2007 (11) TMI 631 - HC - Income Tax

Summary

Issues involved: Valuation of closing stock for assessment year 1989-90, legality of addition of profits due to change in valuation method, interpretation of resolution passed by the Board of Directors, consideration of fluctuation in sugar prices, application of principles of law in evaluating stock-in-trade.

In this case, the High Court of Karnataka considered a reference made by the tribunal regarding the legality of upholding the order of the CIT (A) deleting the addition of Rs. 178.33 lakhs representing profits due to a change in the method of valuation of closing stock for the assessment year 1989-90. The assessee, a sugar manufacturer, had evaluated the closing stock by adopting the actual cost price, resulting in a reduction of Rs. 178 lakhs in profit. The assessing officer made an addition of Rs. 178 lakhs, which was later deleted by the first Appellate Commissioner due to fluctuation in sugar prices during the relevant period. The tribunal concurred with this decision, leading to the reference before the High Court.

During the hearing, it was noted that the Board of Directors of the assessing company had passed a resolution stating that the closing stock of sugar should be valued at cost price or market price, whichever is lower. However, it was observed that the assessee did not disclose a true picture of its profits and gains before the assessing officer when adopting the cost price for stock-in-trade valuation. The First Appellate Commissioner and the tribunal did not consider settled principles of law related to the evaluation of stock-in-trade, leading the High Court to opine that a remand to the assessing officer was necessary for further consideration.

As a result, the High Court set aside the orders passed by the authorities below and remanded the matter to the assessing officer for re-consideration. The assessee was granted the liberty to produce additional material, as was the revenue. Additionally, a copy of the order was to be sent to the Tribunal as required under section 269 of the Act.