ACIT, Jaipur V. M/S MODERN THREADS (INDIA) LTD., Jaipur

ITA 795/JPR/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99289 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 05-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MADHUKAR GARG; ANIRUDH GARG CA DH RKJ
• Keywords: Retrospective amendment; Onus to prove; Bonafide mistake
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA-@ ITA NO. 795/JP/2012 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2002-03 THE ACIT CIRCLE- 6 JAIPUR CUKE VS. M/S. MODERN THREADS (INDIA) LTD. A-4, VIJAY PATH, TILAK NAGAR, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AABCM 1850 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SMT. NEENA JEPH, JCIT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MADHUKAR GARG & SHRI ANIRUDH GARG, CA LQUOKBZ DH RKJH[K@ DATE OF HEARING : 11/06/2015 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 11 /08/2015 VKNS'K@ ORDER PER T.R. MEENA, AM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST T HE ORDER OF THE LD. CIT(A)-II, JAIPUR DATED 20-07-2012 FOR THE ASSESSME NT YEAR 2002-03 RAISING THEREIN SOLITARY GROUND AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN DELETING PENALTY OF RS. 7,6 5,060/- IMPOSED BY AO U/S 271(1)(C ) HOLDING THE CHANGE OF ACCOUNTING SYSTEM WHICH RESULTED VALUATION OF STOCK AT A LOWER SIDE DO NOT SHOW DELIBERATE INTENTION OF THE ASSESSEE OF FURNISHING INACCURATE PARTICULARS/ CONCEALMENT O F FACTS. ITA NO.795/JP/2012 ACIT, CIRCLE- 6,JAIPUR VS. M/S. MODERN THREADS (IND IA) LTD. . . 2 2.1 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F ILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2002-03 ON 28-10-200 2. THE INCOME DECLARED THEREIN AMOUNTED TO LOSS OF RS. 42,66,16,8 36/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 24-02-2005. THE LOSS WA S AT RS. 42,42,44,972/-. THE ADDITIONS WERE MADE ON ACCOUNT OF CHANGE IN METHOD OF VALUATION OF CLOSING STOCK AMOUNTING TO R S. 21.43 LACS AND ON ACCOUNT OF LATE PAYMENT OF PF& ESI AMOUNTING TO RS . 2,28,864/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERV ED BY THE AO THAT AS PER THE METHOD OF ACCOUNTING EMPLOYED THE VALUATION OF STOCK IN PROCESS HAD BEEN CHANGED FROM COST PLUS EXPENSES TO ESTIMAT ED REALIZABLE VALUE. THIS RESULTED IN A HIGHER CLAIM OF LOSS BY A SUM OF RS. 21.43 LACS. THE CHANGE IN METHOD OF VALUATION HAD NOT BEEN FOUND JU STIFIED BY THE AO. THEREFORE, THE AO MADE THE ADDITION UNDER BOTH THE HEADS I.E. VALUATION OF CLOSING STOCK AT RS. 21.43 LACS AND PF & ESI AT RS. 2,28,864/-. 2.2 THIS WAS CHALLENGED BEFORE THE LD. CIT(A) WHO H AS CONFIRMED THE ADDITION ON ACCOUNT OF CHANGE OF METHOD OF VALUATI ON AT RS. 21.43 LACS VIDE HIS ORDER DATED 12-01-2009. A SHOW CAUSE NOTI CE DATED 24-02-2010 FOR IMPOSING OF THE PENALTY U/S 271(1)(C) OF THE A CT WAS ISSUED TO THE ASSESSEE. THE ASSESSEE ALSO FILED ITS REPLY DATED 0 9-03-2012 IN RESPONSE TO SHOW CAUSE NOTICE WHICH HAS BEEN REPRODUCED BY THE AO AT PAGES 1 TO 3 IN THE PENALTY ORDER. ITA NO.795/JP/2012 ACIT, CIRCLE- 6,JAIPUR VS. M/S. MODERN THREADS (IND IA) LTD. . . 3 2.3 AFTER CONSIDERING THE REPLY OF THE ASSESSEE, TH E AO HELD THAT THERE IS NO JUSTIFICATION AVAILABLE WITH THE ASSESSEE FOR CHANGING THE METHOD OF VALUATION OF CLOSING STOCK AND THEREAFTER ALSO NOT ADDED THE UNDER VALUATION OF CLOSING STOCK TO THE DECLARED INCOME OF THE ASSESSEE. THE LD. CIT(A) ALSO CONFIRMED THE ADDITION. HE FURTHER RELI ED ON JUDGEMENT OF HON'BLE APEX COURT IN THE CASE OF DILIP N SHROFF, 2 91 ITR 519 WHEREIN IT IS HELD THAT PRIMARY BURDEN TO PROVE THE CONCEALMEN T IS ON THE REVENUE. FURTHER THE CASE OF THE ASSESSEE FALLS WITHIN THE P ROVISION OF EXPLANATION 1 TO SECTION 271 OF THE I.T. ACT AND HELD THAT THE AMOUNT ADDED OR DISALLOWED IN COMPUTING TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSE OF CLAUSE (C) OF THIS SUB-SE CTION, BE DEEMED TOTAL INCOME REPRESENT THE INCOME IN RESPECT OF WHICH PA RTICULARS HAVE BEEN CONCEALED. THE INCOME INCLUDES LOSSES ALSO. THE AO FURTHER RELIED ON THE HON'BLE SUPREME JUDGEMENT IN THE CASES OF CIT VS. GOLD COIN HEALTH FOOD (P) LTD. (208) 172 TAXMAN 386/ 304 ITR 308 (SC ) AND ALSO HON'BLE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF C IT VS. MOHD. MOHTRAM FAROOQUI (2002) 177 CTR 434. THUS IN VIEW OF THE ABOVE FINDINGS, THE AO TREATED THE ADDITION OF RS. 21.43 LACS AS CONCEALED INCOME ON WHICH 100% PENALTY OF TAX SOUGHT TO BE EV ADED AT RS. 7,65,051/- WAS IMPOSED. ITA NO.795/JP/2012 ACIT, CIRCLE- 6,JAIPUR VS. M/S. MODERN THREADS (IND IA) LTD. . . 4 2.4 BEING AGGRIEVED BY THE ORDER OF THE AO, THE ASS ESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO DELETED THE PENALT Y BY OBSERVING AS UNDER:- 3.1 I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT. THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF WOOLEN YARN AND SYNTHETIC YARN. AS THE ASSESSEE COMPANY WAS INCURRING LOSSES CONSISTENTLY, IT HAD M ADE REFERENCE TO BIFR TO DECLARE IT A SICK COMPANY. EVEN IN THE C URRENT YEAR, THE LOSSES OF THE APPELLANT COMPANY STOOD AT RS. 4266 L ACS. THE AO NOTICED THAT THE ASSESSEE COMPANY HAD CHANGED ITS M ETHOD OF VALUATION OF CLOSING STOCK AND AS A RESULT THE PROF IT HAD BEEN REDUCED BY AN AMOUNT OF RS. 21.43 LACS. THE AO HELD THAT THERE WAS NO JUSTIFICATION WHATSOEVER FOR CHANGE IN THE M ETHOD OF VALUATION. THE AO PLACED RELIANCE ON THE DECISION O F DILIP N SHROFF (291 ITR 519) AND CONCLUDE THAT THE CASE OF ASSESSE E COMPANY WAS COVERED BY EXPLANATION 1 TO SECTION 271 OF THE I.T. ACT. ACCORDINGLY, THE AO LEVIED PENALTY OF RS. 7,65,060/ - U/S 271(1)(C) OF THE I.T. ACT. ON CAREFUL CONSIDERATION OF THE FA CTS IN THE ENTIRETY, I AM NOT INCLINED TO AGREE WITH THE FINDINGS OF THE AO. IN THE PRESENT CASE, THE APPELLANT HAD DULY DISCLOSED THE COMPLETE PARTICULARS REGARDING CHANGE IN THE METHOD OF VALUA TION OF STOCK IN PROCESS FROM COST PLUS EXPENSES TO ESTIMATED REALIZ ABLE VALUE. IT WAS CATEGORICALLY MENTIONED IN NOTE 18 OF SCHEDULE 15 OF THE ANNUAL REPORT OF THE ASSESSEE COMPANY THAT THE MATE RIAL COST INCLUDED AN AMOUNT OF RS. 21.43 LACS BEING VALUATIO N LOSS ON ACCOUNT OF VALUATION OF TOCK IN PROCESS OF THREAD DIVISION WHICH WAS ESTIMATED AT REALIZABLE VALUE. FURTHER IN THE T AX AUDIT REPORT, IT WAS CATEGORICALLY MENTIONED IN ANNEXURE B THAT THE MODERN THREAD UNIT, THE VALUATION OF STOCK IN PROCESS HAD BEEN CHANGED FROM COT PLUS EXPENSE TO NET REALIZABLE VALUE. THUS THE APPELLANT HAD MADE COMPLETE DISCLOSURE REGARDING CHANGE IN TH E METHOD OF VALUATION. FURTHER THE VALUATION OF WORK IN PROCESS HAD BEEN DONE AS PER AS-2 ISSUED BY INSTITUTE OF CHARTERED ACCOUN TANT OF INDIA WHICH PROVIDED THAT PRACTICE OF WRITING DOWN THE IN VENTORIES BELOW THE COST TO NET REALIZABLE VALUE WAS CONSISTENT WIT H THE VIEW THAT THE ASSET SHOULD NOT BE CARRIED IN EXCESS OF AMOUNT EXP ECTED TO BE REALIZED FROM ITS SALE OR USE. FURTHER APPELLANT CO MPANY WAS CLOSED SINCE 20-08-2001 AS AVVNL HAD ISSUED NOTICE FOR RECOVERY OF ITS DUES AND HAD ATTACHED THE ENTIRE OFFICE PREM ISES AND PLANT. THE STOCK OF WORK IN PROCESS HAD BEEN VALUED AT NET REALIZABLE ITA NO.795/JP/2012 ACIT, CIRCLE- 6,JAIPUR VS. M/S. MODERN THREADS (IND IA) LTD. . . 5 VALUE AS ON 31-03-2002 SINCE THE PLANT WAS CLOSED A ND NO PRODUCTION HAD BEEN CARRIED OUT. AS A RESULT, THE V ALUE OF STOCK IN PROCESS HAD GONE DOWN SUBSTANTIALLY. NO BENEFIT WHA TSOEVER HAD BEEN DERIVED BY THE APPELLANT COMPANY AS THE CLOSIN G STOCK OF THE CURRENT YEAR WOULD BECOME OPENING STOCK OF THE NEXT YEAR AND IN THE CURRENT YEAR, THE APPELLANT COMPANY HAD DECLARE D LOSSES OF RS. 42.66 CRORES. THE FACT THAT THE AO AND CIT(A) DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE COMPANY AND MADE/ CONFI RMED ADDITION TO THE RETURNED INCOME DID NOT AUTOMATICALLY INVITE PENALTY. WHERE DIVERGENT VIEWS EXIT EITHER WITHIN THE DEPARTMENT ITSELF OR SUCH DIVERGENT VIEWS ARE EXPRESSED BY DIFFERENT HIGH CO URTS AND THERE IS NO UNIFORMITY OR CONSENSUS OF OPINION ON ANY ASP ECT OF LAW, THE ASSESSEE CANNOT BE FAULTED FOR TAKING A PARTICULAR STAND. THE CAVEAT, OF COURSE, IS THAT THE ASSESSEE MUST HAVE P LACED ALL HIS CARDS ON THE TABLE BY DISCLOSING EACH AND EVERY FAC T TO THE DEPARTMENTAL AUTHORITIES OR THE COURT CONCERNED OR THE HIGH COURT CONCERNED DOES NOT CONCUR WITH THE LEGAL STAN D ADOPTED BY THE ASSESSEE THAT WILL NOT BE REASON ENOUGH TO HOLD THAT THE ASSESSEE IS GUILTY OF CONCEALMENT OF INCOME OR OF F URNISHING INACCURATE DETAILS. IN THE CASE OF CIT VS. DEVSON L OGISTICS (P) LTD. (329 ITR 483), THE TRIBUNAL REVERSED THE OF THE CIT (APPEALS) BY HOLDING THAT DURING THE PERIOD UNDER CONSIDERATION, THE ASSESSEE HAD CHANGED ITS METHOD OF ACCOUNTING AND SUCH CHANG E WAS NOT BONA FIDE AND THE ONUS CAST UPON THE ASSESSEE OF PR OVING THE FACTUM OF RENDERING SERVICES BY THE SUNDRY CREDITOR S OF THE ASSESSEE WAS NOT DISCHARGED BY MERE FILING OF A LOG BOOK. TH E ASSESSING OFFICER IMPOSED A PENALTY OF RS. 33,07,220/- INVOKI NG THE PROVISIONS TO EXPLANATION 1 TO SECTION 271(1) ON T HE GROUND THAT THE ASSESSEE HAD CONCEALED THE PARTICULARS OF ITS I NCOME AND FURNISHED INACCURATE PARTICULARS. THE CIT (A) CONFI RMED THE PENALTY BUT ON FURTHER APPEAL, THE TRIBUNAL DELETED IT. ON THE FACTS, THE TRIBUNAL HELD THAT THE ASSESSEE COULD NOT BE S AID TO HAVE CONCEALED ITS INCOME OR FURNISHED INACCURATE PARTIC ULARS THEREOF BECAUSE THE ASSESSEE HAD ITSELF PLACED THE DETAILS OF THE TOTAL BILL RAISED AGAINST THE MUNICIPAL CORPORATION AS NOT PAY ABLE TO THE ASSESSEE WAS NOT DECLARED BY THE ASSESSEE AS ITS IN COME BUT THE NON-ACCEPTANCE OF THESE PARTICULARS STATED BY THE A SSESSING OFFICER DID NOT AMOUNT TO CONCEALMENT OF INCOME. THE TRIBUN AL OBSERVED THAT THE CREDIT OUTSTANDING AGAINST THE SAME CREDIT ORS WAS ACCEPTED BY THE ASSESSING OFFICER IN SUBSEQUENT YEARS AND TH EREFORE, NO PENALTY COULD BE LEVIED. SINCE THE ADDITIONS WERE M ADE ONLY ON ACCOUNT OF DIVERGENT VIEWS TAKEN WITH REGARD TO TH E MATERIAL ON RECORD, IT WAS UNSAFE TO CONCLUDE THAT THE ASSESSEE WAS GUILTY OF ITA NO.795/JP/2012 ACIT, CIRCLE- 6,JAIPUR VS. M/S. MODERN THREADS (IND IA) LTD. . . 6 CONCEALMENT OF INCOME OR OF FURNISHING INACCURATE P ARTICULARS THEREOF. ON APPEAL, THE HON'BLE DELHI HIGH COURT HE LD THAT THE TRIBUNAL WAS NOT RIGHT IN HOLDING THAT CHANGE IN TH E METHOD OF ACCOUNTING BY THE ASSESSEE COMPANY WAS NOT JUSTIFIE D. EVEN ASSUMING THE ASSESSING OFFICER WAS JUSTIFIED IN NOT ACCEPTING THE LEGAL STAND TAKEN BY THE ASSESSEE ITSELF, IT COULD NOT BE SAID THAT THE ASSESSEE HAD CONCEALED THE SAME. THE ASSESSEE'S CLA IM AGAINST THE MUNICIPAL CORPORATION FOR DEDUCTIONS MADE BY THE MU NICIPAL CORPORATIONS FROM THE BILLS OF THE ASSESSEE WAS DIS MISSED BY THE HIGH COURT AND HENCE THE STAND ADOPTED BY THE ASSES SEE THAT NO REAL INCOME HAD ACCRUED TO IT WAS ALSO PROVED TO BE TRUE. MAKING OF A CLAIM BY THE ASSESSEE WHICH WAS NOT SUSTAINABL E DID NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS. THE A SSESSEE COULD NOT BE SAID TO HAVE CHANGED ITS METHOD OF ACCOUNTIN G FROM MERCANTILE TO CASH AND COULD NOT BE CHARGED WITH SU PPRESSING RECEIPTS TO THE EXTENT OF RS. 35,39,631/-. THE ADDI TION IN RESPECT OF THE BALANCE OUTSTANDING TO THE SUNDRY CREDITORS FOR HIRE CHARGES HAD BEEN MADE ONLY BECAUSE THE ASSESSEE WAS UNABLE TO PROVE THE BALANCE IN THE MANNER CALLED UPON BY THE DEPARTMENT , POSSIBLY DUE TO PAUCITY OF TIME, BUT THERE WAS AMPLE MATERIAL EM BEDDED IN THE RECORD ITSELF WHICH WAS ACCEPTED BY THE DEPARTMENT IN SUBSEQUENT ASSESSMENT PROCEEDINGS, TO THE EFFECT THAT THE OUTS TANDING WERE GENUINE. THE VERY SAME CREDITORS WERE SUBSEQUENTLY FOUND BY THE DEPARTMENT ITSELF TO BE GENUINE CREDITORS OF THE AS SESSEE. THE CREDITORS WERE PAID THEIR ENTIRE OUTSTANDING AMOUNT S BY THE ASSESSEE AND THIS FACT HAS BEEN VERIFIED BY THE DE PARTMENT FROM THE CREDITORS THEMSELVES. IT IS WELL SETTLED THAT T HOUGH FINDINGS RECORDED IN THE ASSESSMENT PROCEEDINGS MAY CONSTITU TE EVIDENCE IN THE COURSE OF PENALTY PROCEEDINGS, THEY CANNOT BE R EGARDED AS CONCLUSIVE. THE TRIBUNAL IN ASSESSMENT PROCEEDINGS HAD RESTORED BOTH THE ADDITIONS MADE BY THE ASSESSING OFFICER B UT THE FINDINGS OF THE TRIBUNAL IN ASSESSMENT PROCEEDINGS WERE NOT CONCLUSIVE AND BINDING ON A COORDINATE BENCH OF THE TRIBUNAL IN PE NALTY PROCEEDINGS. IT WAS INCUMBENT UPON THE TRIBUNAL IN PENALTY PROCEEDINGS TO INDEPENDENTLY EXAMINE THE EVIDENCE A ND THE MATERIAL ON RECORD FOR THE PURPOSE OF JUDGING WHETH ER THE PENALTY PROCEEDINGS ON ACCOUNT OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS THEREOF WERE JUSTIFIED. IT W AS HELD THAT THIS HAD BEEN DONE BY THE TRIBUNAL IN THE INSTANT CASE. THE HON'BLE DELHI HIGH COURT HELD THAT DIVERGENT VIEWS AMONGST DEPARTMENTAL AUTHORITIES IN RESPECT OF BOTH THE ADDITIONS POSIT IVELY INDICATED THAT IT WOULD BE UNSAFE TO INFER THAT THE ASSESSEE WAS G UILTY OF ITA NO.795/JP/2012 ACIT, CIRCLE- 6,JAIPUR VS. M/S. MODERN THREADS (IND IA) LTD. . . 7 CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS THEREOF. THE LD. CIT(A) RELIED ON THE CASE NARITA INVESTMENT (P) VS. CIT [311 ITR (AT) 398, [MUMBAI] (THE ASSESSEE WAS A BUILDERS AND WAS FOLLOWING THE COMPLETED PROJECT METHOD OF ACCOUNTING..PENALTY COULD NOT BE IMPOSED) IN THI S CASE IT WAS HELD THAT PENALTY COULD NOT BE IMPOSED. THE LD. CIT (A) FURTHER RELIED ON THE CASE OF CIT V S. NATIONAL MINING CO. [311 ITR 289 [P&H] (THE ASSESSEE- FIRM D ERIVED ITS INCOME FROM JOB WORK OF VARIOUS CONTRACTS.THEREFO RE THERE WAS NO QUESTION OF CONCEALMENT OR OF FURNISHING OF INACCURATE PARTICULARS WITHIN THE MEANING OF SECTION 271(1)( C ) OF THE ACT. IN THIS CASE THE LEVY OF PENALTY WAS CANCELLED. THE LD. CIT (A) FURTHER RELIED ON THE CASE ACIT VS. PIONEER TUBEWELL INDUSTRIES (P) LTD.[ 254 ITR AT 107, CALCU TTA( WHILE FRAMING THE ASSESSMENTS FOR THE ASSESSMENT YEARS 19 87-88 AND 1989-90, IT WAS NOTICED BY THE ASSESSING OFFICER TH AT THE ASSESSEE HAD ADVANCED UNSECURED LOANS OF RS. 19,42,049 AND R S. 8,55,833/- TO ITS SISTER CONCERN IN BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION FOR WHICH NO INTEREST WAS CHARGED BY THE ASSESSEE. MERE ADDITION MADE BY THE ASSESSING OFF ICER AND CONFIRMED BY THE CIT (A) WAS NOT A GROUND FOR LEVYI NG PENALTY U/S 271(1)(C ). ACCORDINGLY THE ORDER LEVYING THE PENAL TY WAS CANCELLED. THESE DECISIONS ARE SQUARELY APPLICABLE TO THE FACT S AND CIRCUMSTANCES OF THE PRESENT CASE. I THEREFORE, DIR ECT THE AO TO CANCEL THE ORDER LEVYING PENALTY OF RS. 7,65,060/- U/S 271(1)(C ) OF I.T. ACT. THESE GROUNDS OF APPEAL ARE ALLOWED. 2.5 NOW REVENUE IS BEFORE US WHEREIN THE LD. DR SUP PORTED THE ORDER OF THE AO. 2.6 AT THE OUTSET THE LD. AR OF THE ASSESSEE THROUG H HIS WRITTEN SUBMISSION HAS SUBMITTED AS UNDER:- THE LEARNED ASSESSING OFFICER HAS LEVIED PENALTY IN RESPECT OF AMOUNT OF RS.21,43,000 /- WHICH AMOUNT W AS ADDED TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF VALUATION OF STOCK IN ITA NO.795/JP/2012 ACIT, CIRCLE- 6,JAIPUR VS. M/S. MODERN THREADS (IND IA) LTD. . . 8 PROCESS. IT IS SUBMITTED THAT SO FAR AS THIS AMOUNT IS CONCERNED, THE ASSESSEE HAS DULY FURNISHED COMPLETE PARTICULAR S REGARDING THE CHANGE IN THE METHOD OF VALUATION OF STOCK IN P ROCESS FROM COST PLUS EXPENSES TO ESTIMATED REALIZABLE VALUE AN D THE SAID FACT WAS ALSO DISCLOSED BY WAY OF NOTE NO.18 TO SCHEDULE -15 BEING NOTES ON ACCOUNTS TO THE ANNUAL ACCOUNTS ( PBP NO.1 0). FURTHER, IN THE TAX AUDIT REPORT IT WAS ALSO MENTIO NED THAT IN THE THREAD UNIT VALUATION OF STOCK IN PROCESS HAS BEEN CHANGED FROM COST PLUS EXPENSES TO ESTIMATED REALIZABLE VALUE WH ICH HAS RESULTED IN HIGHER CLAIM OF BY A SUM OF RS.21.43 LA CS. COPY OF TAX AUDIT REPORT HAS BEEN PLACED AT PBP NO.17-28 AND AT TENTION IS INVITED TO THE PAGE 27 BEING THE ANNEXURE-B TO THE TAX AUDIT REPORT WHEREIN THIS FACT HAS CLEARLY BEEN DISCLOSED IN THE COLUMN METHOD OF ACCOUNTING EMPLOYED. FURTHER, ON PAGE 2 8 BEING ANNEXURE-C TO THE TAX AUDIT REPORT SHOWING METHOD O F VALUATION OF CLOSING STOCK IN TRADE AGAINST PROCESS STOCK IT IS DULY MENTIONED THAT THE SAME IS VALUED AT ESTIMATED NET REALIZABLE VALUE. THUS, COMPLETE DISCLOSURE WAS MADE BY THE AS SESSEE COMPANY IN THE RETURN OF INCOME AND IN FACT EVEN TH E ASSESSING OFFICER HAS MENTIONED IN THE ASSESSMENT ORDER THAT IT HAS BEEN NOTICED FROM ANNEXURE-B TO THE AUDIT REPORT PERTAIN ING TO METHOD OF ACCOUNTING EMPLOYED THAT VALUATION OF STOCK IN P ROCESS HAS BEEN CHANGED FROM COST PLUS EXPENSES TO ESTIMATED R EALIZABLE VALUE(PARA 3 PAGE 2). SECTION 210 OF THE COMPANIES ACT, 1956 REQUIRES THE BOARD OF DIRECTORS OF A COMPANY TO PLACE AT EVERY A NNUAL GENERAL MEETING, A BALANCE SHEET AS AT THE END OF THE ACCOU NTING PERIOD OF COMPANY AND A PROFIT AND LOSS ACCOUNT FOR THAT PERI OD. SECTION 211 OF THE COMPANIES ACT DEALS WITH FORM AND CONTEN TS OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT. THE BASI C REQUIREMENT OF THIS SECTION IS THAT THE BALANCE SHEET OF A COMP ANY SHALL GIVE A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS OF THE C OMPANY AT THE END OF THE FINANCIAL YEAR AND EVERY PROFIT AND LOSS ACC OUNT OF A COMPANY SHALL SHOW A TRUE AND FAIR VIEW OF THE PROF IT OR LOSS OF A COMPANY AT THE END OF THE FINANCIAL YEAR. THE BALAN CE SHEET AS WELL AS PROFIT AND LOSS ACCOUNT ARE REQUIRED TO BE PREPARED AS PER SCHEDULE VI TO THE COMPANIES ACT. IN ORDER TO ENSUR E THAT BOTH THESE ACCOUNTING STATEMENTS PRESENT THE STATE OF AF FAIRS OF THE COMPANY AS PER THE REQUIREMENTS OF THE COMPANIES AC T, SPECIFIC PROVISIONS HAVE BEEN INCORPORATED IN THE COMPANIES ACT ITSELF. IN SUB-SECTION (3)(A) TO (3)(C) OF SECTION 211 INSERTE D BY THE COMPANIES (AMENDMENT) ACT, 1999(WITH RETROSPECTIVE EFFECT FROM 31.10.1998), IT IS PROVIDED THAT THE PROFIT AND LOS S ACCOUNT AND BALANCE SHEET OF THE COMPANY HAS TO COMPLY WITH THE ACCOUNTING STANDARDS. AS PER SUB-SECTION (3)(C) ACCOUNTING ST ANDARDS ITA NO.795/JP/2012 ACIT, CIRCLE- 6,JAIPUR VS. M/S. MODERN THREADS (IND IA) LTD. . . 9 MEANS THE STANDARD OF ACCOUNTING RECOMMENDED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA CONSTITUTED UNDER THE CHARTERED ACCOUNTANTS ACT, 1949, AS MAY BE PRESCRIB ED BY THE CENTRAL GOVERNMENT IN CONSULTATION WITH THE NATIONA L ADVISORY COMMITTEE ON ACCOUNTING STANDARDS ESTABLISHED UNDER SUB- SECTION (1) OF SECTION 210A. THE ACCOUNTING STANDAR DS-2 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA HAS BEEN MADE MANDATORY IN THE CASE OF COMPANIES. THIS ACCOUNTING STANDARD DEALS WITH VALUATION OF INVENTORIES. AS PER CLAUSE 5 OF THIS ACCOUNTING STANDARDS-2, INVENTORIES SHOULD BE VALUE D AT LOWER OF COST OR NET REALIZABLE VALUE. THEREFORE, THE AS SESSEE HAD NO OPTION BUT TO VALUE ITS CLOSING STOCK OF PROCESS ST OCK AT LOWER OF COST OR NET REALIZABLE VALUE INSTEAD OF VALUING AT COST AS IN EARLIER YEARS. SINCE THE CHANGE IN THE METHOD OF AC COUNTING HAD BEEN MADE ON ACCOUNT OF STATUTORY REQUIREMENTS, IT COULD NOT BE BRANDED AS A MALA FIDE CHANGE IN THE METHOD OF VALU ATION OF CLOSING STOCK. ATTENTION IS INVITED TO THE FACT THAT THE THREAD DI VISION OF THE COMPANY HAD BEEN LYING CLOSED SINCE 20 TH AUGUST, 2001 AND THE AJMER VIDHYUT VITHRAN NIGAM LIMITED HAD ISSUED NOTICE FOR RECOVERY OF THEIR DUES AND IN EXERCISE OF POWERS CO NFERRED UNDER RAJASTHAN LAND REVENUE ACT 1956 IT ATTACHED THE ENT IRE PLANT & OFFICE OF THE THREAD DIVISION AT RAILA ON 19.10,200 1. AS THE PRODUCTION HAD STOPPED THE NET REALIZABLE VALUE OF STOCK OF WORK IN PROCESS HAD GONE DOWN SUBSTANTIALLY AND THE ASSE SSEE HAD ALSO FURNISHED A STATEMENT SHOWING THE WORKING OF NET RE ALIZABLE VALUE OF WORK IN PROCESS. (PBP NO.15). THE LEARNED ASSESS ING OFFICER WHILE COMPLETING THE ASSESSMENT HAD WRONGLY WORKED OUT THE FIGURE OF PROFIT AS HE HAS NOT TAKEN INTO CONSIDERA TION THE EMPLOYEE COST. THE ASSESSEE HAD DULY FURNISHED THE WORKING OF THE LOSSES IN MANUFACTURING BEFORE THE LEARNED CIT( APPEALS)-II, JAIPUR AND ATTENTION IS INVITED TO PBP NO.29. WE MA Y ALSO POINT OUT THAT THE SAID PLANT IS STILL UNDER THE CONTROL OF AVVNL AND NO PRODUCTION HAS BEEN DONE IN THE SAID PLANT SINCE 19 .10.2001. THUS, IN THIS CASE THE ASSESSEE COMPANY HAD CORRECT LY DONE THE VALUATION BY FOLLOWING THE COMPANIES ACT AS WELL AS THE ACCOUNTING STANDARDS. IN THIS CASE THE ASSESSEE COMPANY HAD CLAIMED DEDUC TION BY REDUCING THE VALUE OF STOCK WHICH COURSE OF ACTI ON WAS NOT ACCEPTED BY THE ASSESSING OFFICER. IF THERE IS SOME DECLINE IN THE VALUE OF STOCK AT THE END OF THE YEAR THE SAME HAS TO BE GIVEN EFFECT TO IN THE ANNUAL ACCOUNTS AND THE ASSESSEE H AS CLAIMED SUCH DEDUCTION BY MAKING COMPLETE DISCLOSURE IN THI S REGARD. THE ASSESSING OFFICER TOOK A DIFFERENT VIEW ON SUCH TRA NSACTION. THE ITA NO.795/JP/2012 ACIT, CIRCLE- 6,JAIPUR VS. M/S. MODERN THREADS (IND IA) LTD. . . 10 HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIAN CE PETRO PRODUCTS (P) LTD., REPORTED IN 322 ITR 158 HAS HELD THAT MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT ATTRACT PENALTY UNDER THIS SECTION. WHEN THE AS SESSEE FURNISHES ALL THE PARTICULARS IN THE RETURN WHICH A RE NOT FOUND TO BE INACCURATE IT IS UPTO THE AUTHORITIES TO ACCEPT THE CLAIM OF THE ASSESSEE IN THE RETURN OR NOT, BUT THE PENALTY CANN OT BE LEVIED. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION O F HIMACHAL PRADESH HIGH COURT IN CASE OF CIT VS. HP S TATE FOREST CORPORATION LIMITED REPORTED IN 340 ITR 204. ( PBP NO.40-41) IN THE SAID CASE THE ASSESSEE WAS ENGAGED IN THE BUSIN ESS OF EXTRACTION OF TIMBER AND RESIN FROM FORESTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE ASSESS ING OFFICER THAT THE ASSESSEE HAD REDUCED ITS CLOSING STOCK OF CERTAIN AMOUNT ON ACCOUNT OF DETERIORATION OF OLD STOCK. THE ADDIT ION WAS CONFIRMED BY THE APPELLATE AUTHORITIES AND THEREAFT ER THE ASSESSING OFFICER IMPOSED PENALTY U/S 271(1)( C) UP ON THE ASSESSEE. THE APPELLATE TRIBUNAL HELD THAT NO PENAL TY COULD HAVE BEEN IMPOSED UPON THE ASSESSEE AS THE ASSESSEE HAD DISCLOSED ALL MATERIAL FACTS AND THERE WAS NO CONCEALMENT ON THE PART OF THE ASSESSEE. ON APPEAL BY THE DEPARTMENT BEFORE THE HI GH COURT IT WAS HELD THAT : THE WORD INACCURATE AS USED IN THE ACT WOULD MEA N SOMETHING WHICH IS NOT ACCURATE, NOT EXACT OR NOT C ORRECT. SOMETHING WHICH IS UNTRUE IS INACCURATE. THE SAME F ACTS CAN BE GIVEN TWO INTERPRETATIONS. IF THE INTERPRETATION GI VEN IS PLAUSIBLE, THOUGH NOT ACCEPTED BY THE ASSESSING AUTHORITY, IT CANNOT BE SAID THAT THE STATEMENT OF PARTICULAR IS SO INACCURATE O R ERRONEOUS AS TO INVITE IMPOSITION OF PENALTY. TRUE IT IS, THAT M ENS 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 B Y ILLEGAL MEANS. MERELY BECAUSE A WRONG INTERPRETATION TO THE SAME SET OF FACTS IS GIVEN, IT WOULD NOT MEAN THAT THE ASSESSEE WAS LIABLE TO PAY PENALTY ALSO. ONE SHOULD REMEMBER THAT PENALTY IS, BY ITS VERY NATURE, PENAL AND SOMEBODY IS BEING PUNISHED F OR AN ACT WHICH IS UNJUSTIFIED. RELIANCE IS ALSO PLACED ON THE DECISION OF ITAT, JO DHPUR BENCH IN CASE OF DCIT BHILWARA VS. M/S. RSWM LTD., GULABPURA.(PBP NO.34-39) IN THE SAID CASE THE ASSES SEE WAS A PUBLIC LIMITED COMPANY AND ITS SHARES WERE LISTED O N STOCK EXCHANGE. ON THE BASIS OF PAST EXPERIENCE IT ADOPTE D A PRUDENT ACCOUNTING ESTIMATE OF REDUCING THE VALUE OF CLOSIN G STOCK OF NON MOVING ITEMS BY 10%, 25% AND 50% ACCORDING TO THEIR HOLDING ITA NO.795/JP/2012 ACIT, CIRCLE- 6,JAIPUR VS. M/S. MODERN THREADS (IND IA) LTD. . . 11 PERIOD. THE ASSESSING OFFICER DISALLOWED THIS CLAIM S AND INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C ) OF THE IT ACT AND HE IMPOSED PENALTY AT 100% OF THE AMOUNT OF TAX SOUGHT TO BE EVADED. THE CIT(APPEALS) DELETED THE PENALTY AND HE LD THAT IN RESPECT OF UNDER VALUATION OF CLOSING STOCK THE ASS ESSEE HAS EXPLAINED REASONS FOR CLAIMING AGING DISCOUNT IN RE SPECT OF STOCK WHICH REMAINED UNSOLVED FOR A PERIOD OF 90 DAYS OR MORE AND ALSO HELD THAT PENALTY UNDER SECTION 271(1)( C) CAN NOT JUSTIFIABLY BE LEVIED SIMPLY FOR THE REASON THAT ADDITIONS HAVE BEEN SUSTAINED IN APPEAL. SINCE ASSESSING OFFICER HAS NOT BROUGHT ANY ADVERSE MATERIAL ON RECORD TO PROVE THAT THE EXPLANATION GI VEN BY THE ASSESSEE REGARDING VALUATION OF STOCK WAS FALSE OR MALAFIDE. AFTER CONSIDERING THE ARGUMENT OF BOTH THE PARTIES THE TRIBUNAL UPHELD THE DELETION OF PENALTY AFTER HOLDI NG THAT THE ASSESSEE MADE A BONAFIDE CLAIM OF PLACING ESTIMATED REALIZABLE VALUE OF ITS SLOW MOVING ARTICLES OF CLOSING STOCK AFTER FOLLOWING A POLICY OF PRUDENT ACCOUNTANCY AND HAS ALSO FULLY DI SCLOSED ALL RELEVANT PARTICULARS ALONG WITH ITS DETAILED EXPLAN ATION WHICH HAS NOT BEEN FOUND TO BE NOT BONAFIDE. IT WAS ALSO HEL D THAT THE ADDITIONS SUSTAINED IN QUANTUM APPEAL BY ITSELF IS NOT SUFFICIENT TO LEVY PENALTY UNDER THE PROVISIONS OF SECTION 271(1) (C ) UNLESS THE ASSESSING OFFICER PROVES THAT THE EXPLANATION OF TH E ASSESSEE WAS FALSE OR MALAFIDE . RELIANCE IS PLACED ON THE DECISION OF DELHI HIGH CO URT IN THE CASE OF CIT VS. IFCI LIMITED REPORTED IN 328 IT R 611. IN THE SAID CASE THE ASSESSEE HAD WRITTEN OFF INVESTMENTS IN ITS BOOKS OF ACCOUNTS AND CLAIMED DEDUCTION ON ACCOUNT OF LOSS O CCURRED TO IT. ASSESSEES CLAIM WAS DISALLOWED AND THE ASSESSING O FFICER ALSO LEVIED PENALTY U/S 271(1)( C). THE ASSESSEE CONTEND ED THAT THE ENTIRE FACTS WERE DISCLOSED IN THE RETURN AND IT CO ULD NOT BE TREATED AS CONCEALMENT OF INCOME. THE COMMISSIONER OF APPEALS AFFIRMED THE ORDER OF THE ASSESSING OFFICER BUT ON SECOND APPEAL THE TRIBUNAL HELD THAT THE ASSESSEE HAD DECLARED TH E ENTIRE MATERIAL IN THE RETURN OF INCOME AND MERELY BECAUSE A CLAIM OF A DEDUCTION ON ACCOUNT OF LOSS INCURRED IN THE CAPITA L FIELD AS REVENUE LOSS WAS NOT ALLOWED, IT WOULD NOT MAKE IT LIABLE FOR PENALTY FOR CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME. IT, THEREFORE, DELETED THE PENALTY. IT WAS HELD BY THE HONBLE HIGH COURT THAT THIS WAS A CASE WHERE A CLAIM PUT FORTH BY THE ASSESSEE AS REGARDS THE LOSS WAS NOT ACCEPTED, BUT THAT WOULD NOT PER SE TANTAMOUNT TO F URNISHING OF ANY KIND OF INACCURATE PARTICULARS. THUS, THERE HAS BEEN NO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS. THE APPEAL OF THE DEPARTMENT WAS DISMISSED. ITA NO.795/JP/2012 ACIT, CIRCLE- 6,JAIPUR VS. M/S. MODERN THREADS (IND IA) LTD. . . 12 RELIANCE IS ALSO PLACED ON THE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. JAGJIT EN GINEERING WROKS REPORTED IN 275 ITR 239. IN THE SAID CASE IT WAS HELD THAT WHERE THE ASSESSEE HAD NOT INCLUDED THE VALUE OF RE JECTED GOODS IN HIS STOCK DUE TO BONAFIDE MISTAKE NO PENALTY UND ER THE PROVISIONS OF SECTION 271(1)( C) WAS IMPOSABLE. RELIANCE IS ALSO PLACED ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF BTX CHEMICALS VS. CIT REP ORTED IN 288 ITR 196. IN THE SAID CASE IT WAS HELD THAT WHERE TH E ASSESSEE HAS CLAIMED DOUBLE DEDUCTION FOR LOSS OF STOCK DUE TO F IRE, ONCE BY DEBITING THE SAME IN THE P & L ACCOUNT AND BY ALSO REDUCING THE VALUE OF CLOSING STOCK NO PENALTY UNDER SECTION 271 (1)( C) WAS IMPOSABLE. THE LD. AR OF THE ASSESSEE AT THE END OF HIS ARGUME NTS REQUESTED TO CONFIRM THE ORDER OF THE LD. CIT(A). 2.7 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE HAD SUBMITTED ITS EXPLANATION BEFORE THE AO AT THE TIME OF ASSESSMENT PROCEEDINGS AS WELL AS PENALTY PROCEEDINGS. THE ASSESSEE HAS CHANGED THE METHOD OF VALUATION OF CLOSING STOCK WHICH WILL AUTOMATICALLY BE THE OPENING STOCK OF SUBSEQUE NT YEAR. THE ASSESSEE HAD DULY DISCLOSED COMPLETE PARTICULARS REGARDING C HANGE IN THE METHOD OF VALUATION OF STOCK IN PROCESS FROM COST PLUS EXP ENSES TO ESTIMATED REALIZABLE VALUE WHICH WAS MENTIONED BY THE ASSESSE E IN ITS ANNUAL REPORT OF THE COMPANY AND TAX AUDIT REPORT THAT IN THE MOD ERN THREAD UNIT, THE VALUATION OF STOCK IN PROCESS HAD BEEN CHANGED FROM COST PLUS EXPENSES TO NET REALIZABLE VALUE. THE VALUATION OF WORK IN P ROCESS HAD BEEN DONE AS PER AS-2 ISSUED BY INSTITUTE OF CHARTERED ACCOUNTAN T OF INDIA. FURTHER THE ITA NO.795/JP/2012 ACIT, CIRCLE- 6,JAIPUR VS. M/S. MODERN THREADS (IND IA) LTD. . . 13 COMPANY HAD BEEN CLOSED ON 20-08-2001 AND VALUATION OF STOCK WAS DONE ON 31-03-2002. THUS THERE WAS NO PRODUCTION CARRIED OUT BY THE COMPANY SINCE 31-03-2002. THE LD. DR COULD NOT CONT ROVERT THIS FINDINGS OF THE LD. CIT(A). THE CASES RELIED ON BY THE ASSES SEE ARE SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE. THEREFORE, IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE CONFIRM THE ORDER OF THE LD. CIT(A). HENCE, THE APPEAL OF THE REVENUE IS DISMISS ED. 3.0 IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 /08/ 2015. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 11 /08/2015 *MISHRA VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE ACIT, CIRCLE- 6, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- M/S. MODERN THREADS (INDIA) LTD. , JAIPUR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.795/JP/2012) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR