2020 (10) TMI 427 - HC - Income Tax

Valuation of closing stock - Whether addition would arise only when the stock continues to be held by the assessee in the next year and not in a case where the business of the assessee along with stock was taken over by a company on 08.01.2012? - HELD THAT - Whether valuation of closing stock would arise when the business of the assessee along with the stock was taken over by the company needs to be decided. This is a mixed question of fact and law, which has to be considered because the revenue did not dispute the fact that the business of the assessee along with the stock was taken over by the company on 08.01.2012, therefore, we deem it appropriate to remand the matter to the assessing officer for fresh consideration on this aspect after due opportunity to the assessee. For the above reasons, the Tax case Appeal is allowed. The impugned order passed by the Tribunal is set aside and the matter is remanded to the Assessing Officer to verify the aspect, which has been pointed out in the preceding paragraphs.

Summary

Issues:
1. Valuation of closing stock upon business takeover by a company.

Analysis:
The appeal under Section 260A of the Income Tax Act, 1961 was filed against the order passed by the Income Tax Appellate Tribunal for the Assessment Year 2012-2013. The substantial question of law raised was whether the addition towards valuation of closing stock should arise only if the stock continues to be held by the assessee in the next year, not when the business along with the stock was taken over by a company on a specific date.

The assessee, engaged in retail sale of silk saris, filed an income tax return initially declaring income of ?2,43,08,620/-, later revised to ?2,26,55,730/-. The business of the assessee was taken over by a private limited company on 08.01.2012. The assessment was completed by the assessing officer under Section 143(3) of the Act, adding ?30,58,131/- towards valuation of closing stock, contending that the stock valuation did not reflect the true business status and profit.

The Commissioner of Income Tax, [Appeals] confirmed the addition, following an earlier Tribunal order. The Tribunal dismissed the appeal, leading to the present High Court case. The Court noted that the assessing officer observed the business takeover and restricted the assessment period accordingly. The Court considered the argument that stock valuation should apply only if the stock remains with the assessee in the next year, not when the business is taken over.

The Court found that the Tribunal did not address this issue properly, instead relying on a previous decision. Considering it a mixed question of fact and law, the Court remanded the matter to the assessing officer for fresh consideration, providing the assessee with an opportunity to present their case. The Tax case Appeal was allowed, setting aside the Tribunal's order and leaving the substantial question of law open for further review. No costs were awarded in this decision.