2020 (4) TMI 404 - AT - Income Tax

Addition on account of difference in trading - assessee has failed to reflect correct income as per memorandum of trading account as per provisions of section 145A - whether there any difference in valuation of the stock as compared to exclusive method, if inclusive method is adopted for valuation of the stock? - HELD THAT - In the case of the assessee in assessment year 2008-09 and 2009-10 identical issue of valuation of the stock and addition under section 145A of the Act involved, respectfully following the finding of the Tribunal (supra), we are of the view that that no addition is required under section 145A of the Act following the inclusive method. The finding of the Ld. CIT(A) on the issue in dispute is upheld. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ?3,74,11,219 on account of difference in trading account under section 145A of the IT Act, 1961.
2. Exclusion of duty/cess/fees in the memorandum trading account.
3. Validity of the order passed by the learned CIT(A) for assessment year 2010-11.

Issue 1: Addition of ?3,74,11,219 on account of difference in trading account under section 145A of the IT Act, 1961:

The appeal was filed by the Revenue against the order passed by the learned CIT(A) for assessment year 2010-11. The case involved the valuation of stock under the exclusive and inclusive methods for trading account purposes. The Ld. CIT(A) deleted the addition of ?3,74,11,219, emphasizing the importance of reflecting income correctly as per the memorandum of the trading account under section 145A. The Ld. CIT(A) referred to the case of CIT Vs British Paints India Limited, highlighting the necessity of including overhead expenses in the valuation of closing stock to avoid a distorted picture of profits. The Ld. CIT(A) observed that arithmetical errors had led to the difference in profit between the exclusive and inclusive methods. The learned counsel of the assessee pointed out errors in the calculations and rectified them, aligning the figures with the return of income. The Tribunal upheld the Ld. CIT(A)'s order, emphasizing that no addition was required under section 145A following the inclusive method, in line with the previous decisions for assessment years 2008-09 and 2009-10.

Issue 2: Exclusion of duty/cess/fees in the memorandum trading account:

The second issue involved the exclusion of duty/cess/fees in the memorandum trading account, contrary to the provisions of section 145A of the IT Act, 1961. The Ld. CIT(A) considered the impact of inclusive and exclusive methods on the profit and loss account. The Tax Auditor's report highlighted that there was no difference in profit before tax between the two methods of valuation. The Tribunal, based on the Tax Auditor's report, upheld the Ld. CIT(A)'s order, dismissing the Assessing Officer's contention. The Tribunal concluded that no addition was necessary under section 145A following the inclusive method, consistent with the approach taken in previous assessments.

Issue 3: Validity of the order passed by the learned CIT(A) for assessment year 2010-11:

The order passed by the learned CIT(A) for assessment year 2010-11 was challenged by the Revenue before the Tribunal. The Tribunal carefully analyzed the facts and submissions from both parties. After considering the relevant material on record, the Tribunal upheld the Ld. CIT(A)'s order, dismissing the Revenue's appeal. The Tribunal pronounced the order in the open court on 24th February 2020, thereby concluding the legal proceedings in this matter.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's decision on each issue, ensuring clarity and accuracy in summarizing the legal proceedings.