2024 (10) TMI 749 - HC - Income Tax

Addition of Opening stock - as in the order the transaction of the appellant with KFIL was not verifiable and only closing stock was reflected in the books of accounts where it had actually been sold outside the books - there was actually no closing stock of the amount included in the income of the Assessee - ITAT deleted addition - HELD THAT - Tribunal, came to the conclusion that the opening stock is shown by the assessee as closing stock in the previous Assessment Year 2009-10, the CIT(A) found that closing stock shown by the assessee was utilised for making unaccounted sale, meaning thereby that no actual closing stock was available. The profit declared by the assessee for Assessment Year 2009-10 includes the closing stock of the said amount but no set-off has been provided by treating the same at the nil value and therefore, the Tribunal held that the closing stock of Assessment Year 2009-10 is required to be treated as opening stock and could not have been disallowed by the Assessing Officer as well as by CIT(A). We are in agreement with the aforesaid findings arrived at by the Tribunal and accordingly, no substantial questions of law can be said to be arising from the impugned order of the Tribunal.

Summary

Issues:
1. Whether the ITAT's order deleting the addition of opening stock is perverse.
2. Whether the ITAT erred in holding that no addition is required for opening stock as it is a tax-neutral exercise.

Detailed Analysis:
Issue 1:
The appellant revenue filed a Tax Appeal under Section 260A of the Income Tax Act challenging the order of the Income Tax Appellate Tribunal (ITAT) dated 31st August, 2022. The primary contention was regarding the addition of Rs. 2,93,12,514/- on account of Section 69C of the Act. The Assessing Officer and CIT(A) disallowed the opening stock based on the finding that there was no actual closing stock in the previous assessment year. However, the Tribunal disagreed with this view. The Tribunal observed that the profit declared by the assessee for the previous assessment year included the closing stock amount, which was not set off at nil value, leading to potential double taxation. The Tribunal held that the closing stock of the previous year should be treated as the opening stock for the current year, and disallowing it would result in double taxation, which is not warranted by law.

Issue 2:
The second issue revolved around whether the ITAT erred in holding that no addition is required for opening stock as it is a tax-neutral exercise. The Tribunal's decision was based on the principle that the closing stock from the previous year was not set off at nil value, leading to potential double taxation if the opening stock was disallowed. The Tribunal emphasized that if the Revenue wanted to make an addition for the opening stock in the current year, a setoff should have been provided in the previous year to avoid double taxation. Therefore, the Tribunal concluded that no addition was necessary for the opening stock, as it would result in a tax-neutral exercise.

In conclusion, the High Court agreed with the Tribunal's findings and dismissed the appeal, stating that no substantial questions of law arose from the Tribunal's order. The judgment highlighted the importance of avoiding double taxation and ensuring a tax-neutral approach in dealing with stock valuation issues.