COMMISSIONER, INCOME TAX RAIPUR vs. M/S C.R.VIRMANI and CO. RAIPUR
What did the High Court hold?
The High Court held that the appeal did not involve any substantial question of law. The Tribunal's finding that the AO's action in making the addition by adopting the accountant's higher valuation of closing stock was incorrect was upheld. The Court reasoned that the Tribunal had carefully considered the factual explanation and evidence. The Tribunal's observation that for AY 1990-91, the accountant's valuation was unreliable was noted. For the year under consideration (AY 1991-92), the Tribunal found that the assessee's method of valuing closing stock was acceptable, especially considering the increased turnover and accepted GP rates in subsequent years. The Court also addressed the assessee's contention regarding the impact of opening stock, stating that while an increase in opening stock was consequential, it would not affect the GP rate calculated by the assessee based on representative sales instances. Therefore, the Tribunal was justified in deleting the addition. The appeal was dismissed in limine.
What were the facts?
The Revenue (Commissioner of Income Tax) filed an appeal under Section 260A of the Income Tax Act, 1961, against an order dated May 12, 2003, passed by the Income Tax Appellate Tribunal (Tribunal). The Tribunal had dismissed the Revenue's appeal, thereby upholding the order of the Commissioner of Income Tax (Appeals). The dispute pertains to an addition of Rs. 29,42,170/- made by the Assessing Officer (AO) to the total income of the assessee, M/s C.R. Virmani & Co., for the assessment year 1991-92. The AO did not accept the assessee's explanation and treated the amount as the assessee's income. The CIT(A) deleted this addition, and the Revenue's subsequent appeal to the Tribunal was also dismissed.
What were the issues?
1. Whether the Tribunal was justified in dismissing the Revenue's appeal, and whether the appeal involves any substantial question of law within the meaning of Section 260A of the Income Tax Act, 1961? Assessee's Contentions: - The assessee argued that the method of valuation of closing stock followed by them and the accountant was identical for the year under consideration. The Tribunal had previously accepted the assessee's method over the accountant's valuation for the preceding year (AY 1990-91). - The assessee contended that any addition sustained by the Tribunal for AY 1990-91 would increase the closing stock value for that year, which in turn would increase the opening stock for the year under consideration, leading to a potential reduction in the Gross Profit (GP) rate for the current year. Revenue's Contentions: - The Revenue argued that the Tribunal erred in deleting the addition made by the AO, which was based on the accountant's valuation of closing stock. They contended that the assessee's explanation and method of valuation were not acceptable. - The Revenue also argued that the Tribunal and the CIT(A) failed to consider the substantial question of law involved, particularly concerning the AO's power to make additions based on the accountant's valuation and the assessee's explanation.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
order of the Court was passed by Manohar Sapre. J. Delay in filing the appeal is ignored.
Heard.
This is an appeal filed by the Revenue (Commissioner of Income Tax) under Section 260-A of the Income Tax Act, against order dated 12.5.2003 passed by Income Tax Appellate Tribunal (for short called 'the Tribunal') in ITA No.203/Nag/96. 4. By impugned order, the Tribunal dismissed the appeal filed by the Revenue and upheld the order of the Commissioner of Income Tax (Appeals).
So the question that arises for consideration in this appeal is whether the Tribunal was justified in dismissing the Revenues appeal or/ and whether this appeal involves any substantial question of law within the meaning of Section 260-A ibid.
