2016 (4) TMI 952 - HC - Income Tax

Addition of loss due to fall in value of stocks - genuity of purchases - Tribunal deleted the addition - method of accounting - Held that - The payment made is undisputed. The custody of the goods namely, iron ore as that of the assessee, though may be lying at the various ports, is also undisputed. When the assessee has made the payment for purchase of a particular quantity of material and the goods are lying in the custody of the assessee, though may be at various ports, the same could validly be termed as stock in trade. If the value of such stock in trade has gone down, the deduction for the difference of the price is permissible. On the contrary, if the appellants contention is accepted, then in the succeeding year when it is offered to tax for the amount of ₹ 29.50 Crores and the deduction is made impermissible, it would result into double taxation. It is not a case of the revenue that with a view to avoid real tax, the book entries were shown lowering down the value of the stock. On the contrary, it is on account of the objection raised by C.A.G., that the assessee has correctly valued the stock on trade at the market price, prevailing then. The case of manipulation f or avoiding the payment of tax stands on a different footing, but the same has not been pleaded before the Tribunal in the instant case. The decision upon which reliance has been placed cannot be made applicable to the facts of the present case, when the factum of payment made by the assessee and the goods in custody of the assessee, are not in dispute. There is no question of shifting the tax liability from one year to another as sought to be canvassed, in the instant case. - Decided in favour of assessee.

Summary

Issues:
1. Whether the Tribunal erred in deleting the addition made by the assessing authority based on the method of accounting adopted by the assessee company?
2. Whether the method of accounting followed by the assessee was in accordance with the provisions of section 145A of the Act?

Analysis:

Issue 1:
The Tribunal held that the deduction on account of the reduction in the value of stock in trade was available. It found that the iron ore was in the custody of the assessee at various ports and that there was no change in the method of valuation of closing stock. The Tribunal also noted that the addition made by the Assessing Officer should be deleted, as the purchases were accepted and duly accounted for in the particular year. The Tribunal concluded that the order passed by the Assessing Officer for deletion of the entry deserved to be set aside.

Issue 2:
The appellant argued that the method of accounting adopted by the assessee, treating goods as loans and advances in the previous year and as stock in trade in the assessment year, was incorrect. The appellant contended that this method resulted in shifting the tax liability to the next assessment year, which was impermissible. However, the Court rejected this argument, stating that the payment made by the assessee for the goods and the custody of the goods were undisputed. It held that if the value of the stock in trade had decreased, the deduction for the difference in price was permissible. The Court also clarified that there was no manipulation to avoid tax payment, as the valuation was done correctly based on market prices. The Court dismissed the appeal, finding no substantial question of law for consideration.

In conclusion, the High Court upheld the Tribunal's decision to delete the addition made by the assessing authority, emphasizing the availability of deduction for the reduction in the value of stock in trade. The Court rejected the appellant's argument regarding the method of accounting adopted by the assessee, stating that the payment made for the goods and their custody justified treating them as stock in trade. The Court found no grounds for shifting tax liability and dismissed the appeal.