2002 (9) TMI 258 - AT - Income Tax

Summary

Issues Involved:
1. Addition on account of excise duty in the valuation of closing stock.
2. Addition due to change in the method of valuation of stock of semi-finished goods.
3. Levy of interest under sections 234B and 234C.

Issue-wise Detailed Analysis:

1. Addition on Account of Excise Duty in the Valuation of Closing Stock:
The first issue concerns the addition of Rs. 45,50,618 due to the change in the method of valuation of closing stock by excluding excise duty (Modvat). The assessee previously included excise duty in the valuation of closing stock but changed this method in the assessment year under reference, claiming it was more scientific and logical. The Assessing Officer added Rs. 45,50,618 to the income, arguing that the change understated the value of closing stock. The Commissioner (Appeals) upheld this addition, stating that the change aimed to reduce profits and defer tax liability.

Upon appeal, the Tribunal noted that the same issue had been decided in favor of the assessee for the assessment year 1991-92. The Tribunal found that the changed method was recognized by the Institute of Chartered Accountants of India (ICAI) and accepted by the Department in subsequent years. The Tribunal concluded that the change was bona fide and consistently followed. Therefore, the Tribunal set aside the Commissioner (Appeals)'s order and deleted the addition of Rs. 45,50,618.

2. Addition Due to Change in the Method of Valuation of Stock of Semi-Finished Goods:
The second issue involves an addition of Rs. 41,24,374 due to a change in the method of valuation of semi-finished goods (work-in-progress). The assessee altered the method from including total overhead expenses to apportioning them based on the stage of completion. This change resulted in a reduction in the value of closing stock. The Assessing Officer added Rs. 41,24,374, and the Commissioner (Appeals) upheld the addition, stating that the change was aimed at reducing profits.

The Tribunal examined the facts and found that the previous method inflated the cost of semi-finished goods, as it included total overheads irrespective of the stage of completion. The Tribunal noted that the new method was more scientific and accurately reflected the cost. The Tribunal also observed that the changed method had been consistently followed in subsequent years and accepted by the Department. The Tribunal concluded that the change was bona fide and set aside the Commissioner (Appeals)'s order, deleting the addition of Rs. 41,24,374.

3. Levy of Interest Under Sections 234B and 234C:
The final issue pertains to the levy of interest under sections 234B and 234C. The Assessing Officer charged interest, and the Commissioner (Appeals) upheld it, stating that charging interest under these sections is mandatory. The assessee argued that this ground was consequential.

The Tribunal confirmed the Commissioner (Appeals)'s order, noting that charging interest under sections 234B and 234C is mandatory. However, the Tribunal directed the Assessing Officer to allow consequential relief after giving effect to its order.

Conclusion:
In summary, the Tribunal allowed the appeal of the assessee, deleting the additions made on account of changes in the method of valuation of closing stock and semi-finished goods. The Tribunal also upheld the mandatory nature of interest under sections 234B and 234C but directed the Assessing Officer to provide consequential relief.