2012 (12) TMI 20 - AT - Income Tax

Penalty u/s 271(1)(c) - addition due to difference in valuation of closing stock of diamonds - failure of assessee to produce stock register, show movement of goods - Revenue contended that assessee had valued the closing stock in an arbitrary manner to suit its convenience - Held that - Every lot of diamond is expensive and unless and until the stocks are dealt with care and accuracy one cannot arrive at the profit or loss gained out of such purchases and sales. It is very much possible to list out all the pieces of diamonds purchased in a lot and the total cost apportioned to each of them on a scientific basis. Cost of each piece of diamond however small it may be, can be determined. In such circumstances there should not be any difficulty in arriving at the value of closing stock in hand. When the facts being so, the assessee has grossly erred and defied by not maintaining stock register in such a fashion so as to arrive at the correct value of the closing stock, or, did not produce the same before the Revenue, but has proceeded to value the closing stock in some method to suit its convenience. The learned AO had also made a clear finding that the assessee was valuing the closing stock every year based on different methods. Penalty levied for furnishing inaccurate particulars by invoking proceedings u/s 271(1)(c) is justifiable and therefore we uphold the same - Decided against assessee

Summary

Issues involved:
1. Penalty levied under section 271(1)(c) of the IT Act for assessment year 2006-07 based on difference in valuation of closing stock.
2. Whether penalty for furnishing inaccurate particulars is justified.

Detailed analysis:
1. The appellant, a firm engaged in the business of diamond purchases and sales, appealed against the penalty imposed by the AO for a difference in valuation of closing stock. The AO made an addition due to various reasons, including the failure to maintain proper stock registers and provide detailed movement of goods. The appellant argued that the stock was valued consistently at the average rate and provided reasons for the valuation method used. However, the AO rejected these arguments and relied on audit reports and case laws to support the penalty imposition.

2. The CIT(A) deleted the penalty, stating that the addition was based on estimation without concrete evidence of concealment or inaccurate particulars. The CIT(A) emphasized that the confirmation of an addition does not automatically warrant a penalty unless there is conclusive proof of concealment or inaccuracies. The CIT(A) highlighted that penalties should not be levied mechanically and that estimations do not necessarily indicate concealment. The CIT(A) referred to various court decisions supporting this view.

3. The revenue appealed the CIT(A)'s decision, arguing that the appellant failed to provide necessary details regarding stock registers and valuation. The revenue contended that the appellant valued the closing stock arbitrarily. The AR reiterated that penalties cannot be imposed based on estimated additions.

4. The Tribunal disagreed with the AR's arguments, emphasizing the importance of accurate valuation in the diamond industry. The Tribunal noted that diamonds, regardless of size, hold significant value and should be meticulously accounted for. The Tribunal criticized the appellant for not maintaining proper stock registers and valuing closing stock inconsistently. The Tribunal supported the AO's penalty imposition based on the appellant's negligence and willful default in maintaining accounts as required by law. The Tribunal cited relevant court decisions to justify upholding the penalty under section 271(1)(c) of the IT Act.

In conclusion, the Tribunal dismissed the revenue's appeal and upheld the penalty imposed by the AO for furnishing inaccurate particulars regarding the valuation of closing stock.