BAL MUKAND AGGARWAL PROP. BAL IRON & STEEL CO. V. COMMISSIONER OF INCOME TAX (APPEALS), PATIALA, PUNJAB

ITA/68/2012

AI Insights

The case involves Bal Mukand Aggarwal, the proprietor of Bal Iron and Steel Co., who appealed against the decision of the Commissioner of Income Tax, Patiala, regarding the valuation of closing stock for tax purposes. The ITAT had previously found that the Assessing Officer (A.O.) correctly valued the closing stock at market price, which was higher than the declared amount by the Assessee. The main legal issues revolved around the consistency and regularity of the method of valuation of stock and the application of Section 145 of the Income Tax Act, 1961. The High Court examined whether the ITAT's decision was perverse and whether the principles laid down in CIT vs. British Paints India Ltd. were applicable as a binding precedent.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 680453 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 05-08-2024
• Assessment Year: misc
• Other Referred Cases: CIT vs. British Paints India Ltd. (1992) Supp.(1)SCC 55
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: AMANPREET SINGH
• Assessee Lawyers: DIVYA SURI; SACHIN BHARDWAJ
• Keywords: Income Tax; Market price; Valuation of stock; Average price; Consistency in valuation method
• Section: 145

Judgement Text

" 214 IN THE HIGH COURT OF PUNJAB AND HARYANA AT BAL MUKAND AGGARWAL PROPERITOR, BAL IRON AND STEEL CO. COMMISSIONER OF INCOME TAX, PATIALA (PUNJAB) CORAM: HON'BLE MR. JUSTICE HON'BLE MR. JUSTICE Present Mr. Divya Suri, Advocate Mr. Sachin Bhardwaj, Advocate for the Mr. Amanpreet (A.P.) Singh, Senior Standing counsel, for the respondent. *** SANJEEV PRAKASH SHARMA 1. This this Court vide order dated 29.04.2014 2. The (hereinafter referred as “the ITAT”) found that the Assessing Officer the closing stock has been undervalue IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA Date of Decision: BAL MUKAND AGGARWAL PROPERITOR, BAL IRON AND STEEL CO. V/s. COMMISSIONER OF INCOME TAX, PATIALA (PUNJAB) HON'BLE MR. JUSTICE SANJEEV PRAKASH SHARMA HON'BLE MR. JUSTICE SANJAY VASHISTH Mr. Divya Suri, Advocate and Mr. Sachin Bhardwaj, Advocate for the Mr. Amanpreet (A.P.) Singh, Senior Standing counsel, for the respondent. *** SANJEEV PRAKASH SHARMA, J. (Oral) This Appeal was admitted on the this Court vide order dated 29.04.2014:- (i) Whether under the facts and circumstances of the case, the Tribunal order is unsustainable and perverse, while overlooking the ‘Material on Record' and rejecting the consistency and regularity of the method of valuation, particularly while there is an err application of jurisdiction, without invoking the of Section 145 of the Income Tax Act, 1961? (ii) Whether the decision of CIT vs. British Paints India Ltd. (1992) Supp.(1)SCC 55 is a binding precedent for the principles of law regarding the method of valuation stock?” The Income Tax Appellate Tribunal, Chandigarh Bench ‘B’ (hereinafter referred as “the ITAT”), in its order dated 27.09.2011 found that the Assessing Officer (A.O.) had reached to the conclusion that sing stock has been undervalued by showing item purchased by IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA-68-2012 (O&M) Date of Decision: 05.08.2024 BAL MUKAND AGGARWAL PROPERITOR, BAL IRON AND STEEL CO. .…...Appellant V/s. COMMISSIONER OF INCOME TAX, PATIALA (PUNJAB) .....Respondent SANJEEV PRAKASH SHARMA SANJAY VASHISTH Mr. Sachin Bhardwaj, Advocate for the appellant. Mr. Amanpreet (A.P.) Singh, Senior Standing counsel, Appeal was admitted on the following questions of law by Whether under the facts and circumstances of the case, the Tribunal order is unsustainable and perverse, while Material on Record' and rejecting the consistency and regularity of the method of valuation, particularly while there is an erroneous assumption and application of jurisdiction, without invoking the provisions of Section 145 of the Income Tax Act, 1961? Whether the decision of CIT vs. British Paints India Ltd. (1992) Supp.(1)SCC 55 is a binding precedent for the regarding the method of valuation of Income Tax Appellate Tribunal, Chandigarh Bench ‘B’ in its order dated 27.09.2011, has had reached to the conclusion that by showing item purchased by the Suresh Kumar 2024.08.08 13:28 I attest to the accuracy and integrity of this document ITA-68-2012 (O&M) Assessee at lower rates. Market price of such items was found @ while the assessee had himself sold the same at the price of Accordingly, the as on 31.03.2007 @ `73,15,253/-. The same was added to the and accordingly the tax amount was enhanced. 3. It is the submission of the learned counsel for the appellant that the CIT(Appeals) had examined the order of the found that the rectification or basis of the proper valuation has been consistent as variation in the method wrongfully adopted the appellant has been consistently following. 4. The ITAT however stock is to be valued at cost concept of average price, a valuation of the closing stock is contrary to such established proposition. view of the powers contained (hereinafter referred as “the Act”) and considering the law as la A.L.A. Firm Vs. CIT Chainrup Sampatram Vs. CIT aside the order of the CIT(Appeals) and upheld the order of the 5. As regards the of law is whether 2012 (O&M) Page 2 of 4 at lower rates. Market price of such items was found @ while the assessee had himself sold the same at the price of Accordingly, the A.O. valued the closing stoc as on 31.03.2007 @ `91,84,351/- against the declared amount of . The same was added to the incurred and accordingly the tax amount was enhanced. It is the submission of the learned counsel for the that the CIT(Appeals) had examined the order of the found that the A.O. had not rejected the books of account rectification or adjustment to be made in the closing stock basis of the proper valuation. It was also stated that the method of valuation has been consistent as done by the appellant and there could not be in the method of valuation and the Assessing Officer had adopted the accounting method different from what the appellant has been consistently following. The ITAT however reached to the conclusion that the closing stock is to be valued at costs of market price concept of average price, as adopted by the Assessee, in computing valuation of the closing stock is contrary to such established proposition. view of the powers contained in Section 145 of the Income Tax Act, 1961 (hereinafter referred as “the Act”) and considering the law as la A.L.A. Firm Vs. CIT; (1991) 189 ITR (SC) Chainrup Sampatram Vs. CIT; (1953) 24 ITR 481 (SC) aside the order of the CIT(Appeals) and upheld the order of the As regards the question No.(i) framed as substantial question of law is whether “Material on Record” could be at lower rates. Market price of such items was found @ `26,500/- while the assessee had himself sold the same at the price of `23,478/-. valued the closing stock of 391.190 MT @ `23,478/- against the declared amount of incurred income of the Assessee and accordingly the tax amount was enhanced. It is the submission of the learned counsel for the applicant- that the CIT(Appeals) had examined the order of the A.O. and t rejected the books of accounts. Any made in the closing stock should be on the also stated that the method of valuation by the appellant and there could not be any and the Assessing Officer had accounting method different from what the reached to the conclusion that the closing price whichever is lower. The s adopted by the Assessee, in computing valuation of the closing stock is contrary to such established proposition. In Section 145 of the Income Tax Act, 1961 (hereinafter referred as “the Act”) and considering the law as laid down in following earlier judgement in (1953) 24 ITR 481 (SC), the ITAT set aside the order of the CIT(Appeals) and upheld the order of the A.O. question No.(i) framed as substantial question could be overlooked, we have Suresh Kumar 2024.08.08 13:28 I attest to the accuracy and integrity of this document ITA-68-2012 (O&M) already given our thoughtful consideration the record material for assessing the value of stock has to be ba market rate. However, in the present case, on facts, the A on the basis of the price on which the goods had been sold by the Assessee. If the market rate assessment is done, the tax effect could have been much more i.e. on the basis of amount of price of goods by the Assessee @ value of stocks 6. We are of the firm view that so far as the principle of consistency and would remain valuation is concerned, may change and therefore, change and the same even for the same amount of stock to be different. T been introduced in the Income Tax “Section Method of (1) Income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” shall, subject to the provisions of sub accordance with either cash or mercantile system of accounti regularly employed by the assessee. (2) from time to time 2 [income computation and disclosure standards] to be followed by any class of assessees or in respect of any class of income. (3) correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub 2012 (O&M) Page 3 of 4 already given our thoughtful consideration to the said aspect and find that the record material for assessing the value of stock has to be ba market rate. However, in the present case, on facts, the A on the basis of the price on which the goods had been sold by the Assessee. If the market rate assessment is done, the tax effect could have been much i.e. on the basis of amount of `26,500/ price of goods by the Assessee @ `23,438/ value of stocks to be `91,84,358/-. We are of the firm view that so far as the principle of consistency and validity of method of valuation is concerned, the same would remain same for different assessment years. valuation is concerned, for each year the market may change and therefore, the value of the stock would als change and the same even for the same amount of stock to be different. Thus, it is for that purpose alone been introduced in the Income Tax, 1961 which reads