2022 (2) TMI 1089 - AT - Income Tax

Appeal dismissed for undervaluation of closing stock, penalty for inaccurate income particulars overturned.

The appeal regarding the addition due to undervaluation of closing stock was dismissed, while the appeal against the penalty for furnishing inaccurate ... Undervaluation of closing stock - addition on account of undervaluation of closing stock - direction to adjust confirmed addition in opening stock of succeeding year - penalty for furnishing inaccurate particulars and concealment under Section 271(1)(c) - difference of opinion on valuation not amounting to concealmentUndervaluation of closing stock - addition on account of undervaluation of closing stock - direction to adjust confirmed addition in opening stock of succeeding year - Validity of addition made by AO on account of alleged undervaluation of closing stock and consequential treatment for the succeeding year - HELD THAT: - The Tribunal examined the AO's revaluation of closing stock and the CIT(A)'s confirmation of the addition of Rs. 1,36,95,109/-, noting that the assessee had not successfully controverted the AO's specific findings regarding stock at Mumbai and Bhavnagar. The ITAT found no jurisdictional or factual ambiguity in the AO/CIT(A) conclusion to uphold the addition. However, the Tribunal accepted the assessee's alternative accounting submission that where closing stock of one year is revalued higher in assessment, the corresponding amount should be adopted as opening stock of the succeeding year; accordingly it directed the AO to make appropriate adjustment in the opening stock for A.Y. 2011-12. [Paras 13, 14, 15, 16]The addition on account of undervaluation of closing stock was upheld; the AO is directed to adjust the confirmed addition as opening stock in A.Y. 2011-12.Penalty for furnishing inaccurate particulars and concealment under Section 271(1)(c) - difference of opinion on valuation not amounting to concealment - Levy of penalty under Section 271(1)(c) on account of the undervaluation of closing stock - HELD THAT: - The Tribunal reviewed the facts, the assessee's consistent explanation about deterioration and lower realizable value of the mill scale stock, and the CIT(A)'s reasoning that Explanation 1 to Section 271(1)(c) applied because the auditor had noted that stock should be valued at cost and the assessee did not rectify the accounts. Applying settled principle that a mere difference of opinion on valuation does not by itself constitute concealment or furnishing of inaccurate particulars, and relying on the Supreme Court precedent cited by the assessee, the ITAT found no evidence of conscious concealment, book rejection, fabrication or other indicia of mala fide conduct. In those circumstances the Tribunal held that penalty did not follow as a natural corollary to a quantum addition and quashed the penalty confirmed by the CIT(A). [Paras 18, 19, 20, 21, 22]Penalty imposed under Section 271(1)(c) is quashed; no penalty for furnishing inaccurate particulars or concealment is leviable on these facts.Final Conclusion: The appeal against the quantum addition for undervaluation of closing stock is dismissed while directing the AO to carry the confirmed addition into the opening stock of A.Y. 2011-12; the appeal against penalty under Section 271(1)(c) is allowed and the penalty is quashed. Issues Involved:1. Delay in filing the appeal.2. Addition due to undervaluation of closing stock.3. Penalty for furnishing inaccurate particulars of income.Issue-wise Detailed Analysis:1. Delay in Filing the Appeal:The appeal filed by the assessee had a delay of 915 days. The assessee explained that the delay was due to the belief that the addition was revenue neutral, as the closing stock of one year would be the opening stock of the next year. The penalty imposed under Section 271(1)(c) led the assessee to file the appeal based on legal advice. The tribunal found the reason for the delay justified and condoned it.2. Addition Due to Undervaluation of Closing Stock:The assessee, engaged in ship breaking and trading of mill scale and iron ore, declared a closing stock value of Rs. 1,91,52,750/-. The Assessing Officer (AO) revalued it at Rs. 3,28,47,859/-, adding Rs. 1,36,95,109/- to the income. The AO did not accept the assessee's valuation based on inferior quality and revalued the stock without a disclosed rational basis.The First Appellate Authority upheld the addition, stating that the assessee's contentions were general and vague, not countering the AO's findings. The tribunal also upheld this addition, finding no ambiguity in the AO's and CIT(A)'s decisions, and dismissed the assessee's ground of appeal.The tribunal accepted the alternative plea that if the addition is confirmed, the closing stock's higher value should be carried forward as the opening stock for the succeeding year, directing the AO to make necessary adjustments for A.Y. 2011-12.3. Penalty for Furnishing Inaccurate Particulars of Income:The penalty of Rs. 42,31,789/- was imposed for the addition of Rs. 1,36,95,109/- due to undervaluation of closing stock, alleging inaccurate particulars. The assessee argued that the stock was valued lower due to deterioration and market conditions, and all facts were disclosed in the return and audit report.The CIT(A) confirmed the penalty, finding the explanation for undervaluation unsatisfactory and lacking substance. The CIT(A) noted that the assessee's auditors had pointed out the stock should be valued at cost, which the assessee ignored, indicating malafide intention. The CIT(A) also observed that the assessee did not initially appeal against the addition, further establishing malafide intention.The tribunal found that the penalty was not justified, as it was a case of valuation difference rather than conscious concealment or furnishing inaccurate particulars. The tribunal referenced the Supreme Court's judgment in CIT vs. Reliance Petro Products (P) Ltd., stating that merely making an unsustainable claim does not amount to furnishing inaccurate particulars. The tribunal also considered the ITAT Chandigarh's judgment in Durga Traders vs. Income Tax Officer, which held that penalty is not warranted in the absence of conscious concealment of income. Consequently, the tribunal quashed the penalty order.Conclusion:The appeal regarding the addition due to undervaluation of closing stock was dismissed, while the appeal against the penalty for furnishing inaccurate particulars of income was allowed, quashing the penalty order.