2012 (11) TMI 416 - AT - Income Tax

Surplus/shortage of closing stock - suppression of purchases of maida and soji - Held that - Persuing the copy of the reconciliation statement of the quantitative details as per the statement of accounts and as per the audited accounts of the closing stock of raw-material and the finished goods, as filed by the assessee the assessee has tried to explain the reasons for the difference in the two statements of accounts of the closing stock in the written submissions filed before the CIT(A). However, in such type of case, at the most the value of the difference between the stock as per the statement of accounts and stock as per the audited quantitative details of raw-material and finished goods of closing stock could be added as income in the hands of the assessee. Thus the actual difference is slightly more in besan account as per the two account statements and which comes to 9.826 MTs and the value thereof comes to Rs.2,47,850/- and accordingly, the addition on account of difference in besan account is restricted to Rs.2,50,000/- . In other accounts of maida, soji and atta there is in fact shortfall thus the total addition is sustained at Rs.3,00,000/- out of the addition of Rs.19.33 lakhs and Rs.7.42 lakhs sustained by the CIT(A) - partly in favour of assessee. Penalty u/s 271(1)(c) - Held that - It was the assessee who has filed both the accounts statements with regard to quantitative details of the raw-material and finished goods in various products and they were filed by the assessee at the time of assessment itself. The assessee has filed a reconciliation statement and has tried to reconcile the two statements of account. The mistake on account of difference in two accounts is clearly bona fide and merely because the some part of the addition made on that ground has been sustained by the Tribunal, is no ground to visit the assessee with the penalty under Section 271(1)(c) - in favour of assessee.

Summary

Issues:
1. Discrepancy in closing stock valuation and alleged suppression of purchases.
2. Validity of penalty under Section 271(1)(c) of the Act.

Analysis:

Issue 1: Discrepancy in closing stock valuation and alleged suppression of purchases:
The appeal involved a dispute regarding the addition of Rs.19,33,443 by the AO on account of alleged suppression of purchases of maida and soji, and an additional Rs.7,42,391 on account of surplus/shortage of closing stock. The assessee contended that there was a mistake in the accounts statement and provided a reconciliation statement to support their case. The assessee argued that even if there was a difference in the closing stock valuation, it should be restricted to Rs.1,95,763. The DR opposed the submissions, highlighting the discrepancies in the closing stock quantities. The Tribunal carefully reviewed the submissions, account statements, and reconciliation statement. It concluded that the addition should be restricted to Rs.3,00,000, with specific adjustments made for besan, maida, soji, and atta. The Tribunal found the explanation provided by the assessee to be reasonable and partially allowed the appeal.

Issue 2: Validity of penalty under Section 271(1)(c) of the Act:
The Revenue's appeal centered on the validity of the penalty imposed under Section 271(1)(c) of the Act. The DR argued that no mens rea needed to be proved for the penalty and relied on the AO's order. The assessee contended that their explanation was bona fide and no material suggested otherwise. The Tribunal observed that the assessee had submitted both accounts statements and a reconciliation statement during assessment. It found the mistake in the accounts to be bona fide and held that sustaining part of the addition did not warrant a penalty under Section 271(1)(c) of the Act. The Tribunal confirmed the CIT(A)'s decision, dismissing the Revenue's grounds on this issue.

In conclusion, the Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal, emphasizing the importance of bona fide explanations and reasonable adjustments in tax assessments.