as under: Section 145. Method of accounting — (1) Income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounti regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time 2 [income computation and disclosure standards] to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub to the said aspect and find that the record material for assessing the value of stock has to be based on the market rate. However, in the present case, on facts, the A.O. has assessed it on the basis of the price on which the goods had been sold by the Assessee. If the market rate assessment is done, the tax effect could have been much 26,500/-. While considering the sale 23,438/-, the A.O. has arrived at the We are of the firm view that so far as the principle of of method of valuation is concerned, the same same for different assessment years. However, so far as the market price of a particular goods the value of the stock would also accordingly change and the same even for the same amount of stock, valuation will have alone Section 145 of the Act has which reads as under:- (1) Income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” shall, section (2), be computed in accordance with either cash or mercantile system of accounting The Central Government may notify in the Official Gazette from time to time 2 [income computation and disclosure standards] to be followed by any class of assessees or in respect of any class of Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) [has Suresh Kumar 2024.08.08 13:28 I attest to the accuracy and integrity of this document ITA-68-2012 (O&M) not been regularly followed by the assessee, or income has not been compu section (2)], the Assessing Officer may make an assessment in the manner provided in section 144.] 7. In the present case, the valuation of stock has changed on account of the change in market price as average market could not have been taken up by the Assessee because the sale price of goods could not change in every year. 8. Keeping in view the above, taken by the A favour of respondent 9. As regards question No.(ii) framed by this Court for adjudication, we find that the decision of Ltd.; (1992)Supp.(1)SCC 55 stock, considering the facts and circumstances of the said case alone and would therefore not be a binding precedent in all cases as noticed above The sale price of goods having not change valuation of stock cannot British Paints India Ltd. in favour of the respondent/revenue 10. In view of the aforesaid, the Appeal 11. All pending applications of accordingly. August 5, 2024 Ess Kay Whether speaking / reasoned Whether Reportable 2012 (O&M) Page 4 of 4 not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub section (2)], the Assessing Officer may make an assessment in the manner provided in section 144.]” In the present case, the valuation of stock has changed on account of the change in market price as well as change in the sale price, the average market could not have been taken up by the Assessee because the sale price of goods could not change in every year. Keeping in view the above, we are in agreement with the view taken by the A.O. and affirmed by the ITAT and favour of respondent-revenue. As regards question No.(ii) framed by this Court for adjudication, we find that the decision of CIT vs. British Paints India Supp.(1)SCC 55 has laid down the method of stock, considering the facts and circumstances of the said case alone and would therefore not be a binding precedent in all cases as noticed above he sale price of goods having not change valuation of stock cannot be applied in the same manner as held in British Paints India Ltd. (Supra). We accordingly answer question No.(ii) in favour of the respondent/revenue. In view of the aforesaid, the Appeal All pending applications filed in of accordingly. [SANJEEV , 2024 [ Whether speaking / reasoned : Whether Reportable : not been regularly followed by the assessee, or income has not been ted in accordance with the standards notified under sub- section (2)], the Assessing Officer may make an assessment in the In the present case, the valuation of stock has changed on well as change in the sale price, the average market could not have been taken up by the Assessee because the sale price of goods could not change in every year. we are in agreement with the view the ITAT and answer question No.(i) in As regards question No.(ii) framed by this Court for CIT vs. British Paints India has laid down the method of valuation of stock, considering the facts and circumstances of the said case alone and would therefore not be a binding precedent in all cases as noticed above. he sale price of goods having not changed every year, the method of be applied in the same manner as held in CIT vs. We accordingly answer question No.(ii) In view of the aforesaid, the Appeal is dismissed. filed in this case shall stand disposed [SANJEEV PRAKASH SHARMA] JUDGE [SANJAY VASHISTH] JUDGE Yes / No Yes / No PRAKASH SHARMA] Suresh Kumar 2024.08.08 13:28 I attest to the accuracy and integrity of this document "