2007 (12) TMI 217 - HC - Income Tax

Notional Tax - According to the Revenue the tax effect in this case on a notional basis is about Rs. 47.65 lakhs although the assessee has been assessed at a loss - According to for the Revenue deletion of additions made by the AO will be carried forward to the subsequent years and may reduce the taxable income for those years - Held that - The Commissioner of Income-tax (Appeals) observed that the manner of valuation was in accordance with the method consistently followed by the assessee. It was also found that a decrease in stock of Rs. 1.09 crores was partly due to the sale of finished goods at lower than cost and partly due to diminution in the value of the closing stock. The explanation given by the assessee for making loss on such sales was found by the Commissioner of Income-tax (Appeals) to be reasonable and supported by documentary evidence revenue appeal dismissed.

Summary

Issues:
1. Deletion of addition by the Commissioner of Income-tax and the Tribunal regarding a discrepancy in accounts.
2. Addition of the difference between reduction in value of stock and the sale price.

Analysis:

Issue 1:
The first issue revolves around the deletion of an addition made by the Assessing Officer on account of a discrepancy in accounts between the assessee and M/s Polar Industries Ltd. The Commissioner of Income-tax (Appeals) and the Tribunal both found in favor of the assessee, stating that such discrepancies can arise in normal business dealings. The explanation provided by the assessee was deemed satisfactory, leading to the deletion of the addition. The High Court concurred with this view, stating that the explanation tendered by the assessee was reasonable and upheld the decision of the lower authorities. It was concluded that no substantial question of law arose from this issue.

Issue 2:
The second issue concerns the addition of the difference between the reduction in the value of stock and the sale price. The Commissioner of Income-tax (Appeals) and the Tribunal both supported the assessee's valuation method, which was based on the average sale value of goods during the year. The decrease in stock was attributed to sales at lower than cost and a diminution in the value of closing stock. The explanation provided by the assessee for the losses incurred on such sales was considered reasonable and supported by documentary evidence. The Tribunal highlighted that there was no evidence to suggest that the assessee realized an amount higher than declared in sales invoices. The High Court agreed with the lower authorities, stating that no substantial question of law arose from this issue, as the decision was based on factual findings.

In conclusion, the High Court dismissed the appeal, affirming the decisions of the Commissioner of Income-tax (Appeals) and the Tribunal in favor of the assessee on both issues.