Income Tax Appellate Tribunal - AhmedabadDhiraj Sons Mega Store Pvt. Ltd.,, Surat vs Assessee on 29 September, 2011IN THE INCOME TAX APPELLATE TRIBUNAL
                       'C' BENCH - AHMEDABAD

     (BEFORE SHRI G. D. AGARWAL, VP AND SHRI BHAVNESH SAINI, JM)

                         ITA No.2604/Ahd/2009
                              A. Y.: 2004-05

     Dhiraj Sons Mega Store Pvt.         Vs The D. C. I. T., Circle-1,
     Ltd., Gaganvani, Next to               Aayakar Bhavan,
     Mansukhlal Tower, Chowpati,            Opp. New Civil Hospital,
     Athwalines, Surat                      Majura Gate, Surat

                         PA No. AAACW 2104 J
               (Appellant)                   (Respondent)


              Appellant by      Shri R. N. Vepari, AR
              Respondent by     Shri Vinod Tanwani, Sr. DR

                      Date of hearing: 29-09-2011
                   Date of pronouncement: 05-10-2011

                                ORDERPER BHAVNESH SAINI: This appeal by the assessee is
directed against the order of the learned CIT(A)-I, Surat dated 14th
July, 2009 for the assessment year 2004-05, challenging the levy of
penalty u/s 271 (1) ( c ) of theIT Acton addition in valuation of
closing stock on estimate basis.2.      Briefly, the facts of the case are that the AO levied penalty for
the following additions/disallowances:(i)   Disallowance of interest             Rs. 1,86,310/-ITA No. 2604/Ahd/2009                                                           2Dhiraj Sons Mega Store Pvt. Ltd. Vs DCIT, Coir-1, Surat(ii)    Undervaluation of closing stock            Rs. 5,28,085/-(iii)   Enhancement of income for
               Interest paid to bank                      Rs. 7,20,000/-

The     learned     CIT(A)     confirmed       the    penalty    in   respect   ofundervaluation of closing stock in a sum of Rs.5,28,085/- and for the
remaining additions penalty was deleted. It was explained before the
learned CIT(A) with regard to undervaluation of the closing stock that
the AO did not give any reasons for making the addition. The AO did
not accept the contention of the assessee would prove that the
assessee has not concealed any income or furnishing of inaccurate
particulars of income. The AO however, stated that the assessee had
deducted Rs.5,28,085/- as 1% of cash discount from the total closing
stock for working out closing stock to be shown in the profit & loss
accounts. The AO asked the explanation of the assessee as to why
1% cash discount be not deducted. The assessee explained that it
was a practice to get cash discount but some people may not give
discount. The explanation of the assessee was not accepted by the
AO and addition of Rs.10,00,000/- was made which was reduced by
the learned CIT(A) to Rs.5,28,085/-. It was, therefore, submitted
before the learned CIT(A) that since all the particulars were disclosed
to the AO at the stage of assessment as well as in the records,
therefore, no particulars of income was concealed and no penalty is
leviable. The learned CIT(A) however, noted that the assessee has
deliberately reduced its income by reducing 1% cash discount on
estimate basis. The assessee has claimed discount in respect ofITA No. 2604/Ahd/2009                                                3Dhiraj Sons Mega Store Pvt. Ltd. Vs DCIT, Coir-1, Surat

each and every items even though such cash discount might not be
given. Penalty was accordingly confirmed.3.   The learned Counsel for the assessee reiterated the submissions
made before the authorities below and submitted that the assessee
disclosed all the particulars of income in the return of income and
stock was reduced by 1% discount on account of cash discount which
is the practice of the business. The AO made estimated addition of
Rs.10,00,000/- which is reduced by the learned CIT(A). Therefore, on
estimate basis penalty is not justified. He has submitted that though
the learned CIT(A) partly confirmed but no finding have been given
that the claim of the assessee was incorrect or false for inviting
penalty. Even, the Tribunal while dismissing the appeal of the
assessee on quantum in ITA No.3551/Ahd/2007 vide order dated 18-
09-2009 did not give any adverse findings against the assessee. On
the other hand, the learned DR relied upon the orders of the
authorities below and submitted that the assessee made a wrong
claim of deduction on account of cash discount; therefore, penalty
was rightly imposed in the matter.4.     We have considered the rival submissions and the material on
record. It is not in dispute that the assessee disclosed all the facts
before the AO at the assessment stage. The AO examined the
valuation of the closing stock and found that the assessee claimed
cash discount which was deducted from the grand total of inventory
of the closing stock. The AO made the addition on estimate basis
which is reduced substantially by the learned CIT(A). The assesseeITA No. 2604/Ahd/2009                                                 4Dhiraj Sons Mega Store Pvt. Ltd. Vs DCIT, Coir-1, Surat

