2014 (1) TMI 894 - AT - Income Tax

Revision u/s 263 of the Act - Wrong set off of short term capital loss against business income Held that - If in a given year, the mistake committed by the Assessing Officer is such which results into the reduction of the total income, the assessment order would be called as erroneous and prejudicial to the interest of the revenue notwithstanding the fact that in the subsequent years the effect of the mistake is neutralized - It is each year as a separate unit which has to be considered for the purposes of section 263 for examining as to whether or not the assessment order is erroneous and prejudicial to the interest of the Revenue Revision is justified. Disallowance made u/s 14A of the Act Held that - The assessee did earn exempt income but did not offer any disallowance u/s 14A - Even if the assessee made investment in securities out of own funds, the disallowance on account of other expenses was called for u/s 14A - The Assessing Officer did not consider the application of section 14A As held in Godrej & Boyce Ltd. Mfg. Co. v. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT disallowance is required to be made on some reasonable basis under the circumstances which are prevailing Revision in justified. TDS and income reconciliation not done - The Assessing Officer, while giving effect to the order u/s 263, did not make any addition on this score Thus, no grievance can be said to have been resulted to the assessee by reason of the restoration of this issue by the learned CIT to the A.O. Valuation of closing stock Held that - The assessee did not follow the prescription of section 145A as per which the valuation of inventory is required to be done in inclusive manner but, the assessee valued its inventory of raw material on exclusive basis by not including the amount of Cenvat as decided in CIT Vs. Mahalaxmi Glass Works Pvt. Ltd. 2009 (4) TMI 182 - BOMBAY HIGH COURT where in the closing stock unutilized Modvat credit is adjusted, similar adjustment should be made to the opening stock also - Nowhere it has been held that despite the mandate of section 145A, the stock should be valued as per exclusive method - the assessment order accepting the same cannot be held to be valid. Reconciliation of Purchase and sale of investment Held that - The Assessing Officer u/s 143(3) read with section 263, has accepted the assessee s contention on this point and did not make any addition - there can be no reason on the part of the assessee to assail this issue further Decided partly in favour of Assessee.

Summary

Issues Involved:
1. Time-barred appeal with reasons for delay.
2. Seven issues raised by CIT under section 263.
3. Short term capital loss set off against business income.
4. Disallowance under section 14A.
5. TDS and income reconciliation.
6. Valuation of closing stock.
7. Reconciliation of purchase and sale of investment.

Detailed Analysis:

1. The appeal was time-barred by one day, but the delay was condoned as genuine. The appeal was against an order passed by the Commissioner of Income-tax under section 263 for the assessment year 2005-2006.

2. The CIT raised seven issues under section 263, including short term capital loss set off against business income, disallowance under section 14A, TDS and income reconciliation, valuation of closing stock, and reconciliation of purchase and sale of investment.

3. The Tribunal found that setting off short term capital loss against business income was erroneous and prejudicial to the interest of revenue for the specific assessment year. The mistake in one year cannot be neutralized by future years, justifying the CIT's direction to revise the assessment order.

4. The CIT directed a disallowance under section 14A despite the assessee's argument. The Tribunal upheld the CIT's decision, emphasizing that even if investments were made from own funds, disallowance on "other expenses" was warranted as per section 14A.

5. The issue of TDS and income reconciliation was raised, but since no addition was made by the Assessing Officer after the CIT's direction, the Tribunal found no grievance to the assessee, thereby upholding the decision.

6. Regarding the valuation of closing stock, the Tribunal agreed with the CIT that the value should include the Cenvat amount. The assessee's argument based on a Tribunal decision was rejected, and the Tribunal upheld the CIT's direction.

7. The last issue regarding the reconciliation of purchase and sale of investment was resolved in favor of the assessee as no addition was made by the Assessing Officer, leading to the partial allowance of the appeal.

This comprehensive analysis of the judgment highlights the key issues raised, the arguments presented, and the Tribunal's decisions on each matter, ensuring a detailed understanding of the legal aspects involved in the case.