Rajiv Kumar Garg, Muzaffarnagar vs Assessee

This appeal by the assessee arises out of the order passed by the

CIT (A) on 29.11.2013 upholding the penalty of Rs.45,100/- imposed by ITA No.519/Del/2014

the AO u/s 271(1)(c) of the Income-tax Act, 1961 (hereinafter also

called 'the Act') in relation to the assessment year 2009-10.

2. Briefly stated, the facts of the case are that the assessee is engaged

in trading of cement. Closing stock of Rs.3,85,580/- was shown in the

audited balance sheet. The AO, during the course of assessment

proceedings, observed that the closing stock of bags should have been

valued at Rs.6,25,961/-. It was done so on the basis of the last purchase

bill dated 28.3.2009. The assessee agreed for the resultant addition

amounting to Rs.2,40,381/-. Thereafter, the AO imposed penalty

amounting to Rs.45,100/- @ 100% of tax sought to be evaded u/s

271(1)(c) of the Act in relation to the said addition. The ld. CIT(A)

upheld the penalty.

3. I have heard the ld. DR and perused the relevant material available

on record. There is no appearance from the side of the assessee despite

notice. As such, I am proceeding to dispose of this appeal ex parte qua

the assessee. It is noted that the penalty u/s 271(1)(c) has been imposed

on the basis of difference in the value of stock shown by the assessee

2 ITA No.519/Del/2014

and as estimated by the AO by applying the rate of last purchase bill

dated 28.3.2009. But, for that, there is nothing to show that the assessee,

in fact, concealed his income or furnished inaccurate particulars of

income. There can be several reasons for a different valuation. It is not

necessary that all the bags are always of good quality. Some of the

cement bags may have leaked, spoilt or fixed.

4. It is an admitted position that the assessee accepted the addition and

did not challenge it further. But the mere fact that an addition has been

accepted or is confirmed in quantum proceedings cannot be conclusive

of the imposition of penalty. The Hon'ble Calcutta High Court in Durga

Kamal Rice Mill vs. CIT (2004) 265 ITR 25 (Cal), has held that quantum

proceedings are different from penalty proceedings. The Hon'ble Kerala

High Court in CIT vs. P.K. Narayanan (1999) 238 ITR 905 (Ker.), has

held that despite the addition being confirmed by the Tribunal in

quantum proceedings, the penalty can still be deleted by the Tribunal, if

the facts justify.

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5. It is noticed that the only basis of addition is the estimate of

valuation made by the AO in valuing the closing stock @ Rs.200.50 per

bag, being the cost price of cement bags vide last purchase bill dated

28.3.2009. Apart from this estimate made by the AO, there is nothing to

show that the way in which the assessee valued its closing stock was

incorrect. This divulges that the addition has been made only on the

basis of estimate made by the AO. It is a settled legal position that when

income is estimated, then, there can be no question of imposing penalty

u/s 271(1)(c) of the Act. The Hon'ble Delhi High Court in CIT vs. Aero

Traders Pvt. Ltd., (2010) 322 ITR 316 (Del), has held that no penalty u/s

271(1)(c) can be imposed when income is determined on estimate basis. Similar view has been taken by the Hon'ble P&H High Court in

Harigopal Singh vs. CIT (2002) 258 ITR 85 (P&H) and the Hon'ble

Gujarat High Court in CIT vs. Subhash Trading Company, 221 ITR 110

(Guj). In view of the foregoing precedents including the one from the

Hon'ble jurisdictional High Court, it is apparent that when the bedrock

of instant penalty is the estimate of valuation of closing stock, the same

4 ITA No.519/Del/2014

cannot be sustained. Overturning the impugned order, I order for the

deletion of penalty amounting to Rs.45,100/-.

6. In the result, the appeal is allowed.

The order pronounced in the open court on 15.06.2015.

Sd/-

[R.S. SYAL] ACCOUNTANT MEMBER Dated, 15th June, 2015.

dk Copy forwarded to:

1. Appellant

2. Respondent

3. CIT

4. CIT (A)

5. DR, ITAT

AR, ITAT, NEW DELHI.

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