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2015 (9) TMI 17 - ITAT JAIPUR

2015 (9) TMI 17 - ITAT JAIPUR - TMI - Penalty u/s 271(1)(c) - whether change of accounting system which resulted valuation of stock at a lower side do not show deliberate intention of the assessee of furnishing inaccurate particulars/ concealment of facts - CIT(A) deleted addition - Held that:- The assessee had submitted its explanation before the AO at the time of assessment proceedings as well as penalty proceedings. The assessee has changed the method of valuation of closing stock which will .....

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per AS-2 issued by Institute of Chartered Accountant of India. Further the company had been closed on 20-08-2001 and valuation of stock was done on 31-03-2002. Thus there was no production carried out by the company since 31-03-2002. The ld. DR could not controvert this findings of the ld. CIT(A). The cases relied on by the assessee are squarely applicable to the case of the assessee. Therefore, in view of the above facts and circumstances of the case, we confirm the order of the ld. CIT(A). - .....

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eting penalty of ₹ 7,65,060/- imposed by AO u/s 271(1)(c ) holding the change of accounting system which resulted valuation of stock at a lower side do not show deliberate intention of the assessee of furnishing inaccurate particulars/ concealment of facts. 2.1 Brief facts of the case are that the assessee filed its return of income for the assessment year 2002-03 on 28-10-2002. The income declared therein amounted to loss of ₹ 42,66,16,836/-. The assessment was completed u/s 143(3) .....

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claim of loss by a sum of ₹ 21.43 lacs. The change in method of valuation had not been found justified by the AO. Therefore, the AO made the addition under both the heads i.e. valuation of closing stock at ₹ 21.43 lacs and PF & ESI at ₹ 2,28,864/-. 2.2 This was challenged before the ld. CIT(A) who has confirmed the addition on account of change of method of valuation at ₹ 21.43 lacs vide his order dated 12-01-2009. A show cause notice dated 24-02-2010 for imposing of .....

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ee. The ld. CIT(A) also confirmed the addition. He further relied on judgement of Hon'ble Apex Court in the case of Dilip N Shroff, 291 ITR 519 wherein it is held that primary burden to prove the concealment is on the Revenue. Further the case of the assessee falls within the provision of Explanation 1 to Section 271 of the I. T. Act and held that the amount added or disallowed in computing total income of such person as a result thereof shall, for the purpose of clause (c) of this sub-secti .....

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ncealed income on which 100% penalty of tax sought to be evaded at ₹ 7,65,051/- was imposed. 2.4 Being aggrieved by the order of the AO, the assessee carried the matter before the ld. CIT(A) who deleted the penalty by observing as under:- 3.1 I have duly considered the submissions of the appellant. The assessee company was engaged in the business of manufacturing of woolen yarn and synthetic yarn. As the assessee company was incurring losses consistently, it had made reference to BIFR to d .....

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y was covered by explanation 1 to Section 271 of the I. T. Act. Accordingly, the AO levied penalty of ₹ 7,65,060/- u/s 271(1)(c) of the I. T. Act. On careful consideration of the facts in the entirety, I am not inclined to agree with the findings of the AO. In the present case, the appellant had duly disclosed the complete particulars regarding change in the method of valuation of stock in process from cost plus expenses to estimated realizable value. It was categorically mentioned in Note .....

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sure regarding change in the method of valuation. Further the valuation of work in process had been done as per AS-2 issued by Institute of Chartered Accountant of India which provided that practice of writing down the inventories below the cost to net realizable value was consistent with the view that the asset should not be carried in excess of amount expected to be realized from its sale or use. Further appellant company was closed since 20-08-2001 as AVVNL had issued notice for recovery of i .....

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ses of ₹ 42.66 crores. The fact that the AO and CIT(A) did not accept the contentions of the assessee company and made/ confirmed addition to the returned income did not automatically invite penalty. Where divergent views exit either within the Department itself or such divergent views are expressed by different High Courts and there is no uniformity or consensus of opinion on any aspect of law, the assessee cannot be faulted for taking a particular stand. The caveat, of course, is that th .....

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period under consideration, the assessee had changed its method of accounting and such change was not bona fide and the onus cast upon the assessee of proving the factum of rendering services by the sundry creditors of the assessee was not discharged by mere filing of a log book. The Assessing Officer imposed a penalty of ₹ 33,07,220/- invoking the provisions to Explanation 1 to Section 271(1)© on the ground that the assessee had concealed the particulars of its income and furnished i .....

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g Officer did not amount to concealment of income. The Tribunal observed that the credit outstanding against the same creditors was accepted by the Assessing Officer in subsequent years and therefore, no penalty could be levied. Since the additions were made only on account of divergent views taken with regard to the material on record, it was unsafe to conclude that the assessee was guilty of concealment of income or of furnishing inaccurate particulars thereof. On appeal, the Hon'ble Delhi .....

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the stand adopted by the assessee that no real income had accrued to it was also proved to be true. Making of a claim by the assessee which was not sustainable did not amount to furnishing inaccurate particulars. The assessee could not be said to have changed its method of accounting from mercantile to cash and could not be charged with suppressing receipts to the extent of ₹ 35,39,631/-. The addition in respect of the balance outstanding to the sundry creditors for hire charges had been .....

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e assessee and this fact has been verified by the Department from the creditors themselves. It is well settled that though findings recorded in the assessment proceedings may constitute evidence in the course of penalty proceedings, they cannot be regarded as conclusive. The Tribunal in assessment proceedings had restored both the additions made by the Assessing Officer but the findings of the Tribunal in assessment proceedings were not conclusive and binding on a Coordinate Bench of the Tribuna .....

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tions positively indicated that it would be unsafe to infer that the assessee was guilty of concealment of income or furnishing of inaccurate particulars thereof. The ld. CIT(A) relied on the case Narita Investment (P) vs. CIT [311 ITR (AT) 398, [Mumbai] (The assessee was a builders and was following the completed project method of accounting…….. Penalty could not be imposed) In this case it was held that penalty could not be imposed. The ld. CIT (A) further relied on the case of C .....

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ars 1987-88 and 1989-90, it was noticed by the Assessing Officer that the assessee had advanced unsecured loans of ₹ 19,42,049 and ₹ 8,55,833/- to its sister concern in both the assessment years under consideration for which no interest was charged by the assessee……. Mere addition made by the Assessing Officer and confirmed by the CIT (A) was not a ground for levying penalty u/s 271(1)(c ). Accordingly the order levying the penalty was cancelled. These decisions are squ .....

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amount was added to the income of the assessee on account of valuation of stock in process. It is submitted that so far as this amount is concerned, the assessee has duly furnished complete particulars regarding the change in the method of valuation of stock in process from cost plus expenses to estimated realizable value and the said fact was also disclosed by way of Note No.18 to Schedule-15 being Notes on Accounts to the Annual Accounts ( PBP No.10). Further, in the tax audit report it was al .....

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t showing method of valuation of closing stock in trade against process stock it is duly mentioned that the same is valued at estimated net realizable value. Thus, complete disclosure was made by the assessee company in the return of income and in fact even the Assessing Officer has mentioned in the assessment order that it has been noticed from Annexure-B to the audit report pertaining to method of accounting employed that valuation of stock in process has been changed from cost plus expenses t .....

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of the state of affairs of the company at the end of the financial year and every profit and loss account of a company shall show a true and fair view of the profit or loss of a company at the end of the financial year. The balance sheet as well as profit and loss account are required to be prepared as per Schedule VI to the Companies Act. In order to ensure that both these accounting statements present the state of affairs of the company as per the requirements of the Companies Act, specific p .....

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d Accountants Act, 1949, as may be prescribed by the Central Government in consultation with the National Advisory Committee on accounting standards established under subsection (1) of section 210A. The Accounting Standards-2 issued by the Institute of Chartered Accountants of India has been made mandatory in the case of companies. This Accounting Standard deals with valuation of inventories. As per clause 5 of this Accounting Standards-2, inventories should be valued at lower of cost or net rea .....

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d the Ajmer Vidhyut Vithran Nigam Limited had issued notice for recovery of their dues and in exercise of powers conferred under Rajasthan Land Revenue Act 1956 it attached the entire plant & office of the Thread Division at Raila on 19.10,2001. As the production had stopped the net realizable value of stock of work in process had gone down substantially and the assessee had also furnished a statement showing the working of net realizable value of work in process. (PBP No.15). The learned As .....

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rectly done the valuation by following the Companies Act as well as the accounting standards. In this case the assessee company had claimed deduction by reducing the value of stock which course of action was not accepted by the Assessing Officer. If there is some decline in the value of stock at the end of the year the same has to be given effect to in the annual accounts and the assessee has claimed such deduction by making complete disclosure in this regard. The Assessing Officer took a differ .....

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egard is placed on the decision of Himachal Pradesh High Court in case of CIT vs. HP State Forest Corporation Limited reported in 340 ITR 204. (PBP No.40-41) In the said case the assessee was engaged in the business of extraction of timber and resin from forests. During the course of assessment proceedings it was noticed by the Assessing Officer that the assessee had reduced its closing stock of certain amount on account of deterioration of old stock. The addition was confirmed by the appellate .....

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naccurate. The same facts can be given two interpretations. If the interpretation given is plausible, though not accepted by the assessing authority, it cannot be said that the statement of particular is so inaccurate or erroneous as to invite imposition of penalty. True it is, that mens rea is not required to be proved. When mens rea is proved, it shows that the person had an intention of evading payment of tax by illegal means. Merely because a wrong interpretation to the same set of facts is .....

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ting estimate of reducing the value of closing stock of non moving items by 10%, 25% and 50% according to their holding period. The Assessing Officer disallowed this claims and initiated penalty proceedings under section 271(1)(c ) of the IT Act and he imposed penalty at 100% of the amount of tax sought to be evaded. The CIT(Appeals) deleted the penalty and held that in respect of under valuation of closing stock the assessee has explained reasons for claiming aging discount in respect of stock .....

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sessee made a bonafide claim of placing estimated realizable value of its slow moving articles of closing stock after following a policy of prudent accountancy and has also fully disclosed all relevant particulars along with its detailed explanation which has not been found to be not bonafide. It was also held that the additions sustained in quantum appeal by itself is not sufficient to levy penalty under the provisions of section 271(1)(c ) unless the Assessing Officer proves that the explanati .....

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cealment of income. The Commissioner of Appeals affirmed the order of the Assessing Officer but on second appeal the Tribunal held that the assessee had declared the entire material in the return of income and merely because a claim of a deduction on account of loss incurred in the capital field as revenue loss was not allowed, it would not make it liable for penalty for concealment of income or furnishing of inaccurate particulars of such income. It, therefore, deleted the penalty. It was held .....

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said case it was held that where the assessee had not included the value of rejected goods in his stock due to bonafide mistake no penalty under the provisions of section 271(1)( c) was imposable. Reliance is also placed on the decision of Hon ble Gujarat High Court in the case of BTX Chemicals vs. CIT reported in 288 ITR 196. In the said case it was held that where the assessee has claimed double deduction for loss of stock due to fire, once by debiting the same in the P & L account and by .....

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