RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD., Jaipur V. ASSISTANT COMMISSIONER OF INCOME TAX, Jaipur

ITA 994/JPR/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6147 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 18-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VARINDER MEHTA
• Keywords: Rule of consistency

Judgement Text

;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH HKKXPAN] YS[KK L NL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, A M VK;DJ VIHY LA- @ ITA NO. 994/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2006-07 M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD. UDHYOG BHAWAN, TILAK MARG, JAIPUR. CUKE VS. THE ACIT, CIRCLE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR 4695 J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C. PARWAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI VARINDER MEHTA (CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 24/05/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 28/05/2018 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 29.09.2017 OF CIT(A), BIKANER FOR THE ASSESSMENT YE AR 2006-07. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LD. COMMISSIONER OF THE INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF R S. 10,42,85,000/- MADE BY AO ON ACCOUNT OF ALLEGED UNDERVALUATION OF THE CLOSING STOCK OF LAND BY HOLD ING THAT THE ITA NO. 994/JP/2017 M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD VS. ACIT 2 VALUE OF LAND UNDER LITIGATION/ENCROACHMENT CANNOT BE ADOPTED AT NIL. 2. THE ASSESSEE CRAVES TO AMEND, ADD, ALTER, OR MOD IFY ANY OF THE GROUND OF APPEALS. 3. NECESSARY COST BE ALLOWED TO THE ASSESSEE. 2. THE ASSESSEE HAS CHALLENGED THE ORDERS OF THE A UTHORITIES BELOW REGARDING ADDITION OF RS. 10,42,85,000/- ON ACCOUNT OF UNDER VALUATION OF THE CLOSING STOCK OF LAND WHICH WAS VALUED BY TH E ASSESSEE AT NIL DUE TO LITIGATION AND ENCROACHMENT. THE AO HELD THAT TH E VALUE OF LAND CANNOT BE TAKEN AT NIL AND FURTHER, THE ASSESSEE HA S CHANGED ITS METHOD OF VALUATION DURING THE YEAR UNDER CONSIDERA TION. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT( A) BUT COULD NOT SUCCEED. 3. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT THE EARLIER ASSESSEE WAS VALUING THE CLOSING STOCK OF L AND AT ACTUAL DIRECT DEVELOPMENT EXPENDITURE HOWEVER, IN THE NOTES TO AC COUNTS FOR THE ASSESSMENT YEAR 2005-06 IT IS STATED THAT AT FEW IN DUSTRIAL AREA SOME OF THE PORTION OF THE LAND IS UNDER LITIGATION AS WELL AS UNDER ENCROACHMENT AGGREGATING TO 263.03 ACROES AS ON 31.03.2005. THE STATUTORY AUDITORS IN THEIR AUDIT REPORT HAVE OBSERVED THAT STOCK OF L AND UNDER LITIGATION IS TREATED AS SALEABLE. THEREFORE, THE OBSERVATION OF THE STATUTORY AUDITOR WAS CONSIDERED BY THE ASSESSEE AND CONSEQUENTLY A B OARD RESOLUTION ITA NO. 994/JP/2017 M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD VS. ACIT 3 WAS PASSED WHEREAS THE VALUATION OF SUCH LAND HAS B EEN TAKEN AT NIL AS ON 31.03.2006. SINCE, THE LAND WAS NOT AVAILABLE TO THE ASSESSEE AS ON 31.03.2006 THEREFORE, THE REALIZATION VALUE OF THE LAND AT THE END OF THE FINANCIAL YEAR IS ZERO AND ACCORDINGLY, THE ASSESSE E HAS CONSIDERED THE SAME AT NIL WHICH IS APPROPRIATE AS PER THE PRINCIP LE OF PRUDENCE ACCOUNTING POLICY. THE LD. AR HAS FURTHER CONTENDED THAT WHENEVER THE ASSESSEE RETRIEVES THE LANDS FROM ENCROACHMENT THE SAME IS OFFERED TO TAX THEREFORE, THE SAID METHOD OF VALUING THE CLOSI NG STOCK ADOPTED BY THE ASSESSEE IS REVENUE NATURAL. THE ASSESSEE IS CO NSISTENTLY FOLLOWING THE SAID METHOD OF CLOSING STOCK AND THEREFORE, THE ADDITION MADE BY THE AO IS NOT JUSTIFIED. THE LD. AR AS REFERRED TO THE DETAILS OF THE LAND WHICH IS UNDER ENCROACHMENT AND LITIGATION AND SUBM ITTED THAT THERE ARE INSTANCE OF SOME OF THE LAND IS USED AS CREMATI ON GROUND CANNOT BE READILY AVAILABLE TO THE ASSESSEE FOR INDUSTRIAL DE VELOPMENT ACTIVITY AND HENCE, THE VALUE OF SUCH LAND AT NIL IS PROPER AND JUSTIFIED. 4. ON THE OTHER HAND, LD. DR HAS RELIED UPON THE OR DER OF THE AUTHORITIES BELOW AND SUBMITTED THAT AN IDENTICAL I SSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 AS WELL AS A.YS. 2009-10 TO 2012-13. ITA NO. 994/JP/2017 M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD VS. ACIT 4 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. WE NOTE THAT THOUGH THE LAND WH ICH IS UNDER ENCROACHMENT AND LITIGATION CANNOT BE VALUED AT THE COST OR PREVAILING MARKET PRICE BUT THE VALUE OF SUCH LAND WOULD DEFIN ITELY BE VERY LESS DUE TO DEFECTS AND DEFICIENCY OF NOT AVAILABLE TO T HE ASSESSEE FOR IMMEDIATE USE. HOWEVER, THE LAND IN LITIGATION OR E NCROACHMENT WHICH IS STILL SHOWN AS PART OF THE CLOSING STOCK OF THE ASS ESSEE CANNOT BE VALUE AT NIL. FURTHER THE VALUATION OF THE LAND HAS TO BE DETERMINED ON THE BASIS OF THE ACTUAL STATUS OF THE LAND IN EACH CASE AND IT CANNOT BE VALUED APPLYING A STANDARD PARA-METER FOR EACH AND EVERY CASE OF ENCROACHMENT OR LITIGATION. THIS TRIBUNAL IN ASSESS EES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 IN ITA NO. 1267/JP/2010 & 1 387/JP/2010 VIDE ORDER DATED 24.06.2011 HAS CONSIDERED THIS ISS UE AND REMITTED BACK TO THE FILE OF THE AO FOR PROPER VERIFICATION AND ADJUDICATION. SIMILARLY FOR THE ASSESSMENT YEARS 2009-10 TO 2012- 13 THE COORDINATE BENCH OF THIS TRIBUNAL VIDE ORDER DATED 23.02.2018 IN ITA NO. 311/JP2014, 420/JP2014 AND OTHERS HAS CONSIDERED T HIS ISSUE IN PARA 5 AS UNDER:- 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 ITA NO. 994/JP/2017 M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD VS. ACIT 5 VIDE ORDER DATED 24.06.2011 IN ITA NO. 1267 & 1387 OF 2010 HAS CONSIDERED THIS ISSUE IN PARA 5.7 AS UNDER:- 5.7 DURING THE COURSE OF HEARING, THE LD. AR WAS A SKED AS TO WHETHER LAND WHICH HAS BEEN VALUED AT NIL AS ON 31- 03-07 TO THE EXTENT OF RS. 145.33 11 CRORES WAS PURCHASED DURING THE YEAR. WE WERE INFORMED THAT THE LAND WAS NOT PURCHASED IN THIS YEAR. WE ARE NOT HAVING THE DETAILS OF THE LITIGATION IN RESPECT OF LAND FOR WHICH VALUATION HAS BEEN TAKEN AT NIL FROM 31-0 3-06 TO 31-03- 07. IT IS TRUE THAT ENCROACHMENT AND LITIGATION WIL L HAVE AN IMPACT ON THE ON THE VALUATION. THE MANAGEMENT HAS TAKEN T HE DECISION TO CONSIDER THE VALUE AT NIL BUT WE ARE NOT INFORME D AS TO WHETHER THE DECISION IS BASED ON CERTAIN EXPERT OPI NION OR ON THE BASIS OF PRUDENCE OR AFTER CONSIDERING EACH AND EVE RY CASE ON MERITS. SECTION 4 IS A CHARGING SECTION AND ACCORDI NG TO WHICH INCOME TAX IS TO BE CHARGED IN RESPECT OF TOTAL INC OME OF THE PREVIOUS YEAR. THE REDUCTION IN THE VALUE OF THE ST OCK IS TO BE SUBSTANTIATED BY THE ASSESSEE THAT IT HAS RESULTED INTO PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATIO N . IN CASE THE LITIGATION AND ENCROACHMENT WERE EXISTING AT TH E TIME WHEN THE ASSESSEE ACQUIRED THE LAND AND FILED THE DISPUT E BEFORE 31- 03-06 THEN WHY SUCH REDUCTION WAS NOT CONSIDERED WH EN THE ASSESSEE WAS CHANGING THE METHOD OF ACCOUNTING IN T HE ASSESSMENT YEAR 2006-07. AS PER CHARGING SECTION, T AX IS LEVIED ON THE ACTUAL INCOME OF THE PREVIOUS YEAR. IT MEANS