Revisional interference and section 43B disallowance rejected where inventory valuation and deferred sales-tax treatment were legally permissible

Revisional interference under section 263 was held unsustainable where the Assessing Officer had accepted a legally permissible inventory valuation method that excluded inward freight, cartage and octroi from raw material cost; the closing stock enhancement was deleted. The Tribunal also held that deferred sales-tax liability under a valid subsisting Rajasthan deferment scheme was not yet due for repayment and therefore did not attract disallowance under section 43B; that enhancement was also deleted. The assessee succeeded on both substantive grounds, while the remaining grounds were dismissed as not pressed.

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Issues: (i) Whether the revision under section 263 could sustain enhancement of closing stock by adding freight and octroi to the valuation of raw material; (ii) Whether the revision under section 263 could sustain disallowance of deferred sales-tax liability under section 43B for the relevant assessment years.

Issue (i): Whether the revision under section 263 could sustain enhancement of closing stock by adding freight and octroi to the valuation of raw material.

Analysis: The assessee had consistently valued inventory at cost or realisable value, whichever was lower, and had excluded inward freight, cartage and octroi from the valuation of raw material. The same method had been followed in opening stock as well. The Tribunal followed its own decision in the connected matter involving identical facts and held that the Assessing Officer had rightly accepted the valuation method. In revisional proceedings, interference on this issue was not justified.

Conclusion: The enhancement of closing stock value was not sustainable and stood deleted in favour of the assessee.

Issue (ii): Whether the revision under section 263 could sustain disallowance of deferred sales-tax liability under section 43B for the relevant assessment years.

Analysis: The assessee was covered by the Rajasthan sales-tax deferment scheme under section 7(2B) of the Rajasthan Sales-tax Act, 1954, read with the relevant government notification and eligibility certificate. The Tribunal held that the deferment operated during the subsisting eligibility period and until the ceiling of deferred tax was reached. The deeming of payment upon conversion into loan, relied upon by the revisional authority, was not attracted on the facts because the certificate remained valid and the repayment stage had not arrived. The revisional authority had misread the scheme and the governing circulars governing section 43B.

Conclusion: The disallowance of deferred sales-tax liability was not warranted and the enhancement was deleted in favour of the assessee.

Final Conclusion: The revisions under section 263 were not sustainable on either contested issue, and the assessee succeeded on both substantive grounds while the not-pressed grounds were separately dismissed.

Ratio Decidendi: Revisional interference cannot be sustained where the Assessing Officer has adopted a legally permissible valuation method or where deferred sales-tax under a valid subsisting deferment scheme is not yet due for repayment and therefore does not attract disallowance under section 43B.

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