2016 (7) TMI 276 - AT - Income Tax

Addition on account of difference in valuation of securities - change in valuation method of stock - Held that - In the present case, the Revenue has not pointed out any infirmity in the method adopted by the assessee for valuation of stock. The appeal pertains to the assessment year 2010-11, the ld. AR has stated at the Bar that the assessee is following the changed method of valuation of stock even today. The ld. DR has not controverted the statement made by the ld. AR. Since, the method of valuation of stock has been regularly adopted by the assessee this shows the bonafide of assessee in changing the valuation method. Reduction in profit due to change in valuation method of stock cannot be a reason to reject the claim of assessee. Whenever, there is change in method of accounting, there would be aberrations in the financial results. We do not find infirmity in the well reasoned and detailed findings given by the Commissioner of Income Tax (Appeals). It is not the case of the Revenue that the method of valuation of stock adopted by assessee is inconsistent with the accounting principles. - Decided in favour of assessee Disallowance of claim of bonus - Held that - As per final accounts, bonus a/c and Profit and Loss a/c, find there was a liability of Bonus payable only which was paid by appellant before the due date for furnishing the return of income on the previous year. The Auditors have given the necessary comments in this regard in the Audit Report. Under the circumstances and on the facts, AO is not justified in disallowing the bonus paid before the due date of filing the return and hence, addition cannot be sustained. - Decided in favour of assessee

Summary

Issues Involved:

1. Change in method of valuation of securities.
2. Disallowance of bonus claim.

Issue-wise Detailed Analysis:

1. Change in Method of Valuation of Securities:

The Revenue challenged the assessee's method of valuing government securities, arguing that the change from 'cost' to 'cost or market price, whichever is lower' was not bona fide. The Commissioner of Income Tax (Appeals) had deleted the addition made by the Assessing Officer, who had disallowed the depreciation of ?8,39,17,500 due to the change in valuation method.

The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, noting that the change in valuation method was within accounting standards and was consistently followed in subsequent years. The Tribunal cited several judicial precedents, including the Bombay High Court in Sarupchand vs. CIT and the Karnataka High Court in CIT vs. Corporation Bank Ltd., which supported the view that a bona fide change in valuation method is permissible if consistently followed thereafter.

The Tribunal also referenced the RBI guidelines and several judicial decisions, including those from the Supreme Court and various High Courts, which affirmed that government securities held by banks are considered stock-in-trade and should be valued at cost or market price, whichever is lower. The Tribunal concluded that the method adopted by the assessee was bona fide and regularly followed, thus dismissing the Revenue's ground on this issue.

2. Disallowance of Bonus Claim:

The Assessing Officer had disallowed a bonus claim of ?12,76,657, arguing that the assessee only paid ?15,96,166 before the due date for filing the return, while the total claim was ?28,72,823. The Commissioner of Income Tax (Appeals) deleted the addition, noting that the actual bonus payable was ?15,96,166, which was paid on 09-08-2010, before the due date for filing the return. The Tribunal upheld this finding, stating that the bonus was paid within the permissible time under Section 43B of the Income Tax Act.

The Tribunal found no merit in the Revenue's arguments, as the bonus payment was duly accounted for and paid within the stipulated time. The Tribunal concurred with the Commissioner of Income Tax (Appeals) that the addition could not be sustained, thus dismissing the Revenue's ground on this issue.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the Commissioner of Income Tax (Appeals)'s order that deleted the additions made by the Assessing Officer on both issues. The Tribunal found the change in the method of valuation of securities to be bona fide and consistently followed, and the bonus claim to be correctly accounted for and paid within the permissible time. The appeal was dismissed in its entirety.