in closing stock was of deteriorate quality and there was no demand in the market. As the item in stock has no public listing price therefore assessee has valued such stock at purchase cost. All the expenditure of transportation and custom duty was debited to Profit Loss account. The AO ignoring all the facts made addition of Rs.11,32,463/- on proportionate basis. Therefore, assessing officer was of the view that there is undervaluation of closing stock to the extent of Rs.11,32,463/- and thus levied penalty. 10. We note that assessee has furnished all the details correctly while filing return of income. The Method of valuation of closing stock and charging of expenditure was very well disclosed in notes to accounts by the auditor while filing return of income. Hence, considering these facts there is no concealment of Assessment Year. 2012-13 Bhavin Dhirenkumar Doshi income. The assessing officer has not proved that assessee has furnished any inaccurate particulars of his income. In respect of valuation of closing stock, everything was disclosed by the assessee. It is mere difference of opinion between assessee, and assessing officer about method of valuation of closing stock. Nothing was found out by assessing officer out of books of accounts of the assessee, and just because assessee has valued the closing stock at cost (purchase price), does not mean that assessee has furnished inaccurate particulars of income. Hence, neither concealment of income nor furnishing of inaccurate particulars have been proved by the assessing officer, therefore, we are of the view that penalty imposed by the assessing officer needs to be deleted. Accordingly, we delete the penalty.

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