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TMI Blog2021 (8) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... ory auditors of the company year after year as mandated in law. The tabulated statement showing comparison of closing stock year after year vouches the claim of the assessee on consistency of method of valuation and tax neutrality. In these circumstances, the action of the AO in accepting the closing stock cannot be blamed as erroneous by a two line show cause notice on the issue. The alleged under valuation of closing stock is a tax neutral exercise when seen over a longer horizon and thus, in effect, not prejudicial to the interest of the Revenue per se. Section 263 of the Act calls for existence of both the pre-requisites, namely; (i) order under revision should be erroneous as well as (ii) prejudicial to the interest of the Revenue. Both the conditions must coexist simultaneously. Also every loss of the Revenue as a consequence of an order of the AO cannot necessarily be treated as pre-judicial to the interest of the Revenue. In the instant case, the AO after examining the issue has taken a view which is plausible. This apart, the Revenue cannot be said to be prejudiced in a Revenue neutral exercise. Thus, none of the conditions required for invocation of Section 263 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a show cause notice dated 11.10.2013 was issued by the CIT. 4. The show cause notice is extracted hereunder for ready reference: On examination of your income-tax records for the above assessment year, I find that the order passed u/s. 143(3) of the Income-Tax Act, 1961 on 19.12.2011 is erroneous in so far as it is prejudicial to the interest of revenue in the following manner:- 2(a) Scrutiny of records revealed that as per trading and P L account of the assessee as on 31.03.2009, purchases of land was shown at ₹ 6,03,38,681/- whereas in the land purchase a/c available in the record, the total debit balance of the land purchase was at ₹ 9,03,74,000/- for the year under consideration which resulted to an undervaluation of the closing stock by ₹ 3.0035 Crores and the same was not verified by the AO at the time of assessment proceedings. 2(b) Further, it is seen that the value of the closing stock is not increased by the proportionate other direct expenses amounting to ₹ 9.1718 crores shown in the trading a/c. The value of clawing stock includes purchase price of land, registry expenses and stamp duty value and hence the proportionate value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from original stand and has taken a different stand altogether. It is not alleged in the revisional order that the AO did not verify these points. The stand in the show cause notice was modified. What is alleged is that AO has 'not applied his mind' to these points which has led to the erroneous order hostile to the interest of the Revenue. It was contended that once the relevant facts are placed on record on the issue, a presumption would ordinarily arise that AO has looked into such evidences and facts in discharge of its quasi judicial functions. 5.2. Coming to the specifics, the learned counsel first adverted to the alleged non-verification of closing stock. To defend the action of AO on this point, the learned counsel adverted to notice issued by the AO dated 7th July, 2011 under s. 142(1) of the Act (page no. 42 of the paper book), wherein as per point no. 10 of a detailed questionnaire, specific query was raised towards the difference in the quantitative closing stock and its value. The valuation details were duly placed before the AO as reflected in page no. 73 of the paper book. The ledger copy of land purchased showing narration of all land purchases etc. we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was thus submitted that in the light of judgment rendered by the Jurisdictional High Court of Chhattisgarh in the case of ACIT vs. R.P. Real Estate Pvt. Ltd. Tax Case (Income Tax Appeal) No. 13 of 2016 dated 1st March, 2016, where actual recipient of cash is identifiable and the genuineness of payment is confirmed by registered sale deed, the provisions of Section 40A(3) of the Act would not apply in the factual matrix. The occurrence of purchase of land is duly proved by clinching evidence. It was thus contended that the view taken by the AO towards non-applicability of Section 40A(3) of the Act is a plausible view consistent with the interpretation rendered by the Jurisdictional High Court. It was thus submitted that the action of the AO cannot be attacked as erroneous and prejudicial to the interest of the Revenue. 6. The learned DR relied upon the order of the CIT. 7. We have carefully considered the rival submissions and perused the revisional order passed by the CIT under s. 263 of the Act as well as other materials referred to and relied upon by the respective parties and case laws cited. 7.1. Supervisory jurisdiction vested under Section 263 of the Act enables t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffered explanation for difference in the valuation on account of apportionment towards internal road and garden etc. which represented cost of project and thus represented as an outgo which could not have been included in the closing stock. The explanation appears plausible. It is further case of the assessee that similar method of valuation have been adopted in the earlier years as well as in the subsequent assessment years and there is no departure in the valuation of closing stock as certified by the statutory auditors of the company year after year as mandated in law. The tabulated statement showing comparison of closing stock year after year vouches the claim of the assessee on consistency of method of valuation and tax neutrality. In these circumstances, the action of the AO in accepting the closing stock cannot be blamed as erroneous by a two line show cause notice on the issue. 7.4. We further notice that the alleged under valuation of closing stock is a tax neutral exercise when seen over a longer horizon and thus, in effect, not prejudicial to the interest of the Revenue per se. Section 263 of the Act calls for existence of both the pre-requisites, namely; (i) order un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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