2022 (7) TMI 437 - AT - Income Tax

Additions on recasted value of closing stock - CIT(A) allowing the claim of the assessee that it had correctly valued the closing stock - whether CIT(A) failed to appreciate that value determined by the AO in respect of value of closing stock was based on facts and as per accounting principles? - HELD THAT - CIT(A) has deleted the addition on the basis that the same was considered in the re-casted profit and loss account of earlier assessment year i.e., AY 2011-12 and hence he deleted the addition. We find no infirmity in the order of CIT(A) but in case the addition is deleted in AY 2011-12 and that re-casted profit and loss on account of valuation of closing stock is made and that addition is deleted on same reasoning, that this year the issue has to be dealt with on merits. In view of the above, we remand this matter back to the file of the AO for verification whether this addition is already considered in AY 2011-12 while making addition by the AO at Rs. 16,52,72,766/-. In case that addition is deleted on merits, the AO will verify and accordingly decide the issue afresh after confronting to the assessee. This issue of the Revenue appeal is allowed for statistical purposes. Addition on notional interest on interest bearing funds advanced for non-business purposes interest free - assessee has not explained any commercial expediency for giving interest free loans - CIT-A deleted the addition - HELD THAT - We noted that the Revenue now before us could not controvert the above facts situation that there are funds available with both interest free in making these interest bearing advances and few there are opening balance also. Once interest free funds available with the assessee, which is more than the interest free advances, no disallowance can be made by resorting the provision of section 36(1)(iii) of the Act. We noted no infirmity in the order of CIT(A) and hence this issue of Revenue appeal is dismissed. Validity of assessment as beyond the limitation period prescribed vide sec. 153 - HELD THAT - We noted that the assessment order was framed vide order dated 31.03.2015 and passed within time limit i.e., 31.03.2015, but it was served on the assessee only on 13.04.2015. The limitation expires on 31.03.2015. The assessment order passed was within the limitation and accordingly, we dismiss this ground of appeal.

Summary

Issues Involved:

1. Deletion of additions made by AO by adding the recasted value of closing stock.
2. Deletion of addition by CIT(A) on notional interest of Rs. 3,38,44,134/-.
3. Confirmation of the assessment order despite the claim that it was barred by limitation.

Issue-wise Detailed Analysis:

1. Deletion of Additions Made by AO by Adding the Recasted Value of Closing Stock:

The Revenue challenged the CIT(A)'s decision to delete the additions made by the AO regarding the recasted value of closing stock. The AO had recomputed the income from construction and sale of property, considering an area of 64,978 sq.ft. as opening balance and computed the net profit at Rs. 6,14,13,736/-. The CIT(A) deleted this addition, noting that the same amount was already considered in the financial year 2010-11 (AY 2011-12) and the gross profit was worked out at Rs. 13,79,91,789/-. The CIT(A) referenced a previous order (ITA 1706/13-14) where a similar addition was deleted, concluding that the AO's approach was not logically tenable or correct from an accounting standpoint. The Tribunal found no infirmity in the CIT(A)'s order but remanded the matter back to the AO to verify if the addition was already considered in AY 2011-12. If the addition was deleted on merits in that year, the AO should decide the issue afresh after confronting the assessee.

2. Deletion of Addition by CIT(A) on Notional Interest of Rs. 3,38,44,134/-:

The AO disallowed interest expenses u/s. 36(1)(iii) of the Act, arguing that the assessee had obtained short-term loans at 24% interest and advanced funds to related parties interest-free. The CIT(A) deleted the addition, noting that the assessee had sufficient interest-free funds amounting to Rs. 10,54,40,323/-, which were more than the interest-free advances given. The CIT(A) emphasized that the AO failed to establish that interest-bearing funds were diverted for non-business purposes. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue could not controvert the facts that the interest-free funds available were more than the interest-free advances, and thus, no disallowance could be made under section 36(1)(iii) of the Act.

3. Confirmation of the Assessment Order Despite the Claim that it was Barred by Limitation:

The assessee argued that the assessment order was ab-initio void as it was passed beyond the limitation period prescribed under section 153 of the I.T. Act, 1961. The assessment order was framed on 31.03.2015 but served on the assessee on 13.04.2015. The Tribunal noted that the assessment order was passed within the limitation period, i.e., on 31.03.2015, and thus, dismissed this ground of appeal.

Conclusion:

- The appeal filed by the Revenue was allowed for statistical purposes, with the issue of recasted value of closing stock remanded back to the AO for verification.
- The appeal filed by the assessee was dismissed, confirming that the assessment order was within the limitation period.