The ACIT, Central Circle, Vijayawada V. Sri T Ratna Srinivas, Vijayawada., Vijayawada

ITA 497/VIZ/2005

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0839 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2001-2002
• Appeal Filed On: 28-11-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S S GOPINATH
• Assessee Lawyers: C SUBRAMANYAM

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER I.T.A. NO 497/VIZAG/2005 ASSESSMENT YEAR : 2002-03 ACIT, CENTRAL CIRCLE, VIJAYAWADA VS. THONDEPU RATNA SRINIVAS, VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO. AATPT 1691 R APPELLANT BY : SHRI G.S.S. GOPINATH, DR RESPONDENT BY : SHRI C. SUBRAMANYAM, CA O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER : THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 30-09-2005 PASSED BY THE LD CIT (A)-I, HYDERABAD AND IT RELATE S TO THE ASSESSMENT YEAR 2002-03. 2. THE ADDITION MADE BY THE AO BY REVISING THE VALUES OF OPENING AND CLOSING STOCK, HAVING BEEN DELETED BY THE LD CIT(A), THE RE VENUE IS IN APPEAL BEFORE US. 3. THE FACTS OF THE CASE ARE STATED IN BRIEF. THE ASSESSEE, INTER ALIA, WAS IN THE BUSINESS OF PURCHASE AND SALE OF SHARES. THE A SSESSEE HAD VALUED THE CLOSING STOCK OF SHARES AT COST PRICE. THE AO WA S OF THE OPINION THAT AS PER THE ACCOUNTING STANDARDS, THE ASSESSEE SHOULD HAVE PROV IDED FOR THE LOSS OCCURRING DUE TO THE FALL IN THE VALUE OF SHARES EVERY YEAR. SINCE THE ASSESSEE DID NOT DO 2 SO, THE AO FELT THAT THE COST PRICE METHOD ADOPTE D BY THE ASSESSEE DID NOT GIVE A FAIR AND TRUE PICTURE OF INCOME ASSESSABLE IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, THE AO COMPUTED THE VALUE OF OPENING S TOCK AND CLOSING STOCK, BY ADOPTING THE CLOSING RATES QUOTED IN BSE/NSE AS ON 31.3.2001 AND 31.3.2002, I.E. THE AO REVISED THE VALUES OF BOTH THE OPENING AND CLOSING STOCK. THUS AGAINST THE LOSS OF RS.14,03,453/- DECLARED BY THE ASSESSEE, THE AO ARRIVED AT THE PROFIT OF RS.16,91,586/- ON THE BUSINESS ACTIVI TY OF TRADING IN SHARES. THUS AN ADDITION OF RS.30,95,039/- WAS MADE BY THE AO ON TH IS ACCOUNT. THE ASSESSEE SUCCEEDED ON THIS POINT IN THE APPEAL FILED BEFORE LD CIT(A). HENCE THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. WE FEEL IT APPROPRIATE TO EXTRACT THE RELEVANT OBSERVA TIONS OF LD CIT(A) BELOW: 03.3 I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE MATERIAL AVAILABLE ON RECORD. IT IS UNDISPUTED FACT THAT THE APPELLANT IS CONSISTENTLY VALUING THE CLOSING VALUE OF SHARES AT COST WHICH HAD BEEN ACCEPTED BY THE DEPARTMENT IN THE PA ST. THE ACCOUNTING STANDARD-1 NOTIFIED BY THE DEPARTMENT ON LY PRESCRIBED THAT THE ACCOUNTING POLICIES ADOPTED BY AN ASSESSEE SHOULD BE SUCH SO AS TO REPRESENT TRUE AND FAIR VIEW OF THE S TATE OF AFFAIRS OF THE BUSINESS. FOR THIS PURPOSE, PROVISIONS SHOULD B E MADE FOR ALL THE KNOWN LIABILITIES AND LOSSES, EVEN THOUGH THE S AME CANNOT BE DETERMINED WITH CERTAINTY AND REPRESENTS ONLY A BES T ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION. THE SAID ACCOUN TING STANDARD NOWHERE PRESCRIBED THAT WHETHER ASSESSEE SHOULD VAL UE ITS STOCK AT COST OR MARKET VALUE OR COST OR MARKET VALU E WHICHEVER IS LESS. OPTION IS OPEN TO THE APPELLANT TO FOLLOW AN Y ONE OF THESE THREE METHODS SPECIFICALLY IN RESPECT OF SHARES AND DEBENTURES AS SPECIFIED IN AS-2 ISSUED BY THE COUNSEL OF THE INST ITUTE OF CHARTERED ACCOUNTS OF INDIA THE ASSESSING OFFI CER HAS NOT MADE OUT A CASE THAT BY VALUING THE STOCK OF SHARES AT COST, HOW THE TRUE PROFITS CANNOT BE DETERMINED IN THE CASE O F THE APPELLANT.. 