Rejected goods cannot be considered for valuation of closing stock, hence no concealment of income – ITAT

Rejected goods cannot be considered for valuation of closing stock. Therefore there was concealment of income or furnishing of inaccurate particulars of such income

ABCAUS Case Law Citation:
ABCAUS 2561 (2018) (10) ITAT

In the instant case, the appellant assessee had filed the appeal against the order of the CIT(A) confirming penalty u/s. 271(1)(c) of Income Tax Act, 1961 (the Act).

The assessee was engaged in the business of manufacturing and export of leather goods.

During the year under consideration, some of the goods sold by the assessee were rejected. These rejected raw material were also available in the business premises of the assessee.

Since due to the rejected raw material / goods there was a difference in valuation of stock, the Assessing Officer took it into consideration for the purpose of making addition on the basis of the closing stock valuation.

The assessee submitted that if the rejected goods were not taken into consideration, there cannot be any addition. The consequent levy of penalty was not justified.

Moreover, it was contended that due to difference in valuation of closing stock, it could not be said that the assessee had furnished inaccurate particulars of his income or concealed any part of his income.

The Tribunal opined that when the assessee rejected some goods and purchased only the balance, the rejected pieces cannot be considered for valuation of closing stock. Therefore, it cannot be said that there was concealment of income or furnishing of inaccurate particulars of such income.

Accordingly, the Tribunal set aside the orders of both the authorities below and the penalty levied by the Assessing Officer as confirmed by the CIT(Appeals) was deleted.

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