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TMI Blog2014 (7) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... rong in quantifying closing stock. – matter remanded back for fresh decision. - ITA No. 1757/Hyd/2011, C.O. No. 10/Hyd/2012 - - - Dated:- 18-6-2014 - Shri B. Ramakotaiah And Shri Saktijit Dey,JJ. For the Petitioner : Shri Solgy Jose T. Kottaram For the Respondent : Smt. K. Uma ORDER Per Saktijit Dey, A. M. This appeal of the Department is directed against the order dated 14/07/2011 passed by the CIT(A), Guntur for the assessment year 2006-07. The assessee has also filed C.O. against the very same order of the CIT(A). 2. As can be seen from the grounds raised both the department as well as the assessee are aggrieved with the addition sustained by the learned CIT(A), though for totally different reasons, on account of valuation of closing stock. In addition, the assessee has raised a ground challenging the jurisdiction of the AO in initiating proceeding u/s 147 of the Act. 3. Briefly stated, assessee a partnership firm is engaged in the business of real estate and land development. For the impugned assessment year assessee filed its return of income on 31/10/2006 declaring total income of ₹ 11,52,530/-. The return of income initially was proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee itself arrived at the value of closing stock of unsold units at cost after considering the nature of the unsold units. Assessee s contention that the value of closing stock adopted by him on unsold plots was only cost of the land and not taking into consideration the expenditure incurred for development cannot be accepted. The AO, therefore, applying the unit cost of land per sft. as worked out by him at ₹ 137 per sft., worked out the valuation of closing stock at ₹ 1,75,40,767/-. The assessee having shown the value of closing stock at ₹ 1,27,73,178/-, differential amount was treated as under valuation of closing stock and added to the income of the assessee u/s 69 of the Act. Being aggrieved of such addition, the assessee preferred appeal before the CIT(A). 6. Before the CIT(A), the assessee reiterated the same contentions, which were advanced before the AO. The CIT(A) after considering the submissions of the assessee though upheld finding of the AO with regard to under valuation of the closing stock but he did not agree to the quantum of under valuation worked out by the AO. CIT(A) was of the view that it will be reasonable to retain 1% of the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention that the AO was in error completely is not acceptable, as some of the expenses incurred by the appellant have a bearing for the entire period of the project. For instance, common works like laying roads, sewerage pipelines, expenses incurred for cite office, quarters for watchman watch and ward staff salaries and advertisement expenses of the project in print, air, TV, Cable network etc and etc., which have a bearing not only for the year under consideration, but also other years. Even though the AR was in agreement with the proposition that some of the items of expenditure have a bearing in the subsequent years, as to what extent it will have a bearing is not ascertainable. Hence a reasonable estimate has to be resorted to, to find out the unreasonable amount involved, in the valuation of the closing stock. 4.2.3.lt may however be noted here that there is no dispute in as much as the quantum of expenditure is involved, but perceptions changed while working out the value of closing stock. There is another point to be noted here that one year's closing stock is next year's opening stock. But, nonetheless, the finding of the AO that the value of closing sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worked out the unit cost for sft. for valuation of closing stock. Though it is the claim of the assessee that the unsold land was not developed, hence, the cost of land can only be taken at the time of valuation of closing stock but the assessee has to prove the same. It was submitted that the CIT(A) without considering the facts in proper perspective has directed the Assessing Officer to add 1% of the closing stock determined towards under valuation of closing stock. The learned DR submitted that the CIT(A) was not correct in deleting the major part of the addition made when he accepts in principle that the finding of the Assessing Officer that assessee has undervalued the closing stock and has also accepted the procedure adopted by the Assessing Officer in valuation of the closing stock. 9. The learned AR, on the other hand, strongly contesting the arguments put forward by the department submitted that the Assessing Officer as well as the CIT(A) having accepted the fact that closing stock comprises of only 40% of the undeveloped land, the expenditure debited to the P L A/c cannot be apportioned towards cost of the undeveloped land remaining as closing stock. The learned AR sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of development, which was incurred for 60% of the developed land, which has been sold cannot be apportioned towards cost of the 40% undeveloped land remaining as closing stock. This fact, in our view, has not been properly considered by the Assessing Officer. It is clear from the assessment order that Assessing Officer has worked out under valuation by simply relying upon the fact that as per the Form No. 3CD, the assessee has admitted that the valuation of closing stock is at cost. Similarly, the CIT(A) s order is not only confusing but at the same time appears to be contradictory. Though on one hand the CIT(A) has upheld Assessing Officer s finding that closing stock for the year ending was understated but at the same time, he has not agreed with the quantum worked out by the Assessing Officer. It is also pertinent to mention here that in para 4.2.4, the CIT(A) while observing that both the assessee as well as the Assessing Officer were correct in working out the value of the closing stock for the year ending 31/03/2006, in the same breath has observed that both of them were wrong in quantifying closing stock. This view of the CIT(A), according to us, is totally contradictory. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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