2019 (2) TMI 359 - AT - Income Tax

Penalty u/s 271(1)(c) - Discrepancy or deficiency in the closing stock of the assessee - benefit of the higher valuation of closing stock by revising its opening stock of the subsequent year - Held that - We find that in Form No. 3CD the assessee in column No. 14(a) has specified the method of valuation of closing stock employed during the year gem stones at cost and foodgrains at market price . Since, closing stock of foodgrains were valued at market price, therefore, there was no question of adopting the FIFO method for the purpose of valuation. Further, the AO has not pointed out any inconsistency in the method adopted by the assessee in comparison to the earlier years and in the subsequent years. Thus, once the assessee has been consistently valuing its closing stock of foodgrains (Dal) at market price then, effect it will be Revenue neutral as the closing stock of preceding year is taken as opening stock of the subsequent year. Apart from applying a different method the AO did not find any other discrepancy or deficiency in the closing stock of the assessee. The assessee before us has also not taken the benefit of the higher valuation of closing stock by revising its opening stock of the subsequent year, therefore, the addition made by the AO in the year under consideration will not ipso facto amount to furnishing of inaccurate of income or concealment of particulars of income. Even otherwise when it is a regular and consistent method applied by the assessee and not a case of any change of method for valuation of closing stock during the year under consideration then, the mere addition on account of valuation of closing stock by adopting a different method will not attract the penalty U/s 271(1)(c) of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2014-15 based on the undervaluation of closing stock of various Dals by the Assessing Officer.

Analysis:
1. The appeal was against the penalty order passed under section 271(1)(c) of the IT Act for the assessment year 2014-15. The Assessing Officer (AO) had made an addition on account of undervaluation of closing stock of various Dals by taking the value at cost instead of the valuation adopted by the assessee at market rate, resulting in an addition of ?6,80,767. The assessee did not challenge this addition but contested the penalty. The contention was that the valuation of closing stock does not impact the profit as it becomes the opening stock of the next year, hence not furnishing inaccurate particulars of income. However, the CIT(A) upheld the penalty.

2. The assessee argued that they consistently followed a method of valuation disclosed in Form 3CD, valuing gemstones at cost and foodgrains at market price. The AO applied FIFO method to value the closing stock differently from the assessee, leading to the penalty imposition. The assessee maintained that the valuation method did not affect revenue or profit since the closing stock would become the opening stock of the subsequent year. The assessee also cited a similar case before the Tribunal where a penalty was deleted in a comparable situation.

3. The Tribunal noted that the assessee consistently valued the closing stock of foodgrains at market price, as disclosed in Form No. 3CD. The AO's application of FIFO method and valuation at cost was deemed incorrect as it did not align with the assessee's consistent method without any inconsistency in previous or subsequent years. The Tribunal referred to a previous case where a penalty was deleted due to a similar valuation discrepancy, emphasizing that the addition on account of closing stock valuation by a different method does not automatically attract penalty under section 271(1)(c) when the assessee did not revise the subsequent year's opening stock based on the AO's valuation.

4. The Tribunal concluded that the penalty under section 271(1)(c) was not justified in this case, considering the consistent valuation method followed by the assessee and the lack of discrepancy or change in method during the relevant assessment year. Following the precedent set by a previous case, the Tribunal allowed the appeal filed by the assessee, thereby deleting the penalty imposed by the AO.

In summary, the judgment focused on the consistent valuation method employed by the assessee for closing stock, highlighting that a mere difference in valuation method by the AO does not warrant a penalty under section 271(1)(c) when the assessee's method remains consistent and revenue-neutral.