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2012 (9) TMI 508 - AT - Income TaxSuppression of stock Assessee made advance payment to party against purchase of land Balance amount to be paid to seller was added to closing stock and same was offered for Tax u/s 153A Closing stock become opening stock of next year Held that - As the variance in the closing stock as a result of advance amounts having been considered as part of the closing stock. By deleting the advance drive correct value of closing stock. Therefore, upheld the order of CIT(A). Decision in favour of assessee Interest u/s 234A & 234B Held that - If AO made the impugned addition and same is deleted by CIT(A) & ITAT. When there is no demand of Tax then on what amount interest is to be levied. Therefore, Decision in favour of assessee. Whether only income which escapes assessment can be brought to tax in assessment u/s.153A Held that - Assessee can claim any new deduction out of the income assessed u/s 153A. The AO will ascertain if the incurring of the liability is certain and that it has been estimated on a reasonable basis. He will allow the deduction subject to satisfaction. Therefore case remand back to AO.
Issues Involved:
1. Undervaluation of closing stock for AY 2004-05, 2005-06, and 2007-08. 2. Charging of interest under sections 234-A and 234-B of the Income Tax Act. 3. Deduction of estimated probable development expenditure for AY 2005-06. Detailed Analysis: 1. Undervaluation of Closing Stock for AY 2004-05, 2005-06, and 2007-08: The Revenue challenged the orders of CIT(A) which deleted the additions made by the AO on account of undervaluation of closing stock. The circumstances under which these additions were made by the AO and subsequently deleted by the CIT(A) were identical across the three years. - AY 2004-05: The Assessee, a company involved in developing residential layouts, did not reflect the value of stock of land purchased from Sri Siva Priya Township Promoters (P) Ltd. in its original return. After a search and seizure action, the Assessee declared the correct closing stock in the return filed under section 153A. The AO added the difference in closing stock to the total income, but CIT(A) deleted the addition, noting that the Assessee had duly accounted for the stock purchased. The Tribunal upheld CIT(A)'s decision, finding no grounds to interfere. - AY 2005-06 and 2007-08: Similar issues arose for these years. The Assessee declared higher closing stocks in the returns filed under section 153A compared to the original returns. The AO added the differences, but CIT(A) deleted these additions as well. The Tribunal confirmed CIT(A)'s orders, noting that the Assessee had correctly accounted for the closing stocks and offered them to tax. 2. Charging of Interest under Sections 234-A and 234-B: The Assessee contested the charging of interest under sections 234-A and 234-B, arguing that the seized materials necessary for filing returns were only made available in July 2009. The Tribunal referred to the Hon'ble Karnataka High Court's decision in T.P. Indrakumar Vs. ITO, which waived interest due to peculiar circumstances. However, the Tribunal noted that the levy of interest is mandatory as per the Hon'ble Supreme Court's ruling in M.S. Ghaswala and that the Assessee had not provided evidence of delayed access to seized materials. The Tribunal dismissed the Assessee's grounds on this issue but noted that the Assessee could seek administrative relief for waiver of interest. 3. Deduction of Estimated Probable Development Expenditure for AY 2005-06: The Assessee claimed a deduction of Rs.1,15,77,840 for probable development expenditure on plots already sold. The AO disallowed this on the grounds of it being a contingent liability, and CIT(A) upheld this decision, stating that only escaped income could be assessed under section 153A. The Tribunal disagreed with the CIT(A), stating that section 153A proceedings are not akin to section 147 proceedings, and legitimate deductions should be allowed. The Tribunal remanded the issue to the AO to ascertain if the liability was certain and reasonably estimated, directing the AO to allow the deduction if these conditions were met. Conclusion: The Tribunal dismissed the Revenue's appeals regarding the undervaluation of closing stock for AY 2004-05, 2005-06, and 2007-08, upheld the mandatory nature of interest under sections 234-A and 234-B, and remanded the issue of the deduction for probable development expenditure for AY 2005-06 to the AO for fresh consideration.
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