2009 (6) TMI 122 - AT - Income Tax

Summary

Issues Involved:
1. Addition to income due to non-compliance with s. 145A of IT Act.
2. Disallowance of Mandi-tax liability.
3. Addition to income due to enhanced value of closing stock inventory for the asst. yr. 2003-04.

Summary:

Issue 1: Addition to income due to non-compliance with s. 145A of IT Act

The assessee, a limited company engaged in the manufacturing of condensed milk, Ghee, and butter, changed its system of accounting for the valuation of closing stock from 'at cost' to 'net realizable value' for the asst. yr. 2002-03. The AO found this change inconsistent with s. 145A of the IT Act, 1961, which requires inventory valuation in accordance with the method of accounting regularly employed by the assessee. The AO rejected the change, resulting in an addition of Rs. 83,87,792 to the income. The CIT(A) concurred with the AO, stating that the relevance of AS-2 was misplaced and the change was not bona fide. The Tribunal upheld the disallowance, emphasizing that s. 145A, which starts with a non obstante clause, overrides s. 145 and restricts frequent changes in the method of valuation of stocks.

Issue 2: Disallowance of Mandi-tax liability

The assessee claimed a deduction for Mandi-tax payable by the erstwhile firm, which was converted into the assessee company. The AO disallowed the claim, stating that the liability was contingent and not crystallized during the relevant previous year. The CIT(A) endorsed this view, noting that the liability was not of the assessee but of the erstwhile firm, and the write-off was based on an advocate's opinion, which cannot determine the year of deductibility. The Tribunal upheld the disallowance, confirming that the liability did not crystallize during the assessment year in question.

Issue 3: Addition to income due to enhanced value of closing stock inventory for the asst. yr. 2003-04

The assessee raised a ground regarding the addition of Rs. 51,58,595 to the income due to the enhanced value of closing stock inventory for the asst. yr. 2003-04. This issue was a consequence of the change in the method of valuation of inventory, which was already decided against the assessee for the asst. yr. 2002-03. The Tribunal upheld the AO's determination of income in accordance with the method of accounting regularly employed by the assessee prior to the asst. yr. 2002-03.

Conclusion:

In the result, the appeals were dismissed.