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Issues involved: Assessment of penalty u/s 271(1)(c) for difference in stock valuation between bank statement and books of accounts.
Summary: The appeal pertains to the assessment year 2001-2002 challenging the penalty imposed u/s 271(1)(c) by the Ld CIT(A) for a variance in stock valuation between the bank statement and books of accounts. The AO added an amount due to the difference in closing stock values as per the stock statement submitted to the bank and the P&L account. The penalty was confirmed by the CIT(A), leading to the second appeal by the assessee. The assessee contended that the stock valuation was inflated to secure a higher loan amount from the bank, not with the intention of concealing income. The assessee cited precedents to support the argument that non-acceptance of explanation does not warrant penalty. The Revenue, however, maintained that the penalty was justified due to inaccurate particulars furnished by the assessee. Upon review of submissions and orders, it was observed that the stock statement to the bank was for loan purposes and did not indicate deliberate concealment of income. The practice of showing inflated stock values to banks for financial benefits was considered common in business circles. Citing the decision of the Calcutta High Court, it was concluded that penalty u/s 271(1)(c) cannot be imposed solely based on figures provided to the bank for loan purposes. Consequently, the penalty was deemed unjustified, and the appeal of the assessee was allowed. In conclusion, the penalty u/s 271(1)(c) for the variance in stock valuation between the bank statement and books of accounts was deemed unwarranted, and the lower authorities' orders were set aside in favor of the assessee.
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