2011 (9) TMI 801 - HC - Income Tax

Revision u/s 264 - In the facts of the case the Commissioner under the order impugned has noticed that it was open to the assessee to adopt the method of valuation of the stock, as has been done by the assessee - it has not been found by the appellate authority that the method adopted by the assessee in the present year had not been so followed in the previous years nor there is any mistake in the calculation of the valuation of the closing stock, as done by the assessee - Supreme Court of India in the case of United Commercial Bank v. CIT 1999 -TMI - 5764 - SUPREME Court wherein it was held that it is open to an assessee to adopt any of the method for computation of the value of the stock and interference in such method, adopted by the assessee, can only be made if it is found that the income of the trade cannot be properly deduced therefrom - Decided in favor of the assessee Why the revisional authority did not find it proper to accept the challenge made to the order of the assessing authority - In Dwarka Nath v. ITO 1965 -TMI - 49313 - SUPREME Court , while dealing with the question whether the order of Commissioner under section 33A of the Indian Income-tax Act, 1922, in pari materia with section 264 of the Act, is judicial or quasi-judicial, the Supreme Court observed that prima facie, the jurisdiction conferred under the section is a judicial one - Decided in favor of the assessee by way of remand to revisional authrity

Summary

Issues:
1. Valuation of closing stock method adopted by the assessee challenged by the Commissioner of Income Tax.
2. Lack of reasons recorded by the revisional authority for not accepting the challenge made to the assessing authority's order.
3. No challenge to the findings recorded on the third issue.

Issue 1: Valuation of closing stock method adopted by the assessee challenged by the Commissioner of Income Tax:
The writ petition challenged the order of the Commissioner of Income Tax-I, Kanpur, dismissing the revision application under Section 264 of the Income Tax Act filed by the assessee. The counsel for the assessee contended that the method of valuing stock-in-trade at cost price or market price is at the discretion of the assessee, as established by previous court decisions. The Commissioner acknowledged the assessee's right to choose the valuation method but disagreed with the method used by the assessee for valuing closing stocks. The Commissioner suggested a different method of valuation, arguing that the method adopted by the assessee did not reflect the correct valuation of closing stocks. The petitioner argued that the method had been consistently followed in previous years and accepted by tax authorities, emphasizing that there was no mistake in the calculation of the closing stock valuation. The Court agreed that the assessee had not erred in valuing the closing stock and set aside the order of the appellate authority.

Issue 2: Lack of reasons recorded by the revisional authority for not accepting the challenge made to the assessing authority's order:
The Court noted that the revisional authority failed to provide reasons for not accepting the challenge to the assessing authority's order. It emphasized that reasons are crucial in connecting facts to findings and without them, the order cannot be legally sustained. Citing a Delhi High Court case, the Court highlighted that the revisional power must be exercised judiciously with an objective consideration of facts and circumstances. As per the court's observation, the revisional authority must record reasons for disagreeing with contentions raised by the assessee challenging the assessing authority's findings. Due to the absence of reasons, the decision on the second issue was deemed illegal, and the order of the appellate authority on both issues was set aside for the revisional authority to decide afresh.

Issue 3: No challenge to the findings recorded on the third issue:
The Court affirmed that there was no challenge to the findings recorded on the third issue, thereby upholding the order concerning this aspect. The writ petition was partly allowed, setting aside the orders on the first and second issues for reconsideration by the revisional authority through a reasoned speaking order.

This detailed analysis of the judgment highlights the challenges faced by the assessee regarding the valuation method of closing stock, the lack of reasons recorded by the revisional authority, and the affirmation of findings on the third issue. The Court's decision emphasizes the importance of consistency, legal reasoning, and adherence to established principles in tax matters.