AI Drafter 
TaxTMI 
TaxTMI 
2017 (3) TMI 1184
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....ly added the amount of rupees one crore in the income of assessee which has been reversed by Appellate Authorities? (II) Whether any disturbance of closing stock have to be carried out profit and loss account and while reversing the order passed by Assessing Authority, the Appellate Authority and Tribunal committed substantial illegality by not recording finding of each and every issue dealt with by the Assessing Authority?" 3. Facts in brief, necessary for adjudication of the dispute, are as under:- 4. The Assessee is a builder. It filed return of income for A.Y. 2006-07 on 28.11.2006 showing total income of Rs. 39,25,172/-. Pursuant to notice issued under Section 143(2) dated 28.09.2007, Assessee appeared before Deputy Commissioner of Income Tax - Range I Lucknow (hereinafter referred to as "Assessing Authority i.e. A.A.") and produced books of accounts and other details. Balance sheet tallies at Rs. 1,20,44,000/-. No fresh unsecured loan was taken during the year. Assessee had shown Revaluation Reserve of rupees one crore. Assessee explained this entry stating that it has a plot of land at Quinton Road, Lucknow, which was being disclosed in current assets for the ....
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....rsion of current asset to fixed asset is fraudulent; in other words, the AO has not doubted the fact of such conversion. In such circumstances, I am of the view that the above entry has neither reduced the appellant's income of the year, nor has it given rise to any income- ''deemed' or ''real'. It is well settled that an entry in the books of accounts alone is not determinant of an assessee's liability towards tax. 3.3.3. I have, however, given careful consideration to the observations of the AO as contained in the assessment order. I am of the view that to the extent part of the inventory is transferred to the fixed assets A/c, the cost of the same has to be accounted for by the appellant as part of its sales; this is so because a part of the inventory, instead of being sold to a customer, is being used for captive consumption. I find that the book value of the above plot transferred from its inventory to the fixed assets A/c is Rs. 5,00,750/- which would be considered to be sale to itself and would, accordingly, form part of the appellant's income of the year. 3.3.4. In view of the facts discussed above, out of the total addi....
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.... the addition of Rs. 5,00,750 out of the addition of Rs. 1 Crore made by the AO. In the instant case, it is not in dispute that the value of the plot shown under the head ''Current Assets' was Rs. 5,00,750. Therefore, to that extent, the ld. CIT(A) was justified to sustain the addition since the Current Assets were to be reduced by that amount by increasing the income considering the same to be sold to the assessee itself. We, therefore, considering the totality of the facts, are of the view that the ld. CIT(A) was justified in deleting the addition to the extent of Rs. 94,00,250/-. In that view of the matter, we do not see any merit in this ground of the departmental appeal." 10. Cross objection of Assessee against retention of addition of Rs. 5,00,750/- was rejected by Tribunal. Only Revenue has come up in appeal before this court. 11. Shri Manish Mishra learned counsel for Revenue submitted that Assessee has converted stock in trade into capital asset and it can not move directly to the balance sheet without routing through profit and loss account. The impact of entry is that the Assessee managed to fix cost price of asset in question at Rs. 1,00,00,000/- while....
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.... A.Y. 2007-08 stood enhanced to Rs. 1,05,00,750/-. The said income (notional income) was already added in A.Y. 2007-08, addition thereof in A.Y. 2006-07 would amount to double addition. 15. From the rival submissions one thing is clear that there is no income received or accrued to the assessee in any form. Any immovable property which was already subject to disclosure in accounts, its notional value termed as market value was enhanced by Assessee and corresponding entries have been made. In what manner, it will reflect in lower rate of tax in capital gain vis-a-viz sale of stock in trade, we find it difficult to understand, and learned counsel appearing for Revenue also could not explain or demonstrate the same. 16. Tax management which is not contrary to any statutory provision does not constitute tax evasion. Every person is entitled to arrange his affairs to reduce brunt of taxation to the minimum. Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed, is not prohibited. Effectiveness of device depends not upon considerations of morality, but on the operation of Act, 1961. 17. In Jiyajeerao Cotton Mills Ltd. Versus Commr. Of In....
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....ferring entry from current asset to fix asset, reflected market value in the schedule of Fixed assets and similar amount was credited to fix Reserve account. It could not be shown as to how this exercise would have resulted in evasion of tax. There is no receipt or accrual of income nor deemed receipt or deemed accrual of income. In our view, A.A. has assumed a hill when there was not even a mole. That is how A.A. created entire chain of dispute for a small matter of transfer of entry. 23. We are informed by learned counsel for the appellant that there are some accounting standards prescribed by recognized body of Accounting like Institute of Chartered Accountants of India that no amount can be carried to any Reserve account or no Reserve can be created without moving through profit and loss account and profit appropriation account but none such prescribed principles could be shown to us. 24. Process of revaluation of stock by itself can not bring in any real profit as held in C.I.T. versus K.A.R.K. Firm 1934(2) I.T.R. 183 (SC) and C.I.T. versus Hind Construction Limited 1972 (83) I.T.R. 211 (SC). Moreover, what is taxable under the income tax law is only real income as held ....