No Penalty u/s 271(1)(c) for addition on account of closing stock valuation by adopting a different method when there is no change in method of valuation
ABCAUS Case Law Citation:
ABCAUS 2775 (2019) (02) ITAT
Important Case Laws Cited/relied upon by the parties
M/s Janta Construction Co. vs. ACIT
During the course of assessment proceedings U/s 143(3) of the Income Tax Act, 1961 (the Act) the Assessing Officer (AO) found that the assessee had not valued closing stock at cost and also not applied FIFO method for valuation of foodgrains. The AO applied FIFO method and valued the closing stock at cost and made an addition on account of undervaluation of closing stock.
The assessee did not challenge the said addition made by the AO.
Subsequently the AO initiated the proceedings for levy of penalty U/s 271(1)(c) of the Act and levied the penalty @ 100% of tax sought to be evaded.
The assessee challenged the action of the AO before the CIT(A) and contended that the valuation of the closing stock did not affect profit of the business of the assessee as it became opening of stock of the next year and therefore, it could not be treated as furnishing of inaccurate particulars of income. The CIT(A) was not impressed with the explanation of the assessee and confirmed the penalty levied u/s 271(1)(c) of the Act.
Before the Tribunal, the assessee submitted that the the audit report in From 3CD had disclosed the method of valuation being at cost or market price.
It was stated that the assessee had been following the consistent method of valuation and therefore, the valuation of closing stock at the market price did not affect the Revenue or profit of the assessee as the same value will be taken as opening stock of the next year. Further, the AO had arrived the valuation by taking cost of the inventory and further, applying the FIFO method.
Thus, it was submitted that the valuation of the closing stock by adopting a different method by the AO that of the assessee would not amount to furnishing of inaccurate particulars of income or concealment of income when the closing stock will be taken as opening of the stock of the subsequent years.
Further, it was submitted that the assessee had not revised its opening stock of the subsequent year based on the valuation done by the AO, hence, the assessee had not taken the benefit of the enhanced valuation of the closing stock made by the AO.
The Tribunal observed that once the assessee had been consistently valuing its closing stock of foodgrains (Dal) at market price then, effect it was Revenue neutral as the closing stock of preceding year was taken as opening stock of the subsequent year. Apart from applying a different method the AO did not find any other discrepancy or deficiency in the closing stock of the assessee.
The Tribunal noted that the assessee had also not taken the benefit of the higher valuation of closing stock by revising its opening stock of the subsequent year, therefore, the addition made by the AO in the year under consideration will not ipso facto amount to furnishing of inaccurate of income or concealment of particulars of income.
The Tribunal opined that even otherwise when it was a regular and consistent method applied by the assessee and not a case of any change of method for valuation of closing stock during the year under consideration then, the mere addition on account of valuation of closing stock by adopting a different method will not attract the penalty U/s 271(1)(c) of the Act.
The Tribunal deleted the penalty levied U/s 271(1)(c) of the Act.