2023 (4) TMI 103 - AT - Income Tax

Tribunal upholds CIT(A) decisions on penalty deletion & stock valuation methods for AY 2012-13 & 2013-14

A.C.I.T., Circle-1 (3), Surat. Versus M/s D. Khushalbhai Jewellers

The Tribunal dismissed both of Revenue's appeals, upholding the CIT(A)'s decisions regarding the deletion of penalty under Section 271(1)(c) for AY ... Penalty u/s 271(1)(c) - undisclosed stock addition found during survey proceedings - addition made adopting different method of valuation by assessee and the government valued valuer - HELD THAT:- CIT(A) deleted the entire penalty on the basis of decision of Dilip Shroff Vs CIT [2007 (5) TMI 198 - SUPREME COURT] wherein it was held that addition, which is a result of difference in valuation cannot be held as concealment of income. Hon’ble Bombay High Court in CIT Vs Aarkay Saree Musium [1990 (8) TMI 97 - BOMBAY HIGH COURT] held that when certain additions were made in trading account by the AO, it did not necessarily follow that the assessee had concealed the income. And held that Tribunal was right in cancelling the penalty order. No reason to differ with the finding of the CIT(A), which we affirm. In the result, the grounds of appeal raised by the revenue are dismissed. Addition on account of difference in method of valuation - Once the valuation of assessee was disturbed by the AO himself it was the duty of AO to correct the opening stock of subsequent year. We find that the CIT(A) after following the decision in V.K.J. Builders & Contractors (P) Ltd. [2009 (8) TMI 101 - SUPREME COURT] directed the AO to correct the entry of opening stock. We do not find any illegality or infirmity in the order of ld. CIT(A) which we affirm. In the result, grounds raised by the revenue is dismissed. Issues Involved:1. Deletion of penalty under Section 271(1)(c) for AY 2012-13.2. Enhancement of opening stock for AY 2013-14 based on undisclosed stock found during survey in AY 2012-13.Issue 1: Deletion of Penalty under Section 271(1)(c) for AY 2012-13The Revenue challenged the deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961, levied on an addition of Rs. 3,71,03,941/- for undisclosed stock found during survey proceedings. The assessee, a partnership firm engaged in trading and manufacturing of jewellery, had its premises surveyed under Section 133A, revealing discrepancies in stock valuation. The inventory was valued by an approved valuer at Rs. 62.93 crores, which the assessee disputed, valuing it at Rs. 8.10 crores based on average rates. The Assessing Officer (AO) added Rs. 3.71 crores as unexplained investment under Section 69B, and levied a penalty of Rs. 1.14 crores under Section 271(1)(c). The CIT(A) deleted the penalty, accepting the assessee's method of valuation and citing the Supreme Court decision in Dilip Shroff vs. CIT, which held that differences in valuation methods do not constitute concealment of income. The Tribunal affirmed the CIT(A)'s decision, dismissing the Revenue's appeal.Issue 2: Enhancement of Opening Stock for AY 2013-14The Revenue contested the CIT(A)'s decision to enhance the opening stock for AY 2013-14 by Rs. 3.71 crores, based on the undisclosed stock found during the survey in AY 2012-13. The AO had rejected the assessee's application to adjust the opening stock, arguing that the facts of the cited Supreme Court case (V.K.J. Builders & Contractors (P) Ltd.) were different. The CIT(A) directed the AO to increase the opening stock for AY 2013-14, following the principle that closing stock of one year should be the opening stock of the next. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.Conclusion:Both appeals by the Revenue were dismissed, with the Tribunal affirming the CIT(A)'s decisions on both the deletion of penalty for AY 2012-13 and the enhancement of opening stock for AY 2013-14. The Tribunal relied on established legal principles and precedents, emphasizing the difference in valuation methods and the continuity of stock valuation across assessment years.