2016 (2) TMI 1051 - HC - Income Tax

Wrong valuation of the closing stock - method of valuation of closing stock - return subsequently revised under section 139(5) - Held that - The closing stock included rice, rice bran, phak, husk and bardana and the assessee revised the value of rice husk, rice bran and bardana. The assessee took a plea that since the valuation of certain finished goods was wrongly adopted at higher rates, their realizable value needed to be rectified. The assessee in the revised return filed under section 139(5) of the Act also had not depicted the true and correct value of the finished goods. Accordingly, the Assessing Officer assessed the income of the assessee at ₹ 9,38,600 by making an addition of ₹ 8,52,513. On appeal by the assessee, the Commissioner of Income-tax (Appeals) restricted the said addition of ₹ 8,52,513 to ₹ 14,344. On further appeal by the Revenue, the Tribunal sustained the addition of ₹ 8,52,513 made by the Assessing Officer by holding that the said addition was made on the basis of sale instances and not on hypothetical basis. It was further held by the Tribunal that nothing was produced by the assessee to show the basis of wrong valuation. The assessee itself adopted the value of rice at ₹ 1050 per quintal and no reason had been given for revaluing the same at ₹ 950 per quintal. The stock had to be valued either at the market rate or at the cost price but the assessee had adopted a different view which was not realistic. Further, for husk, the original value was taken at ₹ 55 per quintal which was revised to ₹ 48 per quintal but in the case of Pooja Fats Pvt. Ltd., a sister concern of the assessee, the closing stock of husk was valued at ₹ 60 per quintal. For rice bran, the value of rice was worked at ₹ 328 per quintal which was revised to ₹ 280 per quintal whereas during the relevant financial year, it was at the rate of ₹ 295 per quintal. - Decided against assessee

Summary

Issues:
1. Appeal against the order of the Income-tax Appellate Tribunal regarding the valuation of closing stock for the assessment year 1998-99.
2. Justification of the Tribunal's decision to sustain the addition of Rs. 8,52,513 made by the Assessing Officer.
3. Assessment of income and the method of valuation followed by the assessee.
4. Discrepancies in the valuation of closing stock and the basis for revaluation.
5. Arguments presented by both parties and relevant case laws cited.

Issue 1:
The appellant filed an appeal under section 260A of the Income-tax Act against the order of the Income-tax Appellate Tribunal regarding the valuation of closing stock for the assessment year 1998-99.

Issue 2:
The Tribunal's decision to sustain the addition of Rs. 8,52,513 made by the Assessing Officer was justified based on the sale instances and the lack of evidence provided by the assessee to support the revaluation of stock. The Tribunal found no mistake in the Assessing Officer's conclusion, which was based on a scientific method supported by authenticated rates in the original return.

Issue 3:
The assessee, running a rice sheller and dealing in various items, revised the income in the return filed under section 139(5) of the Act. The Assessing Officer rejected the revised valuation of closing stock and assessed the income at Rs. 9,38,597, making an addition of Rs. 8,52,513.

Issue 4:
The closing stock valuation included rice, rice bran, husk, and bardana, with discrepancies in the valuation of finished goods. The assessee's method of valuation was to take raw material at cost price and finished goods at realizable value. However, the Tribunal found the assessee's valuation method unrealistic and not in line with market or cost price valuation principles.

Issue 5:
The appellant argued that the Tribunal erred in not allowing the revision of the income return under section 139(5) and that the Commissioner of Income-tax (Appeals) had correctly restricted the addition. Various case laws were cited to support the appellant's contentions, but the Tribunal's findings were upheld, and no benefit could be derived from the cited judgments.

In conclusion, the Tribunal's decision to sustain the addition made by the Assessing Officer was deemed correct, and there was no error in the approach of the authorities. The substantial questions of law raised by the appellant were answered against them, leading to the dismissal of the appeal.