2012 (3) TMI 476 - AT - Income Tax

Summary

Issues involved: Appeal against penalty levy u/s 271(1)(c) of the Income Tax Act, 1961 for assessment year 2006-07.

Summary:
1. Issue 1 - Penalty levy on account of short stock found:
The appeal was filed against the penalty of &8377; 21,000 imposed by the Assessing Officer and confirmed by the ld. CIT (A) due to a shortfall in stock found during a survey u/s 133A at the business premises. The stock was physically verified to be &8377; 9,99,008/-, while the recasted trading account showed it as &8377; 9,33,964/-, resulting in a shortfall of &8377; 65,044/-. The Assessing Officer and ld. CIT (A) upheld the penalty based on this discrepancy.

2. Issue 2 - Justification of penalty levy:
Upon review, the Tribunal found that the levy of penalty was not justified. It was observed that the stock discrepancy was due to the stock being sold but not entered in the books of account, leading to an underestimation. The Tribunal opined that any addition should have been made on the profit of the short stock found, rather than imposing a penalty. Considering the estimation nature of the stock discrepancy during the survey, the Tribunal concluded that the penalty should not have been levied.

3. Decision:
The Tribunal allowed the appeal of the assessee, canceling the levy of the penalty u/s 271(1)(c) for the shortfall in stock found during the survey. The order was pronounced in the open court on 23.03.2012.

This judgment highlights the importance of justifying penalties based on accurate assessments and considerations of the circumstances surrounding discrepancies in stock valuation during income tax assessments.