2023 (9) TMI 609 - AT - Income Tax

Valuation of closing stock - Re-estimating addition to the value of closing stock particularly when the AO had not rejected books - HELD THAT - We note that it was not necessary to reject the books of accounts of the assessee. Hence assessing officer was right in not rejecting the books of accounts. AO noticed that some details were not filed or annexed with tax audit report, as noted by CIT(A), therefore AO made addition. On appeal by the assessee, we note that CIT(A) has provided enough relief to the assessee based on the audited books of accounts of the assessee. CIT(A) after taking into account correct valuation methodology and policy as per accounting standards, ICDS and prevailing accounting customs, has deleted almost 50% addition made by the assessing officer. We note that there is no any purchase by the assessee during the year, and the sale made by the assessee is out of opening stock only. In the closing stock, only the opening stock items were there, hence assessing officer has rightly caught the mistake of the assessee for under valuation of closing stock. We note that CIT(A) made the computation of closing stock by adopting average rate per carat, which is a superior approach as compared to the approach adopted by assessing officer. We accept the above approach adopted by CIT(A). However, we do not find any further superior approach, than the approach so adopted by CIT(A), because CIT(A), by following accounting standards, ICDS and accounting principles, granted the partial relief to the assessee. Thus, in our opinion, the assessee does not deserve further relief on the basis of the plea that assessing officer ought to have rejected books of accounts to make addition on account of under valuation of closing stock. On a careful reading of the order of CIT(A) the findings thereon, we do not find any valid reason to interfere with the decision and findings of the CIT(A), hence we dismiss the appeal of the assessee. Assessee not applicable on the facts of present case. Rejection of entire books of account was not warranted, when the AO find fault in the valuation of stock only. Appeal filed by the assessee is dismissed

Summary

Issues Involved:
1. Condonation of Delay in Filing the Appeal
2. Re-estimation of Addition to the Value of Closing Stock Without Rejecting Books of Accounts

Summary:

1. Condonation of Delay in Filing the Appeal:

The appeal filed by the assessee for AY 2017-18 was barred by a delay of 103 days. The assessee requested the Tribunal to condone the delay, citing reasons such as the closure of the unit, suspension of manufacturing activities, and the death of a partner responsible for legal matters. The Tribunal considered the principles laid down by the Hon'ble Supreme Court in Perumon Bhagvathy Devaswom v. Bhargavi Amma, emphasizing that "sufficient cause" should be understood liberally when the delay is not due to dilatory tactics, want of bona fides, deliberate inaction, or negligence. The Tribunal found that the delay was not due to any dilatory tactics or negligence and condoned the delay, admitting the appeal for hearing.

2. Re-estimation of Addition to the Value of Closing Stock Without Rejecting Books of Accounts:

The assessee argued that the CIT(A) was not justified in re-estimating the addition to the value of closing stock without rejecting the books of accounts. The assessee contended that no estimate of valuation of stock can be undertaken without rejecting the books of accounts under Section 145 of the Income Tax Act. The Tribunal noted that the Assessing Officer (AO) had not rejected the books but had computed the undervaluation of closing stock based on the difference in the rate per carat of opening and closing stock. The AO observed that the valuation of stock was inconsistent and made an addition of Rs. 59,21,502/- on account of undervaluation.

The CIT(A) partly deleted the addition, directing the AO to adopt an average rate per carat to compute the value of closing stock, thereby reducing the addition to Rs. 29,63,164/-. The Tribunal upheld the CIT(A)'s approach, stating that the AO need not reject the books of accounts for each mistake found. The Tribunal emphasized that the AO could make line-by-line additions without rejecting the books if there were deficiencies in vouchers, valuation methods, or other evidences. The Tribunal found no valid reason to interfere with the CIT(A)'s decision, as it was based on correct valuation methodology, accounting standards, and principles. Consequently, the appeal filed by the assessee was dismissed.

Conclusion:

The Tribunal condoned the delay in filing the appeal and upheld the CIT(A)'s decision to re-estimate the addition to the value of closing stock without rejecting the books of accounts, dismissing the appeal filed by the assessee.