2021 (1) TMI 642 - AT - Income Tax

Addition on account of under valuation of closing stock - AO exclusively relied on the stock valuation made by the survey team on the date of survey - HELD THAT - Assessee is engaged in the business of manufacturing and trading in bricks. Action u/s. 133A of the Act was conducted in the business premises of the assessee on 20th January, 2015. The survey team has adopted rough method through guess work, to estimate virtually the closing stock of the assessee, as on the date of survey. The quantity of kachha and pucca bricks cannot be physically counted, when there is no such expertise in the members of the survey team and when there is no required manpower. The exact quantum of earth and coal was not available. Above all the stock valuation was done by the survey team on 20.01.2015 and this is extrapolated to value stock as on 31.03.2010. Such an exercise is arbitrary and erroneous. When the assessee is maintaining proper books of account and when the AO has not pointed out any defects in these books and when he did not reject them, it is not open for the AO to ignore these books of account and adopt the value of stock as estimated by the survey team. Such an addition cannot be upheld. Thus we delete the same. Eligible jurisdiction of AO - whether such an assessment order is valid in the eyes of law when the jurisdictional assessing officer has not issued a notice u/s. 143(2)? - HELD THAT - This issue is no more res integra. The Lucknow Bench of the Tribunal in the case of Arti Securities Services Ltd. 2020 (11) TMI 310 - ITAT LUCKNOW and K.A. Wires Ltd. 2020 (3) TMI 418 - ITAT KOLKATA have adjudicated, a similar issue, in favour of the assessee. Respectfully follow the same we hold that the assessment order is bad in law.

Summary

Issues:
1. Valuation of closing stock.
2. Jurisdiction of assessing officer.

Valuation of Closing Stock:
The appeal was against the Commissioner of Income Tax-(A)-6, Kolkata's order regarding the assessment year 2015-16. The assessee, a partnership firm in the brick manufacturing business, faced additions to its income due to under-valuation of closing stock and disallowance of certain expenses. The CIT(A) upheld the addition related to under-valuation but deleted the disallowance of expenses. The assessee challenged the decision, arguing that the valuation by the survey team was based on rough estimates and should not have been relied upon. The appellant contended that the stock should have been valued as per the books of account since no defects were found in them. The Tribunal agreed with the appellant, stating that the survey team's method of valuation was arbitrary and erroneous, especially considering the lack of expertise and manpower for accurate counting. As the books of account were accepted and not rejected, the Tribunal ruled in favor of the assessee and deleted the addition.

Jurisdiction of Assessing Officer:
The additional ground raised by the assessee questioned the jurisdiction of the assessing officer who issued the notice u/s. 143(2) of the Income Tax Act, 1961. The assessee argued that the assessing officer did not have jurisdiction over the case, as it belonged to a different circle. The assessing officer from a different circle completed the assessment without issuing a notice u/s. 143(2) of the Act. The Tribunal referred to previous decisions and held that the assessment order was invalid in law due to the lack of jurisdictional authority issuing the notice. Citing judgments from the Lucknow and Kolkata benches of the Tribunal, the Tribunal ruled in favor of the assessee, declaring the assessment order as bad in law.

In conclusion, the Tribunal allowed the appeal of the assessee, deleting the addition related to the valuation of closing stock and ruling the assessment order as invalid due to jurisdictional issues.