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2014 (2) TMI 320 - HC - Income TaxUnder valuation of closing stock - Held that - Relying upon the decision in CIT v. Fazilka Cooperative Sugar Mills Limited 2001 (10) TMI 50 - PUNJAB AND HARYANA High Court - The company M/s Amritsar Rayon & Silk Mills Pvt. Limited filed a suit against the assessee on 11.3.2006 which had an adverse impact on the market value of the impugned asset. The revenue itself did not challenge the opening stock of the impugned asset in the subsequent assessment year, while passing the assessment order under Section 143(3) and accepted the same as contended by the learned AR - Decided against Revenue.
Issues:
1. Valuation of closing stock of land for assessment year 2006-07. 2. Validity of deletion of addition made by Assessing Officer. 3. Impact of legal dispute on valuation of closing stock. 4. Method of valuation of closing stock. Valuation of Closing Stock of Land for Assessment Year 2006-07: The appeal was filed by the revenue under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Chandigarh Bench, regarding the addition of Rs. 75,00,000 made by the Assessing Officer on account of under valuation of closing stock of land for the assessment year 2006-07. The Commissioner of Income Tax [CIT] set aside the initial assessment, and upon re-assessment, the addition was made. The assessee argued that the valuation was based on legal disputes with M/s Amritsar Royon and Silk Mill Pvt. Limited, leading to a reduction in the closing stock value. The CIT(A) and Tribunal upheld the deletion of the addition, emphasizing the impact of the legal dispute on the valuation. Validity of Deletion of Addition Made by Assessing Officer: The Assessing Officer had added Rs. 75,00,000 on account of under valuation of closing stock of land, which was subsequently deleted by the CIT(A) and Tribunal. The assessee provided detailed explanations regarding the legal dispute with M/s Amritsar Rayon & Silk Mills (P) Limited, resulting in a decrease in land value. The Tribunal affirmed the findings, stating that the suit filed by the company had an adverse impact on the market value of the asset, and the revenue did not challenge the opening stock in the subsequent assessment year. The reduction in valuation was justified, and no loss to the revenue was caused. Impact of Legal Dispute on Valuation of Closing Stock: The legal dispute with M/s Amritsar Rayon & Silk Mills (P) Limited significantly impacted the valuation of the closing stock of land for the assessment year 2006-07. The assessee faced challenges in developing the colony due to the disputed land, resulting in a reduction in the land's value. The CIT(A) and Tribunal recognized the adverse effects of the legal dispute on the market value of the asset, leading to the deletion of the addition made by the Assessing Officer. Method of Valuation of Closing Stock: The Assessing Officer contended that the assessee changed the method of valuing closing stock, which was refuted by the assessee. The assessee consistently followed the method of valuing closing stock as Cost or Market price whichever is less. The Tribunal upheld the assessee's valuation method, stating that there was no change in the valuation method as alleged by the Assessing Officer. The deletion of the addition was supported by the Tribunal based on the detailed explanations provided by the assessee regarding the legal dispute and its impact on the land's value. In conclusion, the High Court dismissed the revenue's appeal, upholding the deletion of the addition made by the Assessing Officer. The legal dispute with M/s Amritsar Rayon & Silk Mills (P) Limited had a significant impact on the valuation of the closing stock of land for the assessment year 2006-07, justifying the reduction in value by the assessee. The method of valuing closing stock was consistent, and no loss to the revenue was caused by the valuation adjustments.
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