TaxTMI 
TaxTMI 
2017 (2) TMI 635
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 3) The Appellant prays for granting such other relief as may be deemed just and proper by your Honours considering the factual and legal aspects of the case of the appellant. 4) The Appellant craves leave to add, amend, alter, delete, substitute or modify any or all of the Grounds of Grounds of Appeal. 2. Briefly stated facts as culled out from the records are that assessee is a partnership firm engaged in the business of purchasing/ importing rough diamonds, manufacturing and polishing diamonds on job work basis and sale/export of diamonds. Return of income for Asst. Year 2007-08 filed on 31.10.2007 showing total income of Rs. 95,48,996/- which was further revised to Rs. 96,71,589/- vide revised return filed on 8.9.2008. Case was selected for scrutiny assessment and notice u/s 143(2) of the Act followed by notice u/s 142(1) of the Act was issued requesting the assessee to furnish necessary details and the same were filed during the course of assessment proceedings and were duly verified on record. In the course of assessment proceedings ld. Assessing Officer observed that assessee is constently following method of valuing closing stock at "cost or market value whichever....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... existence of mens rea and the guilty conscience of the assessee during the assessment as well as the penalty proceedings. These circumstances and/or state of evidence could themselves justify imposition of penalty with the lower admission of the assessee set on record. Thus second condition as laid down by the Hon'ble High Court is also satisfied. Thus, the following points emerge as regards to the penalty proceedings: (i) The assessee has failed to give any justification or acceptable explanation for charge of concealment; (ii) The assessee has willfully furnished return of lower income in order to evade taxes by established under-reporting of income by way of unlawful claims; The jurisdictional Tribunal in the case of DCIT Vs. Smt. Jayshree M. Pethani, ITAT, Ahmedabad Bench-A, IT(SS)A No.l69/Ahd/2002 has laid down the following five tests for determination of culpability and levy of penalty:- (a) Intention of the assessee from the date of filing of return of income and subsequent proceedings till conclusion of the same: In the instant case there has been intentional act of earning unaccounted income. (b) Presence of any deliberate attempt on part of the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....facts of the case, satisfied that the assessee is at fault in regards to the provision of Section 271(l)(c) of the Income-tax Act, 1961. 6.2 Therefore, I am satisfied that there is an element of concealment of income by way of furnishing of inaccurate particulars and this a fit case for levy of penalty u/s 271(l)(c). 5. Aggrieved with the penalty order u/s 271(1)(c) of the Act assessee filed appeal before ld. CIT(A) but was unable to succeed as the penalty order u/s 271(1)(c) of the Act was confirmed by ld. CIT(A) by observing as follows :- 4. I have considered the penalty order, the assessment order, the order of CIT(A) and the order of the I.T.A.T. in quantum appeal. I have also gone through the submissions of the appellant. As regards of the appellant's plea that the Hon'ble Gujarat High Court has admitted the appeal of the appellant filed against the order of Hon'ble ITAT passed in the quantum appeal proceedings and the judgement of Tribunal including the Hon'ble Jurisdictional Bench of Ahmedabad that when the High Court admits substantial question of Jaw on an addition, the addition is certainly debatable and in such addition, penalty u/s.271(1)(c) can....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is rejected 4.2 As regards merit of addition by the Assessing officer, the Tribunal in the quantum appeal has clearly held as under: "10. If we consider the entire details, it is obvious that the assessee has taken the inventory of the closing stock item wise, however, neither the cost nor the market value of each lot is given by the assessee. In the next year, the assessee continued its business of purchasing rough diamonds, its cutting and polishing and sale of polished diamonds. Sale of diamond was at different rates varying from Rs. 1212/- per carat to Rs. 44,076 per carat. The assessee has picked up the sale instances where the diamonds were sold at a price below the cost price and ignored the sale instances where the diamonds were sold at a price much higher than the cost price. As we have already mentioned the value of diamond varies because of quality as well as size of the diamonds. This value varies in the case of rough diamonds as well as polished diamonds. The assessee has not given either the cost or market value of each lot of closing stock of diamonds. If we peruse the sale given by the assessee, we find that the sale value of the diamond varies from Rs. 1212/-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the year under consideration is better than earlier years therefore, the valuation of the closing stock should not be disturbed. We are unable to accept this contention of the learned counsel, if the assessee has not valued the closing stock correctly, the A.O. can certainly made the correct valuation of the closing stock." 4.3 The facts noted above clearly prove,- that no bonafide explanation regarding valuation of closing stock has been provided by appellant hence argument of the appellant that complete details of opening stock of polished diamonds, manufacturing . expenses, purchases, sales and closing stock of diamond were provided during the course of assessment proceedings hence, it cannot be subject to levy of penalty u/s 271(1)(c) of the Act cannot be accepted as details provided for valuation of closing stock is not supported by any evidences as stated herein above and appellant has not adopted the average cost method just to reduce taxable income of current year and this attracts the provisions of section 271(1)(c) of the Act. Hon'ble Gujarat high court in case of A.M. Shah & Co 108 Taxman 137 has observed that inaccurate particulars of income means "any concealm....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... bona fide and that all the facts relating to the same and material to the computation of his total income, have been disclosed by him, then the amount added or disallowed in computing total income of such person as a result thereof shall, for the purpose of clause (c), be deemed to represent the income in respect of which particulars have been concealed. In the present case, the explanation furnished by assessee cannot be considered as bonafide and correct, hence penalty levied by assessing officer is confirmed. Reliance is placed on decision of Hon'ble Delhi High court in case of CIT Vs Escort Finance Limited 183 Taxman 453 wherein court has held as under: "...It has been repeatedly held by the Courts that the penalty on the ground of concealment of particulars or non-disclosure of full particulars can be levied only when in the accounts/returns an item has been suppressed dishonestly or the item has been claimed fraudulently or a bogus claim has been made. When the facts are clearly disclosed in the return of income, penalty cannot be levied and merely because an amount is not allowed or taxed, it cannot be said that the assessee had filed inaccurate particulars or concea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ities and there is no dispute to this effect that closing stock as on 31.3.2007 of polished diamonds is 13345.87 carats. Ld. AR further submitted that assessee has details of each and every carat of stock lying as on 31.3.2007 and for the purpose of valuation assessee has to bring on record the basis of valuation at cost or market price whichever is less. Cost of the goods is already on record but for the purpose of finding out reasonable basis of sale price assessee is following consistent system in which the sales after the close of the year i.e. from April till August are taken as a basis and as there are proper quantitative records with the help of which closing stock at the end of the year can be matched to the sales made in the following months and in case the sale price per carat is less than the cost price per carat then it is applied on the related closing stock at the year end for calculating the value of closing stock and for the remaining unsold stock cost price is taken as a basis to value closing stock in order to justify the method of closing stock at "cost or market price" whichever is less. 8. Ld. AR also submitted that physical quantity in stock is not in dispu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....case of H.P. State Forest Corporation Ltd. 340 ITR 204 3. Judgment of Hon. Punjab & Haryana High Court in the case of SSP (P) Ltd. 302 ITR 43. 4. Judgment of Hon. Punjab & Haryana High Court in the case of Rana Sugar Ltd.386 ITR 316 5. Judgment of Hon. Calcutta High Court in case of Thakur Prasad Sao and Sons (P) Ltd. 386 ITR 448 6. Order of Hon. ITAT, Ahmedabad in case of Manmohan Anandsingh Rajput ITA No. 2635/Ahd/2011 7. Judgment in the case of Kishinchand Chellaram v. CIT 125 ITR 713 (SC) 8. Judgment in the case of CIT v. Daulat Ram Rawatmull 87 ITR 349 (SC) 9. Judgment in the case of CIT vs. State Forest Corpn. Ltd. IT Appeal No.15 of 2005 (2011) 12 taxmann.com 425 (HP) 10. Judgment in the case of CIT vs. Pawan Kumar Dalmia (1987) 168 ITR 1 (Ker) 11. Judgment of ITAT, Agra in the case of Addl.CIT, Range-2, Farukabad vs. Kishan Sahakari Chini Mills Ltd. ITA No.6 (Agra) of 2011 12. Order in the case of DCIT vs. Saraya Industries Ltd., in ITA No. 1886/Del/2003 13. Order in the case of ACIR vs. Malhotra Mukesh Satpal in ITA No. 183/Pn/2003 [(2008) 113 TTJ (Pune) 401] 14. Order in the case of Durga Traders vs. ITO in ITA No.120/Chd/2003 [(2004) 90 T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owever, his contention was that market value of the part of the stock was less and therefore when the value of the closing stock is worked as per the assessee's method of valuation of closing ITA No.3010/Ahd/2010 stock i.e. "cost or market value whichever is lower", the value of the closing stock works out to Rs. 10,30,98,508/-. The assessee has given the details of lot- wise physical stock of the closing stock of polished diamonds. The same is at page no.30 and 31 of the assessee's paper book which is reproduced below for ready reference: Sr.No. Description of diamonds Cts. 1 Cut & Polished Diamond 185.99 2 D/Cut Tilc + 9 Vs 1 167.93 3 D/Cut Tilc -9 Vs 1 167.14 4 D/Cut Tilc-6.5 Vs 1 110.11 5 F Cut White Vs 1 20.29 6 F Cut White Vs 1 20.55 7 F Cut White Vs 1 20.28 8 Cut & Polished Diamond 277.56 9 Cut & Polished Diamond 923.63 10 Cut & Polished Diamond 660.33 11 Cut & Polished Diamond 259.12 12 Cut & Polished Diamond 452.21 13 Cut & Polished Diamond 401.51 14 Cut & Polished Diamond 49.20 15 Cut & Polished Diamond 102.06 16 Cut....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2 BUG WH PK 2 60.00 83 Cut & Polished Diamond 528.27 84 F Cut TTLC VS 2 32.35 85 Cut & Polished Diamond 250.09 86 P/C White I 3 303.60 Total 13345.87 7. While valuing the closing stock, the assessee has claimed that 9405.61 carat of the diamonds was having less value than the cost. The working given by the assessee at page no.36 and 37 reads as under: VALUATION SHEET FOR COSTING DONE AT MARKET VALUE BECAUSE THE SAME IS LOWER THAN COST OF Rs. 9,943/- PER CARAT. Sr. No. Description Supporting Sale Bill No. Market value for carat as on 31.03.07 Quantity (in carats) Amount (Rs.) 1 CUT & POLISHED DIAMONDS 2 9,000.00 277.56 2,498,041 2 CUT & POLISIIED DIAMONDS 4 5,100.00 660.33 3,367,683 3 CUT & POLISHED DIAMONDS 7 3,950.00 401.51 1,585,965 4 WHITE TAPPERS SI 4 7,821.00 100.00 782,100 5 WHITE TAPPERS PK -4 4 3,910.50 78.00 305 6 WHITE BUDGGETS PK -4 4 3,910.50 116.00 453,618 7 WHITE BUDGGETS SI. 3 4 8,690.00 48.00 417,120 8 CUT & POLISHED DIAMONDS 12 8,480.00 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T WHITE PK-2 25 6,082.50 30.00 182,475 45 F/CUT WHITE PK-3 25 4,055.00 21.51 87,223 46 WHITE FULLCUT PK-2 27 7,704.50 19.07 146,925 47 WHITE FULL CUT PK-1 27 8,718,25 13.50 30,514 48 WHITE FULLCUT PK-2 27 7,299.00 44.00 321,156 49 WHITE FULLCUT PK-3 27 6,690.75 22.31 149,271 50 F/C WHITE SI -3 28 9,022.50 1143.83 1,297,706 51 F/C WHITE PK -1 28 7,517.55 154.28 1,159,608 52 WHITE TAPP SI311 29 7,619.00 137.12 282,817 53 F/C BLACK DIA 31 3,007.50 155.67 167,428 54 F/C BLACK DIA 31 2,606.50 161.52 160,352 55 F/C BLACK DIA 31 2,406.00 65.76 158,219 56 F/C BLACK DIA 31 2,205.50 35.94 79,266 57 F/C BLACK DIA 31 2,205.50 51.98 114,642 58 F/C BLACK DIA 31 2,005.00 66.19 132,711 59 F/C BLACK DIA 31 1,604.00 88.00 141,152 60 BUG WH PK -3 31 2,406.00 50.90 122,465 61 BUG WH PK -2 31 2,807.00 60.00 168,420 62 CUT&POLISHED DIAMONDS 44 9,600.00 528.27 5,071,392 6....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the closing stock on average basis. The assessee has not pointed out any discrepancy in the working of the value of the closing stock on the basis of "average cost method". The contention of the learned counsel before us is that the market value of the 9405.61 carrat of the diamonds was lower than the cost. This contention of the assessee is based upon the sale of the diamonds in the subsequent year. The AO has recorded the finding that the sale bills are for ITA No.3010/Ahd/2010 five months in the next year. The details of these sale bills are given by the assessee and are reproduced by us above in para no.7. When we compared the details of the closing stock, which is given in para no.6, with the details of sales bill, which is given in para-7, we do not find even a single lot comparable with each other. In the details of the closing stock, first item is of cut and polished diamond of 185.99 carrat. However, there is no sale bill for the sale of 185.99 carrat of cut and polished diamond. Similar is the position with regard to each and every lot of stock of diamond. Not a single lot given in the stock of polished diamonds compares with the sale bill submitted by the assessee in sup....