2015 (7) TMI 646 - AT - Income Tax

Suppressed value of closing stock - AO noticed that the GP rate decline 6.55% in comparison to last year - CIT(A) deleted the addition - Held that - The assessee has worked out the net realizable value of the closing stock as on 31/03/2010 by taking actual realization up to the date of finalization of balance sheet in the month of August 2010 and in respect of that portion of closing stock as on 31/03/2010 which remained unsold in August 2010 (when the balance sheet was prepared), the same was valued at average rate for the preceding period i.e. from 01/04/2010 to the date of finalisation of balance sheet in the month of August, 2010. We also find that as against the actual sale price realized by the assessee during April 2010 to August 2010, the Assessing Officer has adopted the selling price realized by the assessee as on 02/04/2010 instead of average selling price during April 2010 to August 2010 for working out the net realizable value. This goes to show that the assessee has taken advantage of falling prices to reduce the value of closing stock but the A.O. has correctly valued the closing stock on the basis of market price close to 31.03.2010. Hence, in the facts of the present case, this judgment of Hon ble Apex Court rendered in the case of Chainrup Sampatram vs. CIT (1953 (10) TMI 2 - SUPREME Court) is also not applicable. From this Para of AS 2, it comes out that only those events occurring after Balance Sheet Date are relevant which confirm the conditions existing at the balance Sheet Date. It means that if for the condition of stock on the balance Sheet Date or other factors existing at the balance Sheet Date, lesser prices has been realized in future, it can be said that such fall in price in future is because of conditions existing at the balance Sheet Date and in that situation, such reduced prices can be adopted as price on balance sheet date but in the present case, this is not a claim of the assessee that there was any defect in the goods at balance sheet date or any other factor was existing at the balance sheet date for which, the prices had fallen after 02.04.2010 and hence, this Para of AS 2 is also not applicable in the facts of the present case. In fact, this Para supports our observations in Para 7 above. In view of the above discussion, we hold that the order of Cit (A) on this issue is not sustainable. Hence, we reverse the same and restore the order of the A.O. on this issue. - Decided in favour of revenue. Addition on account of Transportation and installation charge - AO observed that the assessee has not debited charges in the profit and loss account - CIT(A) deleted the part addition - Held that - Addition made by the Assessing Officer was on estimated basis without any evidence on record and the relief allowed by the Assessing Officer is also on estimated basis. This is very relevant to note that that it is claim of the assessee that the supplier of the old plant & machinery has delivered the material to assessee s site free of cost and therefore, the assessee was not required to pay any transportation cost. In spite of this, learned CIT(A) has confirmed the addition of ₹ 50,000/- on the basis that the assessee could not adduce sufficient evidence in support of its claim that the suppliers of old plant & machinery had delivered the material to the assessee s site free of cost. Considering all these facts, we are of the considered opinion that no interference is called for in the order of CIT(A) because he has adopted one estimated figure as against the estimate of the A.O. and we feel that the estimate of CIT (A) is reasonable in the facts of the present case - Decided against revenue.

Summary

Issues Involved:
1. Valuation of closing stock - Suppressed value of closing stock.
2. Addition of transportation and installation charges.
3. Validity of scrutiny assessment initiation.

Valuation of Closing Stock - Suppressed Value:
The appeal involved a dispute over the valuation of closing stock for the assessment year 2010-2011. The Revenue contended that the assessee had suppressed the value of closing stock by using an average sale price of sugar for valuation. The Assessing Officer rejected the assessee's valuation and relied on a judgment concerning overhead expenses. The CIT(A) ruled in favor of the assessee, citing a different judgment. The Tribunal analyzed the applicability of the judgments cited by both parties. It was concluded that the judgments referred to by the Revenue were not relevant to the present case. The Tribunal found that the assessee's valuation method was appropriate and in line with accounting standards. Consequently, the Tribunal reversed the CIT(A)'s decision and upheld the Assessing Officer's valuation of the closing stock based on market price close to the balance sheet date.

Addition of Transportation and Installation Charges:
The second issue pertained to the addition of transportation and installation charges by the Assessing Officer. The Revenue challenged the CIT(A)'s decision to restrict the addition to Rs. 50,000 instead of the estimated Rs. 1,00,000 made by the Assessing Officer. The Tribunal noted that the Assessing Officer's addition was based on estimates without concrete evidence. The CIT(A) had considered the facts of the case and reduced the addition based on reasonableness. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had claimed the supplier delivered the material free of cost, and no evidence supported the transportation charges. Therefore, the Tribunal rejected the Revenue's appeal on this issue.

Validity of Scrutiny Assessment Initiation:
The Cross Objection raised concerns about the validity of the scrutiny assessment initiation. The assessee contested the initiation based on the notice issued under section 143(2), arguing it was not issued on the Assessing Officer's opinion. However, the assessee later withdrew this ground. The Tribunal did not delve into this issue further due to its withdrawal by the assessee.

In conclusion, the Tribunal partly allowed the Revenue's appeal regarding the valuation of closing stock and dismissed the Cross Objection of the assessee. The issues surrounding the suppression of closing stock value and transportation charges were thoroughly analyzed, leading to decisions based on evidence and accounting principles. The Tribunal's detailed analysis and application of relevant legal precedents ensured a fair and reasoned judgment in this tax matter.