2007 (10) TMI 386 - HC - Income Tax

Appeal dismissed on undervalued stock, bonus shares, PF/ESIC payments.

The appeal challenging the undervaluation of closing stock was dismissed as the High Court found no error in the Tribunal's decision to allow the change ... Valuation of stock- Capital or Revenue- Tribunal directing the deletion of addition made on account of the undervaluation of the closing stock by changing the method of accounting of the work-in-progress. Held that- there was a bona fide need for change of method of accounting. - Tribunal directing the deletion of the addition I connection with the issue of bonus share. Held that- the expenditure incurred on the issue of bonus share would be revenue expenditure and consequently would be allowable. Tribunal deleting the disallowance of PF/ESIC made after the due date of payments but within the grace period allowed under the relevant statutes. Held that- the Commissioner (Appeals) had recorded a finding that the entire amount towards the employer’s provident fund contribution and employee state insurance contribution was paid within the grace period provided by the relevant statute and as such that payment could be said to be within the due date. The payment could not be disallowed. Issues:1. Undervaluation of closing stock in accounting method.2. Addition of expenses incurred in issuing bonus shares.3. Disallowance of PF/ESIC payments made within the grace period.Undervaluation of Closing Stock:The appeal questioned the Tribunal's decision to confirm the deletion of an addition of Rs. 62,84,720 due to undervaluation of closing stock by changing the accounting method. The Commissioner (Appeals) found a bona fide need for the method change, supported by record evidence. The Tribunal, citing precedent, upheld this finding, noting the subsequent years' consistency and lack of dispute by the Assessing Officer. The High Court agreed that the question of law did not arise, as no evidence contradicted the lower authorities' decision based on bona fide belief.Expenses in Issuing Bonus Shares:Regarding the expenses of Rs. 83,900 for issuing bonus shares, the counsel referred to a Supreme Court judgment distinguishing between new share issuance and bonus shares. The Supreme Court ruled that expenses for bonus shares are revenue expenditure and thus allowable. Citing this precedent, the High Court concluded that the question framed did not arise, aligning with the Supreme Court's distinction.PF/ESIC Payments within Grace Period:The Commissioner (Appeals) found that PF/ESIC contributions were paid within the grace period provided by statutes, deeming them within the due date. The matter was referred back to the Assessing Officer for verification. The counsel cited a Madras High Court judgment and a Delhi High Court judgment supporting the view that payments within the grace period are considered timely. The High Court also referenced its own decision and concluded that if payments are made within the grace period, they should be allowed as deductions. Consequently, the appeal was dismissed on this issue as well.