INCOME TAX ACT, 1961

Section 143(3)

Assessment - Addition on account of valuation of stock - Assessee reflected low value of closing stock -

Assessee-company was engaged in trading of cloth and job work. During assessment proceedings, AO alleged that the assessee reflected low value of closing stock and therefore, there was shortage in the closing stock. Assessee claimed that finished cloth was damaged due to heavy rain and flood, however, the AO did not accept such claim as no evidence could be furnished by the assessee in support of the same. Assessee further claimed that sales tax returns filed with Commercial Tax Department, were accepted and therefore, closing stock should be accepted as such, but said claim was also rejected on the ground that onus was on the assessee to substantiate its claim. Accordingly, AO made an addition on account of valuation of stock. On appeal, CIT (A) confirmed the action of the AO. Held: Assessee maintained proper books of account, which were subjected to tax audit. No infirmity had been pointed out by AO in physical stock as maintained by the assessee. Assessee valued the stock on the basis of net realizable value. Further, the assessee was registered with Commercial Tax Department and was filing its sales tax returns. Apparently, trading results had been accepted by the Commercial Tax Department and there was no adverse material on record, in that regard. In such a case, shortage of stock as mathematically computed by the AO could not be upheld. Furthermore, in view of decision of High Court in the case of CIT v. Anandha Metal Corporation (2005) 273 ITR 262 (Mad) : 2005 TaxPub(DT) 0385 (Mad-HC), unless competent authority under Sales Tax Act differs with closing stock of assessee, the return accepted by Commercial Tax Department is binding on Income Tax authorities. Therefore, AO has no power to scrutinize the return submitted by the assessee to the Commercial Tax Department, which has been accepted. Hence, in the instant case, the AO was not justified to go beyond the value of closing stock declared by the assessee and accepted by the Commercial Tax Department. Hence, addition made on account of valuation of stock was deleted.

Relied:CIT v. Anandha Metal Corporation (2005) 273 ITR 262 (Mad) : 2005 TaxPub(DT) 0385 (Mad-HC)

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2014-15

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