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Facts
The assessee, a partnership firm, filed its return for AY 2017-18 declaring a total income of Rs. 31,92,225/-. The Assessing Officer (AO) completed the assessment at Rs. 93,69,598/-, making additions for unvalued inventory (Rs. 7,53,110/-) and for disbelieving sundry creditors (Rs. 25,75,000/-) and Rs. 28,49,258/- for failure to prove genuineness of creditors.
Held
The Tribunal held that for revaluation of closing stock, the opening stock must also be revalued on the same basis, citing precedent. Regarding additions on account of cash credits, due to additional evidence filed by the assessee, the matter was restored to the AO for fresh assessment.
Key Issues
Whether the AO was justified in revaluing closing stock without revaluing opening stock, and whether the additions on account of cash credits required further examination.
Sections Cited
145A, 143(3)
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI SONJOY SARMA, JM
Assessment Year: 2017-18 Chakolas Interfurn .......... Appellant Town Hall Road, Thirussur 680020 [PAN: AABFC5355R] vs. ACIT, Circle – 2(1), Thrissur .......... Respondent Assessee by: Shri V. Venugopalan, CA Revenue by: Smt. Leena Lal, Sr. D.R. Date of Hearing: 04.06.2025 Date of Pronouncement: 05.08.2025 O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 24.03.2025 for Assessment Year (AY) 2017-18.
Brief facts of the case are that the appellant is a partnership firm. The return of income for AY 2017-18 was filed on 24.10.2017 declaring total income of Rs. 31,92,225/-. Against the said return of income, the assessment was completed by the ACIT, Circle-2(1), Thrissur (hereinafter called "the AO") vide order dated 16.12.2019 Chakolas Interfurn passed u/s. 143(3) of the Act at total income of Rs. 93,69,598/-. While doing so, the AO made addition of Rs. 7,53,110/- u/s. 145A of the Act by holding that the appellant had not valued the inventory by including the component of tax and the AO also made addition of Rs. 25,75,000/- disbelieving the sundry creditors and Rs. 28,49,258/- for failure of the assessee to prove the genuineness, creditworthiness and identity of the creditors.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the addition on account of sundry creditors of Rs. 25,75,000/- and also confirmed the addition on account of Rs. 7,53,110/- on account of under valuation of closing stock shown by the appellant.
Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.
We have heard the rival contentions and perused the material available on record. Grounds of appeal Nos. 2,3 & 4 challenges the addition u/s. 145A of the Act. Provisions of section 145A as inserted by Finance Act, 1998 w.e.f. 01.04.1999 amended by Finance Act (2) w.e.f. 01.04.2010 provides that valuation of purchases, sales and inventory shall be made in accordance with the method of accounting regularly employed by the assessee and such valuation shall be further adjusted to include the amounts of tax, duty, cess or any fees actually paid or incurred by the appellant to bring the goods Chakolas Interfurn to the place of location and conditions as on the date of valuation. It is undisputed fact that in the present case, valuation of inventory was not adjusted to include the amount of any tax or duty. Therefore, the AO had rightly revalued the closing stock by adjusting the closing inventory to include the amount of tax or duty actually paid or incurred by the appellant. There is no dispute with regard to computation of valuation of the closing stock as adopted by the AO. However, I find merit in the contention of the appellant that when the AO revalued the closing stock, he is bound to revalue the opening stock on the same basis. This view is supported by the decision of the Hon’ble Delhi High Court in the case of CIT v. Mahavir Alluminium [2008] 297 ITR 77 wherein the Hon'ble High Court following the ratio of the Privy Council in the case of CIT vs. Ahmedabad Cotton Mfg. Co. AIR 1930 PC 56, wherein it was observed that it was necessary to make adjustments in opening stock, when closing stock is revalued.
Respectfully following the ratio of the above decision, we are of the considered opinion that valuation of the opening stock is also required to be revalued on the same basis as adopted for revaluation of closing stock and, therefore, we remand the matter back to the file of the AO to revalue the opening stock as well on the same basis as adopted for revaluation of the closing stock after affording opportunity of being heard to the assessee. These grounds of appeal stand partly allowed for statistical purposes.
Chakolas Interfurn 7. Ground of appeal Nos. 5, 6 & 7 challenges the addition confirmed by the CIT(A) on account of cash credits. Since the appellant had filed additional evidences before us for the first time to prove creditworthiness, genuineness and identity of creditors, the matter is restored back to the file of AO for fresh assessment on the issue in accordance with law after affording reasonable opportunity of hearing to the appellant.
In the result, the appeal filed by the assessee stands partly allowed for statistical purposes.