TaxTMI 
TaxTMI 
2013 (7) TMI 311
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.... of closing stock of the assessee u/s 145 of the Act without properly appreciating the specific facts of the case. 2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in directing the AO to delete the unproved loan u/s 68 of the Act. 3. The appellant prays that the order of the CIT(A) being erroneous in facts and in Law be reversed and that of the Assessing Officer be restored." 2. Ground no. 1 pertains to the deletion by the CIT(A) of the addition made on account of increase in the value of closing stock u/s 145. 3. The facts are that the assessee is in the business of ship breaking industry for the past many years. In the year under consideration, the details were called for, but there was no ....
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....or breaking and since it was showing the sales, the assessee was doing its business and the loans thus procured were in the course of the business and therefore, interest of Rs. 50,28,695/-, which was claimed as an expenditure. It was also submitted before the AO that the ship, when it acquired in financial year 2005-06, was not purchased with borrowed funds. It was pointed out that the cost of the ship to the assessee was Rs. 4,98,23,865/-. The AO, on the other hand reworked the "closing stock" at Rs. 4,13,64,681/- and attributed 10% cost to it and made the addition of Rs. 41,36,468/-. 7. While framing the assessment, the AO noticed that there was increase of quantum of loan figures of the existing loans by Rs. 71,24,156/-. From the det....
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....ng stock. 1. Letter of Credit was extended, and cost of Rs. 2,27,568/- is added. 2. Exchange rate different Rs. 20,04,369/- which was paid. Refer annexure-IV of this letter copy of the account for the year ending 31.03.2007. Thus it is clear, that the L. C. was paid during the accounting year 2007 and whatever borrowing were made in the 2007. There was no purchase of any ship in this accounting year. The addition of proportionate of interest is uncalled for the valuation of the stock which is inconformity with section 145 of Income tax act. The act says all cost, cess, duties are to be added for the valuation of the stock. Addition of proportionate interest is the foreign body invented by assessing officer in valuing the stock whic....
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.... or incurred to bring the goods to the place of its location. Interest expenses do not form part of these adjustments. The ship was purchased in the financial year 2005-06 against LC. The value of LC commission, beaching charges and custom duty was included in the cost of the ship as and when they were incurred. Interest expenses cannot be allocated to the closing stock. (b) Any change in method of valuing the closing stock will make it imperative to revalue the opening stock in the same method. Therefore the brought forward opening stock also has to be adjusted in the same line. This will be a compensatory exercise and there will be no revenue impact. (c) Scrutiny assessment has been completed for the AY.2006-07 and 2007-08. The Asse....
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....ubmissions by the AR that in the preceding years the ship was detained a number of times in one pretext or another and the assessee got it released and conducted its business is proven and we can safely say that the AO erred in adding the interest to the closing stock, because the interest paid was in the course of business. But from the orders of the revenue authorities it is not clear, as to how and when the letter of credit was discharged. 17. It is also not very clear from the orders of both the revenue authorities as to how the addition u/s 68 was made, when all the persons, who had advanced loans to the assessee in the previous and/or earlier years, had been accepted. 18. On the other hand, the CIT(A) also accepted the submissio....