Gandevikar Jewellers Pvt. Ltd., Baroda V. The Dy.CIT, Circle-1(1), Baroda

ITA 2425/AHD/2014

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8799 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 01-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Keywords: Depreciation; Wrong claim; Set aside
• Section: 271(1)(c); 143(3)

Judgement Text

, D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO. 2425/AHD/2014 ( / ASSESSMENT YEAR : 2008-09) GANDEVIKAR JEWELLERS PVT. LTD. 10, SUDHA CO-OP. SOCIETY, JETALPUR ROAD, BARODA- 390007 / VS. DCIT CIRCLE- 1(1), AAYKAR BHAVAN, RACE COURSE CIRCLE, BARODA- 390007 ./ ./ PAN/GIR NO. : AAACG8 448 D ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI M. K. PATEL, A.R. / RESPONDENT BY : SHRI VINOD TANWANI, SR. DR / DATE OF HEARING 09/07/2019 !'# / DATE OF PRONOUNCEMENT 11/07/2019 $%/ O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-1, BARODA (CIT(A) IN SHORT), DATED 09.07.2014 ARISING IN THE PENALTY ORDER PASSED BY THE AO DATED 22.03.2013 UNDER S. 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING A.Y. 2008-09. ITA NO.2425/AHD/2014 [GANDEVIKAR JEWELLERS PVT. LTD. VS. DCIT] A.Y. 2008-09 - 2 - 2. BRIEFLY STATED, THE ASSESSEE FILED RETURN OF IN COME FOR A.Y. 2008-09 DECLARING TOTAL INCOME AT RS. 2,43,00,960/- . IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO INTER ALIA MADE ADDITIONS/DISALLOWANCE ON TWO ITEMS NAMELY (A) UNDE R VALUATION OF CLOSING STOCK OF JEWELLERY TO THE EXTENT OF RS. 44, 93,791/-, (B) WRONG CLAIM OF DEPRECIATION ON BUILDING TO THE EXTE NT OF RS. 6,08,307/-. AS A CONSEQUENCE, THE AO INITIATED PEN ALTY PROCEEDINGS UNDER S. 271(1)(C) FOR WRONGFUL CLAIM ON ABOVE COUN TS AND IMPOSED PENALTY @ 100% ON THE TAX EVADE ON SUCH CONCEALMENT OF INCOME. 3. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) WITHOUT ANY SUCCESS. 4. FURTHER AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE TRIBUNAL. 5. THE LD. AR FOR THE ASSESSEE REFERRED TO THE ASSE SSMENT ORDER DATED 29.10.2010 PASSED UNDER S. 143(3) OF THE ACT IN THE QUANTUM PROCEEDINGS AND SUBMITTED THAT THE VERY PREMISE OF ALLEGING UNDER VALUATION OF CLOSING STOCK IS INCORRECT. THE LD. A R SUBMITTED THAT THE AO HAS OBSERVED THAT THE CLOSING STOCK NAMELY G OLD, SILVER AND DIAMOND ETC. ARE VALUED AT LOWER OF AVERAGE COST O N MARKET VALUE WHEREAS THE METHOD OF ACCOUNT ADOPTED BY THE ASSESS EE WAS ITA NO.2425/AHD/2014 [GANDEVIKAR JEWELLERS PVT. LTD. VS. DCIT] A.Y. 2008-09 - 3 - WEIGHTED AVERAGE COST ON MARKET VALUE WHICHEVER I S LOWER. THE LD. AR NEXT SUBMITTED THAT THERE WAS NO ERROR IN SO FAR AS THE QUANTITY OF CLOSING STOCK DECLARED BY THE ASSESSEE. THE ONLY DISPUTE RELATES TO VALUATION THEREOF. THE ASSESSEE IN THE PAST HAD ADOPTED SIMPLE AVERAGE COST FOR THE PURPOSES OF VALUATION W HICH WAS MODIFIED TO WEIGHTED AVERAGE BY THE AO. IN SUCH A SITUATION, THE ASSESSEE HAS SIMPLY MODIFIED THE METHOD OF VALUATIO N IN TUNE WITH THE APPROACH OF AO. THE LD. AR THUS SUBMITTED THAT THE ACTION OF THE ASSESSEE CANNOT BE TREATED AS MALA FIDE PER SE SO AS TO WARRANT IMPOSITION OF PENALTY. THE LD. AR FURTHER CONTENDE D THAT THE CLOSING STOCK DECLARED BY THE ASSESSEE IS AS HIGH A S WHICH 6.29 CRORE AS AGAINST WHICH THE ALLEGED DIFFERENCE IS OF RS. 4 4.93 LAKHS IN TERMS OF VALUATION. SUCH DIFFERENCE IS QUITE MEAGE R I.E. ABOUT 2.75% ONLY WHICH FURTHER SHOWS POSSIBLE INADVERTENC E IN THE ACTION OF THE ASSESSEE. 6. AS REGARDS WRONG CLAIM OF DEPRECIATION ON BUIL DING, THE LD. AR POINTED OUT THAT DEPRECIATION WAS CLAIMED FOR TH E FULL YEAR BY THE ASSESSEE AS THE BUILDING WAS PURCHASED AS PER S ALE DEED DATED 27.09.2006. HOWEVER, THE AO AS ALLOWED DEPRECIATIO N FOR HALF YEAR AS IT WAS ASSUMED TO BE PUT TO USE FOR LESS THAN SI X MONTHS ON THE GROUND THAT THE OFFICE/SHOWROOM WAS INAUGURATED IN JANUARY 2008 AND CONSEQUENTLY PUT TO USE THEREAFTER. THE LD. AR SUBMITTED THAT ITA NO.2425/AHD/2014 [GANDEVIKAR JEWELLERS PVT. LTD. VS. DCIT] A.Y. 2008-09 - 4 - THE CLAIM OF THE ASSESSEE IS NOT ENTIRELY WRONG AND THE ACTION OF THE REVENUE IS ULTIMATELY TAXED NEUTRAL AS DEPRECIATION OF LESSER FIGURE ALLOWED WOULD RESULTS IN CONSEQUENT INCREASE IN DEP RECIATION OF THE EQUIVALENT AMOUNT IN THE YEARS TO ENSUE. THE LD. A R PLEADED THAT NO STRINGENT ACTION IN THE FORM OF PENALTY JUSTIFIE D FOR SUCH TECHNICAL DEFAULTS IF ANY, NOTWITHSTANDING READY AC CEPTANCE OF QUANTUM ASSESSMENT AS MADE BY THE AO WITHOUT LITIGA TION. 7. THE LD. DR ON THE OTHER HAND RELIED UPON THE ORD ER OF THE CIT(A) AND SUBMITTED THAT THE BONA FIDE PLEADED BY THE ASSESSEE WAS NOT PROVED. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE IMPOSITION OF PENALTY UNDER S. 271(1)(C) ON ACCOUNT OF UNDER- VALUATION OF CLOSING STOCK AND HIGHER CLAIM OF DE PRECIATION IS IN QUESTION. WE STRAIGHTWAY NOTICE THAT BOTH THE ADDITIONS/DISALLOWANCES ARE TAX NEUTRAL OVER PERIOD OF TIME AND THUS TAXATION CANNOT BE ESCAPED PERENNIALLY ON THE AFORESAID TWO ITEMS. OVER-VALUATION OF STOCK IN ONE YEAR WOULD RESULT IN HIGHER VALUATION OF OPENING STOCK IN OTHER YEAR AND PROFIT WILL BE A CCORDINGLY ADJUSTED DOWNWARDS IN THE SUBSEQUENT ASSESSMENT YEA RS. SAME IS THE CASE WITH DEPRECIATION ALLOWANCE. THIS APART, THE ASSESSEE HAS INDEPENDENTLY OFFERED EXPLANATION FOR SUCH ERROR WH ICH CANNOT BE ITA NO.2425/AHD/2014 [GANDEVIKAR JEWELLERS PVT. LTD. VS. DCIT] A.Y. 2008-09 - 5 - BRACKETED IN THE REALM OF MALA FIDE PER SE. THE VARIATION IN THE VALUATION OF STOCK IS LESS THAN 3%. THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE IN SYNC WITH THE METHOD ADOPTED BY THE AO IN THE EARLIER YEARS AND IS ALSO A RECOGNIZED METHOD. IMP ORTANTLY, NO DIFFERENCE IN NET QUANTITATIVE TALLY HAS BEEN BROUG HT ON RECORD. THE VALUATION OF STOCK EMBODIES CERTAIN DEGREE OF SUBJE CTIVITY AND IS NOT AN ENTIRELY OBJECTIVE PROCESS. THUS, WHERE A FAIR AND PLAUSIBLE EXPLANATION HAS BEEN OFFERED BY THE ASSESSEE FOR AS CERTAINMENT OF VALUE OF CLOSING STOCK, THE PRE-REQUISITES FOR INVO KING EXPLANATION-1 TO SEC. 271(1)(C) ARE NOT, IN OUR VIEW, SATISFIED. A MERE WRONGFUL CLAIM OR A BONA FIDE ERROR COULD NOT AUTOMATICALLY INVITE STRINGENT PENALTY. THE ASSESSEE IN OUR VIEW HAS SUCCESSFULLY OFFERED EXPLANATION WHICH IS REASONABLE & COMMENSURATE IN T HE CIRCUMSTANCES. THE DEPRECIATION ALLOWANCE ALSO CLA IMED FOR THE FULL YEAR IS NOT ENTIRELY WITHOUT ANY BASIS. THE OWNERS HIP OF THE PROPERTY WAS ACTUALLY TRANSFERRED IN FAVOUR OF THE ASSESSEE AND SUCH PROPERTY WAS HOLD FOR MORE THAN 180 DAYS. IN SUCH A SITUATION, AN ERROR COMMITTED BY HIGHER CLAIM OF DEPRECIATION WOU LD NOT AUTOMATICALLY LEAD TO CONSEQUENCES IN THE FORM OF P ENALTY OF STRINGENT NATURE. WE THUS FIND MERITS IN THE PLEA OF THE ASSESSEE FOR CANCELLING THE PENALTY ON THESE ADDITIONS. THE ORD ER OF THE CIT(A) ITA NO.2425/AHD/2014 [GANDEVIKAR JEWELLERS PVT. LTD. VS. DCIT] A.Y. 2008-09 - 6 - IS ACCORDINGLY SET ASIDE AND THE AO IS DIRECTED TO CANCEL THE PENALTY ON BOTH COUNTS. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. SD/- SD/- (RAJPAL YADAV) (PRADIP K UMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 11/07/2019 TANMAY TRUE COPY !' #' / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. $ / ASSESSEE 3. ) *+ , / CONCERNED CIT 4. ,- / CIT (A) 5. 012 33*+, *+#, 56$)$ / DR, ITAT, AHMEDABAD 6. 289 : / GUARD FILE. BY ORDER / $% , ;/5 *+#, 56$)$ < 1.DATE OF DICTATION ON 09.07.2019 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 10.07.2019 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 11 .07.2019 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 11.07.2019 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR . P.S./P.S 12.07.2019 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 12.07.2019 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER THIS ORDER PRONOUNCED IN OPEN COURT ON 1 1/07/2019