9911796707
TMI Blog2017 (2) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... ther relief as may be deemed just and proper by your Honours considering the factual and legal aspects of the case of the appellant. 4) The Appellant craves leave to add, amend, alter, delete, substitute or modify any or all of the Grounds of Grounds of Appeal. 2. Briefly stated facts as culled out from the records are that assessee is a partnership firm engaged in the business of purchasing/ importing rough diamonds, manufacturing and polishing diamonds on job work basis and sale/export of diamonds. Return of income for Asst. Year 2007-08 filed on 31.10.2007 showing total income of Rs. 95,48,996/- which was further revised to Rs. 96,71,589/- vide revised return filed on 8.9.2008. Case was selected for scrutiny assessment and notice u/s 143(2) of the Act followed by notice u/s 142(1) of the Act was issued requesting the assessee to furnish necessary details and the same were filed during the course of assessment proceedings and were duly verified on record. In the course of assessment proceedings ld. Assessing Officer observed that assessee is constently following method of valuing closing stock at "cost or market value whichever is less". Ld. Assessing Officer also observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee during the assessment as well as the penalty proceedings. These circumstances and/or state of evidence could themselves justify imposition of penalty with the lower admission of the assessee set on record. Thus second condition as laid down by the Hon'ble High Court is also satisfied. Thus, the following points emerge as regards to the penalty proceedings: (i) The assessee has failed to give any justification or acceptable explanation for charge of concealment; (ii) The assessee has willfully furnished return of lower income in order to evade taxes by established under-reporting of income by way of unlawful claims; The jurisdictional Tribunal in the case of DCIT Vs. Smt. Jayshree M. Pethani, ITAT, Ahmedabad Bench-A, IT(SS)A No.l69/Ahd/2002 has laid down the following five tests for determination of culpability and levy of penalty:- (a) Intention of the assessee from the date of filing of return of income and subsequent proceedings till conclusion of the same: In the instant case there has been intentional act of earning unaccounted income. (b) Presence of any deliberate attempt on part of the assessee to defraud Revenue: In :the instant case there has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of Section 271(l)(c) of the Income-tax Act, 1961. 6.2 Therefore, I am satisfied that there is an element of concealment of income by way of furnishing of inaccurate particulars and this a fit case for levy of penalty u/s 271(l)(c). 5. Aggrieved with the penalty order u/s 271(1)(c) of the Act assessee filed appeal before ld. CIT(A) but was unable to succeed as the penalty order u/s 271(1)(c) of the Act was confirmed by ld. CIT(A) by observing as follows :- 4. I have considered the penalty order, the assessment order, the order of CIT(A) and the order of the I.T.A.T. in quantum appeal. I have also gone through the submissions of the appellant. As regards of the appellant's plea that the Hon'ble Gujarat High Court has admitted the appeal of the appellant filed against the order of Hon'ble ITAT passed in the quantum appeal proceedings and the judgement of Tribunal including the Hon'ble Jurisdictional Bench of Ahmedabad that when the High Court admits substantial question of Jaw on an addition, the addition is certainly debatable and in such addition, penalty u/s.271(1)(c) cannot be levied, the Hon'ble Jurisdictional High Court in the case of CIT-I vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e quantum appeal has clearly held as under: "10. If we consider the entire details, it is obvious that the assessee has taken the inventory of the closing stock item wise, however, neither the cost nor the market value of each lot is given by the assessee. In the next year, the assessee continued its business of purchasing rough diamonds, its cutting and polishing and sale of polished diamonds. Sale of diamond was at different rates varying from Rs. 1212/- per carat to Rs. 44,076 per carat. The assessee has picked up the sale instances where the diamonds were sold at a price below the cost price and ignored the sale instances where the diamonds were sold at a price much higher than the cost price. As we have already mentioned the value of diamond varies because of quality as well as size of the diamonds. This value varies in the case of rough diamonds as well as polished diamonds. The assessee has not given either the cost or market value of each lot of closing stock of diamonds. If we peruse the sale given by the assessee, we find that the sale value of the diamond varies from Rs. 1212/- per carat to Rs. 9900/- per carat. From the sale instances given by the A.O., we find that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losing stock should not be disturbed. We are unable to accept this contention of the learned counsel, if the assessee has not valued the closing stock correctly, the A.O. can certainly made the correct valuation of the closing stock." 4.3 The facts noted above clearly prove,- that no bonafide explanation regarding valuation of closing stock has been provided by appellant hence argument of the appellant that complete details of opening stock of polished diamonds, manufacturing . expenses, purchases, sales and closing stock of diamond were provided during the course of assessment proceedings hence, it cannot be subject to levy of penalty u/s 271(1)(c) of the Act cannot be accepted as details provided for valuation of closing stock is not supported by any evidences as stated herein above and appellant has not adopted the average cost method just to reduce taxable income of current year and this attracts the provisions of section 271(1)(c) of the Act. Hon'ble Gujarat high court in case of A.M. Shah & Co 108 Taxman 137 has observed that inaccurate particulars of income means "any concealment or inaccuracy in the particulars of income in the return occurring at any stage upto and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income, have been disclosed by him, then the amount added or disallowed in computing total income of such person as a result thereof shall, for the purpose of clause (c), be deemed to represent the income in respect of which particulars have been concealed. In the present case, the explanation furnished by assessee cannot be considered as bonafide and correct, hence penalty levied by assessing officer is confirmed. Reliance is placed on decision of Hon'ble Delhi High court in case of CIT Vs Escort Finance Limited 183 Taxman 453 wherein court has held as under: "...It has been repeatedly held by the Courts that the penalty on the ground of concealment of particulars or non-disclosure of full particulars can be levied only when in the accounts/returns an item has been suppressed dishonestly or the item has been claimed fraudulently or a bogus claim has been made. When the facts are clearly disclosed in the return of income, penalty cannot be levied and merely because an amount is not allowed or taxed, it cannot be said that the assessee had filed inaccurate particulars or concealed any income chargeable to tax. Further, conscious concealment is necessary. Even if some deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 13345.87 carats. Ld. AR further submitted that assessee has details of each and every carat of stock lying as on 31.3.2007 and for the purpose of valuation assessee has to bring on record the basis of valuation at cost or market price whichever is less. Cost of the goods is already on record but for the purpose of finding out reasonable basis of sale price assessee is following consistent system in which the sales after the close of the year i.e. from April till August are taken as a basis and as there are proper quantitative records with the help of which closing stock at the end of the year can be matched to the sales made in the following months and in case the sale price per carat is less than the cost price per carat then it is applied on the related closing stock at the year end for calculating the value of closing stock and for the remaining unsold stock cost price is taken as a basis to value closing stock in order to justify the method of closing stock at "cost or market price" whichever is less. 8. Ld. AR also submitted that physical quantity in stock is not in dispute and only calculation of valuation of closing stock has been challenged by the Assessing authority. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of SSP (P) Ltd. 302 ITR 43. 4. Judgment of Hon. Punjab & Haryana High Court in the case of Rana Sugar Ltd.386 ITR 316 5. Judgment of Hon. Calcutta High Court in case of Thakur Prasad Sao and Sons (P) Ltd. 386 ITR 448 6. Order of Hon. ITAT, Ahmedabad in case of Manmohan Anandsingh Rajput ITA No. 2635/Ahd/2011 7. Judgment in the case of Kishinchand Chellaram v. CIT 125 ITR 713 (SC) 8. Judgment in the case of CIT v. Daulat Ram Rawatmull 87 ITR 349 (SC) 9. Judgment in the case of CIT vs. State Forest Corpn. Ltd. IT Appeal No.15 of 2005 (2011) 12 taxmann.com 425 (HP) 10. Judgment in the case of CIT vs. Pawan Kumar Dalmia (1987) 168 ITR 1 (Ker) 11. Judgment of ITAT, Agra in the case of Addl.CIT, Range-2, Farukabad vs. Kishan Sahakari Chini Mills Ltd. ITA No.6 (Agra) of 2011 12. Order in the case of DCIT vs. Saraya Industries Ltd., in ITA No. 1886/Del/2003 13. Order in the case of ACIR vs. Malhotra Mukesh Satpal in ITA No. 183/Pn/2003 [(2008) 113 TTJ (Pune) 401] 14. Order in the case of Durga Traders vs. ITO in ITA No.120/Chd/2003 [(2004) 90 TTJ (Chd) 767] 15. Order in the case of Tulsi Ram Tek Chand vs. ITO in ITA No.1250/ASR/1979 [(1981) 11 TTJ (AMR) 479] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worked as per the assessee's method of valuation of closing ITA No.3010/Ahd/2010 stock i.e. "cost or market value whichever is lower", the value of the closing stock works out to Rs. 10,30,98,508/-. The assessee has given the details of lot- wise physical stock of the closing stock of polished diamonds. The same is at page no.30 and 31 of the assessee's paper book which is reproduced below for ready reference: Sr.No. Description of diamonds Cts. 1 Cut & Polished Diamond 185.99 2 D/Cut Tilc + 9 Vs 1 167.93 3 D/Cut Tilc -9 Vs 1 167.14 4 D/Cut Tilc-6.5 Vs 1 110.11 5 F Cut White Vs 1 20.29 6 F Cut White Vs 1 20.55 7 F Cut White Vs 1 20.28 8 Cut & Polished Diamond 277.56 9 Cut & Polished Diamond 923.63 10 Cut & Polished Diamond 660.33 11 Cut & Polished Diamond 259.12 12 Cut & Polished Diamond 452.21 13 Cut & Polished Diamond 401.51 14 Cut & Polished Diamond 49.20 15 Cut & Polished Diamond 102.06 16 Cut & Polished Diamond 74.22 17 White D/C ND PK2 52.35 18 White D/C ND PK3 11.52 19 White Prince PK1 33.05 20 F/C White VS1 48.60 21 F/C White S11 20.44 22 F/C White VS1 113.04 23 F/C White S11 35.71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CUT & POLISHED DIAMONDS 2 9,000.00 277.56 2,498,041 2 CUT & POLISIIED DIAMONDS 4 5,100.00 660.33 3,367,683 3 CUT & POLISHED DIAMONDS 7 3,950.00 401.51 1,585,965 4 WHITE TAPPERS SI 4 7,821.00 100.00 782,100 5 WHITE TAPPERS PK -4 4 3,910.50 78.00 305 6 WHITE BUDGGETS PK -4 4 3,910.50 116.00 453,618 7 WHITE BUDGGETS SI. 3 4 8,690.00 48.00 417,120 8 CUT & POLISHED DIAMONDS 12 8,480.00 187.36 1588,813 9 CUT & POLISHED DIAMONDS 12 7,700.00 45.89 353.153 10 CUT & POLISHED DIAMONDS 1 7,594.19 250.15 1,899,687 11 WHITE BGTS PK -2 (PL) 8 9,029.05 185.55 1,675,340 12 WHITE BGTS PK -2 (PL) 8 9,029.05 11.96 107,987 13 D/C TL8 NTS SI-I (PL) 8 9,119.00 2.03 18,512 14 D/C TLB NTS PK-1 (PL) 8 8,704.05 0.54 4,700 15 CUT & POLISHED DIAMONDS 23 9,900.00 505.35 5,002,965 16 CUT & POLISHED DIAMONDS 8 8,729.43 231.32 2,019,292 17 WH BUG 1-3 12 7,150.80 0.14 1,001 18 Ml TAP BUG 1- 3 12 6,270.08 132.88 833,168 19 D/CUT TTLB PK- 12 13 569,640.00 42.97 244,774 20 D/CUT TTLB VS - 12 13 8,362.80 47.38 396,229 21 TAP/BUG TTLB PK - 12 13 3,555.20 228.96 813,999 22 D/CUT TLB PK - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r remaining stock of 3940.26 carrat, the assessee adopted cost price and accordingly determined the value of the closing stock at Rs. 10,30,98,508/- as under: i) Stock taken at market value (9461 carrat) : Rs.6,39,17,981 ii) Stock value at cost (3940.26 carrat) : Rs.3,91,08,527 Total : Rs.10,30,98,527 8. It was claimed by the assessee that out of 13,347.87 carrat of the closing stock, the market value of 9,405.61 carrat was less than the cost and therefore the assessee adopted market value while for the remaining stock of 3940.26 carrat market value was more than the cost, therefore, the assessee adopted cost price. He has also claimed that the assessee has a right of following "cost or market value whichever is lower" as its method of accounting for valuation of closing stock and such method is being consistently followed by the assessee since past several years and being accepted by the Revenue as such. 9. So far the legal argument is concerned that the assessee has right to follow "cost or market value whichever is lower" method for valuation of closing stock is concerned, we entirely agree with the assessee and hold that the assessee has the righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below: DATE BILL NO. Rate per carat In Indian Rs. 05.04.07 1 12810.68 16.04.07 2 12735.89 17.04.07 3 32108.06 10.05.07 5 12416.43 18.05.07 6 25765.22 21.05.07 7 23871.60 21.05.07 8 10346.96 25.05.07 9 11174.62 28.05.07 10 12435.00 29.05.07 11 25536.67 13.06,07 14 10165.48 18.06.07 16 11392.80 22.06.07 17 11900.27 09.07.07 20 14844.55 10.07.07 21 11398.85 11.07.07 22 11556.75 23.07.07 23 14951.70 27.07.07 24 13770.15 30.07.07 25 9494.00 31.07.07 26 15790.78 31.07.07 27 11045.66 03.08.07 29 9991.32 06.08.07 30 20809.89 07.08.07 32 11335.04 10.08.07 33 15350.86 10.08.07 34 19069.25 17.08.07 35 20062.84 20.08.07 36 44076.14 20.08.07 37 10028.13 20.08.07 38 14150.09 10. If we consider the entire details, it is obvious that the assessee has taken the inventory of the closing stock lot-wise, however, neither the cost nor the market value of each lot is given by the assessee. In the next year, the assessee continued its business of purchasing rough diamond, its cutting and polishing and sale of polished diamond. Sale of diamond was at different rates varying from Rs. 1212/- per carat to Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articular lot of closing stock of polished diamond. In the above circumstances, we agree with the revenue's contention that the assessee selected sales bills where the sale rate of diamond was comparatively lower and ignored the sale bill where sale rate was substantially higher. Therefore, we hold that the assessee was unable to establish that market value of part of closing stock of polished diamond was lower than the cost. The AO has worked out the value of closing stock on "average cost method" basis. No discrepancy in the working of the AO is pointed out by the assessee. The learned counsel for the assessee also contended that the GP/NP for the year under consideration is better than earlier years, therefore, the valuation of the closing stock should not be disturbed. We are unable to accept this contention of the learned counsel, if the assessee has not valued the closing stock ITA No.3010/Ahd/2010 correctly, the AO can certainly make the correct valuation of the closing stock. 11. The learned counsel has also made an alternate claim that if the AO changes the method of valuation of closing stock, the opening stock should also be valued in the identical manner as the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,96,08,019/-?" 13. In this appeal we are dealing with the validity of imposition of penalty u/s 271(1)(c) of the Act. We find that section 271(1)(c) of the Act has direct bearing on the controversy and therefore it is pertinent to take note of the relevant provisions of section 271(1)(c) of the Act along with explanation -1 which reads as under :- "271. Failure to furnish returns, comply with notices, concealment of income, etc. (1) The Assessing Officer or the Commissioner (Appeals) or the CIT in the of course of any proceedings under this Act, is satisfied that any person (a) and (b)** (c) has concealed the particulars of his income or furnished inaccurate particulars of such income. He may direct that such person shall pay by way of penalty. (i)and (Income-tax Officer,)** *- (iii) in the cases referred to in Clause (c) or Clause (d). in addition to tax if any, payable by him, a sum which, shall not be less than, but which shall not exceed three tunes, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefit the furnishing of inaccurate particulars of such income or fringe benefits: Explanation 1- Where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e this sale price with the cost price and if sale price was less than the cost price then such sale price was applied on the particular portion of closing stock. By way of this system assessee was having a copy of actual sale bill to prove the value of closing stock at market price which was less than the cost price. During the course of hearing ld. AR referred pages 76 & 77 of the paper book wherein sale was effected on 5th April, 2007 wherein 277.56 carat of cut and polished diamond were sold @ Rs. 9,000/- and 660.33 carat were sold @ Rs. 5,100/- and these lots of 277.56 carats and 660.33 carats were standing in the closing stock sheet as on 31.3.2007 placed at page 44 and 45 of the paper book which contains list of closing items of which market value is less than the average cost of diamonds of Rs. 9943/- per carat, in the books of account. During the course of assessment proceedings ld. Assessing Officer was not convinced with the valuation portion of closing stock being valued at market price because of the sale value taken by the assessee and the ld. Assessing Officer was not convinced with the method so adopted and accordingly he applied the average cost of Rs. 9943/- on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is given, it would not mean that the assessee was liable to pay penalty also. One should remember that penalty is by its very nature, penal and somebody is being punished for an act which is unjustified (Para 21) The Apex Court in CIT vs. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158 has clearly laid down that merely because the assessee makes a claim which is not sustainable in law, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. In the instant case, the assessee was deducting certain amount on account of deterioration of old stock. That was being done on estimation on the basis of the reports made by various officers of the Corporation. That estimation was not accepted mainly on the ground that the reports were made and resolution was passed by the board after the assessment year was over and, therefore, they could not be given retrospective benefit. It had not been found that the claim of the assessee that the wood had rotted and deteriorated was false. It was nobody's case that the assessee fudged the amounts, the books of account or tried to create false evidence. The claim made by the assessee might not have been accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 798 (SC) was rendered on 27-2-1997 holding fees payable to Registrar of Companies for increase in share capital as capital expenditure. Thus on the date of filing of the return the assessee did not have the benefit of the order of the Hon'ble Supreme Court. Therefore, penalty cannot be levied on the sum of Rs. 7,500 paid to Registrar of Companies. Further with regard to Rs. 5,71,360 not shown the assessee in the closing stock we find that the assessee admitted the mistake and the Tribunal while deciding the issue has held that this amount has to be included in the closing stock of the year under appeal and simultaneously has to be considered in the opening stock in subsequent year. Thus we find that the net result to the addition of the income of the assessee is zero as addition is made in one year whereas deduction is allowed in the subsequent year. Further the Assessing Officer as well as the CIT(A) has not allowed the deduction for payment of Rs. 25,000 to M/s. Proplus Management and Rs. 20,000 to Sh. K.K. Paul on the ground that evidence for rendering of services could not be filed. In these facts we are of the view that though the Assessing Officer was of the view tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be considered in the opening stock in subsequent year and the net result to the addition of the income of the assessee is zero on this account. Similarly, the Tribunal has given a finding with regard to the claim of deduction tor payment of Rs. 25,000 to M/s. Proplus Management and Rs. 20,000 to Sh. K.K. Paul. It cannot be said that the assessee filed inaccurate particulars of income or concealed its income. The Hon'ble Supreme Court in the case of Cement Marketing Co. of India Ltd. v. Asstt. CST[\WQ} 124JTRJL52 has held that unless the filing of an inaccurate return is accompanied by a guilty mind, penalty cannot be imposed. It has been further held that return cannot be "false" unless there is an element of deliberateness in it. Where the assessee does not include a particular item in the taxable turnover under bona fide belief that he is not liable so as to include the same, it would not be right to treat the return as a false return inviting imposition of penalty. Thus, we are of the view that the order of the Tribunal does not suffer from any illegality and no substantial question of law aiises in the appeal and the same is dismissed in iimine. 16. Further we also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to support the net realizable value, expressed his inability and pointed out that the net realizable value has been worked out on the basis of valuation as examined by the partner. One cannot believe that the assessee was not keeping the accounts of each piece of diamond. Cut and polished diamonds are sorted in different lots, sizes, qualities and these details are bound to be maintained according to the 4 Cs (cut, carat, clarity and colour) by a person who is dealing in diamonds. Whenever rough diamonds are issued, expected yield is noted on the packets and these details are verified by the assessee or its representative when cut and polished diamonds are received from the labourers. The assessee could not run its business without getting the accounts of each and every piece of diamond. The AO in this case has valued the stock at average cost which will be less than the realizable value as the assessee has shown the GP rate @ 13.81 per cent and valuing the stock at average cost, when it is less than realizable value is well recognized method of valuation of closing stock and duly recognized by AS-2 and prudency principles of accounting. The assessee in this case since could no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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