L K SONS ALLOY PVT. LTD. ,PUNE V. ACIT, CIRCLE-9, PUNE, PUNE

ITA 45/PUN/2025

AI Insights

The case involves L K Sons Alloy Private Limited, which appealed against the penalty confirmed by the Commissioner of Income Tax (Appeals), Delhi, initially imposed by the Assessing Officer for the Assessment Year 2011-12. The penalty was levied due to alleged undervaluation of closing stock, which was considered a deliberate attempt to suppress taxable income. However, the Tribunal found that the basis for the penalty, an addition to the assessee's income, had been removed in a prior appeal, leading to the conclusion that the penalty was unjustified.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 633365 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMNATH P. MURKUNDE
• Assessee Lawyers: DIKSHA AGARWAL
• Keywords: Set aside
• Section: 143(3); 271(1)(c)

Judgement Text

" आयकर अपीलीय अधिकरण “ए” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI R.K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER आयकर अपील सं. / ITA No.45/PUN/2025 धििाारण वर्ा / Assessment Year : 2011-12 L K Sons Alloy Private Limited, 232/2 Khandobamal, Pune Nashik Road, Bhosari, Pune-411039 PAN : AABCL1635Q Vs. Assistant Commissioner of Income Tax, Circle-9, Pune अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Ms. Diksha Agarwal Department by : Shri Ramnath P. Murkunde Date of hearing : 15-04-2025 Date of Pronouncement : 10-06-2025 आदेश / ORDER PER ASTHA CHANDRA, JM : The appeal filed by the assessee is directed against the order dated 07.11.2024 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”] whereby he confirmed the penalty of Rs.14,53,890/- levied by the Ld. Assessing Officer (“AO”) u/s 271(1)(c) of the Income Tax Act, 1961 (the “Act”) pertaining to Assessment Year (“AY”) 2011-12. 2. The assessee has raised the following grounds of appeal :- “1. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act it be held that the Learned First Appellate Authority erred in confirming the penalty levied by the Learned Assessing Officer under section 271(1)(c) of the Act. It be held that no penalty is imposable in case of the Appellant. The penalty levied be deleted. The Appellant be granted just and proper relief in this respect. 2. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act it is prayed that it be held that the Appellant deserves to be awarded costs and appropriate directions may be issued in this regard. 3. The Appellant prays to be allowed to add, amend, modify, rectify, delete, and raise any grounds of appeal at the time of hearing.” 2 ITA No.45/PUN/2025, AY 2011-12 3. Briefly stated, the facts of the case are that the assessee is a company engaged in the business of Trading in Steel, Bars and Sheets and running of Windmill project. For AY 2011-12, it filed its return on 28.09.2011 declaring total income of Rs.61,77,979/-. After processing of return of income under section 143(1) of the Act, the case was selected for scrutiny under CASS. The Ld. Assessing Officer (“AO”) completed the assessment on 12.03.2014 u/s 143(3) of the Act assessing the total income at Rs.1,04,55,387/- after making disallowance of Rs.42,77,408/- on account of under valuation of closing stock. The Ld. AO initiated penalty proceedings under section 271(1)(c) of the Act. In quantum appeal, the said addition/disallowance made by the Ld. AO was confirmed by the Ld. CIT(A). The Ld. AO vide his order dated 28.03.2018 imposed penalty @ 100% of tax sought to be evaded on income of Rs. 42,77,408/- in respect of which inaccurate particulars have been furnished by the assessee, amounting to Rs. 14,53,890/- under section 271(1)(c) of the Act. 4. The appeal of the assessee against the penalty order passed by the Ld. AO has been confirmed by the Ld. CIT(A) vide his impugned order dated 08.02.2019 observing as under: “2. The grounds of appeal object to levy of penalty of Rs. 14,53,890/- u/s. 271(1)(c). During the course of assessment proceedings, the AO noticed from the quantitative details of the stock filed with balance sheet that the average value of the closing stock was lower than the average value of the purchase made during the year. It was claimed by the assessee that the high value purchases were sold as compared to the low value purchases resulting in the lowering of the average cost of the closing stock. However, the assessee failed to furnish any evidence to establish its claim that a major portion of the opening stock was lying at this end s the end of the year and that the same was defective/inferior quality. The AD found that in respect of Cr MO steel which formed the bulk of the trading activity, the assessee had valued closing stock @54.86 per Kg. However, the average price of opening stock and purchase of chrome moly steel was Rs.61.57 per kg. Accordingly, the AO adopted the price 61.57 per kg for this material and worked out the difference at Rs.42.77,408 Penalty proceedings u/s 271(1) was initiated by issuing a notice u/s 274 r.ws. 271(1)(c) of the Income Tax Act, 1961 on 12/03/2014, In response to the said notice, the assessee filed its submission stating that the assessee has preferred an appeal before the CIT(A) Hence, the penalty proceedings were kept in abeyance till the decision of appeal. The Ld. CIT(A)-6, Pune vide his order dated 31/01/2017 has dismissed the appeal of the assessee by observing that the AO was night in reworking the closing stock valuation of Cr MO steel and thus the various decisions relied upon by the assessee would not be applicable to the facts of this case. In the instant case, the assessee has not made any claim rather the assessee has undervalued its stock by Rs.42.77,408/- Undervaluation of stock is a deliberate attempt to suppress the taxable income. Hence, facts of the case and case laws produced by the assessee are distinct and separate. Further, the very dismissal of the appeal proves that the valuation of stock adopted by the assessee is incorrect and this amounts to furnishing of inaccurate particulars of income as per provisions of income tax Act, 1961. Penalty levied of Rs. 14,53,890/-u/s 271(1)(c) is confirmed.” 3 ITA No.45/PUN/2025, AY 2011-12 5. Aggrieved thereby, the assessee is in appeal before the Tribunal and all the grounds of appeal relate thereto. 6. At the outset, the Ld. AR submitted that the entire addition(s) made by the Ld. AO/CIT(A) based on which penalty was levied, have been deleted by the Coordinate Bench of the Pune Tribunal in assessee’s quantum appeal for AY 2011-12 under consideration and hence the penalty does not survive. 7. The Ld. DR conceded with the above submission of the Ld. AR. 8. We have heard the Ld. Representative of the parties and perused the material available on record. The Ld. AR brought on record order of the Tribunal in ITA No. 1186/PUN/2017 dated 08.12.2020 in the case of the assessee, L.K. Sons Alloy Pvt. Ltd. Vs. Addl. CIT, Range-9, Pune for AY 2011-12. Perusal thereof, reveals that the assessee had gone in appeal before the Tribunal against the order dated 30.01.2017 of the Ld. CIT(A)-6, Pune in which the Ld. CIT(A) had confirmed the addition of Rs. 42,77,408/- made by the Ld. AO on account of valuation of closing stock. The Tribunal vide its order (supra) deleted the said addition and allowed the appeal of the assessee by observing as under: “4. We have heard the rival submissions through virtual court and gone through the relevant material on record. At the outset, we want to make it clear that the dispute in the instant appeal is not on the quantitative aspect of inventory but only on the valuation of a particular item of stock, namely, Chrome Moly Steel. The assessee valued the stock of Chrome Moly Steel by considering left over stock from the Opening Stock to the tune of 3,93,250 kg at Rs.48.94 per kg and out of purchases during the year of 2,44,566 kg valued at Rs.64.33 per kg. As against that, the AO averaged the opening stock and purchases to work out the per kg rate of Rs.61.57. In this regard, it is seen that the assessee has maintained complete item-wise stock tally, relevant parts of which has been placed on record. Page 40 onwards is a copy of Register of Chrome Moly Steel indicating Inward quantity, Outward quantity and Closing stock quantity. The assessee took physical verification of the stock at the end of the year, whose details are available at page 35 onwards of the paper book. Such details are backed by the relevant invoices. There cannot be any hard and fast formula of valuing stock only on the basis of FIFO if stock register indicates the position otherwise. When the assessee gave copious details of the inventory with the relevant value coming either from the opening stock or from fresh purchases during the year, the AO, in our considered opinion ought to have accepted the same. The assessee has been consistently following this method of valuation which has been accepted by the AO during the course of scrutiny proceedings for the assessment years 2008-09, 2009-10, later assessment years 2013-14 and 2014-15 as well. Copies of the relevant assessment orders have been placed on record. In view of the foregoing discussion, we are satisfied that the authorities below were not justified in rejecting the valuation done by the assessee and adopting the method of valuing the stock on the basis of 4 ITA No.45/PUN/2025, AY 2011-12 average of opening stock and purchases. We, therefore, order to delete the addition.” 9. It is therefore, obvious that the impugned addition/disallowance which formed the basis of imposition of the penalty under section 271(1)(c) of the Act do not survive. Accordingly, the impugned penalty has no legs to stand and is hereby deleted. The order of the Ld. CIT(A) is set aside. The grounds raised by the assessee are accordingly allowed. 10. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 10th June, 2025. Sd/- Sd/- (R.K. Panda) (Astha Chandra) VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; दिन ांक / Dated : 10th June, 2025. रदि आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT concerned. 4. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, “ए” बेंच, पुणे / DR, ITAT, “A” Bench, Pune. 5. ग र्ड फ़ इल / Guard File. //सत्य दपि प्रदि// True Copy// आिेश नुस र / BY ORDER, िररष्ठ दनजी सदचि / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune "