Assistant Commissioner of Income tax,circe-6(1), Bangalore V. Sri H Prakashchand Kothari, Bangalore

ITA 1242/BANG/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89989 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 01-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.1242(B)/2014 (ASSESSMENT YEAR : 2008-09) THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-6(1)56 TH FLOOR, RASTROTHANA BHAVAN, NRUPATHUNGA ROAD, BANGALORE-560 001 APPELLANT VS SRI H. PRAKASHCHAND KOTHARI, PROP: M/S SUMATHI JEWELLERS, NO.1224, NEAR BUS STAND, YELAHANKA, BANGALORE-560 064 PAN NO.AANPH7031F RESPONDENT REVENUE BY : DR. P.K.SRIHARI, ADDL.CIT ASASESEE BY : SMT PRATHIBHA, R ADVOCATE DATE OF HEARING : 18-06-2015 DATE OF PRONOUNCEMENT : 29-06-2015 O R D E R PER SHRI VIJAY PAL RAO, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 24- 06-2014 OF CIT(A), ARISING FROM PENALTY ORDER PASSE D U/S 271(1)(C ) OF THE IT ACT, 1961 FOR THE ASSESSMENT YEAR 2008-09. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS; ITA NO.1242(B)/14 2 1.THE ORDER OF THE LD.CIT(A) IS OPPOSED TO LAW AN D FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD.CIT(A) ERRED IN CANCELLING THE PENALTY U/S 271(1)(C ) OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE A SSESSEE HAS NOT APPEALED AGAINST THE QUANTUM ADDITION AND CONSIDERING THE RATIO LAID DOWN IN THE ORDER OF THE APEX COURT IN THE CASE OF MAK DATA LTD VS DCIT (2014) (1 SC 674). 3. ON THE FACTS AND IN THE CIRC7MSTANCES OF THE CA SE THE LD.CIT(A) ERRED IN HOLDING THAT THE AO HAD ESTI MATED THE INCOME EVEN THOUGH THE AO HAS HIGHLIGHTED THE DETAILED WORKING IN THE ORDER AND HAS ESTABLISHED T HE CASE FOR LEVY OF PENALTY U/S 271(1)(C ). 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE AO MAY BE RESTORED. 3. THE ASSESSEE IS A PROPRIETOR OF M/S SUMATHI JEW ELLERS. THE AO WHILE COMPUTING THE ASSESSMENT HAD MADE AN ADDITION ON ACCOUNT OF DIFFERENCE IN CLOSING STOCK VALUATION AMOUNTING TO RS.26,27,268/-. THE ASSESSEE VALUED THE CLOSING STOCK, TAKING 80% OF SU CH STOCK AS OLD STOCK REFLECTING IN THE OPENING STOCK AND REST IN THE REL EVANT YEARS PURCHASE. THUS, THE ASSESSEE IS VALUING THE OLD STOCK AT A LE SSER RATE THAN THE ITA NO.1242(B)/14 3 CURRENT STOCK, WHICH IS AT THE PREVAILING MARKET RA TE. THE AO REVALUED THE CLOSING STOCK OF THE ASSESSEE AND CONSEQUENTLY, MAD E AN ADDITION. SUBSEQUENTLY, HE INITIATED PENALTY PROCEEDINGS IN R ESPECT OF THE ADDITION MADE ON ACCOUNT OF DIFFERENCE IN THE VALUE OF STOCK AND LEVIED A PENALTY OF RS.8,93,015/- BEING 100% OF THE TAX SOUGHT TO BE EV ADED VIDE ORDER DATED 29-04-2011. THE ASSESSEE CHALLENGED THE LEVY OF P ENALTY BEFORE THE CIT(A) AND CONTENDED THAT THE ASSESSEE WAS CONSISTENTLY VA LUING THE CLOSING STOCK TAKING 80% OF SUCH STOCK AS OLD STOCK, REFLEC TING IN THE OPENING STOCK AND BALANCE BEING THE PURCHASE MADE IN THE YE AR. IT WAS FURTHER, CONTENDED THAT THE ASSESSEE HAS FURNISHED ALL THE R ELEVANT DETAILS AND THE VALUATION OF THE ASSESSEE IS FIXED ON THE BASIS OF THE PURITY OF GOLD. THEREFORE, WHEN THIS CONSISTENT ACCOUNTING PRACTICE OF THE ASSESSEE WAS ACCEPTED BY THE AO IN THE EARLIER YEARS, THEN MEREL Y NOT ACCEPTING THE METHOD OF VALUATION BY THE AO FOR THIS ASSESSMENT Y EAR AND MADE AN ADDITION BY RE-VALUING THE CLOSING STOCK OF THE ASS ESSEE WOULD NOT JUSTIFY THE LEVY OF PENALTY. THE CIT(A) HAS ACCEPTED THE E XPLANATION OF THE ASSESSEE AND FOUND THAT THERE ARE INCONSISTENCY IN THE VALUE OF STOCK DISCREPANCY ADOPTED BY THE AO FOR THE PURPOSE OF AS SESSMENT ORDER AND PENALTY ORDER WHICH ITSELF IS INEXPLICABLE. THUS, THE CIT(A) HAS DELETED THE PENALTY BY ACCEPTING THE EXPLANATION OF THE ASSESSE E AS BONAFIDE. 4. BEFORE US, LEARNED DR HAS STRONGLY RELIED UPON THE PENALTY ORDER OF THE AO AND SUBMITTED THAT THE AO FOUND THE DISCR EPANCY IN THE ITA NO.1242(B)/14 4 VALUATION OF THE STOCK AND ACCORDINGLY, MADE THE AD DITION BY TAKING THE AVERAGE PURCHASE PRICE OF THE STOCK WHICH HAS BEEN ACCEPTED BY THE ASSESSEE. THEREFORE, THE ASSESSEE HAS FURNISHED I NACCURATE PARTICULARS OF INCOME BY UNDERVALUING THE CLOSING STOCK WARRANTS L EVY OF PENALTY U/S 271(1)(C ) OF THE ACT. 5. ON THE OTHER HAND, LEARNED AR OF THE ASSESSEE H AS REITERATED THE CONTENTION AS RAISED BEFORE THE AUTHORITIES BELOW A ND SUBMITTED THAT THERE IS DIFFERENCE IN THE PURITY OF THE GOLD IN THE OLD JEWELLERY AND IN THE NEW HALL MARK JEWELLERY. ACCORDINGLY, THE ASSESSEE CON SISTENTLY VALUING THE CLOSING STOCK BY ADOPTING A DIFFERENT RATE OF VALUA TION FOR THE GOLD JEWELLERY THAN THE NEW JEWELLERY PURCHASED DURING THE YEAR. THIS PRACTICE OF THE ASSESSEE HAS BEEN ACCEPTED BY THE AO FOR THE ASSESS MENT YEAR: 2007-08 PASSED U/S 143(3)OF THE ACT. HE FURTHER CONTENDED THAT EVEN OTHERWISE THE OLD JEWELLERY LOOSES ITS VALUE AND WORTH DUE TO THE OLD DESIGN IN COMPARISON TO THE NEW DESIGN OF JEWELLERY. THE NE W DESIGN AND HALL MARK JEWELLERY ARE THE FAST MOVING ITEMS, WHEREAS THE OL D JEWELLERY BECOMES OBSOLETE IN A SHORT PERIOD OF TIME THEREFORE, THE V ALUATION OF THE ASSESSEE OF OLD JEWELLERY AT A LESSER VALUE IS BASED ON THE CON SISTENT PRACTICE OF THE ASSESSEE AND THUS, THE CLAIM OF THE ASSESSEE IS BON AFIDE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. THE AO MADE THE ADDITION BY RE -VALUING THE CLOSING STOCK OF THE ASSESSEE WITH THE UNIFORM RATE OF VALU E BEING AVERAGE ITA NO.1242(B)/14 5 PURCHASE PRICE, IN COMPARISON TO THE VALUATION OF T HE ASSESSEE UNDER WHICH THE ASSESSEE SEPARATELY VALUED THE OLD JEWELL ERY AT LESSER PRICE THAN THE PREVAILING MARKET RATE. THE REASON FOR GIVING A DIFFERENT VALUATION TO THE OLD JEWELLERY WAS EXPLAINED BY THE ASSESSEE THA T THE OLD JEWELLERY BEING A OLD DESIGN BECOMES OBSOLETE IN A SHORT PERIOD OF TIME, WHEREAS THE NEW JEWELLERY HAVING THE NEW DESIGN IS A FAST MOVING ST OCK AND THEREFORE, THE ASSESSEE IS VALUING THE OLD JEWELLERY AT A LESSER R ATE. FURTHER, ASSESSEE HAS BEEN CONSISTENTLY VALUING THE OLD JEWELLERY BY ADOP TING THE SAME METHODOLOGY. THERE IS NO DISPUTE THAT FOR THE ASS ESSMENT YEAR 2007-08, THE AO WHILE PASSING THE ASSESSMENT ORDER U/S 143(3 ) DATED 30-04-2009 ACCEPTED THE METHOD OF VALUATION OF CLOSING STOCK A DOPTED BY THE ASSESSEE. THUS, IT S CLEAR THAT THE PURPOSE AND OBJECT OF VAL UING THE OLD JEWELLERY AT A LESSER RATE BY THE ASSESSEE IS TO REFLECT THE TRUE AND CORRECT VALUATION OF THE CLOSING STOCK OF JEWELLERY. THOUGH, THE ASSESSEE H AS ACCEPTED THE ADDITION MADE BY THE AO ON ACCOUNT OF RE-VALUATION OF THE CL OSING STOCK OF JEWELLERY. HOWEVER, THERE WAS NO DISCREPANCY IN T HE QUANTITY OF JEWELLERY AND THE FACTS PRESENTED BY THE ASSESSEE THEREFORE, MERELY BECAUSE THE AO DID NOT ACCEPT THE METHOD OF VALUATION AND ADOPTED HIS OWN RATE OF VALUATION RESULTED AN ADDITION TO THE TOTAL INCOME OF THE ASSESSEE WOULD NOT IPSO FACTO, LEAD TO THE CONCLUSION THAT THE ASS ESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME OR CONCEALED THE P ARTICULARS OF INCOME. THERE IS NO ALLEGATION BY THE AO THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME, SO FAR AS THE DET AILS OF CLOSING STOCK AND ITA NO.1242(B)/14 6 THE RATE ADOPTED BY THE ASSESSEE ARE CONCERNED. T HE AO HAS ALSO NOT DISPUTED THE FACT THAT THE ASSESEE HAS BEEN CONSIST ENTLY VALUING THE CLOSING STOCK BY TAKING 80% OF SUCH STOCK AS OLD ST OCK REFLECTING IN THE OPENING STOCK AND BALANCE BEING PURCHASED DURING TH E YEAR. THUS, WE FIND THAT THE EXPLANATION OF THE ASSESSEE IS NOT AN OBSOLUTE, INCORRECT OR FALSE, BUT THE SAME IS HAVING A BONAFIDE BASIS OF C ONSISTENCY IN THE PRACTICE OF THE ASSESSEE WHICH WAS ACCEPTED IN THE EARLIER ASSESSMENT YEARS. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR I LLEGALITY IN THE ORDER OF THE CIT(A) IN DELETING THE PENALTY. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THE 29 TH JUNE, 2015. SD/- SD/- (JASON P BOAZ) (VIJA Y PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER D A T E D : 29-06-2015 PLACE: BANGALORE AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE