M/s. Balar Exports, Surat V. The Dy.CIT.,Cent. Circle-1, Surat

ITA 1227/AHD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9264 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-01-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 01-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAMES KURIEN
• Assessee Lawyers: S N SOPARKAR WITH PARIN SHAH
• Keywords: Depreciation; Income from undisclosed sources; Question of law; Wrong claim; Onus to prove; Revised return; Capital expenditure
• Section: 142(1); 145; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI S. S. GODARA, JM & SHRI MANISH BORAD, AM. ITA NO. 1227/AHD/2013 ASST. YEAR: 2007-08 BALAR EXPORTS, BALAR BUILDING, OPP. PANCHRATNA TOWER, LAMBE HANUMAN ROAD, SURAT. VS. DCIT, CENTRAL CIRCLE-1, SURAT. APPELLANT RESPONDENT PAN AACFB 4703H APPELLANT BY SHRI S. N. SOPARKAR, WITH PARIN SHAH, AR RESPONDENT BY SHRI JAMES KURIEN, SR.DR DATE OF HEARING: 18/01/2017 DATE OF PRONOUNCEMENT: 06/02/2017 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL OF ASSESSEE FOR ASST. YEAR 2007-08 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-II, SURAT, DATED 05 /02/2013 VIDE APPEAL NO.CIT(A)-II/CC-1/153/2011-12 ARISING OUT OF ORDER U/S 271(1)(C) OF THE IT ACT, 1961 (IN SHORT THE ACT) FRAMED ON 20.09 .2011 BY DCIT, CC-1, SURAT. ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL :- 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE ID. A. O. IN LEVYING PENALTY U/S 271(1)(C) OF THE ACT TO THE TUNE OF RS. 99,66,060/- IN RESPECT O F THE ADDITION MADE ON ACCOUNT OF ALLEGED UNDERVALUATION OF CLOSING STOCK. ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 2 2) IT IS, THEREFORE, PRAYED THAT THE ABOVE PENALTY CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MAY PLEASE BE DELETED. 3) THE APPELLANT PRAYS FOR GRANTING SUCH OTHER RELI EF 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 RECO RDS ARE THAT ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSIN ESS OF PURCHASING/ IMPORTING ROUGH DIAMONDS, MANUFACTURING AND POLISHING DIAMONDS ON JOB WORK BASIS AND SALE/EXPORT OF DIAMO NDS. RETURN OF INCOME FOR ASST. YEAR 2007-08 FILED ON 31.10.2007 S HOWING 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 SEL ECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143(2) OF THE ACT FOLLOWE D BY NOTICE U/S 142(1) OF THE ACT WAS ISSUED REQUESTING THE ASSESSE E TO FURNISH NECESSARY DETAILS AND THE SAME WERE FILED DURING TH E COURSE OF ASSESSMENT PROCEEDINGS AND WERE DULY VERIFIED ON RE CORD. IN THE COURSE OF ASSESSMENT PROCEEDINGS LD. ASSESSING OFFI CER OBSERVED THAT ASSESSEE IS CONSTENTLY FOLLOWING METHOD OF V ALUING CLOSING STOCK AT COST OR MARKET VALUE WHICHEVER IS LESS. LD. AS SESSING OFFICER ALSO OBSERVED THAT IN ORDER TO VALUE THE CLOSING STOCK A SSESSEE WAS CONSISTENTLY FOLLOWING THE SYSTEM IN WHICH THE STOC K WHICH WAS LYING AS ON 31.3.2007 I.E. CLOSE OF THE YEAR AND WAS SOLD IN SUBSEQUENT MONTHS UPTO THE DATE OF FINALIZATION OF AUDIT, ASSE SSEE USED TO TAKE OUT DETAILS OF SALE PRICE PER CARAT OF SUCH STOCK F ORMING PART OF THE CLOSING STOCK AS ON 31.3.2007. IN CASE THE SALE VAL UE OF SUCH STOCK SOLD WAS LESS THAN THE COST PRICE THEN IT WAS TAKEN AS A BASIS TO ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 3 CALCULATE CLOSING STOCK AT THE YEAR END.LD. ASSESSI NG OFFICER FURTHER MADE NECESSARY VERIFICATION AND FRAMED A VIEW THAT ASSESSEE HAS GROSSLY FAILED TO CORRECTLY VALUE THE CLOSING STOCK BY TAKING THE INSTANCES OF LOWER SALE PRICES AT HIS OWN DISCRETIO N WITH THE INTENTION TO SUPPRESS THE PROFITS AND ACCORDINGLY REJECTED TH E BOOKS OF ACCOUNT U/S 145 OF THE ACT AND CALCULATED THE CLOSING STOCK ON COST BASIS BY APPLYING THE AVERAGE COST OF 9405.61 PER CARAT ON T HE TOTAL CLOSING STOCK OF POLISHED DIAMONDS OF 13345.87 CARAT WHICH RESULTED IN VALUATION OF CLOSING STOCK AT RS.13,27,06,527/- AS AGAINST DISCLOSED CLOSING STOCK IN THE BOOKS AT RS.10,30,98,508/-. TH E DIFFERENCE AMOUNTED TO RS.2,96,08,019/- AND THE SAME WAS ADDED TO THE INCOME DISCLOSED BY THE ASSESSEE AND INCOME WAS ASS ESSED AT RS.3,92,79,608/- ALONG WITH ISSUING OF PENALTY NOTI CE U/S 274 R.W.S. 271(1)(C) OF THE ACT FOR FURNISHING OF INACCURATE P ARTICULARS AND CONCEALMENT OF INCOME. 3. IN QUANTUM APPEAL, ASSESSEE LOST BOTH BEFORE THE FIRST APPELLATE AUTHORITY AND THE INCOME-TAX APPELLATE TRIBUNAL. 4. IN THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT LD. ASSESSING OFFICER VIDE PENALTY ORDER DATED 20.09.20 11 IMPOSED PENALTY OF RS.99,66,060/- BEING 100% OF THE TAX SOU GHT TO BE EVADED BY OBSERVING AS UNDER :- 6.1 IN THE INSTANT CASE, THE DETECTION OF SUPPRESSION A ND CONCEALMENT OF INCOME AND WRONGFUL CLAIMS CLEARLY SATISFIES THAT SOME CIR CUMSTANCES LEADING TO THE REASONABLE CONCLUSION THAT THE AMOUNT DOES REPRESEN T THE ASSESSEE'S INCOME. FURTHER, THE ESTABLISHMENT OF SUPPRESSION OF INCOME AND SUBSEQUENT FAILURE IN THE PENALTY PROCEEDINGS TO ADDUCE ANY EVIDENCE IN S UPPORT OF CLAIMS MADE, CLEARLY ESTABLISHES THE ACT OF CONSCIOUS CONCEALMEN T WITH INTENTION TO EVADE ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 4 TAXES. THE UTTER FAILURE OF THE ASSESSEE TO FURNISH ANY DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CONTENTIONS CLEARLY INDICATES THE EX ISTENCE OF MENS REA AND THE GUILTY CONSCIENCE OF THE ASSESSEE DURING THE ASSESS MENT AS WELL AS THE PENALTY PROCEEDINGS. THESE CIRCUMSTANCES AND/OR STATE OF EV IDENCE COULD THEMSELVES JUSTIFY IMPOSITION OF PENALTY WITH THE LOWER ADMISS ION OF THE ASSESSEE SET ON RECORD. THUS SECOND CONDITION AS LAID DOWN BY THE H ON'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 JUSTI FICATION OR ACCEPTABLE EXPLANATION FOR CHARGE OF CONCEALMENT; (II) THE ASSESSEE HAS WILLFULLY FURNISHED RETU RN OF LOWER INCOME IN ORDER TO EVADE TAXES BY ESTABLISHED UNDER-REPORTING OF INCOM E 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 HA S LAID DOWN THE FOLLOWING FIVE TESTS FOR DETERMINATION OF CULPABILI TY AND LEVY OF PENALTY:- (A) INTENTION OF THE ASSESSEE FROM THE DATE OF FI LING OF RETURN OF INCOME AND SUBSEQUENT PROCEEDINGS TILL CONCLUSION OF THE SAME: IN THE INSTANT CASE THERE HAS BEEN IN TENTIONAL 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 DEL IBERATE ATTEMPT TO EARN UNDISCLOSED INCOME AND DEFRAUD REVENUE. (C) ACTION WITH WILLFUL INTENTION: THERE IS ACTION WITH WILLFUL INTENTION AND PLAN, AS EVIDENT FROM THE FAILURE TO SUPPORT CLAIMS AND ERRONEOUS EXPLANATIONS. (D) DELIBERATE ACTION IN DEFIANCE OF LAW:- THERE IS DEFIANCE OF LAW BY WAY OF HOLDING BACK ACT UAL INCOME. (E) CONDUCT CONTUMACIOUS OR DISHONEST OR ACTION IN CONSCIOUS DISREGARD OF LEGAL OBLIQATION-.- THERE IS ACTION IN DISHONEST MANNER BY WAY OF EARNI NG AND POSSESSION OF UNACCOUNTED CASH. ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 5 THE RAT/O AND TESTS LAID DOWN FOR LEVY OF PENALTY A S IN THE CASES OF NATIONAL TEXTILES VS CIT., 249 ITR 125 OF JURISDICTIONAL HIG H COURT AND DC/T VS. SMT. JAYSHREE M. PETHANI, IT(SS)A NO. 169/AHD/2Q02, OF J URISDICTIONAL HON'BLE IT AT, AHRNEDABAD, ARE CLEARLY APPLICABLE TO THE CASE OF T HE ASSESSEA. IN THE PENALTY PROCEEDINGS, THE ASSESSEE HAS FAILED TO ADVANCE ANY EVIDENCE IN SUPPORT OF ITS CLAIMS AND CONTENTIONS AND ALL THE A RGUMENTS OF THE ASSESSEE HAVE BEEN FOUND TO BE-OF NO CONSEQUENCE. THE ELEMENT OF ANIMUS IS BLATANT IN ASSESSEE'S EVASIVE REPLIES. THE EXPLANATION 1 TO SE CTION 271 READS AS UNDER '[EXPLANATION I.WHERE IN RESPECT OF ANY FACTS MATE RIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN EXPLANATION WHICH IS FOUND BY THE 28[ASSESSING] OFFICER OR THE [COMMISSI ONER (APPEALS)] [OR THE COMMISSIONER] TO BE FALSE, OR ' : , , , . (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE[AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMP UTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM], THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF CLAUSE (C) OF THIS SUBSECTION, BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHI CH PARTICULARS HAVE BEEN CONCEALED.' THEREFORE, THE ASSESSEE COMES UNDER THE PREVIEW OF EXPLANATION 1 OF SECTION 271 AND IS LIABLE FOR LEVY OF PENALTY U/S271(L)(C) OF THE I.T. ACT, 1961 FURTHER, LOGICALLY AND INESCAPABLY, THIS CASE FALLS WITHIN THE MISCHIEF OF SECTION 271(L)(C). THE CASE OF THE ASSESSEE CLEARLY ATTRAC TS THE PENAL PROVISION OF SECTION 271(L)(C) AND ON THE FACTS OF THE CASE, SAT ISFIED THAT THE ASSESSEE IS AT FAULT IN REGARDS TO THE PROVISION OF SECTION 271(L) (C) OF THE INCOME-TAX ACT, 1961. 6.2 THEREFORE, I AM SATISFIED THAT THERE IS AN ELEM ENT 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) O F THE ACT ASSESSEE FILED APPEAL BEFORE LD. CIT(A) BUT WAS UNA BLE TO SUCCEED AS ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 6 THE PENALTY ORDER U/S 271(1)(C) OF THE ACT WAS CONF IRMED BY LD. CIT(A) BY OBSERVING AS FOLLOWS :- 4. I HAVE CONSIDERED THE PENALTY ORDER, THE ASSESSM ENT 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 APP ELLANT'S PLEA THAT THE HON'BLE GUJARAT HIGH COURT HAS ADMITTED THE APPEAL OF THE A PPELLANT FILED AGAINST THE ORDER OF HON'BLE ITAT PASSED IN THE QUANTUM APPEAL PROCEEDINGS AND THE JUDGEMENT OF TRIBUNAL INCLUDING THE HON'BLE JURISDI CTIONAL BENCH OF AHMEDABAD THAT WHEN THE HIGH COURT ADMITS SUBSTANTIAL QUESTIO N OF JAW ON AN ADDITION, THE ADDITION IS CERTAINLY DEBATABLE AND IN SUCH ADDITIO N, PENALTY U/S.271(1)(C) CANNOT BE LEVIED, THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT-I VS PRAKASH S.VYAS IN APPEAL NO. 606 OF 2010 IN ORDER DATED 15. 11.2011, HAS HELD AS UNDER: '11. WE ARE OF THE OPINION THAT THE TRIBUNAL ERRED IN DELETING THE PENALTY ON THIS SOLE GROUND. ADMISSION OF A TAX APPEAL HIGH COURT, IN MAJORITY CASES, IS EX-PARTE AND WITHOUT RECORDING EVEN PRIMA FACIE REASONS. WHETHER EX-PARTE BY PARTE HEARING, UNLESS SOME OTHE R INTENTION CLEARLY EMERGES FROM THE ORDER ITSELF, ADMISSION OF A TAX A PPEAL HIGH COURT ONLY INDICATES THE COURT'S OPINION THAT THE ISSUE PRESEN TED BEFORE IT REQUIRED FURTHER CONSIDERATION INDICATION OF THE OPINION OF THE HIGH COURT THAT THERE IS A PRIMA FACIE CASE MADE OUT AND QUESTIONS ARE RE QUIRED TO BE DECIDED AFTER ADMISSION. MERE ADMISSION OF AN APPEAL BY THE HIGH COURT CANNOT WITHOUT THERE BEING ANYTHING BE AN INDICATION THAT THE ISSUE IS DEBATABLE ONE SO AS TO DELETE THE PENALTY UNDER SECTION 271(1 )(C) OF THE ACT AND THERE ARE INDEPENDENT GROUNDS AND REASONS TO BELIEV E THAT THE ASSESSEE'S CASE WOULD FALL UNDER THE MISCHIEF IN THE SAID CLAU SE OF SUB SECTION (1) OF SECTION 271 OF THE ACT. IN OTHER WORDS, UNLESS T HERE IS ANY INDICATION OF ORDER OF ADMISSION PASSED BY THE HIGH COURT SIMPLY BECAUSE THE TAX APPEAL IS ADMITTED, WOULD GIVE RISE TO PRESUMPTION THAT THE ISSUE IS DEBATABLE AND THAT THEREFORE, PENALTY SHOULD BE DEL ETED.' IN THE INSTANT CASE, THE HON'BLE GUJARAT HIGH COURT WHILE ADMITTING TAX APPEAL NO.834 OF 2011 HAS ORDERED AS UNDER: WE HAVE HEARD MR. J.P.SHAH, THE LEARNED COUNSEL AS SISTED BY MR. M.J.SHAH LEARNED COUNSEL FOR THE APPELLANT. ADMIT. WE FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS UNDER; 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE CLOSING STOCK OF P OLISHED DIAMONDS WAS UNDERVALUED TO THE EXTENT OF RS.2,96,08,019/-.' ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 7 4.1 THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT-I VS PRAKASH S.VYAS HAS CLARIFIED THAT MERE ADMISSION OF AN APPEAL BY T HE HONORABLE HIGH COURT CAN NOT WITHOUT THERE BEING ANYTHING BE AN INDICATION T HAT THE ISSUE IS DEBATABLE ONE SO AS TO DELETE THE PENALTY UNDER SECTION 271(1)(C) . THE INSTANT CASE IS SQUARELY COVERED BY THE ABOVE JUDGMENT AND THEREFORE, THE AP PELLANT'S CLAIM TO DELETE THE PENALTY ON THE GROUND THAT QUANTUM APPEAL HAS BEEN ADMITTED BY HONORABLE HIGH COURT, IS REJECTED 4.2 AS REGARDS MERIT OF ADDITION BY THE ASSESSING O FFICER, THE TRIBUNAL IN THE QUANTUM APPEAL HAS CLEARLY HELD AS UNDER: '10. IF WE CONSIDER THE ENTIRE DETAILS, IT IS OBVIO US 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. TH E ASSESSEE HAS PICKED UP THE SALE INSTANCES WHERE THE DIAMONDS WERE SOLD AT A PR ICE 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 T HE 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 CLOS ING 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 THE SALE OF DIAMOND WAS AS HIGH AS RS.44,076.14 PER CARAT. THEREFORE, ON THE BASIS OF THESE DETAILS, THE ONLY INFERENCE THAT CAN BE DRAWN IS THAT THE ASSESSEE HA S SELECTED THE SALE BILLS WHERE THE DIAMOND WAS SOLD AT A LESSER RATE. AT THE COST OF REPETITION, WE MAY REITERATE THAT THE DESCRIPTION AND QUANTITY GIVEN I N THE SALE INSTANCES DOES NOT TALLY WITH THE DESCRIPTION AND QUANTITY GIVEN IN TH E DETAILS OF THE LOTWISE PHYSICAL STOCK OF THE INVENTORY. IN THE ABSENCE OF SUCH CO-R ELATION THE CONTENTION OF THE ASSESSEE THAT THE MARKET VALUE OF THE PART OF THE D IAMOND WAS LOWER THAN THE COST CANNOT BE ACCEPTED. EXCEPT SOME BILLS, NO OTHE R EVIDENCE WAS PRODUCED BY THE ASSESSEE TO ESTABLISH THAT THE MARKET VALUE OF THE DIAMOND WAS LOWER THAN THE COST. WHEN ANY ASSESSEE CLAIMS THAT THE MARKET VALUE OF THE CLOSING STOCK WAS LOWER THAN THE COST, BURDEN WOULD BE UPON THE A SSESSEE TO ESTABLISH SO BY PRODUCING THE DOCUMENTARY EVIDENCE. IF THE CLOSING STOCK IS OF DIAMOND, THIS BURDEN WOULD BE EVEN HEAVIER BECAUSE THE ASSESSEE I S CLAIMING THAT THE MARKET VALUE OF 9405.61 CARAT OF THE CLOSING STOCK OF DIAM OND OUT OF THE TOTAL CLOSING STOCK OF 13,345.87 CARAT WAS LOWER THAN THE COST. N O EVIDENCE IS PRODUCED BY THE ASSESSEE TO ESTABLISH THIS CONTENTION. THE SALE BIL LS PRODUCED BY THE ASSESSEE IN RESPECT OF SALE OF DIAMONDS FROM APRIL.2007 ONWARDS CANNOT BE SAID TO BE THE EVIDENCES FOR LOWER MARKET VALUE OF THE PART OF THE CLOSING STOCK AS ON 31.03.2007 AS NEITHER DESCRIPTION NOR QUANTITY OF L OT WISE STOCK TALLIES WITH THE SALE BILLS. THE ASSESSEE HAS NOT KEPT QUALITY WISE OR LOT WISE STOCK REGISTER SO AS ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 8 TO CORRELATE SALE INSTANCES WITH PARTICULAR LOT OF LOSING STOCK OF POLISHED DIAMOND. IN THE ABOVE CIRCUMSTANCES, WE AGREE WITH THE REVEN UE'S CONTENTION THAT THE ASSESSES SELECTED SALE 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 LO WER THAN THE COST. THE A.O. HAS WORKED OUT THE VALUE OF CLOSING STOCK ON 'AVERA GE COST METHOD' BASIS. NO DISCREPANCY IN THE WORKING OF THE A.O. IS POINTED O UT BY THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO CONTENDED THA T THE GP/NP FOR THE YEAR UNDER CONSIDERATION IS BETTER THAN EARLIER YEARS TH EREFORE, THE VALUATION OF THE CLOSING STOCK SHOULD NOT BE DISTURBED. WE ARE UNABL E 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 O F THE CLOSING STOCK.' 4.3 THE FACTS NOTED ABOVE CLEARLY PROVE,- THAT NO B ONAFIDE EXPLANATION REGARDING VALUATION OF CLOSING STOCK HAS BEEN PROVIDED BY APP ELLANT HENCE ARGUMENT OF THE APPELLANT THAT COMPLETE DETAILS OF OPENING STOCK OF POLISHED DIAMONDS, MANUFACTURING . EXPENSES, PURCHASES, SALES AND CLOS ING STOCK OF DIAMOND WERE PROVIDED DURING THE COURSE OF ASSESSMENT PROCEEDING S 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 SUPP ORTED BY ANY EVIDENCES AS STATED HEREIN ABOVE AND APPELLANT HAS NOT ADOPTED T HE AVERAGE COST METHOD JUST TO REDUCE TAXABLE INCOME OF CURRENT YEAR AND THIS A TTRACTS 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 PART ICULARS OF INCOME MEANS 'ANY CONCEALMENT OR INACCURACY IN THE PARTICULARS O F INCOME IN THE RETURN OCCURRING AT ANY STAGE UPTO AND INCLUSIVE OF THE UL TIMATE STAGE OF WORKING OUT OF TOTAL INCOME WOULD ATTRACT THE PENALTY PROVISION OF SECTION 271(1)(C). EVERY FIGURE IN THE RETURN WHICH IS SET OPPOSITE TO THE ITEM OF INCOME IS A PARTICULAR OF INCOME, WHETHER THE FIGURE IS ONE WHICH IS STATED INDEPENDE NTLY OF ANYTHING ELSE THAT APPEARS IN THE RETURN OR THE DOCUMENTS ACCOMPANYING IT OR WHETHER IT IS SOMETHING DERIVED FROM OTHER FIGURES ELSEWHERE STAT ED IN SUCH RETURN OR DOCUMENTS. FALSE RESULT MAY BE PRODUCED BY THE FALS ITY OF ONE OR MORE OF THE CONSTITUENT ITEMS IN THE RETURN. THE WORDS 'INACCUR ATE PARTICULARS' WOULD COVER FALSITY IN THE FINAL FIGURE AS ALSO THE CONSTITUENT ELEMENTS OR ITEMS THEY SIMPLY WOULD MEAN INACCURATE IN SOME SPECIFIC OR DEFINITE RESPECT WHETHER IN THE CONSTITUENT OR SUBORDINATE ITEMS OF INCOME OR THE E ND RESULT.' IN CASE OF APPELLANT, IT HAS FURNISHED INACCURATE PARTICULARS REGARDING CLOSING STOCK OF DIAMOND AS OBSERVED HEREINABOVE. THE CASE LAWS RELIED UPON APPELLANT ARE NOT RELEVAN T TO THIS CASE AS THEY ARE DISTINGUISHABLE ON FACTS. THE ONLY CASE LAW CLOSURE TO APPELLANT CASE IS CIT V/S H P STATE FOREST CORPN. LTD [2011] 12 TAXMANN.COM 425 (HP) WHERE PENALTY WAS LEVIED ON THE ADDITION MADE ON VALUATION OF CLOSING STOCK. THE HONORABLE HIGH COURT IN THIS CASE HAS NOTED THAT THE ASSESSEE WAS A GOVERNMENT CORPORATION AND ITS ACCOUNTS WERE AUDITED BY THE GAG AND THEREF ORE THERE DID NOT APPEAR TO ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 9 BE FALSEHOOD IN THE ACCOUNTS. IN THE INSTANT CASE A SSESSING OFFICER HAS PROVED FALSEHOOD ON THE VALUATION OF CLOSING STOCK AS APPE LLANT HAS TAKEN SELECTED SALES BILLS IN SUBSEQUENT MONTHS FOR VALUATION OF CLOSING STOCK AS ON 31.03.2007. SECTION 271(1)(C), TO THE EXTENT IT IS RELEVANT, PR OVIDES FOR IMPOSITION OF PENALTY IN CASE THE ASSESSING OFFICER, IN THE COURSE OF ANY PR OCEEDINGS UNDER THE ACT, IS SATISFIED THAT ANY PERSON HAD CONCEALED PARTICULARS OF HIS INCOME OR HAD FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. TH E EXPLANATION 1 TO SUB- SECTION (1) OF SECTION 271 PROVIDES THAT WHERE IN R ESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON, SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND TO BE FALSE OR HE OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AN D FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS REL ATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME, HAVE BEEN DISC LOSED BY HIM, THEN THE AMOUNT ADDED OR DISALLOWED IN COMPUTING TOTAL INCOM E OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSE OF CLAUSE (C), BE DE EMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. I N THE PRESENT CASE, THE EXPLANATION FURNISHED BY ASSESSEE CANNOT BE CONSIDE RED AS BONAFIDE AND CORRECT, HENCE PENALTY LEVIED BY ASSESSING OFFICER IS CONFIRMED. RELIANCE IS PLACED ON DECISION OF HON'BLE DELHI HIGH COURT IN C ASE OF CIT VS ESCORT FINANCE LIMITED 183 TAXMAN 453 WHEREIN COURT HAS HELD AS UN DER: '...IT HAS BEEN REPEATEDLY HELD BY THE COURTS THAT THE PENALTY ON THE GROUND OF CONCEALMENT OF PARTICULARS OR NON-DISCLOSURE OF FUL L PARTICULARS CAN BE LEVIED ONLY WHEN IN THE ACCOUNTS/RETURNS AN ITEM HAS BEEN SUPPR ESSED 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, I T CANNOT BE SAID THAT THE ASSESSEE HAD FILED INACCURATE PARTICULARS OR CONCEA LED ANY INCOME CHARGEABLE TO TAX. FURTHER, CONSCIOUS CONCEALMENT IS NECESSARY. E VEN IF SOME DEDUCTION OR BENEFIT IS CLAIMED BY THE ASSESSEE WRONGLY BUT BONA FIDE AND NO MALA FIDE CAN BE ATTRIBUTED, THE PENALTY WOULD NOT BE LEVIED. IF THE RE IS A DELIBERATE CONCEALMENT AND FALSE/INACCURATE RETURN HAS BEEN FILED, WHICH I S REVISED AFTER THE ASSESSEE IS EXPOSED OF THE FALSEHOOD, IT WOULD BE TREATED AS CO NCEALMENT OF INCOME IN THE ORIGINAL RETURN AND WOULD ATTRACT PENALTY EVEN IF R EVISED RETURN HAS BEEN FILED BEFORE THE ASSESSMENT HAS BEEN COMPLETED. LIKEWISE, WHERE CLAIM MADE IN THE RETURN APPEARS TO BE EX FACIE BOGUS, IT WOULD BE TR EATED AS CASE OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS AND PENALTY PROCEEDINGS WOULD BE JUSTIFIED' IT HAS BEEN HELD BY HON'BLE MADRAS HIGH COURT IN TH E CASE OF SHREE NITHYABAIYANI TEXTILE LTD VS DCIT (MAD.) 282 1TR 154 THAT UNDER V ALUATION OF CLOSING STOCK ATTRACTS PENALTY U/S.271(1)(C) OF THE I.T. ACT. ACCORDINGLY, THE PENALTY OF RS 99,66,060/- LEVIED U/S 271(1)(C) OF IT. ACT BY THE ASSESSING OFFICER FOR FURNISHING INACCUR ATE PARTICULARS OF INCOME IS CONFIRMED . ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 10 6. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. LD. AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT ASSES SEE IS IN THE BUSINESS OF PURCHASE, SALE, EXPORT AND MANUFACTURIN G OF DIAMONDS SINCE LAST MANY YEARS AND IS CONSISTENTLY FOLLOWING THE METHOD OF VALUING STOCK AT COST OR MARKET PRICE WHICHEVER IS LESS. ALL NECESSARY DETAILS WHICH INCLUDED QUANTITATIVE RECORDS OF ROUG H DIAMONDS PURCHASED, FINISHED DIAMONDS MANUFACTURED AND CARAT WISE DETAILS DULY LINKED WITH PURCHASE AND SALE INVOICES ARE KEP T. FURTHER BOOKS OF ACCOUNTS ARE REGULARLY AUDITED AND THERE IS CONSIS TENT INCREASE IN GROSS PROFIT RATES. ALSO DURING THE COURSE OF ASSES SMENT PROCEEDINGS APART FROM ISSUE OF VALUATION OF CLOSING STOCK NO O THER EVIDENCE OR OBSERVATION HAS BEEN DETECTED BY THE REVENUE AUTHOR ITIES WHICH CAN PROVE THAT ASSESSEE HAS FILED INACCURATE PARTICULAR S OR CONCEALED PARTICULARS OF INCOME. 7. AS REGARDS VALUATION OF CLOSING STOCK IS CONCERN ED LD. AR FURTHER SUBMITTED THAT WE HAVE BEEN CONSISTENTLY FO LLOWING THE METHOD OF VALUING CLOSING STOCK AT COST OR MARKET P RICE WHICHEVER IS LESS WHICH HAS NOT BEEN OBJECTED IN PAST. QUANTITA TIVE DETAILS AS FILED BY THE ASSESSEE IN ITS INCOME TAX RETURN AND TAX A UDIT REPORT HAVE BEEN FOUND TO BE CORRECT BY THE REVENUE AUTHORITIES AND THERE IS NO DISPUTE TO THIS EFFECT THAT CLOSING STOCK AS ON 31. 3.2007 OF POLISHED DIAMONDS IS 13345.87 CARATS. LD. AR FURTHER SUBMIT TED THAT ASSESSEE HAS DETAILS OF EACH AND EVERY CARAT OF STO CK 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 PRI CE WHICHEVER IS LESS. COST OF THE GOODS IS ALREADY ON RECORD BUT FOR THE PURPOSE OF FINDING ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 11 OUT REASONABLE BASIS OF SALE PRICE ASSESSEE IS FOLL OWING CONSISTENT SYSTEM IN WHICH THE SALES AFTER THE CLOSE OF THE YE AR 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 TH E END OF THE YEAR CAN BE MATCHED TO THE SALES MADE IN THE FOLLOWING M ONTHS 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 Y EAR END FOR CALCULATING THE VALUE OF CLOSING STOCK AND FOR THE REMAINING UN SOLD 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 W HICHEVER IS LESS. 8. LD. AR ALSO SUBMITTED THAT PHYSICAL QUANTITY IN STOCK IS NOT IN DISPUTE AND ONLY CALCULATION OF VALUATION OF CLOSIN G STOCK HAS BEEN CHALLENGED BY THE ASSESSING AUTHORITY. IT IS TRUE T HAT ASSESSEE HAS LOST BOTH BEFORE LD. CIT(A) AS WELL AS THE TRIBUNAL . HOWEVER, QUANTUM APPEAL OF THE ASSESSEE HAS BEEN ADMITTED BY HON. GU JARAT HIGH COURT VIDE APPEAL NO.834 OF 2011 VIDE ORDER DTD.14/ 09/2012 ON THE SUBSTANTIAL QUESTION OF LAW :- WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE CLOSI NG STOCK OF POLISHED DIAMONDS WAS UNDERVALUED TO THE EXTENT OF RS.2,96,08,019/-? 9. LD. AR FURTHER STRONGLY OBJECTED TO THE ACTION O F INVOKING THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT BY ASSES SING OFFICER EVEN WHEN THERE IS NO ERROR FOUND IN THE BOOKS OF ACCOUN T AND THE QUANTITATIVE RECORDS OF ASSESSEE HAS BEEN CONSISTEN TLY VALUING CLOSING STOCK AT COST OR MARKET PRICE WHICHEVER I S LESS BY TAKING ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 12 BASIS OF SALES OF CLOSING STOCK EFFECTED IN SUBSEQU ENT MONTHS AFTER THE CLOSE OF FINANCIAL YEAR WHICH IS DULY SUPPORTED BY COPIES OF SALES BILLS FOR THE FINANCIAL YEAR 2007-08 AND THE CARAT WISE LOT OF POLISHED DIAMONDS APPEARING IN THE CLOSING STOCK SHEETS IS M ATCHING WITH THE SALES BILLS AND SAMPLE OF SUCH BILLS ARE AT PAGES 7 6 AND 77 OF THE PAPER BOOK. FURTHER LD. ASSESSING OFFICER AFTER DIS REGARDING THE VALUATION OF CLOSING STOCK MADE BY ASSESSEE HAS ADO PTED A NEW METHOD OF VALUATION OF CLOSING STOCK I.E.AT COST BY TAKING THE FIGURES FROM THE BOOKS OF ASSESSEE ITSELF AND CALCULATING T HE AVERAGE COST AT RS.9943.64 PER CARAT. THIS SHOWS THAT ASSESSEE HAS FURNISHED CORRECT PARTICULARS OF INCOME AND THE ONLY ISSUE RE MAINED ABOUT THE BASIS OF RATES ADOPTED FOR VALUING CLOSING STOCK. I N SUCH CIRCUMSTANCES WHERE THERE IS A BONA FIDE CLAIM OF A SSESSEE OF CONSISTENTLY APPLYING A PARTICULAR METHOD OF VALUIN G TO CLOSING STOCK DULY SUPPORTED BY RELEVANT EVIDENCES AND ALSO IN TH E GIVEN FACTS WHEN THE QUANTUM ADDITION CONFIRMED BY THE TRIBUNAL HAS BEEN ADMITTED BY THE HON. JURISDICTIONAL HIGH COURT AS A SUBSTANTIAL QUESTION OF LAW THERE CANNOT BE A CASE OF IMPOSING PENALTY FOR CONCEALMENT OF PARTICULARS OF INCOME OF FURNISHING OF INACCURATE PARTICULARS OF INCOME U/S 271(1)(C) OF THE ACT. LD. AR REFERRED AND RELIED ON THE FOLLOWING JUDGMENTS/DECISION :- 1. JUDGEMENT OF HON. GUJARAT HIGH COURT IN THE CASE OF VALIMKBHAI H. PATEL 280 ITR 487. 2. JUDGMENT OF HON. HIMACHAL PRADESH HIGH COURT IN THE CASE OF H.P. STATE FOREST CORPORATION LTD. 340 ITR 204 3. JUDGMENT OF HON. PUNJAB & HARYANA HIGH COURT IN THE CASE OF SSP (P) LTD. 302 ITR 43. ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 13 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 MANMOHA N 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 RAWATM ULL 87 ITR 349 (SC) 9. JUDGMENT IN THE CASE OF CIT VS. STATE FOREST COR PN. LTD. IT APPEAL NO.15 OF 2005 (2011) 12 TAXMANN.COM 425 (HP) 10. JUDGMENT IN THE CASE OF CIT VS. PAWAN KUMAR DAL MIA (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. IT O IN ITA NO.1250/ASR/1979 [(1981) 11 TTJ (AMR) 479] 16. ORDER IN THE CASE OF D. SUBHASHCHANDRA & CO. VS . ACIT IN ITA NO. 2805/AHD/2006 [(2008) 15 DTR(AHD)(TRIB) 125 10. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTAT IVE (DR) STRONGLY SUBMITTED THAT AS THE ASSESSEE HAS ALREADY LOST IN QUANTUM APPEAL BEFORE LD. CIT(A) AND THE TRIBUNAL, THE PENA LTY HAS RIGHTLY BEEN IMPOSED U/S 271(1)(C) OF THE ACT AS THE ASSESS EE WAS UNABLE TO SUBSTANTIATE ITS CLAIM OF CORRECT VALUATION OF CLOS ING STOCK. ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 14 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD PLACED BEFORE US AND ALSO GONE THROUGH THE JUDGMENT S/DECISIONS REFERRED AND RELIED ON BY THE LD. AR. THE SOLITARY ISSUE OF ASSESSEE IN THIS APPEAL REVOLVES ROUND THE ACTION OF LD. CIT(A) CONFIRMING THE PENALTY U/S 271(1)(C) OF THE ACT IMPOSED BY LD. ASS ESSING OFFICER AT RS.99,66,060/- IN RESPECT OF ADDITION ON ACCOUNT OF ALLEGED UNDERVALUATION OF CLOSING STOCK OF RS.2,96,08,019/- . 11.1 WE OBSERVE THAT CO-ORDINATE BENCH VIDE ITA NO.3010/AHD/2010 DATED 11.02.2011 CONFIRMED THE QUA NTUM ADDITION BY OBSERVING AS FOLLOWS :- 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. IT IS UNDISPUTED FACT THAT THE ASSESSEE IS FOLLOWING 'COS T OR MARKET VALUE WHICHEVER IS LOWER', METHOD FOR VALUATION OF THE CLOSING STOCK. THE AO D ETERMINED THE COST OF THE CLOSING STOCK OF POLISHING DIAMONDS AT RS.13,27,06,527/-. THE VAL UE OF THE CLOSING STOCK DISCLOSED BY THE ASSESSEE WAS RS.10,30,98,508/-. HE THEREFORE WO RKED OUT THE DIFFERENCE OF RS.2,96,08,019/-. THE WORKING GIVEN BY THE AO AT PA GE NO.4 OF THE ASSESSMENT ORDER READS AS UNDER: TOTAL PRODUCTION OF POLISHED DIAMOND (Z) 52894.75 C ARAT TOTAL COST OF CONSUMPTION OF ROUGH DIAMOND (A) RS.47,63,19,661 TOTAL MANUFACTURI NG COST (B) RS.4,96,46,473 TOTAL COST FOR PRODUCTION OF POLISHED DIAMOND C=A+B RS.52 ,59,66,134 AVERAGE COST OF POLISHED DIAMOND D=C/Z 9943.64 PER CARAT CLOSING ST OCK OF POLISHED DIAMOND E 13345.87 CARAT SO VALUATION OF CLOSING STOCK OF POL ISHED DIAMOND IS EXD= RS.13,27,06,527 CLOSING STOCK OF POLISHED DIAMOND S HOWN IN BOOKS RS.10,30,98,508 DIFFERENCE RS.2,96,08,019 6. THE ASSESSEE HAS NOT DISPUTED THE CORRECTNESS OF THE ABOVE WORKING OF THE COST OF THE CLOSING STOCK OF POLISHED DIAMONDS BY THE AO ON THE BASIS OF THE AVERAGE COST OF POLISHED DIAMONDS. HOWEVER, HIS CONTENTION WAS THAT MARKET V ALUE OF THE PART OF THE STOCK WAS LESS AND THEREFORE WHEN THE VALUE OF THE CLOSING STOCK I S 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 TH E CLOSING STOCK OF POLISHED DIAMONDS. THE ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 15 SAME IS AT PAGE NO.30 AND 31 OF THE ASSESSEE'S PAPE R 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 24 CUT & POLISHED DIAMOND 1072.85 25 WHITE TAPPERS S1 100.00 26 WHITE TAPPERS PK 4 78.00 27 WHITE BUGGETS PK 4 116.00 28 WHITE BUGGETSS1 3 48.00 29 CUT & POLISHED DIAMOND 187.36 30 CUT & POLISHED DIAMOND 45.89 31 CUT & POLISHED DIAMOND 250.15 32 WHITE BGTS PK 2 (PL) 185.55 33 WHITE BGTS PK 2 (PL) 11.96 34 D/C TLB NTS SI 1 (PL) 2.03 35 D/C TLB NTS PK 1 0.54 36 CUT & POLISHED DIAMOND 231.32 37 CUT & POLISHED DIAMOND 505.35 38 WH BUG I 3 0.14 39 WH TAP BUG 1 3 132.88 40 D/CUT TTLB PK 1,2 42.97 41 D/CUT TTLB VS 1,2 47.38 42 TAP/BUG TTLB PK 1,2 228.96 43 D/CUT TLB PK 1,2 119.74 44 TAP/BUG TTLC S1 1,2 50.00 45 WHITE BUGGETS PK 2 (PL) 72.32 46 WHITE BUGGETS PK 2 (PL) 5.78 47 D CUT TTLB S1 1 2 37.52 48 SCUT TTLB PK 2 3 21.47 49 S CUT TLB PK 1 2 61.89 50 D CUT TTLC PK 1 2 50.00 ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 16 51 PRN TTLC S1 1 2 106.34 52 D CUT TTLB PK 1 2 177.33 53 TAP + BUG TTLB S1 1 2 36.84 54 D CUT TTLC PK 1 2 55.74 55 TAP + BUG TTLB PK 1 2 140.00 56 TAP + BUG TLB PK 1 2 20.26 57 D CUT TTLB PK 1 2 236.25 58 D.CUT WHITE PK 172.17 59 CUT & POLISHED DIAMOND 1445.20 60 D/CUT WHITE WHITE PK 3 382.00 61 D/C 12 TTLCS 45.98 62 F/CUTTOP TTLB VS 190.42 63 F/CUT WHITE I2 268.58 64 F/CUT WHITE PK 30.01 65 F/CUT WHITE PK 2 30.00 66 F/CUT WHITE PK 3 21.51 67 WHITE FULLCUT PK 2 19.07 68 WHITE FULLCUT PK 1 3.50 69 WHITE FULLCUT PK 2 44.00 70 WHITE FULLCUT PK 2 22.31 71 F/C WHITE S1-3 143.83 72 F/C WHITE PK 1 154.28 73 WHITE TAPP S1 31 37.12 74 F/C BLACK DIA 55.67 75 F/C BLACK DIA. 61.52 76 F/C BLACK DIA. 65.76 77 F/C BLACK DIA. 35.94 78 F/C BLACK DIA. 51.98 79 F/C BLACK DIA. 66.19 80 F/C BLACK DIA. 88.00 81 BUG WH PK 3 50.90 82 BUG WH PK 2 60.00 83 CUT & POLISHED DIAMOND 528.27 84 F CUT TTLC VS 2 32.35 85 CUT & POLISHED DIAMOND 250.09 86 P/C WHITE I 3 303.60 TOTAL 13345.8 7 7. WHILE VALUING THE CLOSING STOCK, THE ASSESSEE HA S CLAIMED THAT 9405.61 CARAT OF THE DIAMONDS WAS HAVING LESS VALUE THAN THE COST. THE W ORKING GIVEN BY THE ASSESSEE AT PAGE NO.36 AND 37 READS AS UNDER: VALUATION SHEET FOR COSTING DONE AT MARKET VALUE BE CAUSE THE SAME IS LOWER THAN COST OF RS.9,943/- PER CARAT. SR. NO. DESCRIPTION SUPPORTING SALE BILL NO. MARKET VALUE FOR CARAT AS ON 31.03.07 QUANTITY (IN CARATS) AMOUNT (RS.) 1 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 ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 17 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 1,675,34 0 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 - 1 2 13 8,362.80 47.38 396,229 21 TAP/BUG TTLB PK - 1 2 13 3,555.20 228.96 813,999 22 D/CUT TLB PK - 1 2 13 5,534.80 119.74 662,737 23 TAP/BUG TTLC SI - 1 2 13 8,201.20 50.00 410,060 24 WHITE BUGGETS PK-2 (PL) 14 8,524.40 72.32 616,485 25 WHITE BUGGETS PK -2 (PL) 14 8,524.40 5.78 49,271 26 D CUT TTLB SI - 1 2 15 8,484.00 37.52 318,320 27 S CUT TTLB SI - 2 3 15 1,212.00 21.47 26,022 28 S CUT TLB PK - 12 15 1,454.40 61.89 90,013 29 D CUT TTLC PK - 12 15 4,726.80 50.00 236,340 30 PRN TTLC SI - 1 2 15 8,080.00 1 06.34 859,227 31 D CUT TTLB PK - 12 15 5,938.80 1 77.33 1,053,127 32 TAP+BUG TTLB SI-12 15 6,464.00 36.84 238,134 33 0 CUT TTLC PK-12 15 7,999.20 55.74 445,875 34 TAP+BUG TTLB PK-12 15 5,252.00 1 40.00 735,280 35 TAP+BUG TLB PK-12 15 4,444.00 2 0.26 90.035 36 D CUT TTLB PK-12 15 3,636.00 2 36.25 859,005 37 D.CUT WHITE PK 18 7,272.00 1 72.17 1,252,020 38 CUT & POLISHED DIAMONDS 4 7,271.00 14 45.20 10,608,049 39 D/CUT WHITE PK-3 19 8,515.50 38 2.00 3,252,921 40 D/C 12 TTLC DIAMONDS 23 8,312.75 4 5.98 382,220 41 F/CUT TOP TTLB VS 25 8,718.25 1 90.42 1,660,129 42 F/CUT WHITE 12 25 7,299.00 2 68.58 1,960,365 43 F/CUT WHITE PK 25 8,110.00 30.01 243,381 44 F/CUT WHITE PK-2 25 6,082.50 30.00 182,475 45 F/CUT WHITE PK-3 25 4,055.00 21.51 87,223 46 WHITE FULLCUT PK-2 27 7,704.50 19.07 146,925 47 WHITE FULL CUT PK-1 27 8,718,25 13.50 30,514 ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 18 48 WHITE FULLCUT PK-2 27 7,299.00 44.00 321,156 49 WHITE FULLCUT PK-3 27 6,690.75 22.31 149,271 50 F/C WHITE SI -3 28 9,022.50 1 143.83 1,297,706 51 F/C WHITE PK -1 28 7,517.55 1 54.28 1,159,608 52 WHITE TAPP SI311 29 7,619.00 1 37.12 282,817 53 F/C BLACK DIA 31 3,007.50 1 55.67 167,428 54 F/C BLACK DIA 31 2,606.50 1 61.52 160,352 55 F/C BLACK DIA 31 2,406.00 65.76 158,219 56 F/C BLACK DIA 31 2,205.50 35.94 79,266 57 F/C BLACK DIA 31 2,205.50 51.98 114,642 58 F/C BLACK DIA 31 2,005.00 66.19 132,711 59 F/C BLACK DIA 31 1,604.00 88.00 141,152 60 BUG WH PK -3 31 2,406.00 50.90 122,465 61 BUG WH PK -2 31 2,807.00 60.00 168,420 62 CUT&POLISHED DIAMONDS44 9,600.00 5 28.27 5,071,392 63 F CUT TTLC VS 2 33 8,621.50 32.35 278,906 64 CUT& POLISHED DIAMONDS 48 9,001.00 2 50.09 2,251,060 65 P/C WHITE 13 40 3,609.00 3 03.60 1,095,892 TOTAL [A] 9, 405.61 63,917,981 FOR 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 13,34 7.87 CARRAT OF THE CLOSING STOCK, THE MARKET VALUE OF 9,405.61 CARRAT WAS LESS THAN THE C OST 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 V ALUE WHICHEVER IS LOWER' AS ITS METHOD OF ACCOUNTING FOR VALUATION OF CLOSING STOCK AND SU CH METHOD IS BEING CONSISTENTLY FOLLOWED BY THE ASSESSEE SINCE PAST SEVERAL YEARS A ND 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 VALUATI ON OF CLOSING STOCK IS CONCERNED, WE ENTIRELY AGREE WITH THE ASSESSEE AND HOLD THAT THE ASSESSEE HAS THE RIGHT TO FOLLOW THIS METHOD. HOWEVER, THE QUESTION IS WITH REGARD TO DET ERMINATION OF COST AS WELL AS MARKET VALUE OF THE CLOSING STOCK AS ON 31-3-2007. IT IS C ONTENDED BY THE LEARNED COUNSEL THAT THE ASSESSEE HAS TAKEN THE LOT-WISE STOCK INVENTORY AS ON 31-3-2007 PHYSICALLY. THE DETAIL OF WHICH IS GIVEN AT PAGE NO.30 AND 31 OF THE ASSESSEE 'S PAPER BOOK AND HAS ALSO BEEN REPRODUCED BY US ABOVE IN PARA-6 FOR READY REFERENC E. FROM THE PERUSAL OF THE ABOVE DETAILS, WE FIND THAT THE ASSESSEE HAS BIFURCATED T HE CLOSING STOCK OF 13,345.87 CARRAT INTO 86 LOTS. HOWEVER, HE HAS NOT GIVEN EITHER COST OR M ARKET VALUE OF EACH LOT. UNLESS THE ASSESSEE GIVES COST AND MARKET VALUE OF EACH AND EV ERY LOT SEPARATELY, PERHAPS NO USEFUL PURPOSE IS SERVED BY DIVIDING THE CLOSING STOCK INT O 86 DIFFERENT LOTS. IN THE ABSENCE OF SUCH LOT-WISE DETAILS OF COST OR MARKET VALUE OF EA CH LOT, THE AO HAS WORKED OUT THE COST OF THE CLOSING STOCK ON AVERAGE BASIS. THE ASSESSEE HAS NOT POINTED OUT ANY DISCREPANCY ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 19 IN THE WORKING OF THE VALUE OF THE CLOSING STOCK ON THE BASIS OF 'AVERAGE COST METHOD'. THE CONTENTION OF THE LEARNED COUNSEL BEFORE US IS THAT THE MARKET VALUE OF THE 9405.61 CARRAT OF THE DIAMONDS WAS LOWER THAN THE COST. THI S CONTENTION OF THE ASSESSEE IS BASED UPON THE SALE OF THE DIAMONDS IN THE SUBSEQUENT YEA R. THE AO HAS RECORDED THE FINDING THAT THE SALE BILLS ARE FOR ITA NO.3010/AHD/2010 FI VE MONTHS IN THE NEXT YEAR. THE DETAILS OF THESE SALE BILLS ARE GIVEN BY THE ASSESSEE AND A RE REPRODUCED BY US ABOVE IN PARA NO.7. WHEN WE COMPARED THE DETAILS OF THE CLOSING STOCK, WHICH IS GIVEN IN PARA NO.6, WITH THE DETAILS OF SALES BILL, WHICH IS GIVEN IN PARA-7, WE DO NOT FIND EVEN A SINGLE LOT COMPARABLE WITH EACH OTHER. IN THE DETAILS OF THE CLOSING STOC K, FIRST ITEM IS OF CUT AND POLISHED DIAMOND OF 185.99 CARRAT. HOWEVER, THERE IS NO SALE BILL FOR THE SALE OF 185.99 CARRAT OF CUT AND POLISHED DIAMOND. SIMILAR IS THE POSITION W ITH REGARD TO EACH AND EVERY LOT OF STOCK OF DIAMOND. NOT A SINGLE LOT GIVEN IN THE STO CK OF POLISHED DIAMONDS COMPARES WITH THE SALE BILL SUBMITTED BY THE ASSESSEE IN SUPPORT OF HIS CONTENTION THAT MARKET VALUE OF THE DIAMOND WAS LOWER. MOREOVER, THE AO AT PAGE NO. 11 AND 12 OF HIS ORDER HAS GIVEN THE VARIOUS SALES INSTANCES DURING APRIL TO AUGUST, 2007 WHERE THE SALE VALUE OF THE DIAMOND WAS AS HIGH AS RS.44,076/- PER CARRAT. THES E DETAILS ARE REPRODUCED 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 ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 20 10. IF WE CONSIDER THE ENTIRE DETAILS, IT IS OBVIOU S 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 ASSESS EE CONTINUED ITS BUSINESS OF PURCHASING ROUGH DIAMOND, ITS CUTTING AND POLISHING AND SALE O F POLISHED DIAMOND. SALE OF DIAMOND WAS AT DIFFERENT RATES VARYING FROM RS.1212/- PER C ARAT 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 DI AMONDS. THIS VALUE VARIES IN THE CASE OF ROUGH DIAMONDS AS WELL AS POLISHED DIAMONDS. THE AS SESSEE HAS NOT GIVEN EITHER THE COST OR MARKET VALUE OF EACH LOT OF CLOSING STOCK OF DIA MOND. IF WE PERUSE THE SALE GIVEN BY THE ASSESSEE, WE FIND THAT THE SALE VALUE OF THE DIAMON D VARIES FROM RS.1212 PER CARRAT TO RS.9900/- PER CARRAT. FROM THE SALE INSTANCES GIVEN BY THE AO, WE FIND THAT THE SALE OF DIAMOND WAS AS HIGH AS RS.44,076.14 PER CARRAT. THE REFORE, ON THE BASIS OF THESE DETAILS, THE ONLY INFERENCE THAT CAN BE DRAWN IS THAT THE AS SESSEE HAS SELECTED THE SALE BILLS WHERE THE DIAMOND WAS SOLD AT A LESSER RATE. AT THE COST OF REPETITION, WE MAY REITERATE THAT THE DESCRIPTION AND QUANTITY GIVEN IN THE ITA NO.3010/A HD/2010 SALE INSTANCES DOES NOT TALLY WITH THE DESCRIPTION AND QUANTITY GIVEN IN THE DETA ILS OF THE LOT-WISE PHYSICAL STOCK OF THE INVENTORY. IN THE ABSENCE OF SUCH CO-RELATION THE C ONTENTION OF THE ASSESSEE THAT THE MARKET VALUE OF THE PART OF THE DIAMOND WAS LOWER T HAN THE COST CANNOT BE ACCEPTED. EXCEPT SOME SALE BILLS, NO OTHER EVIDENCES WAS PROD UCED BY THE ASSESSEE TO ESTABLISH THAT THE MARKET VALUE OF THE DIAMOND WAS LOWER THAN THE COST. WHEN ANY ASSESSEE CLAIMS THAT THE MARKET VALUE OF THE CLOSING STOCK WAS LOWER THA N THE COST, BURDEN WOULD BE UPON THE ASSESSEE TO ESTABLISH SO BY PRODUCING THE DOCUMENTA RY EVIDENCES. IF THE CLOSING STOCK IS OF DIAMOND, THIS BURDEN WOULD BE EVEN HEAVIER BECAUSE THE ASSESSEE IS CLAIMING THAT THE MARKET VALUE OF 9405.61 CARRAT OF THE CLOSING STOCK OF DIAMOND OUT OF THE TOTAL CLOSING STOCK OF 13,345.87 CARRAT WAS LOWER THAN THE COST. NO EVIDENCE IS PRODUCED BY THE ASSESSEE TO ESTABLISH THIS CONTENTION. THE SALE BIL LS PRODUCED BY THE ASSESSEE IN RESPECT OF SALE OF DIAMONDS FROM APRIL, 2007 ONWARDS CANNOT BE SAID TO BE THE EVIDENCES FOR LOWER MARKET VALUE OF THE PART OF THE CLOSING STOCK AS ON 31-3-07 AS NEITHER DESCRIPTION NOR QUANTITY OF LOT-WISE STOCK TALLIES WITH THE SALE BI LLS. THE ASSESSEE HAS NOT KEPT QUALITY-WISE OR LOT-WISE STOCK REGISTER SO AS TO CORRELATE SALE INSTANCE WITH PARTICULAR LOT OF CLOSING STOCK OF POLISHED DIAMOND. IN THE ABOVE CIRCUMSTANC ES, WE AGREE WITH THE REVENUE'S CONTENTION THAT THE ASSESSEE SELECTED SALES BILLS W HERE 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 TH E COST. THE AO HAS WORKED OUT THE VALUE OF CLOSING STOCK ON 'AVERAGE COST METHOD' BAS IS. 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 CONSIDE RATION IS BETTER THAN EARLIER YEARS, THEREFORE, THE VALUATION OF THE CLOSING STOCK SHOUL D NOT BE DISTURBED. WE ARE UNABLE TO ACCEPT THIS CONTENTION OF THE LEARNED COUNSEL, IF T HE ASSESSEE HAS NOT VALUED THE CLOSING STOCK ITA NO.3010/AHD/2010 CORRECTLY, THE AO CAN CE RTAINLY MAKE THE CORRECT VALUATION OF THE CLOSING STOCK. ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 21 11. THE LEARNED COUNSEL HAS ALSO MADE AN ALTERNATE CLAIM THAT IF THE AO CHANGES THE METHOD OF VALUATION OF CLOSING STOCK, THE OPENING S TOCK SHOULD ALSO BE VALUED IN THE IDENTICAL MANNER AS THE CLOSING STOCK. IN SUPPORT O F THIS CONTENTION, HE HAS RELIED UPON THE SEVERAL DECISIONS, WHICH ARE REPRODUCED BY US I N PARA-3 ABOVE. IN OUR OPINION, IN THIS CASE, THE AO HAS NOT MODIFIED THE METHOD OF ACCOUNT ING FOR VALUATION OF THE CLOSING STOCK. THE METHOD OF ASSESSEE FOR VALUING THE CLOSI NG STOCK AT 'COST OR MARKET VALUE WHICHEVER IS LOWER' IS NOT DISTURBED BY AO. WHAT IS DISTURBED BY THE AO IS THE WORKING BY THE ASSESSEE WITH REGARD TO THE MARKET VALUE OF THE CLOSING STOCK. AS WE HAVE ALREADY MENTIONED, IN SUPPORT OF LOWER MARKET VALUE OF THE CLOSING STOCK, THE ASSESSEE HAS ONLY GIVEN A FEW SALE INSTANCES IN THE SUBSEQUENT YEAR W HICH DID NOT CO-RELATE WITH THE DESCRIPTION OR QUANTITY OF VARIOUS LOTS OF THE CLOS ING STOCK AS SUBMITTED BY THE ASSESSEE HIMSELF. THEREFORE, THE ASSESSEE'S CONTENTION THAT THE MARKET VALUE IS LOWER THAN THE COST WAS NOT ACCEPTED BY THE AO WITH WHICH WE ALSO AGREE . WHEN THE ASSESSEE HAS NOT PROVED THAT MARKET VALUE IS LOWER THAN THE COST, THE AO WA S LEFT WITH NO OPTION BUT TO DETERMINE THE VALUE OF STOCK AT 'COST'. THEREFORE, WE HOLD TH AT THE AO HAS NOT REJECTED OR DISTURBED THE METHOD FOR VALUATION OF CLOSING STOCK FOLLOWED BY THE ASSESSEE. HE HAS ONLY MADE CORRECT VALUATION OF CLOSING STOCK AS PER METHOD FO LLOWED BY THE ASSESSEE. SINCE THE AO HAS NOT DISTURBED THE METHOD OF VALUATION OF THE CL OSING STOCK OF THE ASSESSEE, THE QUESTION OF REVALUATION OF THE OPENING STOCK AS PER THE CHANGED METHOD DOES NOT ARISE. IT IS NOT A CASE OF EITHER THE REVENUE OR THE ASSESSEE THAT THE OPENING STOCK WAS NOT CORRECTLY VALUED AS PER THE ASSESSEE'S METHOD OF AC COUNTING FOR VALUATION OF CLOSING STOCK. IN VIEW OF THE ABOVE FACTUAL POSITION, THE R ATIO OF VARIOUS CASE LAWS RELIED UPON BY THE LEARNED COUNSEL IN THIS REGARD DOES NOT REQUIRE DETAILED DISCUSSION. IN VIEW OF THE ITA NO.3010/AHD/2010 ABOVE, WE UPHOLD THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE APPEAL OF THE ASSESSEE. 12. FURTHER LD. AR HAS REFERRED TO PAGE 26 OF THE P APER BOOK AND SUBMITTED THAT ASSESSEES APPEAL AGAINST THE QUANTU M ADDITION CONFIRMED BY THE TRIBUNAL HAS BEEN ADMITTED BY HON. JURUSDICTIONAL HIGH COURT VIDE APPEAL NO.834 OF 2011 VIDE ORDER DA TED 14/09/2012 ON THE SUBSTANTIAL QUESTION OF LAW WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE CLOSING STOCK OF POLISHED D IAMONDS WAS UNDERVALUED TO THE EXTENT OF 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 SECT ION 271(1)(C) OF THE ACT HAS DIRECT BEARING ON THE CONTROVERSY AND THERE FORE 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 :- ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 22 '271. FAILURE TO FURNISH RETURNS, COMPLY WITH NOT ICES, CONCEALMENT OF INCOME, ETC. (1) THE ASSESSING OFFICER OR THE COMMISSIONER (APPE ALS) OR THE CIT IN THE OF COURSE OF ANY PROCEEDINGS UNDER THIS ACT, IS SATISFIED THAT A NY PERSON (A) AND (B)** (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR F URNISHED INACCURATE PARTICULARS OF SUCH INCOME. HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PE NALTY. (I)AND (INCOME-TAX OFFICER,)** *- (III) IN THE CASES REFERRED TO IN CLAUSE (C) OR CLAUS E (D). IN ADDITION TO TAX IF ANY, PAYABLE BY HIM, A SUM WHICH, SHALL NOT BE LESS THAN, BUT WHICH SHA LL NOT EXCEED THREE TUNES, THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF THE CONCEA LMENT OF PARTICULARS OF HIS INCOME OR FRINGE BENEFIT THE FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME OR FRINGE BENEFITS: EXPLANATION 1- WHERE IN RESPECT OF ANY FACT: MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFF ERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR. THE- COMMISSIONER (APPEALS) OR THE CIT TO BE FALSE, OR (B) SUCH PERSON OFFERS AN EXPLANATION ON WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING R HO TOTAL INCOME- OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF CLAUSE (C) OF THIS SUB-SECTION, B E DEEMED TO REPRESENT THE INCOME ,N RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. 14. A BARE PERUSAL OF THIS SECTION WOULD REVEAL THA T FOR VISITING ANY ASSESSEE WITH PENALTY, LD. ASSESSING OFFICER OR LD. CIT(A) DURING THE COURSE OF ANY PROCEEDINGS BEFORE THEM SHOULD BE SAT ISFIED THAT ASSESSEE HAS EITHER CONCEALED PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. LET US EXAMINE TH E FACTS OF THE CASE IN THE LIGHT OF ABOVE PROVISIONS. WE FIND THAT ASSE SSEE IS IN THE BUSINESS OF PURCHASE, SALE AND MANUFACTURE OF POLIS HED DIAMONDS. IT IS ESTABLISHED FACT THAT IN THE CASE OF DIAMONDS TH ERE IS A WIDE PRICE RANGE AS OBSERVE BY LD. ASSESSING OFFICER WHICH CAN VARY FROM RS.1,000/- PER CARAT TO RS.1,00,000/- PER CARAT OR EVEN MORE. IN THE CASE OF ASSESSEE ALSO THERE IS A WIDE RANGE OF DIAM ONDS RANGING ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 23 BETWEEN RS.5,000/- PER CARAT TO RS.50,000/- PER CAR AT. ASSESSEE HAS BEEN CONSISTENTLY ADOPTING THE METHOD OF VALUATION OF CLOSING STOCK AT COST PRICE OR MARKET PRICE WHICHEVER IS LESS. IT IS WELL KNOWN THAT THE BURDEN TO PROVE THAT WHETHER COST PRICE OR MARKET P RICE WHICH ONE IS LESS LIES ON THE ASSESSEE AND IT HAS TO BE SUBSTANT IATED WITH A PROPER PROOF. ASSESSEE HAS BEEN CONSISTENTLY ADOPTING A SY STEM IN WHICH IN ORDER TO HAVE A PROOF OR BASIS OF VALUING CLOSING S TOCK AT COST OR MARKET PRICE WHICHEVER IS LESS TAKES ACTUAL SALE P RICE OF THE STOCK WHICH REMAINED UNSOLD AT THE END OF THE YEAR AND IS SOLD IN THE SUBSEQUENT MONTHS AND NORMALLY BEFORE THE DATE OF C OMPLETION OF AUDIT ASSESSEE TO TAKE OUT THE BILLS OF SALES OF SU CH GOODS AND AFTER PREPARING THE DETAIL OF THE SALES OF THE QUANTITY O F GOODS WHICH WERE FORMING PART OF STOCK ON 31.3.2007 USED TO COMPARE 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 PORTI ON 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 L D. AR REFERRED PAGES 76 & 77 OF THE PAPER BOOK WHEREIN SALE WAS EF FECTED ON 5 TH APRIL, 2007 WHEREIN 277.56 CARAT OF CUT AND POLISHE D 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.994 3/- PER CARAT, IN THE BOOKS OF ACCOUNT. DURING THE COURSE OF ASSESSME NT PROCEEDINGS LD. ASSESSING OFFICER WAS NOT CONVINCED WITH THE VA LUATION PORTION OF ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 24 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 ACCORDINGL Y HE APPLIED THE AVERAGE COST OF RS.9943/- ON THE OVERALL CLOSIN G STOCK OF THE ASSESSEE AS ON 31.3.2007. NOW LOOKING TO THESE FACT S WITH AN ANGLE OF ADJUDICATING THAT WHETHER ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME OR CONCEALED PARTICULARS OF I NCOME, WE FIND THAT EVEN THE CO-ORDINATE BENCH VIDE ITS ORDER IN QUANTU M APPEAL HAS NOT RAISED ANY DOUBT ABOUT THE QUANTITATIVE RECORDS MAI NTAINED BY THE ASSESSEE AND HAVE EVEN MENTIONED THAT WE FIND THAT ASSESSEE HAS BIFURCATED THE CLOSING STOCK OF 13,345.87 CARAT IN TO 86 LOTS. HOWEVER HE HAS NOT GIVEN EITHER COST OR MARKET VALUE OF EAC H LOT. THIS PHRASE ITSELF SHOWS THAT THERE IS NO DOUBT ABOUT THE QUANT ITATIVE RECORDS MAINTAINED BY THE ASSESSEE AND THERE IS NO FINDING THAT ASSESSEE HAS NOT PREPARED PROPER BOOKS OF ACCOUNT. THERE IS NO D ISPUTE THAT ASSESSEE IS HAVING IMPROVED GROSS PROFIT. THE ONLY ISSUE REMAINED IN QUESTION WAS THE RATES TAKEN BY THE ASSESSEE FOR VA LUING SOME PORTION OF CLOSING STOCK AT SALE PRICE. FOR THIS IS SUE ASSESSEE HAS GIVEN COPIES OF CERTAIN BILLS TO PROVE ITS CONSISTE NT METHOD ADOPTED FOR LAST SO MANY YEARS ACCEPTED BY THE REVENUE BUT THE SAME HAS BEEN DISREGARDED FOR THE YEAR UNDER APPEAL BY THE REVENU E AUTHORITIES AND ADDITION CONFIRMED BY LD.CIT(A) AND THE TRIBUNAL HO WEVER, THE QUANTUM ISSUE HAS BEEN ADMITTED BY HON. JURISDICTIO NAL HIGH COURT. WE, THEREFORE, OBSERVE THAT THERE IS NO FINDING ABO UT FURNISHING OF INACCURATE PARTICULARS OR CONCEALMENT OF PARTICULAR S OF INCOME AND RATHER IT IS A CASE WHERE ASSESSEES METHOD OF CLOS ING STOCK HAS BEEN CHALLENGED. ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 25 14.1 AT THIS JUNCTURE WE TAKE NOTE OF CERTAIN JUDIC IAL PRONOUNCEMENTS. WE FIND IN THE CASE OF CIT VS. H.P. STATE FOREST CORPORATION LTD. (SUPRA) WHEREIN SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER :- HELD THE WORD NACCURATE AS USED IN THE WOULD MEAN SOM ETHING WHICH IS NOT ACCURATE NOT EXACT OR NOT CORRECT. SOMETHING WHICH IS UNTRUE IS IN ACCURATE. THE SAME FACTS CAN BE GIVEN TWO INTERPRETATIONS. IF THE INTERPRETATION GIVEN IS PLAUSIBLE, THOUGH NOT ACCEPTED BY THE ASSESSING AUT HORITY, IT CANNOT BE SAID THAT THE STATEMENT OF PARTICULAR IS SO INACCURATE OR ERR ONEOUS AS TO INVITE IMPOSITION OF PENALTY. TUE IT IS THAT MENS REA IS NOT REQUIRED TO BE PROVED. WHEN MENS REA IS PROVED IT SHOWS THAT THE PERSON HAD AN INTENTION OF EVADING PAYMENT OF TAX BY ILLEGAL MEANS. MERELY BECAUSE A WRONG INTERPRETATIO N TO THE SAME SET OF FACTS IS GIVEN, IT WOULD NOT MEAN THAT THE ASSESSEE WAS LIAB LE 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 ASSES SEE MAKES A CLAIM WHICH IS NOT SUSTAINABLE IN LAW, WILL NOT AMOUNT TO FURNISHI NG OF INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. IN THE INSTAN T CASE, THE ASSESSEE WAS DEDUCTING CERTAIN AMOUNT ON ACCOUNT OF DETERIORATIO N OF OLD STOCK. THAT WAS BEING DONE ON ESTIMATION ON THE BASIS OF THE REPORT S MADE BY VARIOUS OFFICERS OF THE CORPORATION. THAT ESTIMATION WAS NOT ACCEPTED M AINLY 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 GIV EN RETROSPECTIVE BENEFIT. IT HAD NOT BEEN FOUND THAT THE CLAIM OF THE ASSESSEE THAT THE WOOD HAD ROTTED AND DETERIORATED WAS FALSE. IT WAS NOBODYS CASE THAT T HE ASSESSEE FUDGED THE AMOUNTS, THE BOOKS OF ACCOUNT OR TRIED TO CREATE FA LSE EVIDENCE. THE CLAIM MADE BY THE ASSESSEE MIGHT NOT HAVE BEEN ACCEPTED BY THE REVENUE BUT IT COULD NOT BE SAID THAT THE ASSESSEE FURNISHED INACCURATE PARTICU LARS TO SUCH AN EXTENT THAT PENALTY SHOULD BE IMPOSED UPON IT. THERE DID NOT AP PEAR TO BE FALSEHOOD IN THE ACCOUNTS THOUGH THE SYSTEM OF CALCULATING THE DEPRE CIATION MIGHT HAVE BEEN IMPROPER. THE ASSESSEE WAS A GOVERNMENT CORPORATION . ITS ACCOUNTS WERE DULY AUDITED AND EVEN THE COMPTROLLER AND AUDITOR GENERA L HAD GONE THROUGH AND APPROVED THE ACCOUNTS OF THE CORPORATION. IN SUCH C IRCUMSTANCES, MERELY BECAUSE THE ASSESSEE HAD CLAIMED DEPRECIATION WHICH CLAIM WAS NOT ACCEPTED BY THE REVENUE THAT BY ITSELF, WOULD NOT ATTRACT PE NALTY UNDER SECTION 271(1)(C). (PARA 22) ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 26 15. WE FURTHER FIND THAT A SIMILAR ISSUE HAS BEEN D ECIDED IN THE CASE OF CASE OF CEMENT MARKETING CO. OF INDIA LTD. VS. ASST T. CST (1980) 124 ITR 15 WHEREIN IT HAS BEEN HELD AS UNDER :- 5. THE ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) WHEREBY HE HAS UPHELD THE O RDER OF IMPOSING THE PENALTY UNDER SECTION 271(L)(C) OF THE ACT PASSED BY THE ASSESSIN G OFFICER. THE TRIBUNAL VIDE ITS ORDER DATED 5-4-2007 ACCEPTED THE APPEAL FILED BY THE ASS ESSEE AND SET ASIDE THE ORDER OF THE CIT(A) AND DELETED THE PENALTY OF RS. 4,15,000. THE OPERATIVE PART OF THE JUDGMENT OF THE TRIBUNAL IS REPRODUCED AS UNDER : 'WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT SHOWN PURCHASES OF RS. 5,71,360 IN THE CLOSING STOCK AND THEREBY CONCEALED INCOME TO THAT EXTENT. HE FURTHER OBSERVE D THAT THE ASSESSEE HAS FILED INACCURATE PARTICULARS OF INCOME BY MAKING A WRONG CLAIM OF CO MMISSION PAID TO M/S. ROSHAN ENGG. &. CONSULTANTS (P.) LTD. RS. 94,991. HE FURTHER OBSERV ED THAT SIMILARLY THE ASSESSEE HAS MADE FALSE STATEMENT WITH REGARD TO THE PAYMENT OF RS. 52,500 TO M/S. PROPLUS MANAGEMENT SERVICE, REGISTRAR OF COMPANIES AND SH. K.K. PAUL CLAIMING THIS EXPENDITURE TO BE REVENUE IN NATURE WHEREAS THE SAM E WAS CAPITAL EXPENDITURE. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS FURNIS HED INACCURATE PARTICULARS OF INCOME AMOUNTING TO RS. 7,18,851 AND LEVIED PENALTY OF RS. 4,15,000. WE FIND THAT THE RETURN WAS FILED BY THE ASSESSEE ON 4-1-1994 WHEREAS THE DECIS ION OF THE HON'BLE SUPREME COURT IN THE CASE OF BROOKE BOND INDIA LTD. V. 67/7225 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 RETU RN THE ASSESSEE DID NOT HAVE THE BENEFIT OF THE ORDER OF THE HON'BLE SUPREME COURT. THEREFOR E, PENALTY CANNOT BE LEVIED ON THE SUM OF RS. 7,500 PAID TO REGISTRAR OF COMPANIES. FU RTHER WITH REGARD TO RS. 5,71,360 NOT SHOWN THE ASSESSEE IN THE CLOSING STOCK WE FIND THA T 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 SIMU LTANEOUSLY 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 ASSESSI NG 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 EVID ENCE FOR RENDERING OF SERVICES COULD NOT BE FILED. IN THESE FACTS WE ARE OF THE VIEW THA T THOUGH THE ASSESSING OFFICER WAS OF THE VIEW THAT NO SERVICES WERE RENDERED BY THE TWO PERS ONS - M/S. PROPLUS MANAGEMENT AND SH. K.K. PAUL, BUT IT CANNOT BE SAID THAT THE ASSES SEE 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. C/T124 ITR 15 HAS HELD THAT UNLESS THE FILING OF AN INACCURATE RETURN IS ACCOMPANIED BY A GUILTY MIND, PENALTY CANNOT BE IMPOSED. IF THE VIEW CANVASSED ON BEHALF OF THE REVENUE WERE ACCEPT ED, THE RESULT WOULD BE THAT IF THE ASSESSEE RAISED A HONA FIDE CONTENTION THAT A PARTICULAR ITEM IS NOT TAXABLE, H E WOULD HAVE ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 27 TO SHOW IT AS FORMING PART AND PAY TAX UPON IT ON T HE POINT OF BEING HELD LIABLE FOR PENALTY IN CASE CONTENTION IS ULTIMATELY FOUND BY THE COURT TO BE NOT ACCEPTABLE. THIS SURELY COULD NEVER HAVE BEEN INTENDED BY THE LEGISLATURE. HENCE, FOR THE REASONS GIVEN ABOVE, WE ARC OF THE VIEW THAT THE PENALTY LEVIED CANNOT BE SUSTA INED IN LAW. HENCE, WE SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THE PENALTY OF RS. 4 ,15,000. THE GROUNDS OF APPEAL OF THE ASSESSEES ARE ALLOWED.' 6. MR. YOGESH PUTNEY, COUNSEL FOR THE APPELLANT, HA S ARGUED THAT THE ASSESSEE HAD FILED INACCURATE PARTICULARS AS THE ADDITIONS HAVE BEEN M ADE ON THE RETURNED INCOME AS DECLARED BY THE ASSESSEE AND THEREFORE, THE BREACH OF THIS S TATUTORY OBLIGATION ATTRACTS LEVY OF PENALTY IRRESPECTIVE OF THE FACT WHETHER THE CONTRA VENTION WAS MADE BY THE ASSESSEE WITH ANY GUILTY INTENTION OR NOT. 7. AFTER CONSIDERING THE ARGUMENTS RAISED BY THE CO UNSEL FOR THE APPELLANT AND PERUSING THE RECORD, WE FIND NO FORCE IN THE CONTENTION RAIS ED BY THE COUNSEL FOR THE APPELLANT. A PERUSAL OF THE IMPUGNED ORDER WOULD SHOW THAT THE T RIBUNAL HAS GIVEN A FINDING OF FACT TO THE EFFECT THAT RETURN WAS FILED BY THE ASSESSEE ON 4-1-1994 WHEREAS THE APEX COURT IN THE CASE OF BROOKE BOND INDIA LTD. \. CIT[\.997] 225 ITR 798 ' RENDERED THE DECISION ON 27- 2-1997 HOLDING FEES PAYABLE TO REGISTRAR OF COMPANI ES FOR INCREASE IN SHARE CAPITAL AS CAPITAL EXPENDITURE, THUS, THE PENALTY CANNOT BE LE VIED ON THE AMOUNT PAID TO THE REGISTRAR OF COMPANIES.. IT HAS ALSO BEEN FOUND BY THE REVENU E THAT WITH REGARD TO SUM OF RS.5,71,360 WHICH WAS NOT SHOWN BY THE ASSESSEE IN THE CLOSING STOCK, THE TRIBUNAL WHILE DECIDING THE QUANTUM APPEAL HAS HELD THAT THIS AMOU NT HAS TO BE INCLUDED IN THE CLOSING STOCK OF THE YEAR UNDER APPEAL AND SIMULTANEOUSLY H AS 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 G IVEN A FINDING WITH REGARD TO THE CLAIM OF DEDUCTION TOR PAYMENT OF RS. 25,000 TO M/S. PROP LUS 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} 124JTRJL5 2 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' UNL ESS THERE IS AN ELEMENT OF DELIBERATENESS IN IT. WHERE THE ASSESSEE DOES NOT INCLUDE A PARTIC ULAR ITEM IN THE TAXABLE TURNOVER UNDER BONA FIDE BELIEF THAT HE IS NOT LIABLE SO AS TO INCLUDE THE S AME, IT WOULD NOT BE RIGHT TO TREAT THE RETURN AS A FALSE RETURN INVITING IMPOSIT ION 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 I S DISMISSED IN IIMINE. 16. FURTHER WE ALSO OBSERVE THAT A SIMILAR ISSUE CA ME UP BEFORE THE CO-ORDINATE BENCH, AHMEDABAD IN THE CASE OF D. SUBH ASHCHANDRA & CO. VS. ACIT IN ITA NO.2805/AHD/2006 FOR AY 2003-04 WHEREIN THE ISSUE HAS BEEN DECIDED BY OBSERVING AS UNDER :- ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 28 NO DOUBT WHERE THERE IS A FALL IN THE VALUE OF THE GOODS AND THE GOODS COULD NOT BE SOLD EVEN AT COST, THE ASSESSEE IS PERMITTED TO VALUE THE GOODS AT AN ESTIMATED REALIZABLE VALUE. BUT THE ESTIMATED NET REALIZABLE VALUE MUST BE BASED ON THE EVIDENCE AND MATERIAL ON RECORD. THE ONUS IS ON THE ASSESSEE TO PROVE THE ESTIMATED REALIZABL E VALUE TO BE BONA FIDE ONE. IT CANNOT BE AD HOC VALUE JUST WORKED OUT ON THE BASIS OF ESTIMATIN G GP AT A PREDETERMINED RATE AND THEN WORKING OUT THE BALANCING VALUE TO BE THE CLOSING STOCK AND IN CASE THE AO WANTS TO VERIFY THE SAME, THE DETAILS OF ESTIMATING THE NET REALIZABLE VALUE OF E ACH ITEM BE WORKED OUT SO THAT THE TOTAL MAY MATCH WITH THE VALUE TAKEN IN THE P&L A/C AS SEEMS TO HAVE HAPPENED IN THE CASE OF THE ASSESSEE OTHERWISE THE ASSESSEE WOULD HAVE FIFED AL L THE DETAILS BEFORE THE AO DURING THE COURSE OF THE. ASSESSMENT -PROCEEDING SO THAT ITS ONUS WOU LD HAVE BEEN DISCHARGED. THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE NET REALIZABLE VALUE WHA TEVER HAS BEEN SHOWN BY ASSESSEE IS THE CORRECT NET REALIZABLE VALUE AND IS LESS THAN THE C OST. THE ASSESSEE HAS TO SATISFY THE AO BY ADDUCING THE EVIDENCE THAT THE NET REALIZABLE VALUE IS LESS THAN THE COST. IN THIS CASE THE ASSESSEE HAS NOT SUBMITTED ANY EVIDENCE TO SUPPORT THE ESTIMATED NET REALIZABLE VALUE. EVEN THE ASSESSEE HAS NOT SHOWN THE SUBSEQUENT INVOICE TO VE RIFY THE VALUE ACTUALLY REALIZED BY THE ASSESSEE. THE AO HAS GIVEN SUFFICIENT OPPORTUNITY T O THE ASSESSEE. THE ASSESSEE FOR THE. FIRST TIME HAS EVEN FILED THE DETAILS OF THE VALUATION OF POLISHED DIAMONDS BEFORE THE TRIBUNAL VIDE LETTER DT. 26TH JULY, 2007, ALTHOUGH THE .ACCOUNTS OF THE ASSESSEE WERE DULY AUDITED UNDER S. 44AB. THE AUTHORISED REPRESENTATIVE POINTED .OUT TH AT THE GP RATE OF THE ASSESSEE DURING THE YEAR WAS 13.81 PER CENT HIGHER THAN THE ONE WHICH VAS EARNED IN THE EARLIER YEAR. IF THE ASSESSEE HAS EARNED THE GP RATE @ 13.81 PER CENT, T HEN THE ''AVERAGE NET VALUE REALIZED IN THE CASE OF THE ASSESSEE SHOULD BE MORE THAN THE COST A T LEAST BY 13.81 PER CENT IF THE AVERAGE COST METHOD OR THE NET REALIZABLE VALUE IS COMPARED. THE AUTHORISED REPRESENTATIVE WHEN ASKED FOR THE EVIDENCE TO SUPPORT THE NET REALIZABLE VALUE, E XPRESSED HIS INABILITY AND POINTED OUT THAT THE NET REALIZABLE VALUE HAS BEEN WORKED OUT ON THE BAS IS OF VALUATION AS EXAMINED BY THE PARTNER. ONE CANNOT BELIEVE THAT THE ASSESSEE WAS NOT KEEPIN G THE ACCOUNTS OF EACH PIECE OF DIAMOND. CUT AND POLISHED DIAMONDS ARE SORTED IN DIFFERENT L OTS, 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 IS SUED, EXPECTED YIELD IS NOTED ON THE PACKETS AND THESE DETAILS ARE VERIFIED BY THE ASSES SEE 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 PIEC E OF DIAMOND. THE AO IN THIS CASE HAS VALUED THE STOCK AT AVERAGE COST WHICH WILL BE LESS THAN T HE 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 VALUA TION OF CLOSING STOCK AND DULY RECOGNIZED BY AS-2 AND PRUDENCY PRINCIPLES OF ACCOUNTING. THE ASS ESSEE IN THIS CASE SINCE COULD NOT PROVE THE NET REALIZABLE VALUE, THEREFORE, THE NATURAL INFERE NCE WILL BE AGAINST THE ASSESSEE. THE AC HAS RIGHTLY VALUED THE CLOSING STOCK OF THE POLISHED DI AMONDS AT AVERAGE COST BY ADOPTING PER CARAT RATE AND ACCORDINGLY, THE ORDER OF THE AO IS CONFIR MED. 17. IN THE LIGHT OF ABOVE JUDICIAL PRONOUNCEMENTS A ND OUR DISCUSSION IN THE PRECEDING PARAGRAPHS ABOUT THE FA CTS OF THE CASE OF ASSESSEE, IN THE GIVEN CASE WHERE THE ASSESSEE WHO IS DEALING INTO THE BUSINESS OF DIAMOND HAVING A WIDE RANGE OF VARI ETIES AND THERE IS UNCERTAINTY ABOUT CORRECT VALUATION OF SUCH ITEMS E VEN THEN ASSESSEE HAD PROPERLY MAINTAINED QUANTITATIVE RECORDS, PROPE R BOOKS OF ACCOUNT DULY AUDITED, CONSISTENT ADOPTION OF METHOD OF VALUATION AT ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 29 COST PRICE OR AT MARKET PRICE WHICHEVER IS LESS AND THE BASIS OF FINDING BY THE REVENUE FOR VALUING OF CLOSING STOCK AT AVERAGE COST TAKEN FROM THE RECORDS OF ASSESSEE ITSELF, CLEARLY SHOWS THAT ASSESSEE HAS NOT FURNISHED INACCURATE PARTICULARS O F INCOME NOR HAS IT CONCEALED ANY PARTICULAR OF INCOME AND IN SUCH C ASE WHERE THERE IS ONLY A CLAIM OF VALUATION OF CLOSING STOCK BY CERTA IN METHOD WHICH IS BONA FIDELY DEEMED CORRECT BY THE ASSESSEE BUT NOT ACCEPTED BY THE REVENUE, WE ARE OF THE CONFIRMED VIEW THAT ASSESSEE SHOULD NOT HAVE BEEN VISITED WITH PENALTY U/S. 271(1)(C) OF T HE ACT. WE ACCORDINGLY DELETE THE PENALTY U/S 271(1)(C) OF THE ACT AT RS.96,66,060/- AND ALLOW THE APPEAL OF ASSESSEE. 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH FEBRUARY, 2017 SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 06/02/2017 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD ITA NO. 1227/AHD/2013 ASST. YEAR 2007-08 30 1. DATE OF DICTATION: 02/02/2017 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 03/02/2017 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7/2/17 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: