ACIT, Ludhiana V. M/s Jyoti Industries, Ludhiana

ITA 624/CHANDI/2014

• Counselvise Citation: 62421514 RSA 2014
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-09-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 13-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL VERMA
• Keywords: Wrong claim; Difference of opinion; Non compliance; Revised return; Bonafide mistake; Change of opinion
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 624/CHD/2014 ASSESSMENT YEAR: 2005-06 THE ACIT, CIRCLE-1, VS. M/S JYOTI INDUSTRIES, LUDHIANA UNIT II, LUDHIANA PAN NO. AAAFJ8855E (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUNIL VERMA RESPONDENT BY : SH. TEJ MOHAN SINGH DATE OF HEARING : 02.09.2015 DATE OF PRONOUNCEMENT : 14.09.2015 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A)-1, LUDHIANA DATED 20.3.2014 IN CANCELLING THE PENALTY OF RS. 5,89,322/- LEVIED U/S 271(1)(C) OF THE ACT, RELATING TO ASSESSMENT YEAR 2005-06. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(APPEALS) IS JUSTIFIED IN DELETING T HE PENALTY ON ADDITION AMOUNTING TO RS. 1,59,769/- ON ACCOUNT OF VALUATION OF SCRAP ON ESTIMATED BASIS WHEREAS THE D IFFERENCE IN VALUATION HAS BEEN WORKED OUT IN THE SPECIAL AUD ITOR REPORT BY ADOPTING FIFO METHOD AND THERE IS NON COMPLIANCE OF AS-2 (VALUATION OF INVENTORIES) AND E VEN FUNDAMENTAL ACCOUNTING PRINCIPLE IS NOT FOLLOWED? 2 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(APPEALS) IS JUSTIFIED IN DELETING THE PENAL TY U/S 271(L)(C) ON ADDITION AMOUNTING TO RS. 12,49,541/- ON ACCOUNT OF VALUATION OF STOCKS & SPARES WHEREAS THE RE IS A NON-COMPLIANCE OF AS-2 (VALUATION OF INVENTORIES) AND EVEN FUNDAMENTAL ACCOUNTING PRINCIPLE IS NOT FO LLOWED AND MOREOVER, THE ASSESSEE HAS VALUED THE RAW MATERIA LS AND STORE AND SPARES AT ESTIMATED COST AND HIS LOGIC OF 20% DEPRECIATED VALUE METHOD IS NOT IN ACCORDANCE WITH THE PRINCIPLES LAID DOWN IN SECTION 145(2) OF THE INCO ME TAX ACT, 1961? 3. WHETHER ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE, THE LD. CIT(APPEALS) IS JUSTIFIED IN DELETI NG THE PENALTY ON ACCOUNT OF ADDITION OF SURRENDER OF CLAI M U/S 80IB OF RS. 2,01,192/- WHEREAS THE ASSESSEE EAR LIER CLAIMED THE DEDUCTION U/S 80IB IN ITS RETURN OF INCOME FOR THE A.Y. 2005-06 AND WHICH WAS DULY CERTIFIED BY TH E AUDITOR OF THE ASSESSEE AND THAT LEVY OF PENALTY IS MANDA TORY AS REMEDY FOR THE LOSS OF REVENUE, AND GIVE THE FACT T HAT SUCH LOSS TO RECOVER HAS OCCURRED IN THE INSTANT CASE DU E TO WRONG CLAIM BY THE ASSESSEE WITH RESPECT TO DEDUCTION U/S 80IB? 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT AS SESSEE COMPANY FILED ITS RETURN OF INCOME ON 28.10.2005 U/S 139(1) DECLARING TOTAL INCOME AT RS. 6,03,580/-. THE ASSESSMENT U/S 143(3) WAS FRAMED V IDE ORDER DATED 15.5.2008 AT AN INCOME OF RS. 79,70,735/-. THE CASE OF THE ASSE SSEE WAS REFERRED TO SPECIAL AUDIT U/S 142 (2A) OF THE ACT ON 19.12.2007 AND REP ORT OF THE SPECIAL AUDITOR WAS SUBMITTED ON 19.3.2008. WHILE FRAMING THE ASSE SSMENT, THE ASSESSING OFFICER HAD MADE CERTAIN ADDITIONS / DISALLOWANCES. THE ASS ESSING OFFICER INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT AND LE VIED A PENALTY OF RS. 5,89,322/-. 