3 HE IS ALSO NOT CORRECT TO OBSERVE THAT BY VALUING T HE CLOSING STOCK AT COST, THE TRUE AND CORRECT PROFITS OF THE BUSINE SS CANNOT BE DETERMINED. THE APPELLANT HAS CONSISTENTLY VALUED ITS CLOSING STOCK AT COST, WHICH IS A RECOGNIZED METHOD OF VALUATION OF INVENTORIES AND IS NOT CONTRADICTORY TO THE PROVISIONS OF THE I NCOME TAX ACT. IT HAS BEEN HELD IN THE CASE OF KEVIN ENTERPRISES VS. JCIT (79 ITD 196) (AHD); H.M. CONSTRUCTIONS VS. JCIT (84 ITD 429 )(BANG.) AND TREASURE ISLANDS RESORTS PVT. LIMITED VS. DCIT (90 ITD 814)(HYD.) THAT ACCOUNTS CANNOT BE REJECTED AND BOOK RESULTS C ANNOT BE DISTURBED WHEN DULY MANDATED ACCOUNTING STANDARD IS FOLLOWED BY THE ASSESSEE WHICH IS NO IN CONFLICT WITH THE INCOM E TAX ACT. IN VIEW OF THE ABOVE DISCUSSION, THE ADDITION OF RS.30 ,95,039 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF REJECTION OF METHOD OF VALUATION OF STOCK IN RESPECT OF SHARES IS DELETED. 4.1 THE AO HAS PLACED MUCH RELIANCE ON THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF CIT V BRITISH PAINTS I NDIA LTD. (188 ITR 44) TO SUPPORT HIS VIEWS THAT HE IS ENTITLED TO DISTURB THE VALUATION OF STOCK. IN THIS REGARD, IT IS PERTINENT TO DISCUSS THE FACT S OF THAT CASE. THE ASSESSEE THEREIN VALUED THE STOCK AT COST. HOWEVER FOR ARRIVING AT THE COST PRICE OF THE STOCK, THE ASSESSEE THEREIN TOOK THE VALUE OF RAW MATERIALS ONLY. THE PROPORTIONATE VALUE OF OVERHEA DS WAS NOT ADDED TO THE VALUE OF CLOSING STOCK. IN SUCH A KIND OF SITU ATION, THE HONBLE SUPREME COURT HELD THAT THE AO IS ENTITLED TO MODIF Y THE VALUATION OF CLOSING STOCK IN ORDER TO ARRIVE AT THE TRUE PROFIT . 4.2 IN THE INSTANT CASE, THERE IS NO DISPUTE WI TH REGARD TO THE COMPONENTS OF THE COST PRICE. THE ASSESSEE HAS B EEN FOLLOWING THE COST PRICE METHOD OF VALUATION CONSISTENTLY IN THE EARLIER YEARS ALSO. THE COST PRICE METHOD OF VALUATION IS ONE OF THE RECOGN IZED METHODS OF VALUATION. AS POINTED OUT BY THE LD CIT(A), THE AO HAS NOT MADE OUT A CASE HOW THE SAID METHOD DID NOT HELP HIM TO ARRIVE AT THE TRUE INCOME 4 OF THE ASSESSEE. IN VIEW OF THE ABOVE, WE ARE OF T HE VIEW THAT THE LD CIT(A) HAS DECIDED THE ISSUE IN RIGHT PERSPECTIVE A ND HENCE WE FIND NO REASON TO INTERFERE WITH HIS DECISION. 5. IN THE RESULT, THE APPEAL FILED BY THE REVEN UE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 6 TH MAY,2010. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 06-05-2010 A COPY OF THIS ORDER IS FORWARDED TO : 01 THE ACIT, CENTRAL CIRCLE, VIJAYAWADA 02 SRI THONDEPU RATNA SRINIVAS, S/O SRI T.V. HANUMA NTHA RAO, D.NO.27-14- 56, RAJAGOPALACHARI ST. GOVERNORPET, VIJAYAWADA 520 023 03 THE CIT CENTRAL CIRCLE, HYDERABAD 04 THE CIT (A)-I HYDERABAD 05 THE DR, ITAT, VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT, VISAKHAPATNAM BENCH