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the sale of diamond was as high as Rs. 44,076.14 per carrat. Therefore, on the basis of these details, the only inference that can be drawn is that the assessee has selected the sale bills where the diamond was sold at a lesser rate. At the cost of repetition, we may reiterate that the description and quantity given in the ITA No.3010/Ahd/2010 sale instances does not tally with the description and quantity given in the details of the lot-wise physical stock of the inventory. In the absence of such co-relation the contention of the assessee that the market value of the part of the diamond was lower than the cost cannot be accepted. Except some sale bills, no other evidences was produced by the assessee to establish that the market value of the diamond was lower than the cost. When any assessee claims that the market value of the closing stock was lower than the cost, burden would be upon the assessee to establish so by producing the documentary evidences. If the closing stock is of diamond, this burden would be even heavier because the assessee is claiming that the market value of 9405.61 carrat of the closing stock of diamond out of the total closing stock of 13,345.87 carrat was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....osing stock as submitted by the assessee himself. Therefore, the assessee's contention that the market value is lower than the cost was not accepted by the AO with which we also agree. When the assessee has not proved that market value is lower than the cost, the AO was left with no option but to determine the value of stock at "cost". Therefore, we hold that the AO has not rejected or disturbed the method for valuation of closing stock followed by the assessee. He has only made correct valuation of closing stock as per method followed by the assessee. Since the AO has not disturbed the method of valuation of the closing stock of the assessee, the question of revaluation of the opening stock as per the changed method does not arise. It is not a case of either the Revenue or the assessee that the opening stock was not correctly valued as per the assessee's method of accounting for valuation of closing stock. In view of the above factual position, the ratio of various case laws relied upon by the learned counsel in this regard does not require detailed discussion. In view of the ITA No.3010/Ahd/2010 above, we uphold the order of the learned CIT(A) and dismiss the appeal of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to represent the income ,n respect of which particulars have been concealed. 14. A bare perusal of this section would reveal that for visiting any assessee with penalty, ld. Assessing Officer or ld. CIT(A) during the course of any proceedings before them should be satisfied that assessee has either concealed particulars of income or furnished inaccurate particulars of income. Let us examine the facts of the case in the light of above provisions. We find that assessee is in the business of purchase, sale and manufacture of polished diamonds. It is established fact that in the case of diamonds there is a wide price range as observe by ld. Assessing Officer which can vary from Rs. 1,000/- per carat to Rs. 1,00,000/- per carat or even more. In the case of assessee also there is a wide range of diamonds ranging between Rs. 5,000/- per carat to Rs. 50,000/- per carat. Assessee has been consistently adopting the method of valuation of closing stock at cost price or market price whichever is less. It is well known that the burden to prove that whether cost price or market price which one is less lies on the assessee and it has to be substantiated with a proper proof. Assessee has been c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as not prepared proper books of account. There is no dispute that assessee is having improved gross profit. The only issue remained in question was the rates taken by the assessee for valuing some portion of closing stock at sale price. For this issue assessee has given copies of certain bills to prove its consistent method adopted for last so many years accepted by the Revenue but the same has been disregarded for the year under appeal by the Revenue authorities and addition confirmed by ld.CIT(A) and the Tribunal however, the quantum issue has been admitted by Hon. Jurisdictional High Court. We, therefore, observe that there is no finding about furnishing of inaccurate particulars or concealment of particulars of income and rather it is a case where assessee's method of closing stock has been challenged. 14.1 At this juncture we take note of certain judicial pronouncements. We find in the case of CIT vs. H.P. State Forest Corporation Ltd. (supra) wherein similar issue has been decided in favour of assessee by observing as under :- Held The word 'ínaccurate' as used in the would mean something which is not accurate not exact or not correct. Something which is untru....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ue has been decided in the case of case of Cement Marketing Co. Of India Ltd. vs. Asstt. CST (1980) 124 ITR 15 wherein it has been held as under :- 5. The assessee filed an appeal before the Tribunal against the order of the Commissioner of Income-tax (Appeals) whereby he has upheld the order of imposing the penalty under section 271(l)(c) of the Act passed by the Assessing Officer. The Tribunal vide its order dated 5-4-2007 accepted the appeal filed by the assessee and set aside the order of the CIT(A) and deleted the penalty of Rs. 4,15,000. The operative part of the judgment of the Tribunal is reproduced as under : "We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. We find that the Assessing Officer observed that the assessee has not shown purchases of Rs. 5,71,360 in the closing stock and thereby concealed income to that extent. He further observed that the assessee has filed inaccurate particulars of income by making a wrong claim of commission paid to M/s. Roshan Engg. &. Consultants (P.) Ltd. Rs. 94,991. He further observed that similarly the assessee has made false statement with regard to the pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y in case contention is ultimately found by the Court to be not acceptable. This surely could never have been intended by the Legislature. Hence, for the reasons given above, we arc of the view that the penalty levied cannot be sustained in law. Hence, we set aside the order of the CIT(A) and delete the penalty of Rs. 4,15,000. The grounds of appeal of the assessees are allowed." 6. Mr. Yogesh Putney, counsel for the appellant, has argued that the assessee had filed inaccurate particulars as the additions have been made on the returned income as declared by the assessee and therefore, the breach of this statutory obligation attracts levy of penalty irrespective of the fact whether the contravention was made by the assessee with any guilty intention or not. 7. After considering the arguments raised by the counsel for the appellant and perusing the record, we find no force in the contention raised by the counsel for the appellant. A perusal of the impugned order would show that the Tribunal has given a finding of fact to the effect that return was filed by the assessee on 4-1-1994 whereas the Apex Court in the case of Brooke Bond India Ltd. \. CIT[\.997] 225 ITR 798 ' rende....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and then working out the balancing value to be the closing stock and in case the AO wants to verify the same, the details of estimating the net realizable value of each item be worked out so that the total may match with the value taken in the P&L a/c as seems to have happened in the case of the assessee otherwise the assessee would have fifed all the details before the AO during the course of the. assessment -proceeding so that its onus would have been discharged. The onus is on the assessee to prove that the net realizable value whatever has been shown by assessee is the correct net realizable value and is less than the cost. The assessee has to satisfy the AO by adducing the evidence that the net realizable value is less than the cost. In this case the assessee has not submitted any evidence to support the estimated net realizable value. Even the assessee has not shown the subsequent invoice to verify the value actually realized by the assessee. The AO has given sufficient opportunity to the assessee. The assessee for the. first time has even filed the details of the valuation of polished diamonds before the Tribunal vide letter dt. 26th July, 2007, although the .accounts of the....