made a claim of cash discount from the closing stock on the basis of
the practice of the business. It is admitted fact that in the assessment
year under appeal the turnover and gross profit rate of the assessee
was substantially higher as compared to the preceding assessment
year. Therefore, there was no reason for the assessee to conceal the
particulars of income. The learned CIT(A) even while deciding the
appeal of the assessee did not find that the claim of the assessee
was incorrect or false. Since all the particulars of income were
disclosed in the return of income and addition is made on estimate
basis, therefore, in our view it may not be a case of concealment of
income. Moreover, on confirming the addition on account of
undervaluation of the stock, the AO shall have to enhance the
opening stock of the next assessment year 2005-06 resulting thereby
there would be no loss to the revenue authority with regard to
taxation with regard to undervaluation of the closing stock.5.     The Hon'ble Supreme Court in the case ofCIT Vs Reliance
Petroproducts Pvt. Ltd., 322 ITR 158 (SC) held that "A glance at the
provisions ofsection 271(1)(c ) of theIncome-tax Act, 1961,
suggest that in order to be covered by it, there has to be
concealment of particulars of the income of the assessee.
Secondly, the assessee must have furnished inaccurate
particulars of his income. The meaning of the word "particulars"
used insection 271(1) (c)would embrace the details of the claim
made. Where no information given in the return is found to be
incorrect or inaccurate, the assessee cannot be held guilty of
furnishing inaccurate particulars.In order to expose theITA No. 2604/Ahd/2009                                                  5Dhiraj Sons Mega Store Pvt. Ltd. Vs DCIT, Coir-1, Surat

assessee to penalty, unless the case is strictly covered by the
provision, the penalty provision cannot be invoked. By no
stretch of imagination can making an incorrect claim tantamount
to furnishing inaccurate particulars. There can be no dispute
that everything would depend upon the return filed by the
assessee, because that is the only document where the
assessee can furnish the particulars of his income. When such
particulars are found to be inaccurate, the liability would arise.
To attract penalty, the details supplied in the return must not be
accurate, not exact or correct, not according to the truth or
erroneous. Where there is no finding that any details supplied by
the assessee in its return are found to be incorrect or erroneous
or false there is no question of inviting the penalty undersection
271(1)( c ). A mere making of a claim which is not sustainable in
law, by itself, will not amount to furnishing inaccurate
particulars regarding the income of the assessee. Such a claim
made in the return cannot amount to furnishing inaccurate
particulars. Decision of the Gujarat High Court affirmed."6.     The Hon'ble Supreme Court in the case of M/s. Rajasthan
Spinning & Weaving Mills 2009 - PIOL - 63 - SC held that "on
every demand penalty is not automatic". Hon'ble Punjab &
Haryana High Court in the case ofCIT Vs Sahabad Co-op. Sugar
Mills Ltd.322 ITR 73 (P&H) held that making of wrong claim is not at
par with concealment or giving of inaccurate information, which may
call for levy of penaltyu/s 271 (1)( c ) of the Act.The Hon'ble Punjab
& Haryana High Court again in the case of CIT Vs SidharthaITA No. 2604/Ahd/2009                                                     6Dhiraj Sons Mega Store Pvt. Ltd. Vs DCIT, Coir-1, Surat

Enterprises 322 ITR 80 (P & H) held that loss suffered on sale of
machinery wrongly taken against profit of business. Assessee on
realization mistake committed by the Counsel accepted the decision
of the AO. No deliberate default. Appellate Authorities justified in
deleting the penaltyu/s 271 (1) (c)of the IT Act.7.      In view of the above discussions, we do not find any
justification in confirming the orders of ht4e authorities below in
levying and confirming the penaltyu/s 271 (1) (c)of the IT Act. In this
view of the matter, we set aside the orders of the authorities below
and cancel the penalty.8.     In the result, the appeal of the assessee is allowed.Order pronounced in the open Court.Sd/-                                   Sd/-
             (G. D. AGARWAL)                       (BHAVNESH SAINI)
             VICE PRESIDENT                        JUDICIAL MEMBER

Lakshmikant/-
Copy of the order forwarded to:
1.  The Appellant
2.  The Respondent
3.  The CIT concerned
4.  The CIT(A) concerned
5.  The DR, ITAT, Ahmedabad
6.  Guard File
                                                          BY ORDER


                                         Dy. Registrar, ITAT, Ahmedabad