2013 (2) TMI 262 - AT - Income Tax

Addition of purchase tax to closing stock not included therein - Held that - As in assessee s own case for A.Y. 2004-05 ITAT added purchase tax to the cost of value of closing stock by holding that as per provisions of section 145A, the value of purchase tax has to be taken into account while valuing the closing stock. Also observed that in the light of the decision of CIT v. Mahalaxmi Glass Works (P.) Ltd. 2009 (4) TMI 182 - BOMBAY HIGH COURT the opening stock valuation should also be correspondingly adjusted - thus set aside the issue to the file of the Assessing Officer to re-compute in line with the view taken therein. Addition made to closing stock u/s. 145A on account of Modvat credit - Held that - The assessee has been consistently followed exclusive method and by virtue of insertion of section 145A the assessee has to follow inclusive method in which event, similar adjustment has to be made to the opening stock, purchases, sale and closing stock also. Even if there is no tax impact, section 145A has to be applied for valuation of opening stock, purchases, sale, and closing stock, as held by in the case of Cabot India Ltd. s (2009 (10) TMI 656 - BOMBAY HIGH COURT) and Nicholas Piramal India Ltd. 2009 (8) TMI 224 - BOMBAY HIGH COURT . The Assessing Officer is directed to recompute accordingly. Addition u/s. 50 r.w.s. 50C - assessee contested against invoking sec 50C as it is depreciable asset and hence valuation adopted by stamp valuation authority should not be taken into consideration - Held that - With regard to applicability of provisions of section 50C, in the case of depreciable assets, the issue now stands squarely covered in the case of ITO v. United Marine Academy 2011 (4) TMI 15 - ITAT MUMBAI wherein held that sections 50 & 50C operate in two different fields and if the value adopted by the stamp valuation authority is accepted by the purchaser/seller there cannot be any variation for limited purposes of computing the consideration received, under section 50C. In the light of the decision cited no infirmity in the order passed by CIT(A)- against assessee.

Summary

Issues:
1. Addition to closing stock on account of purchase tax not included.
2. Disallowance u/s. 14A read with Rule 8D.
3. Addition made to closing stock u/s. 145A on account of Modvat credit.
4. Addition u/s. 50 read with section 50C of the Act for the flat sold.

Analysis:

Issue 1:
The first issue involved the addition to closing stock due to purchase tax not being included. The Assessing Officer enhanced the value of purchase by the amount of purchase tax paid to an unregistered dealer. The learned CIT(A) confirmed this addition based on a previous decision in the assessee's case for a different assessment year. The ITAT upheld this decision and directed the Assessing Officer to recompute the value in line with the previous ruling, considering the provisions of section 145A.

Issue 2:
Regarding the disallowance u/s. 14A read with Rule 8D, the assessee chose not to pursue the issue during the appeal, leading to the rejection of the ground by the tribunal as it was not pressed by the assessee.

Issue 3:
The third issue was related to the addition made to closing stock u/s. 145A on account of Modvat credit. The Assessing Officer added the unutilized Modvat credit to the closing stock, citing section 145A. The ITAT directed the Assessing Officer to recompute the valuation considering the inclusive method as per the decisions of the Hon'ble Bombay High Court and other relevant cases, ensuring adjustments to opening stock, purchases, and closing stock.

Issue 4:
The final issue involved the addition u/s. 50 read with section 50C of the Act for the flat sold. The Assessing Officer relied on the value adopted by the Stamp Valuation Authority, which was higher than the declared value, leading to the addition of the difference as short term capital gains. The tribunal upheld this addition based on the provisions of section 50C and previous decisions, rejecting the contention that depreciation should have been considered in the valuation.

In conclusion, the ITAT partially allowed the appeal, addressing each issue comprehensively and providing detailed analysis based on relevant legal provisions and precedents.