2018 (6) TMI 29 - AT - Income Tax

Undervaluation of the closing stock of land - change in method of valuation - whether the value of land under litigation/encroachment cannot be adopted at Nil? - Held that - Since the land is under encroachment and litigation it cannot be valued at the cost or prevailing market price, rather its value would be very less due to defects and deficiency of not available to the assessee for immediate use - also it cannot be valued at nil - thus value is to be determined on the basis of the actual status in each case and it cannot be valued applying a standard para-meter - hence the issue is set aside to the record of the AO for fresh adjudication as relying of assessee s own case 2011 (6) TMI 954 - ITAT JAIPUR - Assessee appeal allowed for statistical purpose.

Summary

Issues:
Challenge to addition of ?10,42,85,000 on account of under valuation of closing stock of land due to litigation and encroachment.

Analysis:
The appeal was against the CIT(A)'s order confirming the addition of ?10,42,85,000 on the closing stock of land due to alleged undervaluation. The assessee valued the land at nil due to ongoing litigation and encroachment. The assessee's argument was based on the principle of prudence in accounting, stating that the land was not available for immediate use, hence valued at nil. The assessee contended that once the land is free from encroachment, it is offered for tax. The Assessing Officer (AO) and the CIT(A) did not accept the assessee's method of valuation, leading to the appeal.

The assessee's method of valuing the closing stock was consistent with treating the land under encroachment and litigation at nil value. The assessee highlighted instances where the land was not readily available for industrial development due to being used as a cremation ground. The Departmental Representative (DR) supported the lower authorities' decision, citing similar cases previously considered by the Tribunal.

The Tribunal noted that while land under encroachment and litigation cannot be valued at market price, it cannot be valued at nil either. The valuation should be based on the actual status of each piece of land. Referring to previous decisions in the assessee's case, the Tribunal set aside the issue for the AO to conduct proper verification and adjudication. The Tribunal emphasized the need for the assessee to provide all relevant details regarding the status of each piece of land under encroachment or litigation for accurate valuation.

In conclusion, the Tribunal allowed the appeal for statistical purposes, directing the AO to reevaluate the issue based on the directions given in previous decisions and considering the actual status of the land under encroachment and litigation.