RAJASTHAN STATE INDUSTRIAL DEVELOPMENT AND INVESTMENT CORPORATION LIMITED, vs. ASSISTANT COMMISSIONER OF INCOME TAX

Facts

The assessee, Rajasthan State Industrial Development and Investment Corporation Limited (RIICO), a state government enterprise, acquired land for developing industrial areas. For Assessment Year 2006-2007, RIICO valued its closing stock of land under litigation or encroachment at Rs. NIL, citing inability to develop or realize these portions. This valuation policy was disclosed in notes to accounts and approved by the Board and shareholders. The Assessing Officer (AO) added Rs. 10,42,85,000/- to the total income, holding that the value of such land cannot be NIL and that RIICO changed its valuation method. The CIT(A) upheld the AO's view. The Income Tax Appellate Tribunal (ITAT) remitted the matter back to the AO for fresh adjudication, citing previous decisions in RIICO's own cases for Assessment Years 2007-08 and subsequent years where similar issues were remanded.

Held

The High Court held that no question of law arises from the ITAT's order. The Tribunal, in its impugned order dated 28.05.2018, had remitted the matter back to the Assessing Officer (AO) for fresh adjudication. This decision was based on previous orders of the Tribunal in RIICO's own cases for Assessment Year 2007-08 and subsequent years (2009-10 to 2012-13). In those prior decisions, the Tribunal had also restored similar issues concerning the valuation of encroached/litigated land to the AO for proper verification and enquiry. The Tribunal directed the assessee to produce all relevant facts regarding each piece of land under litigation/encroachment to determine its actual status and value. The High Court found no reason to interfere with this consistent approach of the Tribunal, which aimed to ensure proper verification by the AO before a final decision on the merits. Therefore, the appeal was dismissed.

Key Issues

1. Whether the Tribunal erred in remitting the matter back to the Assessing Officer concerning the valuation of encroached/litigated land at NIL, instead of deciding the issue on merits? (Question of law) 2. Whether the Tribunal failed to appreciate that valuing closing stock of encroached/litigated land at NIL is justified, given the principle of prudence and the nature of the land (e.g., cremation ground, temple land, tribal hostel land, under forest department control)? (Mixed question of law and fact) Assessee's Contentions: - The ITAT failed to appreciate that valuing closing stock of encroached/litigated land at NIL is justified based on the principle of prudence (cost or market value, whichever is lower). - The assessee changed its valuation method from actual direct development expenditure to NIL for encroached/litigated land because it was not saleable, a fact noted by statutory auditors. - The ITAT failed to consider specific details of lands under encroachment/litigation, which were not available for industrial development. - The valuation method was approved by the Board of Directors and shareholders. - The Comptroller & Auditor General (C&AG) was satisfied with the reply for AY 2010-2011 and dropped the audit para. - As per Accounting Standard 2, closing stock should be valued at cost or market value, whichever is less; since the land was not saleable, NIL valuation is proper. Revenue's Contentions: - The judgment does not record specific contentions from the revenue's side regarding the issues.