Anil Kumar Tantia & Ors. v. ITO

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The Tax Publishers2013 TaxPub(DT) 2821 (Jod-Trib) : (2013) 157 TTJ 0001 Anil Kumar Tantia & Ors. v. ITO INCOME TAX ACT, 1961 --Transfer of case--ValidityCo-ordinated investigation--For co-ordinated investigation and administrative convenience, group cases have been grouped with one AO and reasons for transferring cases have been recorded and conveyed to assessee, impugned order under section 127 was therefore, valid. Income Tax Act, 1961, Section 127 INCOME TAX ACT, 1961 --Accounting method--Valuation of closing stockChange of method--Assessee was valuing closing stock of gold and silver on regular basis at the market rate. However, in the return submitted in compliance with provision of section 153A and notice under section 139/142(1) after search operations he changed the method of valuation of closing stock to weighted average cost price. AO rejected claim of assessee in respect of change in method of valuation and valued the closing stock at market price. *Held:* Not justified. Method of valuation of closing stock can be changed for bona fide reasons. Market rate of gold and silver fluctuates in hours and if market rate is applied for valuation of closing stock of gold and silver, it would tantamount to taxing notional income and as such, if wrong method of valuation of closing stock has been followed, it can be corrected by replacing it. In the IT Act, there is no provision that method of valuation of closing stock once adopted cannot be changed. The basis of valuation can be changed if bona fide reason exists there. Therefore, the method of valuation of closing stock can be changed. What Tribunal finds in case of the appellant is that the assessee is a dealer of precious metals like gold and silver, market rate of gold and silver fluctuates rather in hours. If the market rate is taken in that case it will tantamount to taxing of a notional income. Further, the benefit of closing stock has to be given in the next year as opening stock. Hence, the method of valuation can be changed if reasonable cause or ground exists there. There is amendment in the IT Act by introducing provisions of section 145A. The valuation as per the IT Act in the light of judicial pronouncements in force at the time has been dealt with. Therefore, any of the methods for valuation of stock can be as provided under AS-2. Method of valuation changed by the assessee is permissible in the eyes of the law and the same is in accordance with the law as has been the pronouncement by the Supreme Court of India. [Para 2.11] Income Tax Act, 1961, Section 145A INCOME TAX ACT, 1961 --Income from undisclosed sources--Addition under section 68Amount found noted on seized paper --Where assessee surrendered certain sum found noted on seized paper in his return no further addition of same amount could be made under section 68. Moreover, seized paper is not books of account, as such no further addition could be made in respect of interest on already surendered amount. Income Tax Act, 1961, Section 68 Income Tax Act, 1961, Section 4 INCOME TAX ACT, 1961 --Accounting method--Rejection Books of account prepared from seized papers--Books of account prepared after compiling loose seized papers, could not be rejected mainly treating it a device. Further, since Revenue has not treated same as books of records same could not be rejected. Further, assessee had furnished affidavit for preparing such books of account. Books of account as per section 2(12A) introduced w.e.f. 1-6-2001 means ledger, day book, cash books and other books which are kept in the written form or as printout of data stored in floppy disc, etc. In the common parlance the definition of books of account is the place where all the final information relating to a person or business are collected. The legal meaning as per Oxford Advanced Learner's Dictionary, the books of account means the written records of final affairs of a firm. The loose paper seized and compiled by the assessee is definitely a book of account. Therefore, it cannot be said that the compilation of business affairs prepared from the seized documents is not books of account, although not maintained in regular course of business. [Para 4.3] The provisions of section 145(3) was applied by the AO. The provision of section 145 can be applied when the AO is admitting the same as books of account only then and then the provision can be applied. If the AO is of the view that the compilation is not books of account, can the same be rejected at all by mentioning that he has not accepted them as books of account. When the CIT(A) has treated it as a book of account, now the only issue remaining is as to whether in the circumstance of the case, the same can be rejected or not. The provisions of section 145 speak about the reasons when the books of account can be rejected. The AO as well as the CIT(A) have not commented upon any of the situations as provided in the Act. The books of account were rejected mainly by treating it as device. [Para 5.1] The rejection of books of account is illegal and against the law. The Department themselves have not accepted them as books whether then these can be rejected or not, the same cannot be rejected. Therefore, books of account cannot be rejected which is prepared from the seized papers. [Para 5] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 2821 (Jod-Trib) : (2013) 157 TTJ 0001

Anil Kumar Tantia & Ors. v. ITO

INCOME TAX ACT, 1961

--Transfer of case--ValidityCo-ordinated investigation--For co-ordinated investigation and administrative convenience, group cases have been grouped with one AO and reasons for transferring cases have been recorded and conveyed to assessee, impugned order under section 127 was therefore, valid.

Income Tax Act, 1961, Section 127

INCOME TAX ACT, 1961

--Accounting method--Valuation of closing stockChange of method--Assessee was valuing closing stock of gold and silver on regular basis at the market rate. However, in the return submitted in compliance with provision of section 153A and notice under section 139/142(1) after search operations he changed the method of valuation of closing stock to weighted average cost price. AO rejected claim of assessee in respect of change in method of valuation and valued the closing stock at market price. Held: Not justified. Method of valuation of closing stock can be changed for bona fide reasons. Market rate of gold and silver fluctuates in hours and if market rate is applied for valuation of closing stock of gold and silver, it would tantamount to taxing notional income and as such, if wrong method of valuation of closing stock has been followed, it can be corrected by replacing it.

In the IT Act, there is no provision that method of valuation of closing stock once adopted cannot be changed. The basis of valuation can be changed if bona fide reason exists there. Therefore, the method of valuation of closing stock can be changed. What Tribunal finds in case of the appellant is that the assessee is a dealer of precious metals like gold and silver, market rate of gold and silver fluctuates rather in hours. If the market rate is taken in that case it will tantamount to taxing of a notional income. Further, the benefit of closing stock has to be given in the next year as opening stock. Hence, the method of valuation can be changed if reasonable cause or ground exists there. There is amendment in the IT Act by introducing provisions of section 145A. The valuation as per the IT Act in the light of judicial pronouncements in force at the time has been dealt with. Therefore, any of the methods for valuation of stock can be as provided under AS-2. Method of valuation changed by the assessee is permissible in the eyes of the law and the same is in accordance with the law as has been the pronouncement by the Supreme Court of India. [Para 2.11]

Income Tax Act, 1961, Section 145A

INCOME TAX ACT, 1961

--Income from undisclosed sources--Addition under section 68Amount found noted on seized paper --Where assessee surrendered certain sum found noted on seized paper in his return no further addition of same amount could be made under section 68. Moreover, seized paper is not books of account, as such no further addition could be made in respect of interest on already surendered amount.

Income Tax Act, 1961, Section 68

Income Tax Act, 1961, Section 4

INCOME TAX ACT, 1961

--Accounting method--Rejection Books of account prepared from seized papers--Books of account prepared after compiling loose seized papers, could not be rejected mainly treating it a device. Further, since Revenue has not treated same as books of records same could not be rejected. Further, assessee had furnished affidavit for preparing such books of account.

Books of account as per section 2(12A) introduced w.e.f. 1-6-2001 means ledger, day book, cash books and other books which are kept in the written form or as printout of data stored in floppy disc, etc. In the common parlance the definition of books of account is the place where all the final information relating to a person or business are collected. The legal meaning as per Oxford Advanced Learner's Dictionary, the books of account means the written records of final affairs of a firm. The loose paper seized and compiled by the assessee is definitely a book of account. Therefore, it cannot be said that the compilation of business affairs prepared from the seized documents is not books of account, although not maintained in regular course of business. [Para 4.3] The provisions of section 145(3) was applied by the AO. The provision of section 145 can be applied when the AO is admitting the same as books of account only then and then the provision can be applied. If the AO is of the view that the compilation is not books of account, can the same be rejected at all by mentioning that he has not accepted them as books of account. When the CIT(A) has treated it as a book of account, now the only issue remaining is as to whether in the circumstance of the case, the same can be rejected or not. The provisions of section 145 speak about the reasons when the books of account can be rejected. The AO as well as the CIT(A) have not commented upon any of the situations as provided in the Act. The books of account were rejected mainly by treating it as device. [Para 5.1] The rejection of books of account is illegal and against the law. The Department themselves have not accepted them as books whether then these can be rejected or not, the same cannot be rejected. Therefore, books of account cannot be rejected which is prepared from the seized papers. [Para 5]