High Court Of Punjab And Haryana
CIT -I, Ludhiana vs. Satish Estate (P.) Ltd.
Assessment Year : 2006-07
Section : 145
Ajay Kumar Mittal And Gurmeet Singh Sandhawalia, JJ.
IT Appeal No. 126 Of 2013 (O&M)
January 21, 2014
ORDER
Ajay Kumar Mittal, J. – This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 27.11.2012, Annexure A. III passed by the Income Tax Appellate Tribunal, Chandigarh Bench ‘A’ Chandigarh (in short, “the Tribunal) in ITA No. 1282/CHD/2010 for the assessment year 2006-07, claiming following substantial questions of law:—
“(i) Whether on the facts and circumstances of the case, the Hon’ble ITAT was right in law in deleting the addition of Rs. 75,00,000/- made by Assessing Officer on account of under valuation of closing stock of the land as the civil suit was filed in the civil court near the end of the Financial Year i.e. 18.3.2006, which would have no impact on the value and that the events that took place in the subsequent year would have no bearing on the value of closing stock as on 31.3.2006?
(ii) Whether on the facts and circumstances of the case, the Hon’ble ITAT was right in law in deleting the addition of Rs. 75,00,000/- made by A.O. on account of under valuation of closing stock of the land as the assessee has not given any basis as to how he arrived at this figure?”
2. Briefly, the relevant facts necessary for adjudication of the controversy involved, as narrated in the appeal, may be noticed. The assessee filed its return declaring income of Rs. 38,83,862/- on 30.11.2006. Assessment under Section 143(3) of the Act was completed on 23.11.2007 at an income of Rs. 45,47,330/-. The Commissioner of Income Tax [CIT] vide order dated 18.11.2008 under Section 263 of the Act set aside the assessment. Again assessment was framed vide order dated 13.10.2009, Annexure A.1 under Section 143(3) of the Act at an income of Rs. 1,20,47,330/- and addition of Rs. 75,00,000/- was made on account of under valuation of closing stock of the land. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 30.8.2010, Annexure A.II, the CIT(A) allowed the appeal and deleted the entire addition by relying upon the documentary evidence. It was further held that there was legal dispute between the assessee and M/s Amritsar Royon and Silk Mill Pvt. Limited. The said firm had filed suit on 11.3.2006 against the assessee and as such the assessee had valued the closing stock at cost price or net realization value whichever was less. It was further held that the assessee had not changed the method of valuing the closing stock as was evident from the Audit report ‘Details of deviation if any’. Not satisfied with the order, the revenue filed appeal before the Tribunal. Vide order dated 27.11.2012, Annexure A.III, the appeal was dismissed. Hence the present appeal by the revenue.
3. Learned counsel for the revenue submitted that the civil suit was filed by M/s Amritsar Rayon and Silk Mill Pvt. Limited on 11.3.2006 in which the assessee was made respondent No.4 and the same was still pending at the end of the financial year i.e. as on 31.3.2006 and therefore, in such a situation, the valuation of the closing stock shown by the assessee by making reduction of Rs. 75 lacs was improper. The CIT(A) and the Tribunal had erred in granting the benefit of the same.
4. On the other hand, learned counsel for the assessee besides supporting the findings recorded by the CIT(A) and the Tribunal on the strength of judgment of this Court in CIT v. Fazilka Co-operative Sugar Mills Ltd. [2002] 255 ITR 411/125 Taxman 375 and of Delhi High Court in CIT v. Continental Devices India Ltd. [1992] 196 ITR 571 submitted that there was no loss to the revenue on account of valuation of the closing stock for the assessment year 2006-07 as in the subsequent assessment year 2007-08, the valuation of the opening stock was taken after reducing the closing stock for the assessment year 2006-07.
5. After hearing learned counsel for the parties, we do not find any merit in the appeal.
6. The CIT(A) vide order dated 30.8.2010, Annexure A.II while accepting the contentions of the assessee had recorded as under:—
“2.3 I have considered the facts of the case and submission of the A.R. Assessee is dealing in real estate. During the year after taking into account the opening stock, purchases, sales Assessing Officer noticed that assessee has undervalued its closing stock of land by Rs. 75 lacs. The working of these details have been stated by the Assessing Officer on page 7 and 8 of the assessment order. Assessing Officer asked the assessee to explain why addition of Rs. 75 lacs should not be made. Assessee submitted its reply which has been reproduced by the Assessing Officer in the assessment order. Assessee contended before the Assessing Officer that land purchased from Balwinder Singh and Harjinder Singh fell into legal dispute as one M/s Amritsar Rayon Silk Mills (P) Limited filed a suit against the assessee stating that they had already paid sum of Rs. 70 lacs as byana for the same property and therefore, claimed that the registration executed in assessee’s favour was not correct. On the strength of the agreement M/s Amritsar Rayon & Silk Mills (P) Limited made further agreement to sell the same land to M/s Futuristic Solutions Limited and received a sum of Rs. 70 lacs from them. A stay was granted to M/s Amritsar Rayon & Silk Mills (P) Limited by virtue of which assessee was debarred from making the sales of any land. Assessee paid Rs. 70 lacs and a further sum of Rs. 70 lacs was kept in bank FDR. Later on Court and then the Hon’ble Punjab and Haryana High Court confirmed the stay. As a result of above legal problems assessee could not develop the colony as the disputed land was at the front. In view of above assessee paid Rs. 2,30,000/- (As per assessee it is actually 2.30 crore) to M/s Futrustic Solutions Limited in 2007 and they in turn agreed to withdraw all the suits and not to pursue the case before the Hon’ble Punjab and Haryana High Court. It was under above circumstances that the assessee valued the closing stock of land less by Rs. 75 lacs.
2.4. Assessing Officer however was not satisfied with the above explanation of the assessee. Assessing Officer has observed that civil suit was filed by M/s Amritsar Rayon & Silk Mills (P) Limited, on 18.3.2006 and there was no verdict upto 31.3.2006. Assessee was adopting cost price method for determining the valuation of closing stock and it was not permitted under the law to change the method of valuation of closing stock. Further the assessee is not permitted to shift the tax liability of a particular year to a subsequent year. In view of above Assessing Officer rejected various contentions of the assessee and made addition of Rs. 75 lacs.
2.5 Assessee in the course of appellate proceedings has filed its detailed reply which has been reproduced above. Assessee after repeating the facts and history of the case has stated that as a result of legal dispute price of land had gone down which has been given effect while valuing closing stock. From what is discussed above and detailed submission of the assessee, I am of the opinion that Assessing Officer was not right in rejecting assessee’s various contentions and making the addition of Rs. 75 lacs. It is a fact that there was a legal dispute over the land which was in front of a big piece of land on which assessee wanted to develop a colony. Unless the legal dispute is resolved assessee could not have developed the colony which as claimed by the assessee would have caused huge losses to the assessee. It is not a case of pure legal dispute over land but court had also granted the stay which was confirmed by the Hon’ble Punjab and Haryana High Court. Assessee had paid Rs. 70 lacs to M/s Amritsar Rayon & Silk Mills (P) Limited and another Rs. 70 lacs were kept on bank FDR to cover further losses. In fact as claimed an amount of Rs. 2.30 crores was paid to settle the dispute. From what is stated above, it cannot be said that the assessee did not have a clear title over the land and the same was not free from all encumbrance. Land was encumbered by legal dispute which had made a dent in the price of land. Regarding Assessing Officer’s contention that suit was filed on 18.3.2006 and there was no verdict upto 31.3.2006 and therefore filing of suit had no impact on the value of the impugned land same in my opinion is not tenable. Assessee has stated that immediately after the suit was filed on 18.3.2006 land became a disputed property. The fact of dispute was reported in the newspapers. Legal dispute in my opinion has adversely impacted the price of land. Now coming to the issue of under valuation of Rs. 75 lacs assessee has already explained that it had paid Rs. 70 lacs to M/s Amritsar Rayon & Silk Mills (P) Limited and finally the matter was settled at Rs. 2.30 crores. In fact, M/s Amritsar Rayon & Silk Mills (P) Limited had filed a suit for recovery of Rs. 1,08,00,000/- being the double of advance amount paid as earnest money to the tune of Rs. 54 lacs. In view of above discussion, I am of the opinion that assessee has rightly valued the closing stock of aforesaid land less by Rs. 75 lacs. Now coming to the issue of method of valuation of closing stock which Assessing Officer says was cost price in earlier years, assessee has stated that there is no change in the method of valuing of closing stock. It has consistently been following method of valuing closing stock as Cost or Market price whichever is less. In fact tax audit report for the assessment year 2006-07 copy of which has been filed in the course of appeal proceedings shows method of valuation of closing stock as Cost or net realizable value whichever is less. Against the column ‘Details of deviation, if any from the method of valuation prescribed under Section 145A and effect thereof on the profit and loss’ it is clearly mentioned Nil. It is therefore clear that there is no change in the method of valuation of closing stock as alleged by the Assessing Officer. In any case Assessing Officer has not substantiated his observation that the assessee has changed the method of closing stock.
2.6 In view of above, I am of the opinion that assessee has rightly and correctly valued its closing stock and Assessing Officer therefore was not justified in making the addition of Rs. 75 lacs and the same is deleted.”
7. The Tribunal vide order dated 27.11.2012, Annexure A.III while dismissing the appeal of the revenue affirmed the aforesaid findings with the following observations :—
“8. It is evident that the company M/s Amritsar Rayon & Silk Mills Pvt. Limited filed a suit against the assessee on 11.3.2006 which had an adverse impact on the market value of the impugned asset. The revenue itself did not challenge the opening stock of the impugned asset in the subsequent assessment year, while passing the assessment order under Section 143(3) and accepted the same as contended by the learned ‘AR’. Having regard to the above discussed legal and factual position of the case and also perusing the findings of the AO, and the CIT(Appeals), in the matter, we are of the considered opinion that the order passed by the CIT(Appeals) does not suffer from any infirmity and hence the same is upheld and the appeal of the revenue is dismissed.”
8. In the present case, it was not disputed that civil suit was filed by M/s Amritsar Royon and Silk Mill Pvt. Limited in which the assessee was impleaded as respondent No.4. There was an interim order passed by the trial court which was affirmed by this Court as well. In such a situation, the assessee was justified in reducing the valuation of the closing stock. The assessee had reduced the closing stock and the same was taken as opening stock for the assessment year 2007-08 which was accepted by the Assessing Officer while framing assessment under Section 143(3) of the Act. Thus, no loss to the revenue had been caused. Further this Court in Fazilka Co-operative Sugar Mills Ltd.’s case (supra) had noticed as under:—
“We think that the plea is untenable. If the assessee had claimed the benefit, the revenue would have contended before the Tribunal that the assessee has accepted the addition. Otherwise, the Revenue does not give the benefit. So, it wants the best of both the sides. Still further, it appears to us that the Revenue is only trying to fiddle with the figures. In fact, the addition to the value of the stock in hand has not resulted in any loss to the Revenue. The value which has been shown by the assessee has been carried forward to the next year. Thus, there is no loss of tax so far as the Revenue is concerned. In any case, the ultimate position is that the assessee has suffered loss.”
9. The Delhi High Court in Continental Devices India Ltd.’s case (supra) had recorded as under:—
“As regards questions Nos. 1, 3 and 5, in our opinion, the said questions are questions of fact. With regard to question No. 1, we are further informed that, in respect of the subsequent year, the closing stock has been accepted by the department to be the opening stock. As far as question No.5 is concerned, for the subsequent assessment year, a similar contention had been raised and the assessing authority had accepted that investment allowance is allowable on the air-conditioning plant…”
10. In view of the above, no substantial question of law arises. Consequently, the appeal stands dismissed.
[Citation : 361 ITR 451]
