2025 (7) TMI 25 - AT - Income Tax

ITAT allows appeals - PCIT revision under section 263 lacked jurisdiction, VAT addition requires corresponding stock adjustments under sections 145/145A

ITAT Cochin allowed both appeals filed by the assessee for AYs 2015-16 and 2017-18. In the first appeal, ITAT held that PCIT's revision under section 263 ... Validity of Revision u/s 263 - assessee has contested the order of the PCIT on the ground the PCIT has violated the principle of natural justice - HELD THAT:- The only recourse is to restore the matter to the file of the PCIT for examining the issue as held in the case of CIT(E) v. Love in Action Society [2021 (12) TMI 512 - KERALA HIGH COURT] Respectfully following the verdict of cited supra, we restore this matter to the file of the PCIT and give liberty to the assessee for raising all its legal contentions before the PCIT. Appeal filed by the assessee is allowed for statistical purposes. Addition of VAT on closing stock without increasing the value of purchases, sales and opening stock of goods as provided in clause 11 of section 145 - assessee has relied on the provisions of section 145A and the provisions of AS-2 as issued by ICAI - HELD THAT:- We are of the view that is the settled position of law that corresponding adjustments to be made to the purchase, sales and opening stock, in terms of the provisions of section 145A. Therefore the AO is directed to provide the same. The Appellate Tribunal (ITAT Cochin) delivered a consolidated order on two appeals filed by the same assessee for assessment years 2015-16 and 2017-18.In ITA No.373/Coch/2024 (AY 2015-16), the issue concerned the PCIT's revision of the AO's assessment under section 263 of the Income-tax Act, 1961 after completion of assessment under section 153A. The assessee contended that the PCIT lacked jurisdiction as no prior approval from the JCIT was obtained by the AO, and that the principle of natural justice was violated since the assessee could not appear before the PCIT. Following the jurisdictional High Court's ruling in CIT(E) v. Love in Action Society (2022) 442 ITR 358 (Ker.), the ITAT held that the matter must be restored to the PCIT for reconsideration, allowing the assessee to raise all legal contentions. The appeal was allowed for statistical purposes.In ITA No.389/Coch/2024 (AY 2017-18), the sole issue was the AO's addition of VAT on closing stock without corresponding adjustments to purchases, sales, and opening stock as mandated by clause 11 of section 145 and section 145A. The ITAT directed the AO to make corresponding adjustments in line with settled law and ICAI's AS-2, thereby allowing the appeal.Key holdings include: - PCIT's revision under section 263 post section 153A assessment requires proper jurisdiction and adherence to natural justice; failure to allow assessee's participation warrants restoration (citing CIT(E) v. Love in Action Society). - Under section 145A, corresponding adjustments to purchases, sales, and opening stock must accompany VAT adjustments on closing stock.The appeals were allowed accordingly.