CIT, PATIALA vs. IMPROVEMENT TRUST PATIALA

Revenue has preferred this appeal under Section 260A of the Income Tax Act, 1961 (for short, “the Act”) against the order of the Income Tax Appellate Tribunal, Chandigarh Bench `B', Chandigarh dated 08.05.2008 passed in I.T.A. No.809/Chandi/2007 in the case of Assistant Improvement Trust, Patiala for the Assessment Year 2004-05, proposing to raise following substantial questions of law :- “1. Whether on the facts and in the circumstances of the case, the ITAT was correct in law in directing the A.O. to re-compute the income by adopting value of opening and closing stock at cost or market price, whichever is lower, ignoring the fact that the assessee could not alter the opening stock by adopting a different method of valuation of stock ?

Whether on the facts and in the circumstances of the case, the ITAT was legally justified in accepting the closing stock as declared in the revised return ignoring the fact that the provisions of section 139(5) of the Act permits revising of return only if there was any omission or wrong statement in the original return and that the said section does not permit revising of return for altogether changing the method of valuation of stock ?”

The assessee is an institution registered under Section 12 AA of the Act. It filed its original return for the assessment year 2004-05 on 01.11.2004. Subsequently revised return was filed on 31.03.2006, which was rejected by the Assessing Officer on the ground that the assessee has changed the method of accounting by adopting market price for valuation of closing stock, as against the market price, which was being regularly followed in the earlier assessment years. The CIT (A) allowed the appeal of the assessee. It was held :- “I have considered the facts of the case and rival submissions. It is very clear that Registration under section 12 AA of the Income Tax Act has been granted and revised return filed in response to that have been accepted & income has been taken from the said revised return. Moreover, it is an accounting principle that opening & closing stock has to be valued on the same basis. The Assessing Officer is not permitted to adopt the closing stock valuation from the original return without varying the opening stock. The profit during the year should be accepted on the basis of opening stock valued at cost in the revised return & hence the profit cannot artificially increase with the valuation of closing stock at market rate. Therefore, Assessing Officer is directed to re-compute the income by adopting value of closing stock at cost or market price whichever is lower. Hence, to this extent, appellant's ground is allowed.”

The Tribunal upheld the said view.

We have heard leaned counsel for the Revenue.

It is clear that the revised return was within the prescribed time. The assessee has only made correction by bringing closing stock in consonance with the principle, on which opening stock was valued, so that the income can be correctly arrived at. The view taken by the CIT (A) as well as the Tribunal cannot be held to be perverse.

No substantial question of law arises.

The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE December 22, 2008