Loading judgment…
Facts
The assessee's assessment for AY 2017-18 included an addition of Rs. 2,92,632/- under Section 145A by the AO for not including taxes and duties in the closing stock valuation. The CIT(A) confirmed the AO's action for closing stock but held Section 145A inapplicable to the valuation of opening stock, leading to the current appeal.
Held
The Tribunal held that if the closing stock is revalued under Section 145A to include taxes and duties, then the opening stock must also be revalued on the same basis for consistency. The matter was remanded to the Assessing Officer to revalue the opening stock accordingly, after providing the assessee an opportunity of being heard.
Key Issues
Whether the revaluation of closing stock under Section 145A of the Income Tax Act necessitates a corresponding revaluation of opening stock on the same basis.
Sections Cited
143(3), 145A
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM
O R D E R This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 26.04.2023 for Assessment Year (AY) 2017-18.
Brief facts of the case are that the appellant is proprietor of a hotel in the name and style of Hotel Merlin International. The appellant filed the return of income for AY 2017-18 on 29.03.2018 disclosing income of Rs. 23,39,9040/-. Against the said return of income, the assessment was completed by the ACIT, Circle-2(1), Ittiachen Vazhapilly Lonappan Thrissur (hereinafter called "the AO") vide order dated 18.12.2019 passed u/s. 143(3) of the the Income Tax Act, 1961 (the Act) at an income of Rs. 31,94,970/-. While doing so, the AO made addition of Rs. 2,92,632/- invoking provisions of section 145A of the Act in respect of closing stock by holding that the appellant had not valued the closing stock by including the component of tax and duties on purchases.
Being aggrieved, an appeal was filed before the CIT(A), who wide the impugned order, while confirming the action of the AO further proceeded by holding that provisions of section 145A has no application in respect of valuation of opening stock.
Being aggrieved, the appellant is in appeal before me in the present appeal.
The learned A.R. submits that the approach of the AO applying provisions of section 145A only in respect of closing stock is arbitrary. The AO should have adopted the similar method, even for the purpose of valuation of opening stock. Therefore, it is prayed that valuation of opening stock should be adjusted in accordance with section 145A of the Act.
On the other hand, the learned Sr. DR submits that provisions of section 145A of the Act has no application in respect of valuation of opening stock.
Ittiachen Vazhapilly Lonappan 7. I heard the rival contentions of both the parties and perused the material available on record. 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 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.
Ittiachen Vazhapilly Lonappan 8. Respectfully following the ratio of the above decision, I am 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, I 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.
In the result, appeal filed by the appellant is allowed for statistical purposes.