2023 (8) TMI 280 - AT - Income Tax

Addition on account of valuation of stock - assessee being resident corporate assessee is stated to be engaged in trading of cloth and job work - AO alleged that the assessee reflected low value of closing stock - acceptability of closing stock declared by the assessee and accepted by the Commercial Tax Department - HELD THAT - As assessee has maintained proper books of accounts and the same are subjected to Tax Audit. No infirmity has been pointed out by Ld. AO in the physical stock as maintained by the assessee. The assessee has valued the stock on the basis of net realizable value. The assessee s submissions were that there was damage to the stock due to heavy rains and floods. It could also be seen that the assessee is registered with commercial tax department and filing its sales tax returns. Apparently, the trading results have been accepted by commercial department and there is no adverse material on record, in this regard. In such a case, shortage of stock as mathematically computed by AO could not be upheld. The decision of CIT vs. Anandha Metal Corp 2004 (7) TMI 49 - MADRAS HIGH COURT supports the case of the assessee wherein it was held that unless the competent authority under the Sales Tax Act differs with the closing stock of the assessee, the return accepted by the Commercial Tax Department is binding on the income-tax authorities. AO has no power to scrutinize the return submitted by the assessee to the commercial tax department which has been accepted. AO did not have any jurisdiction to go beyond the value of the closing stock declared by the assessee and accepted by the Commercial Tax Department. We find that similar fact exists in the present case. Therefore, following the same, we delete the impugned addition - Decided in favour of assessee.

Summary

Issues involved:
The issues in the judgment involve the confirmation of addition on account of valuation of stock, with the main grievance of the assessee being against the said addition.

Assessment Proceedings:
During the assessment proceedings, the Assessing Officer (AO) alleged that the assessee had reflected a low value of closing stock, resulting in a shortage of Rs.197.29 Lacs. The assessee claimed that the finished cloth was damaged due to natural calamities, but failed to provide evidence to support this claim. The argument that sales tax returns were accepted by the commercial department and hence closing stock should also be accepted was rejected by the AO, as the onus was on the assessee to substantiate its claim. The impugned addition was made by the AO as the evidence provided was deemed insufficient.

Findings and Adjudication:
The Tribunal found that the assessee maintained proper books of accounts subjected to tax audit, with no identified discrepancies in the physical stock. The stock was valued based on net realizable value. The Tribunal noted that the assessee was registered with the commercial tax department and filed sales tax returns, which were accepted by the commercial department. Citing the decision of the Hon'ble High Court of Madras in a similar case, it was held that unless the competent authority under the Sales Tax Act differed with the closing stock, the return accepted by the Commercial Tax Department was binding on income-tax authorities. The Assessing Officer was found to lack jurisdiction to scrutinize the return submitted to the commercial tax department, which had been accepted. Therefore, the Tribunal deleted the impugned addition, allowing the appeal in favor of the assessee.

Order:
The appeal was allowed, and the impugned addition on account of valuation of stock was deleted. The order was pronounced on 26th July 2023.