3 4. THE ASSESSING OFFICER MADE AN ADDITION OF RS. 1, 59,768/- ON ACCOUNT OF UNDERVALUATION OF SCRAP AND RS. 12,49,541/- FOR UND ER VALUATION OF STORES AND SPARES, AS INCOME OF THE ASSESSEE. THE ABOVE ADDITI ONS HAVE BEEN CONFIRMED BY THE TRIBUNAL VIDE ITS ORDER DATED 19.11.2009 IN ITA NO. 522/CHD./2009. THE RELEVANT FINDINGS OF THE TRIBUNAL ON THE ABOVE ISSU ES ARE AS UNDER:- 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS DEALER OF SCRAP AND IS ALSO ENGAGED IN MANUFACTURE OF ALLOY / NON-ALLOY STEEL INGOTS. THE ASSESSEE HAD VALUED IT STOCK OF SCRAP, SPARES & STORES AT ES TIMATED VALUE, WHICH WAS CLAIMED TO BE CONSISTENT METHOD OF VALUATION FOLLOWED BY ASSESSEE. THE SPECIAL AUDITOR HAD POIN TED THE DISCREPANCIES IN VALUATION OF CLOSING STOCK BY FOLL OWING THE PRESCRIBED METHODS OF VALUING THE CLOSING STOCK EIT HER ON BASIS OF FIFO METHOD OR BY ADOPTING THE COST OR MARKET P RICE, WHICHEVER IS LESS, AS THE BENCH MARK. THE ASSESSING OFFICER ACCORDINGLY WORKED OUT THE DIFFERENCES IN THE VALUA TION OF STOCK ON ACCOUNT OF SCRAP OF RS. 1,59,768/- AND S TOCK & SPARES OF RS. 12,49,541/-, AGAINST WHICH ADDITION, ASSESSEE IS IN APPEAL BEFORE US. 9. THE CONTROVERSY CAN ALSO BE SEEN FROM ANOTHER AN GLE. THE DISPUTE IS ON ACCOUNT OF VARIOUS APPROACHES IN THE VALUATION OF CLOSING STOCK, NAMELY, SCRAP AND STOCK OF SPARES. IT IS SEEN THAT THE METHOD ADOPTED BY THE ASSESSEE WAS CONSISTENT, AS CANVASSED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THE SAME METHOD HAD BEEN APPLIED IN THE EARLIER YEARS AND FURTHER STATEMENT MADE AT BAR BY THE LEAR NED COUNSEL FOR THE ASSESSEE, SIMILAR METHOD APPEARS TO HAVE BE EN ACCEPTED EVEN IN THE SUBSEQUENT TWO ASSESSMENT YEARS. SO, H OWEVER, IT IS NOTABLE THAT THE METHOD ADOPTED BY THE ASSESSEE IMPINGES ON MERE ESTIMATION, IN CONTRAST TO THE METHOD ADOPTED BY THE ASSESSING OFFICER. THE METHOD ADOPTED BY THE ASSESS ING OFFICER IS ONE OF THE GENERALLY ACCEPTED METHODS OF CLOSING STOCK VALUATION. IN OTHER WORDS, THOUGH THE METHOD ADOPTED BY THE ASSESSEE HAS VIRTUES OF CONSISTENCY, YET IT IS NOT A METHOD WHICH IS GENERALLY ACCEPTED IN THE COMMON PARLANCE. IN THIS 4 CONTEXT, THE ACTION OF THE ASSESSING OFFICER OUGHT TO BE JUSTIFIED IN VIEW OF THE PARITY OF REASONING OF HON 'BLE SUPREME COURT IN THE CASE OF CIT VS. BRITISH PAINTS INDIA L IMITED 188 ITR 44 (SC). 10. FURTHERMORE, THE CIT(A) WHILE UPHOLDING THE ACT ION OF THE ASSESSING OFFICER HELD THAT THE CLOSING STOCK ARRIVED AT DURING THE YEAR UNDER CONSIDERATION SHALL BE ADOPTE D AS THE OPENING STOCK IN SUBSEQUENT ASSESSMENT YEARS. THE LATER DIRECTION OF THE CIT(A) IS NOT IN CHALLENGE BY THE REVENUE. UNDER THESE CIRCUMSTANCES, CLEARLY THE GRIEVANCE OF THE ASSESSEE IS NOT WELL FOUNDED, BECAUSE THE BENEFIT O F HIGHER VALUE OF STOCK IS AVAILABLE TO THE ASSESSEE IN THE SUBSEQUENT YEARS AS PART OF THE OPENING STOCK. CONSIDERING THE AFORESAID TOTALITY OF CIRCUMSTANCES, WE FIND NO ERROR IN THE APPROACH OF THE CIT(A) IN DECIDING THE ISSUE. HENCE, GROUNDS NO. 2 & 3 RAISED BY THE ASSESSEE ARE DISMISSED. 5. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES AT LENGTH AND HAVE ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. SHRI TEJ MOHAN SINGH, LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. SHRI TEJ MOHAN SINGH LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT ASSESSEE FIRM WAS CONSISTENTLY VALUING THE SC RAP ON THE BASIS OF PHYSICAL CHECKING OF THE STOCK AT THE YEAR END AND WHICH IS ALMOST NEAR / ACCORDING TO FIFO METHOD BUT WITH THE ACTUAL PHYSICAL PRESENCE OF STOCK IN THE FACTORY. HE FURTHER POINTED OUT THAT ASSESSEE FIRM WAS CONSISTE NTLY FOLLOWING THE ABOVE SYSTEM OF VALUATION SINCE ITS INCEPTION. THE CHANGE OF OPINION BY THE ASSESSING OFFICER ON THE BASIS OF SUGGESTION MADE BY SPECIAL AUDITOR DOES NOT TANTAMOUNT TO CONCEALMENT OF INCOME OR FURNISHING OF INACCURAT E PARTICULARS OF INCOME. AS REGARDS THE VALUATION OF STORES AND SPARES, SHRI TE J MOHAN SINGH, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN ADDITION OF RS. 12,4 9,541/- HAS BEEN MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DIFFERENCE ARISING IN SPECIAL AUDITORS SUGGESTED METHOD OF VALUATION AND THAT FOLLOWED BY THE ASSESS EE FIRM. IT IS ALSO BROUGHT TO 5 OUR NOTICE BY THE LD. COUNSEL FOR THE ASSESSEE SHRI TEJ MOHAL SINGH THAT BOTH IN CASE OF SCRAP AND IN STORES VALUATION, NOT EVEN A SINGLE KG OF DIFFERENCE IN QUANTITY IS FOUND BY BOTH SPECIAL AUDITOR AND ASSES SING OFFICER. THE ADDITION HAS BEEN MADE FOR UNDER VALUATION OF C.I MOULDS / D EPRECIABLE ITEM. HE FURTHER EXPLAINED THAT C.I MOULDS ARE USED FOR CASTING INGO TS AFTER MELTING THE SCRAP. AS PER NORMAL PRACTICE IN STEEL INDUSTRY AND CONSISTEN T PRACTICE OF THE ASSESSEE THESE ARE SHOWN UNDER THE HEAD CONSUMABLE STORES & SPARES ALONG WITH EITHER ITEMS OF CONSUMABLE NATURE. THE ASSESSEE FIRM AS ON BALANCE SHEET DATE AFTER ADJUSTING 20% ON ACCOUNT OF WEAR & TEAR AND CLAIMING THIS WEA R AND TEAR SINCE ITS INCEPTION. SHRI TEJ MOHAN SINGH LD. COUNSEL FOR THE ASSESSEE FURTHER STATED THAT ALL THE FACTS WERE DISCLOSED DURING THE ASSESSMENT PROCEEDINGS AND HENCE THE ADDITION MADE ON ACCOUNT OF DIFFERENCE OF OPINION D OES NOT FALL UNDER THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT. THE C HANGE OF THE OPINION BY THE ASSESSING OFFICER ON THE BASIS OF SUGGESTIONS MADE BY SPECIAL AUDITOR DOES NOT TANTAMOUNT TO CONCEALMENT OF INCOME OR FURNISHING O F INACCURATE PARTICULARS OF INCOME. IN THE INSTANT CASE THE CIT(A) DELETED THE PENALTY WITH RESPECT TO THE ADDITION OF RS. 1,59,768/- AND RS. 12,49,541/- OBSE RVING AS UNDER:- 6. THE PERUSAL OF THE JUDGMENT OF HON'BLE ITAT SHO WS THAT THE METHOD ADOPTED BY THE ASSESSEE HAD THE VIR TUES OF CONSISTENCY EVEN THOUGH IT WAS NOT A METHOD GENERAL LY ACCEPTING IN THE COMMON PARLANCE. IT WAS ALSO OBSER VED THAT THE METHOD OF VALUATION OF CLOSING STOCK HAD B EEN ACCEPTED BY THE ASSESSING OFFICER EVEN IN EARLIER Y EARS AS WELL AS LATER TWO ASSESSMENT YEARS. IN THE CIRCUMST ANCES THE ADDITION HAS BEEN MADE AND CONFIRMED ONLY ON TH E GROUND OF VALUATION OF CLOSING STOCK AND NOTHING HA S BEEN CONCEALED BY THE ASSESSEE. IT CANNOT ALSO BE SAID T HAT THE ASSESSEE HAD FILED INACCURATE PARTICULARS OF INCOME AS ALL THE NECESSARY DETAILS PERTAINING TO THE CLOSING STO CK HAD BEEN CORRECTLY BROUGHT ON RECORD AND GENERALLY ACCE PTED BY THE DEPARTMENT IN OTHER YEARS. THE EXPLANATION O F THE ASSESSEE FOR CONTINUING TO USE A PARTICULAR METHOD OF VALUATION OF CLOSING STOCK SHOULD BE ACCEPTABLE FOR THE DIFFERENCE BETWEEN ASSESSED INCOME AND RETURNED INC OME AND IT HAS NOT BEEN SHOWN AS TO HOW THE SAID EXPLAN ATION 6 WAS NOT BONAFIDE OR SUBSTANTIATED. THIS BEING SO ES SENTIAL CONDITION FOR IMPOSING PENALTY U/S 271(L)(C) IS NOT SATISFIED. THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE AR ALSO SUPPORT THIS VIEW. AS SUCH THE PENALTY IMP OSED BY THE ASSESSING OFFICER ON THIS ISSUE IS DIRECTED TO BE DELETED. 6. AFTER CONSIDERING THE FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE CIT(A) WAS FULLY JUSTIFIED IN CANCELLING THE PENALT Y LEVIED U/S 271(1)(C) OF THE ACT, IN RESPECT OF ADDITION OF RS. 1,59,769/- MADE ON ACCOUNT OF VALUATION OF SCRAP AT ASSESSED BASIS AND RS. 12,49,541/- MADE O N ACCOUNT OF VALUATION OF STOCK AND SPARES. IT IS OBSERVED THAT THE METHOD AD OPTED BY THE ASSESSEE REGARDING THE VALUATION OF CLOSING STOCK NAMELY SCRAP AND STO CK OF SPARES WAS CONSISTENT AND WAS BEING FOLLOWED IN THE EARLIER YEARS AND SIM ILAR METHOD APPEARS TO HAVE BEEN ACCEPTED EVEN IN THE SUBSEQUENT TWO ASSESSMEN T YEARS. HOWEVER, THE METHOD ADOPTED BY THE ASSESSING OFFICER, APPEARS TO BE ONE OF THE GENERAL ADOPTED METHOD OF CLOSING STOCK OF VALUATION. IN OU R OPINION, THE LD. CIT(A) HAS CORRECTLY OBSERVED THAT THE IMPUGNED ADDITION HAVE BEEN MADE AND CONFIRMED ONLY ON THE GROUND OF VALUATION OF CLOSING STOCK AN D NOTHING HAS BEEN CONCEALED BY THE ASSESSEE. EVEN THE ASSESSEE HAD NOT FURNISHE D THE INACCURATE PARTICULARS OF ITS INCOME BECAUSE OF THE NECESSARY DETAILS PERTAIN ING TO THE CLOSING STOCK WERE SUBMITTED BEFORE THE ASSESSING OFFICER. I AM ALSO I N AGREEMENT WITH THIS CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE CHANGE OF OPINION BY THE ASSESSING OFFICER ON THE BASIS OF SUGGESTION MADE B Y SPECIAL AUDITOR DOES NOT TANTAMOUNT TO CONCEALMENT OF INCOME OR FURNISHING O F INACCURATE PARTICULARS OF INCOME, PARTICULARLY WHEN THE ASSESSEE FIRM WAS CON SISTENTLY FOLLOWING THIS SYSTEM OF VALUATION OF CLOSING STOCK SINCE INCEPTIO N. THUS, CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE UPH OLD THE ORDER OF CIT(A) IN CANCELLING THE PENALTY U/S 271(1)(C) OF THE ACT. 7 7. IN THE RETURN OF INCOME THE ASSESSEE CLAIMED A D EDUCTION OF RS. 2,01,192/- U/S 80IB OF THE ACT AS THE ASSESSEE WAS MAINLY ENG AGED IN MANUFACTURING OF STEEL INGOTS. DURING THE ASSESSMENT YEAR UNDER CONSIDERAT ION, THE ASSESSEE CARRIED THE SAME TRADING IN BUSINESS IN STEEL PRODUCTS BUT DUE TO OVERSIGHT DEDUCTION U/S 80IB OF THE ACT WAS CLAIMED TO THE TUNE OF RS. 2,01,192/ - AS ASSESSEE WAS OTHERWISE COMPLYING WITH ALL THE REQUIREMENTS TO BE ELIGIBLE FOR CLAIMING DEDUCTION U/S 80IB. AT THE TIME OF FILING THE RETURN DUE TO BONA FIDE MISTAKE THIS DEDUCTION WAS CLAIMED. BUT DURING ASSESSMENT PROCEEDINGS, REALIZ ING THIS MISTAKE, THE ASSESSEE VIDE ITS LETTER DATED 6.9.2007 SUBMITTED THE ASSES SING OFFICER OF ITS INTENTION TO VOLUNTARILY SURRENDER OF THIS CLAIM WHICH WAS DUE T O BONAFIDE MISTAKE AS ASSESSEE HAD NO INTENTION TO CHEAT THE REVENUE. ALL THE DOC UMENTS / REPORTS BY AUDITORS WERE FILED. BESIDES THIS, THE ASSESSEE HAD ALSO FIL ED A REVISED RETURN OF INCOME DATED 14.5.2008 WITHDRAWING OF ITS CLAIM OF DEDUCTI ON U/S 80IB OF THE ACT PRIOR TO THE CONCLUDING OF ASSESSMENT PROCEEDINGS BY THE ASSESSING OFFICER. THE ASSESSING OFFICER IMPOSED THE PENALTY U/S 271(1)(C) OF THE ACT STATING THAT THE ASSESSEE HAS RESORTED TO THE FURNISHING OF INACCUR ATE PARTICULARS OF INCOME SO AS TO REDUCE ITS TAXABLE INCOME. 8. ON APPEAL, THE CIT(A) DELETED THE PENALTY RELYIN G ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIAN CE PETROPRODUCTS PVT. LTD [2010] 322 ITR 158 (SC)., WHEREIN THE HON'BLE SUPR EME COURT HAS HELD AS UNDER WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIE D BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271(1)(C) . A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING IN ACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. S UCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INAC CURATE PARTICULARS. 8 IN OUR OPINION IN THE INSTANT CASE THE CIT(A) HAS C ORRECTLY FOLLOWED THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF RE LIANCE PETRO (SUPRA). WE ALSO OBSERVE THAT ASSESSING OFFICER HAS NOT GIVEN A NY FINDING THAT THE CLAIM OF DEDUCTION WAS BOGUS. IT IS A SIMPLE CASE OF NON ALL OWANCE OF LEGAL CLAIM FOR WHICH THE PENALTY IS NOT LEVIABLE. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THE CIT(A) HAS RIGHTLY COME TO THE CONCLUSION THAT THE ASSESSEE DID NOT CONCEAL HIS INCOME OR FURNISHED INACCURATE PARTICUL ARS OF INCOME. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) IN CANCELLING THE PEN ALTY LEVIED WITH RESPECT TO THE AMOUNT OF DEDUCTION CLAIMED U/S 80IB OF THE ACT. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 14.09.2015 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 14 TH SEPTEMBER, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR