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TMI Blog2022 (2) TMI 1089X X X X Extracts X X X X X X X X Extracts X X X X ..... e devoid of any merit and hence dismissed. Alternative plea taken by the assessee to this effect that in the event the addition is confirmed and the closing stock is valued on higher side then addition so confirmed may be added to opening stock of succeeding year i.e. A.Y. 2011-12 as per the settled amounting principle being closing stock of A.Y. 2010-11 would be the opening stock of A.Y. 2011-12. DR has not been able to controvert such submissions made by the Ld. Senior Counsel appearing before us for the assessee. We also do not find such prayer as unjustified and hence we direct the Ld. AO to pass orders of addition to the opening stock of the succeeding year i.e. for A.Y. 2011-12. Penalty under Section 271(1)(c) - Undervaluation of closing stock - HELD THAT:- We do not find any case of conscious concealment of any income by the assessee nor furnishing any inaccurate particulars of income by the assessee. It is also apparent from the records that the appellant had valued the closing at lower of the cost price on account of deterioration of old stock. AO has not accepted such valuation made by the assessee mainly on the ground that since the assessee valuing the closin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additions were received by the appellant on 13.02.2015 upon perusal of which the assessee was of the opinion that closing stock of the year in question would become the opening stock of the immediately succeeding year and, therefore, the addition was revenue neutral and no appeal before us was, therefore, filed. 5. On the other hand, the penalty imposed to the tune of ₹ 42,31,789/- under Section 271(1)(c) of the Act on the basis of the addition made in respect of undervaluation of the closing stock was challenged before the First Appellate Authority. 6. During the appellate proceeding in regard to the penalty matter the assessee felt some indication of confirmation of penalty on the basis of the addition made in the quantum proceeding. At that juncture on the basis of the advice given by the Ld. Advocate, quantum appeal has been preferred before us against the order passed by the Ld. CIT(A). Hence, the delay of 915 days in preferring such appeal before us. 7. The reason so narrated by the appellant that too by way of an affidavit affirmed on 26.01.2021 seems to be justified. Hence, we condone the delay. 8. The brief fact leading to the case is this that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings, further observed that there was an opening stock of paper mill scale of ₹ 8,09,400/- at the beginning of the year although no sales were made during the year, no closing stock was shown by the appellant. It was further noticed that the closing stock of loose mill scale was shown at a rate lower than the cost price. The appellant was asked to explain the reasons for the same. In response, the Appellant furnished the details regarding stock purchased at Mumbai and Bhavnagar. The appellant further submitted that the stock lying at Mumbai remained unsold as it was of inferior quantity and thus the same was valued at 50% of the average purchase price of goods purchased during the year. However, the ld. AO did not appreciate the facts submitted by the Appellant and was of the view that there had been undervaluation of the closing stock by the appellant. Accordingly, the Ld. AO made an addition of ₹ 1,36,95,109/- on account of alleged under valuation of closing stock. 6.2 In this connection, the Appellant most respectfully submits that the detail explanation was given regarding the closing stock, which is reproduced in the assessment order. It was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d taken closing stock at ₹ 1,91,52,750/- only and therefore the difference amount was being added. The contentions of the Ld. A.R. are that the stock at Mumbai was of inferior quality and therefore it was valued at 50% of the average purchase price and hence the addition was unwarranted. 5.3 Having considered the facts of the matter, I am not inclined to accept the contentions of the A.R.. For the detailed reasoning given in the assessment order A.O. came to the finding that the closing stock was under valued by the appellant. The contentions of the A.R. are general and vague. They do not controvert the specific findings given by the A.O regarding the closing stock at Bhavnagar and Mumbai. Impugned addition of ₹ 1,36,95,109/- is upheld. Ground no.3 is dismissed. 4.4 In view of finding at para-3.3, ground no.4 has become infructuous and is dismissed as such. Further A.O. made adopt the value of the closing stock assessed in the year under consideration as the opening stock in the succeeding year, provided that the appellant valued the closing stock of the succeeding year correctly. 13. It appears that at the Bhavnagar office the opening stock of paper mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is dealing in Mills scales which is a flaky surface or, hot rotted steel. Mittal scale is formed on the outer surfaces of plates, sheets of profiles when they are being produced by rolling red hot iron or steel billets in rolling mills. Mill scale is bluish black in color. Mill scale is a nuisance when the steel is to be processed Any paint applied over it is wasted, since it will come off with the scale as moisture-laden air gets under it. Mill scale generated in rolling mills are collected and sent to a sinter plant for recycling. There are no Sinters plants for recycling; of Mills scale or other technology in India but your Appellant was successful in finding buyer is from foreign countries and had been exporting it past few years. Majority the mills scale was exported to China since there was huge demand of steel and they had technology to produce steel from the Mills scale. Mills scale was procured from various Steel plants across the country, it was purchased from price ranging Nil to ₹ 2,450 per MT depending upon the quality, the urgency to the mill owner to discard it and the distance from our godowns at Mumbai and Bhavnagar, Most of the Steel plant owners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. The same facts can be given two interpretations. If the interpretation given is plausible though not accepted by the assessing authority it cannot be said that the statement of particulars is as inaccurate or erroneous as to invite imposition of penalty. Merely because a wrong interpretation to the same set of facts is given would not, mean that the assessee reliable to pay penalty also. Penalty is by its very nature penal and somebody is being punished for an act is unjustified. The apex Court in Reliance Petro Products case (supra) has clearly laid down that merely because the assessee makes a claim which is not sustainable in law, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Your Appellant had valued the closing at lower of the cost price on account of deterioration of old stock. This was being done on estimation on the basis of the offers received from various importers. The Learned Assessing Officer has not accepted mainly on the ground that since we have been valuing the closing AT COST method, the same should have been adopted. We beg to submit that, your Appellant has not furnished any inaccurate particulars of income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of ₹ 8,09,400/- at Bhavnagar at the beginning of the year; at the end of the year there was no dosing stock; further, no sales were re-corded during the year, it was further seen that the dosing stock of the loose mill scale was taken at the rate lower than the cost price, as per auditor's report the dosing stock should have been valued at cost price and therefore closing stock at Mumbai was being valued at cost price; the value of the stock at Bhavnagar and at Mumbai totals to ₹ 3,28,47,859/-, as against which appellant had taken closing stock, at Rs. l,9l,52,750/- only and therefore the difference amount was being added. The contentions of the Ld. A.R. are that the stock at Mumbai was of inferior quality and therefore it was valued at 50% of the average purchase price and hence the addition was unwarranted. 5.3 Having considered the facts of the matter, I am not inclined to accept the contentions of the A.R. For the detailed reasoning given in the assessment, order A.O. came to the finding that the closing stock was under-valued by the appellant. The contentions of the A.R. are general and vague. They do not controvert the specific findings given by the A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as lying in open for more than 12 months, it had caught lot of humidity and also dust particles. Due to this, quality of these goods deteriorated. Since for export to China, there was stringent quality control this stock could not be sold at the normal price and the appellant was getting offers for export at, less than 50% of the cost price. Hence, the appellant considered rate of ₹ 370 per MT for valuation of the stock. As said above, the appellant has repeated its contention regarding reason for under valuation of stock during assessment proceedings, penalty proceedings and appellate proceedings for penalty. After thoroughly considering explanation filed by the appellant for under valuation of stock, it is felt that it lacks of substance. There is also an inherent contradiction in the submissions of the appellant. On one side it says that since price offered by the potential buyers were far below the cost price therefore it decided not the sell stock. On the other side, it says that since stock was lying in open for long period because of not selling, quality of the stock deteriorated. And therefore, it was getting price offers at only 50% of the cost. This is a catch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant that the stock should have been valued at cost . This is mentioned in the Audit Report. This fact is not denied by the appellant. Once this was pointed by the auditor, the appellant should have realized that what it was doing was not legally correct and it could have and should have rectified the mistake. However, it did not do so. Therefore, the malafide of the appellant in undervaluation of stock is clearly established. Further, it is on record that the appellant did not file appeal before the hon'ble ITAT, Ahmedabad against the above order of CIT(A) confirming the addition on account of undervaluation of stock. It is only during the present appeal proceedings when the appellant was asked whether it has filed appeal against order of CIT(A) or not, during hearing on 16-10-2017, the appellant submitted that on 16- 10-2017 it has filed an appeal before hon'ble ITAT, Ahmedabad against order of CIT(A)'s order. It also filed copy of Form 36 filed before the hon'ble ITAT, Ahmedabad. However, Form 36 does not bear any stamp of ITAT, Ahmedabad except that it is mentioned on Form 36 as follows:- Recd. One appeal Sd/- 16.10.2017 This clearly e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f inaccurate particulars of income of the assessee. The case of furnishing of any inaccurate particulars of income is not apparent from the record itself neither the books of account has been rejected, nor any case of creating false evidence has been made by the Revenue. On this aspect we have considered the judgment passed by the Hon ble ITAT Chandigarh Bench in the case of Durga Traders vs. Income Tax Officer, reported in 90 TTJ 0767 where it has been held that notwithstanding addition of assessee s income on account of undervaluation of closing stock in the absence of any circumstances justifying the interference that assessee has consciously concealed its income, penalty under Section 271(1)(c) was not warranted. In that view of the matter respectfully relying upon the same we do not find the order passed by the Ld. AO confirmed by the Ld. CIT(A) in imposing penalty for furnishing inaccurate particulars of income and thereby concealment of particulars of income of the assessee is justified. Hence, we quash the impugned order of penalty. 23. Ground No.6:- This ground is general in nature and needs no separate adjudication. 24. In the combined results, the appeal prefe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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