2013 (4) TMI 141 - HC - Income Tax

Inclusion of Closing stock in the hands of subsidiary company and / or holding company - held that - closing stock of the subsidiary company is shown as opening stock of the holding company, which is a strange principle of accounting by both the companies. We felt that the value of the stock should be considered for assessment only at the hands of one company. When the appeal of the holding company was heard, learned Senior counsel appearing for the assessee after taking instructions from the subsidiary company submitted that in the Income Tax Appeal that was pending against the assessment of closing stock of the subsidiary company, they will not press that ground thereby accepting the closing stock of that company to be treated as opening stock for assessment. In spite of the above judgment delivered based on undertaking given by the assessee in this Court the assessee did not inform the Tribunal about the above judgment and the matter was argued on merit, which led to impugned orders issued by the Tribunal. The consequence of this conduct of the assessee is that the Department was disabled from contesting the Tribunal s order at the hands of the holding company and the Department s appeal was dismissed. Matter remanded back to tribunal.

Summary

Issues:
1. Objection raised by the Revenue regarding an undertaking given by the assessee in a previous appeal.
2. Dispute over the assessment of closing stock between a holding company and its subsidiary.
3. Failure of the assessee to inform the Tribunal about a judgment and subsequent argument on merit.
4. Department's failure to bring the judgment to the notice of the Tribunal.
5. Imposition of costs on the assessee for their conduct.
6. Decision to set aside the Tribunal's orders and restore the matter to the Assessing Officer for re-consideration.

Analysis:

1. The Revenue raised an objection regarding the assessee pressing a ground before the Tribunal contrary to an undertaking given in a previous appeal. The dispute arose in the assessment of a holding company and its subsidiary concerning the treatment of closing stock. The holding company declared an opening stock of the same amount as the closing stock of the subsidiary, which was deemed a strange accounting principle by both companies. The Tribunal's orders were issued without consideration of the judgment based on the undertaking given by the assessee in the previous Court, leading to the Department being disabled from contesting the Tribunal's order.

2. The Court noted that the assessee failed to inform the Tribunal about the judgment and the matter was argued on merit, resulting in the dismissal of the Department's appeal. Despite deprecating the attitude of the assessee and considering imposing heavy costs, the Court found the Department equally indifferent for not bringing the judgment to the Tribunal's notice. Consequently, the Court decided not to penalize the assessee alone and allowed the appeals by setting aside the Tribunal's orders.

3. The Court directed the restoration of the matter to the Assessing Officer for re-consideration while revising the orders of assessment issued pursuant to the judgment in the previous case. Since the Tribunal's decision on the determination of gross profit was affected by the judgment, the Assessing Officer was tasked with reconsidering the matter afresh. The Court emphasized that if the appellant had grievances, they were free to challenge the reassessment in another round of appeal.

4. In conclusion, the Income Tax Appeals were allowed by the Court, highlighting the importance of adhering to undertakings given in previous appeals and ensuring proper communication between parties and the Tribunal to avoid procedural irregularities and enable fair consideration of all relevant factors in tax assessments.