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2021 (5) TMI 398 - AT - Income TaxRevision u/s 263 - Enhancement of valuation of closing stock - HELD THAT - CIT has not disturbed or disputed the method of valuation adopted by the assessee i.e. FIFO method but the computation made by the assessee was examined and found to be incorrect because only by including 4th bill to the details of three bills submitted by the assessed, it was observed that after inclusion of 4th bill, of the same period/date, the valuation of closing stock is enhanced to ₹ 2134 per MT instead of 1795 per MT as adopted by the assessee. On being asked by the bench, assessee could not point out any defect or discrepancy in the recomputation made by Pr. CIT for computation of closing stock by adopting FIFO method. As we have already observed that there is no enquiry by the AO on this issue in the assessment order, therefore, in our considered view, the Ld. Pr. CIT was correct in holding the assessment as erroneous and prejudicial to the interest of the Revenue and by directing the AO to modify the assessment order enhancing the addition - Appeal of the assessee is dismissed.
Issues Involved:
1. Justification of invoking jurisdiction under Section 263 of the Income Tax Act. 2. Enhancement of valuation of closing stock by ?15,53,849/-. Issue-wise Detailed Analysis: 1. Justification of invoking jurisdiction under Section 263 of the Income Tax Act: The appeal was filed by the assessee against the order of the Principal Commissioner of Income Tax (Pr. CIT), Cuttack, dated 29.3.2019, under Section 263 of the Income Tax Act for the assessment year 2014-15. The assessee contended that the Pr. CIT was not justified in invoking jurisdiction under Section 263 to modify the assessment order passed under Section 143(3) on 23.11.2016. The Pr. CIT issued a show cause notice on 4.12.2018, highlighting issues in the valuation of closing stock and the allowance of claim of shortage of iron ore. The Pr. CIT observed that the Assessing Officer (AO) had not considered the allowance of the claim of shortage of iron ore of 3205 MTs and the valuation of closing stock of iron ores adopting the FIFO method. The Pr. CIT found that the AO had not made any enquiry on these issues, which was a clear case of no enquiry of a glaring issue that goes to the root of the matter. The Pr. CIT held that the assessment order was erroneous and prejudicial to the interest of the revenue. The Tribunal, after hearing the rival arguments and perusing the relevant materials, agreed with the Pr. CIT’s observation that the AO had failed to make adequate enquiry regarding the valuation of closing stock, which was a requirement. The Tribunal held that the AO’s failure to apply the required legislative requirements as an investigator and adjudicator justified the Pr. CIT’s invocation of jurisdiction under Section 263. 2. Enhancement of valuation of closing stock by ?15,53,849/-: The Pr. CIT noted that the assessee had shown an inventory of iron ore valued at ?82,44,039/- at the end of the year, but the tax auditor had reported that the inventory was not physically verified, and the company had not maintained any record for wastages/losses. The Pr. CIT observed that the closing stock was undervalued by ?1,98,29,357/- and should have been valued at ?2,80,73,396/- based on the FIFO method at actual cost. The assessee argued that the valuation method followed was consistent and proper records were maintained. The assessee also contended that the Pr. CIT’s observation regarding the transportation cost and the inclusion of a bill from OMC Limited was incorrect. However, the Tribunal found that the Pr. CIT had not disturbed the FIFO method of valuation but had recomputed the cost per MT of iron ore, including all relevant costs, and found the valuation to be ?2134 per MT instead of ?1795 per MT as computed by the assessee. The Tribunal noted that the AO had not made any enquiry regarding the valuation of closing stock in the assessment order, and thus, the Pr. CIT was correct in holding the assessment as erroneous and prejudicial to the interest of the revenue. The Tribunal concluded that the Pr. CIT’s direction to modify the assessment order by enhancing the valuation of closing stock by ?15,53,849/- was justified. The appeal of the assessee was dismissed, and the order pronounced on 10/5/2021 upheld the Pr. CIT’s decision.
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