The issue relates to the addkion of Rs.29,42,170/- which was made by the Assessing Officer to the total income of the assessee in the course of assessment proceedings initiated against the assessee under the Act for the assessment years 1991-92. The A.O. did not accept the explanation offered by the assessee and treating the said amount to be that of the assessee, added in its total income. The assessee filed appeal before CIT (Appeals). The CIT (Appeals) allowed the appeal and deleted the addition of Rs.29,42,170/- made by the A.O. The Revenue felt aggrieved, filed appeal to Tribunal against the order of CIT (Appeals). The Tribunal again in detail went into the factual explanadon offered by the assessee as also appreciated the evidence tendered by. the assessee and dismissed the app.eal of the Revenue. In paras 8, 9 SE 10 of the impugned order, the Tribunal has observed thus: '
We have considered the rival subinissions and also perused the relevant inaterial on record to which our attention was drawn during the course of hearing. It is observed that the impugned addition was inade by the AO to the total incoine of the assessee on the basis of valuation of closing stock made by the accountant of the assessee Hrm in the inventory prepared and Hled during the course of assessment proceedings at Rs.54,30,670/- against the value ofclosing stock shown by the assessee in the trading account at Rs.24,88,500/-. It is also observed that a similar issue arose for consideration before the Tribunal in the immediately preceding year i.a. AY 1990- 91 wherein the value shown by the accountant in the inventory prepared by hiin of the closing stock was adopted by the AO as against the value shown by the assessee in the trading account and after considering all the facts and circumstances of the case as well as the legal position einanating froni the various judicial pronouncenients discussed in it's order, the Tribunal held that if a comparison is made between the valuation given by the accountant and the assessee hiniself on the sanae, it is seen that the account's valuation cannot relied upon at all. It is thus clear that the Tribunal has accepted the method adopted by the assessee for valuing the closing stock and not the one by which the accountant had valued the closing stock in the inventory prepared by him. Before us, the learned counsel for the assessee has contended that identical methods were followed by the assessee as well as the accountant for the purpose of valuation of closing stock in the year under consideration also and this position
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considering that the turnover of the assessee had increased substantially during the year 1990-91 as coinpared to the assessinent year 1988-89 & 1989-90. In the year under consideration, the assessee has declared a GP rate of 7.38% and considering that the sale in A.Y. 91-92 has increased by niore than 50% as compared to A.Y. 1990-91 and that the GP rate of 3.4% and 3.82% has already been accepted by the departnient in assessment years 1992-93 & 1993-94, it can not be said t hat the saine is unreasonably low to warrant any trading addition. In this regard, the learned counsel for the assessee has subniitted before us that the trading addition sustained by the Tribunal was bound to increase the value of the closing stock for AY 1990-91 going by the method ofvaluation of closing stock followed by the assessee and since the enhancenient of the value of closing stock for AY 1990-91 was to be reflected in the opening stock for the year under consideration, the assessee is actuaUy entitled for the benefit by way of reduction in GP ia the year under consideration. We find it difficult to fully accept this contention of the learned counsel for the assessee. It is true that the trading addition sustained by the Tribunal in A.Y. 1990-91 had the consequential effect of increasing the value of closing stock shown by the assessee in that year as per the method adopted by the assessee of valuing the closing stock as a balancing figure and to that extent, even the value of opening stock for the year under consideration ought to have beeu increased. However, the assessee would not be able to claim any benefit by way of reduction in the GP to that extent simply because by assessee's own niethod, the GP has been adopted by actually analysing the representative sale instances of the year under consideration. It is thus clear that any increase in the value of opening stock for the year under consideration will not have any effect on the GP shown in the trading account but the saine will go to increase the value of the closing stock which is a balancing figure shown in the trading account. As such, considering all the facts and circumstances of the case and for the reasons given hereinabove, we are of the opinion that the action of the AO in inaking the inipugned addition by adopting the higher value of closing stock on the basis of valuation inade by the accountant was not correct and the learned CIT(A) was fully justified in deleting the addition niade by the AO on this count. His impugned order on this issue is therefore upheld and the Ground No.l raised by the Revenue is dismissed."
