(PER :
HONOURABLE MS JUSTICE SONIA GOKANI)
1. Revenue has challenged the impugned order of Income Tax Appellate Tribunal ( the Tribunal for short) dated 16.3.2012 proposing following substantial question of law for our consideration:-
Whether in the facts and in law the Tribunal was justified in admitting and allowing the additional ground of assessee with respect to the adjustment of opening stock for the subsequent year based on valuation of the closing stock of the earlier year?
Heard learned counsel Mr. Manav Mehta for the Department and examined the material on record with his assistance.
The assessee, in the instant case, for the assessment year 2005-06, declared his total income in the return at Rs.36,11,360/-. On scrutiny assessment of his return, the Assessing Officer assessed the same at Rs.1,05,12,310/-.
Aggrieved by the same, this was challenged before the Commissioner (Appeals), which partly allowed the appeal of the assessee.
5. Revenue preferred the appeal against such order before the Tribunal and assessee respondent filed cross-objection raising additional ground of adjustment of opening stock with the closing stock of earlier year. The Tribunal allowed the cross-objections of the respondent, therefore, the present appeal.
6. Assessee filed his return of income for assessment year 2005-06, declaring his income at Rs.36,11,360/-. During scrutiny assessment, a show cause letter was shot on 12.11.2007 questioning details of opening stock and closing stock of rough diamond and polished diamond as taken on 31.3.2004 and 31.3.2005 and Assessing Officer questioning the basis of valuation as well.
6.1 Before the Tribunal in cross-objection, the question proposed was in respect of the adjustment of the opening stock for subsequent year basing valuation of closing stock of the earlier year. The Tribunal, after a detailed hearing admitted the said ground and directed the Assessing Officer to make the said adjustments relying on the decision of the Delhi High Court in the case of Commissioner of Income-tax vs. Mahavir Alluminium Ltd. reported in [2008] 297 ITR 0077
7. It is contended before us by the learned counsel that the facts in both the cases, the one before the Delhi High Court and in the present case are different and therefore ratio can not apply to the facts of assessee respondent herein.
8. Section 145A which came in force on April 1, 1999, reads as follows:-
145. Method of accounting in certain cases.- Notwithstanding anything to the contrary contained in Section 145,-
(a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head Profits and gains of business or profession shall be-
(i) in accordance with the method of accounting regularly employed by the assessee; and
(ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.
Explanation.-
For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment.
(b) interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received.
Section 145A provides for valuation of purchase and sale of goods and inventory for the purpose of valuation of income, which is to be made on the basis of method of accounting regularly employed by the assessee with certain adjustments.
9. While interpreting this provision, Tribunal relied on the decision of the Delhi High Court, which examined the said question at length and held that there was no question of any double benefit to the assessee in allowing such adjustments. Whenever an adjustment is to be made in the valuation of the inventory, it would naturally be affecting both the opening as well as closing stock and if there is any change in the closing stock as on 31st March, there must be necessary corresponding adjustment to be made in the opening stock. It would be apt to reproduce the relevant aspect as under:-
15. We are of the opinion that in the present case, there is no question of any double benefit being given to the assessee. Paragraph 23.13 of the guidance note itself makes it clear that whenever any adjustment is made in the valuation of inventory, this will affect both the opening as well as the closing stock. It is also to be noted that if any adjustment is required to be made by a statute, (as for example section 145A of the Act), effect to the same should be given irrespective of any consequences on the computation of income for tax purposes. Section 145A of the Act begins with non obstante clause, and therefore, to give effect to section 145A of the act, if there is change in the closing stock as on March 31, 1999, there must necessarily be a corresponding adjustment made in the opening stock as on April 1, 1998.
10. We are in broad agreement with the decision of the Delhi High Court relied upon by the Tribunal where it has applied the principle that if any adjustments are made in the valuation of inventories, both opening and closing stock are to be affected and if they are contained under a statute, effect of the same should be given irrespective of its consequence on the computation of income for tax purpose.
11. Tax Appeal, therefore, deserves no further consideration and the same is dismissed.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) SUDHIR Page 4 of 4