2017 (11) TMI 1557 - HC - Income Tax

Court dismisses revenue's appeal on stock valuation, upholds ITAT's order. Emphasizes adherence to Section 145A.

The Court dismissed the revenue's appeal against the Income Tax Appellate Tribunal's order, which directed the Assessing Officer to adjust not only the ... Applicability of section 145A to the value of closing stock - Tribunal had held that the AO was not justified in adding Excise Duty only in closing stock of raw material and incidental goods and has accordingly directed the AO to compute total income by adding Cess, duty or tax paid not only in closing stock but also in purchases, opening stock and sales - Held that:- It is crystal clear that no such question of law arises out of the order of Income Tax Appellate Tribunal because Income Tax Appellate Tribunal has not deleted any addition made by AO but has directed the AO to recompute the assessee’s income after adjusting the values of opening stock, purchases, sales as well as closing stock and has directed the AO to verify the working submitted by assessee before Income Tax Appellate Tribunal. Applicability of section 145A to the value of closing stock on the ground of its overriding effect on the provisions of section 145. In this regard it is difficult to understand as to how the revenue can be said to be aggrieved by Income Tax Appellate Tribunal’s order, because the Income Tax Appellate Tribunal in expressed terms has already held that the provisions of section 145A has overriding effect on the provisions of section 145 but has further held that the said provisions are applicable not only on closing stock but on inventory i.e opening and closing stock both and even on purchases and sales. Thus, since the Income Tax Appellate Tribunal has already upheld applicability of section 145A, the substantial questions sought to be posed by revenue becomes purely academic. Issues:1. Appeal against consolidated order passed by the Income Tax Appellate Tribunal for multiple assessment years.2. Valuation of closing stock under Section 145A of the Income Tax Act, 1961.3. Dispute regarding the adjustment of Excise Duty in closing stock and its impact on profit calculation.4. Interpretation of the provisions of Section 145A and its overriding effect on Section 145.5. Applicability of Circular No. 772 dated 23/12/1998 issued by CBDT in relation to Section 145A.6. Binding nature of CBDT circulars on officers and persons executing the Income Tax Act.Analysis:1. The appeal was filed against a consolidated order by the Income Tax Appellate Tribunal for assessment years 2005-06, 2008-09, and 2009-10. The key issue revolved around the valuation of the closing stock under Section 145A of the Income Tax Act, 1961.2. The assessee, a private limited company engaged in tire manufacturing, contested the addition made by the Assessing Authority based on the under-valuation of closing stock. The method of accounting employed by the assessee included Excise Duty in the valuation of finished goods but net of Excise Duty for raw materials, stores, and spares, in line with accounting standard AS-2.3. The Income Tax Appellate Tribunal held that Section 145A overrides Section 145 and directed the Assessing Officer (AO) to adjust not only the closing stock but also opening stock, purchases, and sales with the Excise Duty paid. This was deemed necessary to prevent profit distortion and was supported by a decision of the Delhi High Court.4. The Tribunal's direction to recompute the total income by adjusting values beyond just the closing stock was found to be in accordance with the law and CBDT Circular No. 772 dated 23/12/1998, explaining the provisions of Section 145A. The Tribunal's decision was further backed by legal precedents establishing the binding nature of CBDT circulars on officers executing the Income Tax Act.5. The Court dismissed the revenue's appeal as it found no substantial question of law arising from the Tribunal's order. The Tribunal's remand to the AO for re-computation in line with Section 145A did not warrant any legal challenge, especially considering the Gujarat High Court's decision in a similar case.6. Ultimately, the Court declined admission of the appeal and dismissed all connected appeals, emphasizing the absence of any substantial legal questions. The judgment highlighted the importance of adhering to the provisions of Section 145A and the supporting CBDT circulars in income computation and stock valuation disputes.