THAT FACTS WHICH EXISTED DURING PREVIOUS YEAR ARE TO BE CONSID ERED. WHEN THE ASSESSEE MAKES HIS PURCHASES, HE ENTERS HIS STO CK AT COST PRICE ON ONE SIDE OF THE ACCOUNTS. AT THE CLOSE OF THE YEAR, HE ENTERS THE VALUE OF ANY UNSOLD STOCK AT COST ON THE OTHER SIDE OF THE ACCOUNTS THUS CANCELING OUT THE 12 ENTRIES RELA TING TO THE SAME UNSOLD STOCK IN THE ACCOUNTS; AND THEN THAT IT IS CARRIED FORWARD AS THE OPENING BALANCE IN THE NEXT YEARS A CCOUNT. THIS CANCELING OUT OF THE UNSOLD STOCK FROM BOTH THE SID ES OF THE ACCOUNTS LEAVES ONLY THE TRANSACTIONS ON WHICH THER E HAVE BEEN ACTUAL SALES AND GIVES A TRUE AND ACTUAL PROFIT OR LOSS ON HIS YEARS DEALINGS. THE ONLY EXCEPTION IS THAT UNSOLD STOCK C AN BE VALUED AT ITA NO. 994/JP/2017 M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD VS. ACIT 6 THE COST PRICE OR MARKET VALUE WHICHEVER IS LESS. T HE NOTIONAL LOSS, IF ANY, CAN BE CLAIMED IN THE YEAR WHEN UNSOL D STOCK HAS A LESSER VALUE AS COMPARED TO THE STOCK PRICE. HOWEVE R, NOTIONAL PROFIT CANNOT BE ADDED IN CASE MARKET VALUE IS MORE THAN THE COST. HENCE, VALUATION OF THE STOCK IS TO BE BASED ON THE SAME METHOD FOR BOTH OPENING AND CLOSING STOCK. THE AO H AS SIMPLY NOT ALLOWED DEDUCTION OF RS. 145.33 LACS ON THE GRO UND OF NOT ACCEPTING THE CHANGE IN METHOD OF VALUATION. HOWEVE R, THE AO HAS NOT CONSIDERED THE ASPECTS AS TO WHETHER EVENTS IN RESPECT OF REDUCTION IN VALUATION OF STOCK HAVE OCCURRED DURIN G PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATIO N. WE ARE NOT HAVING FULL FACTS IN RESPECT OF THE STOCK WHICH HAV E BEEN VALUED AT NIL TO ASCERTAIN THE NATURE OF LITIGATION OR ENCROA CHMENT AND THE PERIOD WHEN SUCH LANDS WERE ACQUIRED AND WHEN THE A SSESSEE BECAME AWARE OF ENCROACHMENT OR LITIGATION. HENCE, THE ISSUE OF ADDITION OF RS. 145.33 LACS IS RESTORED BACK ON THE FILE OF THE AO. WE DO FEEL THAT LITIGATION AND ENCROACHMENT WILL AF FECT THE VALUATION OF THE 13 STOCK AND SUCH STOCK CANNOT BE VALUED AT COST PRICE. WITH THIS OBSERVATION, THE MATTER IS RESTORE D BACK ON THE FILE OF THE AO. IN VIEW OF THE EARLIER DECISION OF THIS TRIBUNAL AN D TO MAINTAIN THE RULE OF CONSISTENCY, WE ARE OF THE VIEW THAT THE AD DITION MADE BY THE AO FOR THE UNDER YEAR UNDER CONSIDERATION IS DE PENDENT ON THE OUTCOME TO THE ADDITION MADE BY THE AO ON THIS ACCOUNT IN THE EARLIER YEAR. THEREFORE, IN THE FACTS AND CIRCU MSTANCES OF THE CASE WE SET ASIDE THIS ISSUE TO THE RECORD OF THE A SSESSING OFFICER FOR DECIDING THE SAME AFRESH IN TERMS OF THE DIRECT IONS AS GIVEN BY THE TRIBUNAL FOR THE A.Y. 2007-08. IN VIEW OF THE ABOVE DISCUSSION AS WELL AS THE DECI SIONS OF COORDINATE BENCHES OF THIS TRIBUNAL IN ASSESSEES OWN CASE, WE SET ASIDE THIS ISSUE ITA NO. 994/JP/2017 M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD VS. ACIT 7 TO THE RECORD OF THE ASSESSING OFFICER FOR FRESH AD JUDICATION AFTER CONDUCTING A PROPER VERIFICATION AND ENQUIRY. THE A SSESSEE IS ALSO DIRECTED TO PRODUCE ALL THE RELEVANT FACTS IN RESPE CT OF EACH AND EVERY PIECE OF LAND UNDER LITIGATION AND ENCROACHMENT SO AS TO REVEAL THE ACTUAL STATUS OF THE LAND FOR THE PURPOSE OF DETERM INATION OF VALUE. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 28/05/2018. SD/- SD/- HKKXPAN FOT; IKY JKO (BHAGCHAND) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 28/05/2018. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD., JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE-6, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 994/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR