May 2014
Valuation of closing stock: Section 145: A. Y. 2006-07: Land purchased by assessee in dispute before civil court: Adverse impact on market value of land: Assessee reduced value of closing stock and adopted the same in the subsequent years accepted by Revenue. Addition on account of under valuation of closing stock not proper: CIT vs. Satish Estate P. Ltd; 361 ITR 451 (P&H):
By K. B. Bhujle, Advocate
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The assessee had purchased a land in respect of which one A had filed a suit against the assessee on 11-03-2006. This dispute had an adverse impact on the market value of the land. The assessee valued the land at Rs. 75 lakh below the cost price and accordingly reduced the value of the closing stock as on 31-03-2006. The Assessing Officer made an addition of Rs. 75 lakh on the ground of undervaluation of closing stock. Commissioner (Appeals) deleted the addition holding that the assessee had not changed the method of valuing the closing stock. The Tribunal found that the Revenue did not challenge the value of the opening stock of the land in the subsequent assessment year while passing the assessment order u/s. 143(3) and accepted the valuation. The Tribunal dismissed the appeal filed by the Revenue. On appeal by the Revenue, the Punjab and Haryana High Court upheld the decision of the Tribunal and held as under:
“i) A civil suit was filed by A in which the assessee was impleaded as a party. There was an interim order passed by the trial court which was affirmed by the Court as well. Thus, the assessee was justified in reducing the valuation of the closing stock.
ii) The assessee had reduced the closing stock and the same was taken as opening stock in A. Y. 2007-08 which was accepted by the Assessing Officer while framing the assessment u/s. 143(3). Thus no loss to Revenue had been caused.
iii) In view of the above, no substantial question of law arises. Consequently the appeal stands dismissed.”
