GK Steel & Wire Products, New Delhi V. ITO WARD 46(5), New Delhi

ITA 3530/DEL/2019

AI Insights

The case involves M/s. GK Steel & Wire Products, a partnership firm engaged in trading hardware goods, which appealed against the order of the Commissioner of Income Tax (Appeals)-16, New Delhi. The appeal was related to the assessment year 2012-13, where the firm reported a gross loss due to the valuation of closing stock at market value, which was lower than the purchase price. The Assessing Officer added the gross loss to the income, not accepting the closing stock valuation. The Tribunal found that the issue needed re-examination by the Assessing Officer, particularly regarding the valuation of opening and closing stocks and the application of the firm's policy of valuing stock at 'cost or market price, whichever is lower'.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113182 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 09-02-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 22-04-2019
• Other Referred Cases: Pr. CIT v. Deccan Mining Syndicate (P.) Ltd., CIT vs Bilahari Investment (P.) Ltd., CIT vs Triveni Engg. & Industries Ltd., Housing & Urban Development Corporation Ltd. Vs Addl. CIT, M/s Rasiklal & Sons vs ITO, Gogga Gurusanthiah & Bros. vs DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAJAT VAISHNAWI
• Section: 139(1)

Judgement Text

I.T.A. No. 3530/Del/2019 1 IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH “H” : DELHI ] BEFORE SHRI G. S. PANNU, PRESIDENT A N D SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER आ.अ.सं./I.T.A No. 3530/Del/2019 िनधाᭅरणवषᭅ/ Assessment Years: 2012-13 M/s. GK Steel & Wire Products 3650, Gali Rura, Aachar Wali, Chawri Bazar, New Delhi – 110 006. बनाम Vs. Income Tax Officer, Ward : 46 (5), New Delhi. PAN No. AAAFG4399Q अपीलाथᱮ / Appellant ᮧ᭜यथᱮ / Respondent िनधाᭅᳯरतीकᳱओरसे /Assessee by : Ms. Neha Gupta, C. A.; & Shri Rajat Vaishnawi, Adv. राज᭭वकᳱओरसे / Department by : Shri M. Baranwal [CIT]-D.R.; & Shri Sanjay Kumar, Sr. D. R. सुनवाईकᳱतारीख/ Date of hearing : 10/02/2023 उ᳃ोषणाकᳱतारीख/Pronouncement on : 11/04/2023 आदेश / O R D E R PER C. N. PRASAD, J. M. : 1. This appeal is filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-16 [hereinafter referred I.T.A. No. 3530/Del/2019 2 to CIT (Appeals)] New Delhi, dated 5.01.2018 for assessment year 2012-13 in sustaining the addition of Rs.25,32,724/- on account of stock difference. 2.1 The ld. Counsel for the assessee submits that the assessee is a Partnership firm engaged in trading of hardware goods filed its return of income on 30-03-2013 declaring ‘NIL’ income. However, a defect was pointed out and return under section 139(9) of the Act was filed on 16-09-2013. During the year under consideration, it was observed that some of the stock items were damaged due to rust and the sales realization was lower than the cost. Therefore, the closing stock was valued at market value in accordance with firm's policy of valuation of stock 'at cost or market price, whichever is lower'. The assessee returned loss of Rs.28,78,082/- during Assessment Year 2012-13. However, the same was not carried forward to the next assessment year since the return was filed after due date specified under section 139(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') as can be seen from copy of ITR filed for AY 2013-14. The Ld. Assessing Officer made addition of the gross loss of Rs.25,32,724/- reported by the assessee in its Trading account for the year ending 31st March 2012. The Stock is valued as per firm's policy of 'at cost or market price, whichever is lower'. The Ld. AO has not specified any rational basis for the purpose of not accepting the gross loss incurred or closing stock reported by the assessee. 2.2 The ld. Counsel submits that the revaluation of closing stock is revenue neutral. The closing stock becomes the opening stock in next financial year, as such there will be a chain effect if the value I.T.A. No. 3530/Del/2019 3 adopted by the assessee is disturbed. Therefore, it becomes revenue neutral as the assessee firm is taxed at uniform rate of tax. Unless the opening stock of subsequent financial year is also adjusted, it will give distorted figure. 3. The assessee relied on the following judgements:- (i) Pr. CIT v. Deccan Mining Syndicate (P.) Ltd. [(2019) 104 taxmann.com 111/262 Taxman 258 (SC)]; (ii) CIT vs Bilahari Investment (P.) Ltd. [(2008) 299 ITR 1 (SC)]; (iii) CIT vs Triveni Engg. & Industries Ltd. [(2011) 336 ITR 374 (Delhi High Court)] (iv) Housing & Urban Development Corporation Ltd. Vs Addl. CIT [([2020] 421 ITR 599 (Delhi High Court) (v) M/s Rasiklal & Sons vs ITO [ITA No. 1974/Mum/2010 – order dated 13.01.2012 (Mum.-Trib.) (vi) Gogga Gurusanthiah & Bros. vs DCIT [(2019) 108 taxmann.com 600 (Bangalore Trib.) 4. The ld. DR supports the orders of the authorities below. 5. Heard rival contentions. The main contention of the assessee is that the value of the opening stock of the assessee has gone down resulting in gross loss of Rs.25,32,724/-. The ld. Counsel submits that this is because due to rust stock and the sales realization was lower than the value of opening stock so that the assessee has I.T.A. No. 3530/Del/2019 4 suffered loss. The assessee contended that in earlier period the closing stock was valued on purchase price which is not saleable in the market. It was also contended that the assessee has decided to value the stock on realization value of market rate so that rust stock was valued at lower price than purchase price. The loss was not carried forward. Considering the submissions of the assessee, we are of the view that this matter has to go back to the file of the Assessing Officer to examine the contentions of the assessee and the valuation of opening and closing stocks. Thus, we restore this issue to the file of the Assessing Officer for examining afresh and to decide in accordance with law after providing adequate opportunity of being heard to the assessee. Grounds raised by the assessee are allowed. 6. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on : 11/04/2023. Sd/- Sd/- ( G. S. PANNU ) ( C. N. PRASAD ) PRESIDENT JUDICIAL MEMBER Dated : 11/04/2023. *MEHTA* आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of Order Forwarded to:- 1. आवेदक / Assessee 2. राज᭭व / Revenue I.T.A. No. 3530/Del/2019 5 3. संबंिधत आयकर आयुᲦ / Concerned CIT 4. आयकर आयुᲦ- अपील / CIT (A) 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, DELHI / DR, ITAT, DELHI 6. गाडᭅ फाइल / Guard file. By order ASSISTANT REGISTRAR ITAT,New Delhi. Date of dictation 24.03.2023 Date on which the typed draft is placed before the dictating Member 27.03.2023 Date on which the typed draft is placed before the Other Member 11.04.2023 Date on which the approved draft comes to the Sr. PS/PS 11.04.2023 Date on which the fair order is placed before the Dictating Member for pronouncement 11.04.2023 Date on which the fair order comes back to the Sr. PS/PS 11.04.2023 Date on which the final order is uploaded on the website of ITAT 11.04.2023 Date on which the file goes to the Bench Clerk 11.04.2023 Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order