Concealment penalty for change in method of stock valuation deleted by ITAT. Lower of Cost or market price method was as per ICAI guidelines and was consistently followed thereafter
ABCAUS Case Law Citation:
ABCAUS 2497 (2018) 08 ITAT
The aforesaid appeal was filed by the assessee against impugned order passed by CIT (Appeals) in relation to the levy of penalty u/s 271(1)(c) of the Income Tax Act, 1961 (the Act) by the Assessing Officer (AO) on account of the addition made for difference in the valuation of closing stock due to change in the method of accounting.
During the assessment proceedings, the AO made the addition on the ground that earlier the stock was valued at the cost, i.e., opening stock has been valued ‘at cost’ while closing stock has been valued at ‘cost price or market price’ whichever is lower.
Assessee before the AO submitted that it has changed the method of valuation of closing stock at ‘cost or market price whichever is less’. The auditors in audit report have mentioned the basis of valuation of stock ‘at cost’ which in fact was based on the previous year’s audit report. Now the assessee has valued the stock as per the ICAI guidelines, i.e., ‘cost or market price whichever is lower’ and thereafter the assessee has been consistently following this method.
The AO found that due to change in the valuation method there was a difference on which he made the addition.
Later, on this addition the AO also levied the impugned penalty.
The CIT (A) confirmed the penalty.
The Tribunal observed that the only reason for the addition was that assessee had changed the method of valuation of stock during the year which has resulted in lowering of the profit of the assessee. However, nowhere it was stated that the valuation of stock as per ‘cost or market price whichever is lower’ was either erroneous or had not been consistently followed by the assessee in the subsequent years.
The assessee submitted that earlier the cost price of the stock was always lower than the market price. Therefore, there was no difference of actual valuation in the opening stock. From this year the assessee had adopted the method of valuation as per the ICAI guidelines and therefore such a valuation was in accordance with law and in any case it cannot be said that he has furnished either inaccurate particulars of income or had concealed any income.
The Tribunal opined that if earlier the cost price was lower and opening stock had been valued at cost, then it cannot be held that if the assessee would have followed cost or market price earlier could have changed the value of opening stock. Now this year the closing stock was valued at a market price which was lower. It does not mean that such a change in the method of accounting was not bonafide especially when it was consistently followed in the subsequent years.
Accordingly, the penalty was directed to be deleted