2019 (2) TMI 359 - AT - Income Tax

Tribunal cancels penalty for inconsistent valuation method under Income Tax Act

Shri Radhey Shyam Khandelwal Versus The ITO, Ward-4 (2) Jaipur.

Shri Radhey Shyam Khandelwal Versus The ITO, Ward-4 (2) Jaipur. - TMI Issues:1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2014-15 based on the undervaluation of closing stock of various Dals by the Assessing Officer.Analysis:1. The appeal was against the penalty order passed under section 271(1)(c) of the IT Act for the assessment year 2014-15. The Assessing Officer (AO) had made an addition on account of undervaluation of closing stock of various Dals by taking the value at cost instead of the valuation adopted by the assessee at market rate, resulting in an addition of Rs. 6,80,767. The assessee did not challenge this addition but contested the penalty. The contention was that the valuation of closing stock does not impact the profit as it becomes the opening stock of the next year, hence not furnishing inaccurate particulars of income. However, the CIT(A) upheld the penalty.2. The assessee argued that they consistently followed a method of valuation disclosed in Form 3CD, valuing gemstones at cost and foodgrains at market price. The AO applied FIFO method to value the closing stock differently from the assessee, leading to the penalty imposition. The assessee maintained that the valuation method did not affect revenue or profit since the closing stock would become the opening stock of the subsequent year. The assessee also cited a similar case before the Tribunal where a penalty was deleted in a comparable situation.3. The Tribunal noted that the assessee consistently valued the closing stock of foodgrains at market price, as disclosed in Form No. 3CD. The AO's application of FIFO method and valuation at cost was deemed incorrect as it did not align with the assessee's consistent method without any inconsistency in previous or subsequent years. The Tribunal referred to a previous case where a penalty was deleted due to a similar valuation discrepancy, emphasizing that the addition on account of closing stock valuation by a different method does not automatically attract penalty under section 271(1)(c) when the assessee did not revise the subsequent year's opening stock based on the AO's valuation.4. The Tribunal concluded that the penalty under section 271(1)(c) was not justified in this case, considering the consistent valuation method followed by the assessee and the lack of discrepancy or change in method during the relevant assessment year. Following the precedent set by a previous case, the Tribunal allowed the appeal filed by the assessee, thereby deleting the penalty imposed by the AO.In summary, the judgment focused on the consistent valuation method employed by the assessee for closing stock, highlighting that a mere difference in valuation method by the AO does not warrant a penalty under section 271(1)(c) when the assessee's method remains consistent and revenue-neutral.