Pravin Dhanjibhai Rajpara, Ahmedabad vs Department Of Income Tax

ACIT (OSD), Shri Pravin Dhanjibhai Cir. 9, Rajpara, Bunglow No. Ahmedabad Vs 310, Lane 16, Satyagruh (Appellant) Chhavani Co.Op. Housing Society, Satellite, Ahmedabad

Revenue by: Shri Dinesh Singh, Sr. D.R. Assessee by: Shri H.V. Gandhi, AR

Date of hearing : 05-02-2015 Date of pronouncement : 13-02-2015

आदे श/ORDER

PER : MUKUL KR. SHRAWAT, JUDICIAL MEMBER:-

This is an appeal filed by the revenue emanating from the order of Ld. CIT(A)-XV, Ahmedabad dated 13th May, 2011. Revenue is aggrieved by the deletion of penalty of Rs. 3,37,397/- levied u/s. 271(1)(c) of I.T. Act.

I.T.A No. 1758/Ahd/2011 A.Y. 2007-08 Page No 2 ACIT vs. Pravin Dhanjibhai Rajpara

2. Facts in brief as emerged from the corresponding penalty order passed u/s. 271(1)(c) dated 23rd June, 2010 and assessment passed u/s 143(3) dated 29-12-2009 were that the assessee in individual capacity is in the business of building development. It was noted by the AO that there was a difference in the closing stock to the tune of Rs. 8,73,809/- which according to him was understated by the asssessee. The assessee's explanation was as under:-

"While preparing working of valuation of closing stock work-in- progress inadvertently through oversight and exhausted mental condition accountant put figure Rs. 7,00,000/- instead for Rs. 15,73,809/-. On account of this clerical oversight error, closing stock was under stated by Rs. 8,73,809/-. But however, overall there will be no material effect on income, as closing stock of this year will become the opening stock of the next year. Hence, if we increase the closing stock of this year then correspondingly opening stock of the next year will be increased. Thus profit of this year will be increased by the amount of incremental value of closing stock and profit of the next year will decreased by the amount of incremental value of opening stock. Hence overall it will not effect the income."

Since the AO was not convinced hence addition was made and in consequence thereupon a penalty of Rs. 3,37,397/- was imposed.

3. When the matter was carried before the first appellate authority the explanation of the assessee was as under:-

"3. Penalty has been levied by the AO on two additions made in security assessment - of Rs 8,73,809 of closing stock less reported, and of 1,28,580 on account of cessation of liability. No appeal was filed against the quantum additions. In the statement of facts it has been stated that all information/details were submitted to the AO at the time of scrutiny proceedings and the discrepancy in closing stock figure crept in due to the clerical mistake of the clerk of the appellant who was preparing the statement. decision of Hon'ble Supreme Court in the case of AshoK Pai 292 ITR 11 has been cited. It has also been stated that the appellant would not gain anything as the I.T.A No. 1758/Ahd/2011 A.Y. 2007-08 Page No 3 ACIT vs. Pravin Dhanjibhai Rajpara

closing stock of this year becomes opening stock of the succeeding year. For cessation of liability addition it has been stated that the liability is still standing, that address and name are available. It has also been stated that only two notices were issued for passing penalty order and that the second notice mentioned in the penalty order was not received by the appellant.

Considering the facts of the case Ld. CIT(A) has deleted the penalty in respect of both additions.

4. With this brief background, we have heard both the sides. From the side of the Revenue Ld D.R., Shri Dinesh Singh, has supported the penalty order, however, Ld. AR, Shri H.V. Gandhi, has supported the order of Ld. CIT(A) and cited a decision of Hindustan Steel Ltd 83 ISDTR 26 and Bharat Steel and Iron Industries 199 ITR 67 and Kesaria Tea Company 234 ITR 434 (SC).

5. Having heard the submissions of both the sides, it is an admitted position that the assessee has furnished audited profit and loss and balance sheet. The assessee has disclosed a closing stock of Rs. 7,00,000/- ,however, closing stock of work in progress was later on revised to Rs. 15,73,809/-. AO has not pointed out any defect in the books of accounts but noted that the closing stock was under-valued. The assessee has contested that such assessment in the closing stock was tax neutral hence there is no malafide intention of any concealment. Likewise in the case of addition made on account cessation of liability of Rs. 1,28,560/-, the assessee's submission was that the identification and address of the said creditor was available and that liability was not written off in the books of accounts. It has also been pleaded that the mistake of the accountant had put a round figure of Rs. 7,00,000/- in the balance I.T.A No. 1758/Ahd/2011 A.Y. 2007-08 Page No 4 ACIT vs. Pravin Dhanjibhai Rajpara

sheet. The mistake was a pardonable mistake as held in the case of CIT vs. Pitambardas Dulichandra 273 ITR 271. Judged in the light of the above facts and circumstances, we deem it proper to quote. Held portion of Hindustan Steel Ltd 83 ITR 26 (SC) as under:-

"An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statue."

6. Further we are of the view that in the light of the Kesaria Tea Company decision (supra), the assessee has furnished all the details to establish that there was cessation of liability hence it was wrong to conclude that there was concealment of income by furnishing of inaccurate particulars. Resultantly, the view taken by the Ld. CIT(A) is hereby upheld and the grounds raised by the revenue is dismissed.

Order pronounced in open court on the date mentioned hereinabove at caption page

Sd/- Sd/-

(N.S. SAINI) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 13/02/2015 ak I.T.A No. 1758/Ahd/2011 A.Y. 2007-08 Page No 5 ACIT vs. Pravin Dhanjibhai Rajpara

आदे श क ूितिल प अमे षत / Copy of Order Forwarded to:-

1. Assessee

2. Revenue

3. Concerned CIT

4. CIT (A)

5. DR, ITAT, Ahmedabad

6. Guard file.

By order/आदे श से,

उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद