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2011 (8) TMI 1118 - AT - Income TaxAddition made on account of closing stock of natural gas - We are of the view that the AO was bound to follow the directions of the Tribunal furnished for this year in decision dated 22.4.2009, in which it is mentioned that the matter has already been restored to the file of the AO for assessment years 2002-03 to 2004-05. Accordingly, the matter was also restored to the file of the AO for this year. However, in the order for assessment year 2002-03 dated 25.07.2008, a clear finding was given that loss of about 4% of purchases is reasonable subject to verification. Instead of verifying the percentage of loss, the AO reproduced his earlier order. The loss of 3.4% is borne out by audited accounts, which is lower than the average loss of about 4%.
Issues:
1. Quantification of closing stock of natural gas. 2. Whether the reconciliation difference in closing stock should be added to the total income. 3. Compliance with the Tribunal's directions and the reasonableness of the percentage of loss. Issue 1: Quantification of closing stock of natural gas The original assessment under section 143(3) of the Income-tax Act, 1961, resulted in a total income of Rs. 133,68,40,385. The matter regarding the quantification of closing stock of natural gas was sent back to the AO for re-adjudication based on the Tribunal's decision in the assessee's case for assessment years 2002-03 to 2004-05. The AO added a difference in closing stock of natural gas to the total income as the assessee failed to provide details of the gas in pipelines, resulting in the addition of Rs. 6,56,14,607. Issue 2: Addition of reconciliation difference to total income The first appellate authority deleted the addition made by the AO after the assessee provided quantitative details of reconciliation differences for the relevant years. The authority noted that the difference was within acceptable limits and that the AO did not provide any contrary evidence. The AO's disallowance of the reconciliation difference was based on the lack of information regarding the quantity and value of gas in pipelines, despite the natural gas in pipelines being considered part of the closing stock as per Accounting Standards-2. Issue 3: Compliance with Tribunal's directions and reasonableness of loss percentage The Tribunal found that the AO should have followed the directions given in the previous order for assessment year 2002-03, which stated that a loss of about 4% of purchases was reasonable, subject to verification. The AO failed to verify the percentage of loss, even though the audited accounts showed a loss of 3.4%, lower than the accepted 4%. The Tribunal upheld the first appellate authority's decision to delete the addition, as the loss percentage was reasonable and within acceptable limits. In conclusion, the Tribunal dismissed the appeal, stating that there was no error in the first appellate authority's decision to delete the addition of the reconciliation loss to the total income. The Tribunal emphasized the importance of following its directions and verifying the reasonableness of the loss percentage, ultimately upholding the deletion of the addition.
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