2017 (12) TMI 413 - HC - Income Tax

Valuation of closing stock - methods of accounting - Held that - Tribunal has again not committed any error in rejecting the foundation of valuation made by the assessing officer. In so far as it has noted that the total sale turnover of the residential units made by the assessee was irrelevant inasmuch as the sales of different units had been made in different years and the same could not be clubbed together to apply the gross profit rate thereto to infer the deemed cost of closing stock. Here, we find that besides the foundation being non-existent (as the Tribunal has found), even the method adopted by the assessing officer is doubtful if not plainly erroneous. In any case, valuation of closing stock being an issue of fact that has a cascading effect in different years, we find that the Tribunal has accepted the valuation of closing stock upon due appraisal of evidence inasmuch as it has found that the cost claimed by the assessee was duly verified from vouchers and the assessee s same method of accounting had found acceptance during assessment proceedings for the Assessment Years 2005-06, 2006-07 and 2007-08 in proceedings under Section 143(3) of the Act. Therefore, the same does not suffer from any infirmity. The finding recorded by the Tribunal is a pure finding of fact recorded on the basis of material and evidence on record. It does not suffer from any infirmity. Question nos. 1 and 6 are answered in the affirmative i.e. in favour of the assessee and against the revenue. Addition made under Section 68 - Held that - Once registered sale deeds had been executed by the assessee and the cash credit entries found standing in the books of account of the assessee during the previous year relevant to the Assessment Year 2005-06 had been adjusted against the same, there remained no further doubt as to the identity of the persons who deposited the money with the assessee in the previous year relevant to Assessment Year 2005-06. The fact that such person did not receive the letter or did not appear in person during the inquiry made by the assessing officer at the original assessment stage gets overshadowed and looses its relevance in absence of any evidence to doubt the genuineness or correctness of registered sale deeds executed by the assessee. Even in respect of amount of ₹ 8,00,000/- the second remand report as extracted by the CIT (Appeals) clearly mentioned that Aashiq Ali Siddiqui had got the sale deed executed in his favour wherein an amount of ₹ 8,00,000/- had been adjusted. Thus, the finding of the Tribunal on this issue is also a concluded finding of fact recorded on the basis of material and evidence on record and warrants no interference. Questions of law are answered in favour of the assessee and against the revenue.

Summary

Issues:
1. Valuation of closing stock under Section 145(3)
2. Addition made under Section 68 of the Income Tax Act, 1961

Valuation of Closing Stock (Section 145(3)):
The appeal was filed by the revenue against the order of the Income Tax Appellate Tribunal, Agra Bench, Agra for the Assessment Year 2005-06. The Tribunal decided the revenue's appeal and the assessee's appeal, dismissing the former and allowing the latter. The questions of law raised included the justification of invoking Section 145(3) by the assessing officer, interpretation of Section 68, and deletion of additions made by the AO. The Tribunal found that the cost of construction material purchased by the assessee was supported by vouchers and had been accepted in previous assessments. The Tribunal rejected the re-computation of valuation of closing stock by the assessing authority and deleted the addition to the closing stock of ?62.95 lakh. The Tribunal's decision was based on detailed reasoning and evidence on record.

Addition under Section 68:
The assessee was engaged in construction and sale of residential flats and had filed a return of income for the Assessment Year 2005-06. The assessing officer made additions under Section 68 for unexplained cash credit. The CIT (Appeals) partly allowed the appeal, restricting the addition to ?1.70 lakh. The Tribunal, after reviewing two remand reports, found that the entire cash credit was duly explained and reconciled against sale considerations. The Tribunal upheld the findings, stating that the identity of the persons behind the cash credits was established through registered sale deeds. The Tribunal's decision was based on factual evidence and material on record.

Analysis:
The Tribunal's decision on the valuation of closing stock was upheld as it was supported by documentary evidence and consistent accounting methods followed by the assessee in previous assessments. The Tribunal rightly rejected the assessing officer's valuation method, which lacked a reliable basis. Regarding the additions under Section 68, the Tribunal's findings were based on reconciled cash credits against sale deeds, establishing the genuineness of the transactions. The Tribunal's conclusions were factual and supported by evidence, warranting no interference. The questions of law were answered in favor of the assessee, and the appeal was dismissed for lacking merit.