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2019 (7) TMI 641 - AT - Income TaxPenalty u/s 271(1)(c) - ‘under- valuation of closing stock’ and ‘higher claim of depreciation’ - HELD THAT:- We straightway notice that both the additions/disallowances are tax neutral over period of time and thus taxation cannot be escaped perennially on the aforesaid two items. Over-Valuation of stock in one year would result in higher valuation of opening stock in other year and profit will be accordingly adjusted downwards in the subsequent assessment years. Same is the case with depreciation allowance. This apart, the assessee has independently offered explanation for such error which cannot be bracketed in the realm of mala fide per se. The variation in the valuation of stock is less than 3%. The method of valuation adopted by the assessee in sync with the method adopted by the AO in the earlier years and is also a recognized method. Importantly, no difference in net quantitative tally has been brought on record. The valuation of stock embodies certain degree of subjectivity and is not an entirely objective process. Thus, where a fair and plausible explanation has been offered by the assessee for ascertainment of value of closing stock, the pre-requisites for invoking Explanation-1 to sec. 271(1)(c) are not, in our view, satisfied. A mere wrongful claim or a bona fide error could not automatically invite stringent penalty. The assessee in our view has successfully offered explanation which is reasonable & commensurate in the circumstances. The depreciation allowance also claimed for the full year is not entirely without any basis. The ownership of the property was actually transferred in favour of the assessee and such property was hold for more than 180 days. An error committed by higher claim of depreciation would not automatically lead to consequences in the form of penalty of stringent nature. We thus find merits in the plea of the assessee for cancelling the penalty on these additions. The order of the CIT(A) is accordingly set aside and the AO is directed to cancel the penalty on both counts. - Decided in favour of assessee.
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