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TMI Blog2016 (5) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... deleting the penalty levied u/s.271(1)(c) on undervaluation of WIP by Rs. 1,95,00,000, without appreciating the fact that by doing so the assessee has deviated from the method of accounting consistently followed by it to lower its taxable income for the year under consideration. " On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the penalty levied u/s.271(1)(c) on undervaluation of WIP by Rs. 1,95,00,000, without appreciating the fact that WIP has to be valued at cost whereas the method adopted by the assesee is arbitrary and adhoc. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the ITO/AC/DCIT be restored." 3. At the time of hearing before us, none appeared on behalf of the assessee company when the appeal was called for hearing. There was also no appearance by the assessee company on the earlier occasion when the appeal was fixed for hearing on 09-07-2014. The notices were duly served on the assessee company even through the ld. DR . The ld. Counsel for the assessee company filed letter for adjournment on the hearing fixed on 02-03-2015, however, the Bench did not function on 02-03-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment orders dated 31.01.2006 passed u/s 143(3) of the Act, which was decided in favour of the Revenue by the learned CIT(A) vide appellate orders dated 20th December, 2007. The said orders of the learned CIT(A) dated 20.12.2007 were accepted by the assessee company and it attained finality as the assessee company chose not to file second appeal with the Tribunal. During the course of the penalty proceedings u/s 271(1)(c ) of the Act, the A.O. held that claiming excessive deduction amounts to concealment of income and either suppression of receipts or exaggeration of expenditure are attempts to reduce the taxable income and penalty u/s 271(1)(c) of the Act is imposable in the instant case and in support the following decisions have been relied upon:- 1. CIT v. India Sea Foods, 105 ITR 708 (Ker) 2. Naginchand Shiv Sahai v. CIT, 61 ITR 534 3. CIT v. Gates Foam & Rubber Co., 91 ITR 467 (Ker). The AO held that the assessee being a company is required to maintain its books of accounts which reflect true picture of the transaction. The A.O. also relied upon the decision of Hon'ble Madras High Court in the case of L.K. Sheikh Mohammed Bros v. CIT (1977) 110 ITR 808 (Madras). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomers. As the Textile Industry is passing through a lean period since last few years, the customers have not fulfilled their commitments and have not taken deliveries. The Company is trying to utilize the materials in other similar jobs and has obtained the technical evaluation regarding the valuation of these materials and accordingly stocks have been carried at net realizable value. Reduction for diminution in value of inventories Rs. 19,500 thousands and Doubtful advances written off Rs. 5,900 thousands have been considered in Schedule "II" of the Balance Sheet." The assessee company submitted that there is no change in the method of valuation of inventory and the deduction in the value of the inventory was necessitated by the mandatory provisions of AS-2 issued by the ICAI and section 145 of the Act. The said reduced value of WIP has been disclosed in the accounts and there is no concealment of facts. The assessee company relied upon the decision of Hon'ble Supreme Court in the case of CIT v. Reliance Petro Products Private Limited , (2010) 189 Taxman 322(SC) and the decision of Pune Bench of ITAT in the case of Tetra Packs India Limited in which 49 petitions have been di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on net realizable value which was lower than the cost by Rs. 1.95 crores , the goods were been manufactured by the assessee company as to the client specifications. There is a proper declaration of the adoption of said reduced closing WIP by Rs. 1.95 crores in the return of income filed with the Revenue and also in the Audited Balance Sheet as also in the audit report filed with the Revenue. The quantum additions of Rs. 1.95 crores have been made by the Revenue with respect to devaluation of the closing WIP by Rs. 1.95 crores, which were confirmed by the learned CIT(A) against which the assessee company has not filed second appeal with the Tribunal and the same attained finality. But the mere acceptance of quantum additions by the tax-payer are not sufficient enough to fasten and saddle the tax-payer with the penalty u/s 271(1)(c) of the Act is now the settled proposition of law. The Revenue has to prove that the tax-payer has furnished in-accurate particulars of income or concealed the particulars of income and the tax-payer offers no explanation or the explanation is found to be false , or such person offers an explanation which he is not able to substantiate and fails to prove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defraud revenue , by concealing particulars of income or furnishing of inaccurate particulars of income. The assessee company made a bona-fide claim which ultimately did not found favour with the Revenue . Proper disclosures were made in the return of income filed with the Revenue and in the Audited Balance Sheet and the Auditor' report . The said explanations were also furnished during the assessment and the first appellate proceedings before the learned CIT(A) in quantum additions albeit not accepted. The assessee company has discharged its primary onus so far as penalty proceedings u/s 271(1)(c) of the Act are concerned by bringing forth bona-fide explanation duly substantiated by the reasons for devaluing closing WIP being inventories by Rs. 1.95 crores as per reasons set out above, which is not rebutted by the Revenue with cogent incriminating or adverse material or to show that there was an deliberate attempt on part of the assessee company to evade taxes or defraud revenue. The said claim of reduced closing WIP by Rs. 1.95 crores made by the assessee company backed with technical evaluation obtained on net realizable value being lower than cost , is consistent with Accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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