•^no sp'eu.i ussq SA^L[ o^ pres sq u^o Suipug qons uo A'B^ jo uopssnb ^Bptie^sqns jo uop'einuijoj JQJ SSBO 'e usq^ 'A'B^ jo uoisiAOjd AU-B ^sure§T3 punoj ussq p'eq ^i ^'eLp jo 'uoisnpuoo qans o^ qo'esj JSAS pinoo A}ra'edT3o ^pTpnf SS^-ISA^ jo ueui ^uaprud ou ^BLp ^us^xs sq^ o^ Suiuos^aj pjnsq^ uo pss^q jo 'guiuos^sj ou uo pss^q ussq p^q fi fB\^ 10 '^osfqns aq^ s^oi/ ap Apjpua ussq p^q papjoosj juipug ^n^o^j sq^ usqM AIUO si ^; '^ou jo 'ps^dsoo^ ApqSu S^M -^i jaq^sqA jo 'pBq JO pooS si punquj, sq^ o^ soiie^dsoo^ pug ^ou pip qoiqA pue snusAsy Aq psjsjjo uop'BLre^dxs J3q^9L[A o^ sv ^no pug o^ ASIA B LRIM Aiinbui I'Bn^o'Bj jsq^ou'e ^sX pioq ortou ap up3§B ^ou p;noA 'piqi V-09S uopoag jspun uopoipsunf 3~tV[]3ddv s^i ui ^jnoo siq^ 'sp-iOM -taipo ui •qons S'B Mie\ jo snssi ^BpuB^sqns ALTB SAIOAUT ^ou p^noM ^i usqt ''o'v ^q spBui uopippp psugndiui sq^ ps^spp 'AiSuipjooo^ puB (anusAsy) lu'ensddB SL[^ jo uoi^Lre(dx3 sip ^dsoo'e ^ou pip ^Bunquj, SI.P puB (s^sddy) 1,10 sq^ souo 's-iojsjsqi 'uoiuido jno ui •OT •jspjo L[ons jo ^no SUTSU'B \B3dde we ui piqi V09Z uoposg jo guiiresui avft uiq^iM M.i3\ jo uopsanb ^pire^sqns v s^n^psuoo ^ou saop psgua^qo USL[M Suipug L[ong •sou^dsoo^ s^i joj Suipug v pspjoosj U3L[^ pWS \V3^3p UI 33U3pTA3 3q^ q^TA p3^dn03 3388388^ Aq p3-I3JJO uop^u^dxs sq-t SUILU'BXS pip punquj, sq: pu-e (spsddv) >LIO sq: fev^ Aoqs o^ 08 ptnoA Suipuij psugnduii sq; jo psn-iad 'eo "^inoo qSlH aq^ uo Suipuiq si sjn^'eu ui tuaj-inouoo Suraq uop'eire^dxs L[ons uo pspjoosj Suipug v '^USAS qons ui usq^ 'punquj, 3L[^ pui3 (spsddy) J,IO Apui'eu sspuoLpn'e s^-e^addB oa'^ Aq soLre^dsooB jo Aq^jOAY sq o^ punoj si uopBUBidxs sip aouo 'Apjiqj, •sasssss'e 3-cft Aq psjajjo uop-BLreidxs jo sissq sq^ uo SSOUSJSJUT ^n^o-ej A-BJp LTBO jou ssnssi ^n^o-Bj jo uopBuim-exa sq^ 33[B^-[3pun i^sdd^ siq^ UT ureSp ^ouireo ^-inoQ siq^ 'Aipuoosg -M^ jo uopssnb ^epire^sqns ss3i qonui ftiS\ jo uopsanb &W3 ^ou pLre ^OBJ jo uopssnb 3jnd 13 S1 3ST33 SlVfl UI p3ApAUt 81 t'BqM '33V]d ^sjg sqt ui •g •^OV sq^ jo V-09Z uoposg jspun \e3ddv siq^ pspj s-eq snusAay sq^ 'jsp-io siLp ^sureg-B si ^i '^, G^\/'
We, thus, do not find any ruerit in the appeal. It fails and is hereby dismissed in limine by holding that it does not involve any substantial question of law. *
No cost. Abhay Manohar Sapre Judge t) G.Minhajuddin Judge <i
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