Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2009 (8) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2009 (8) TMI 127 - AT - Income TaxValuation of closing stock - change in method of valuation from actual cost to average cost method - difference in the closing stock - search proceedings u/s.153A - Whether change in the method of valuation is bona fide? - the assessee valued the closing stock of gold jewellery on "average cost" basis as against "cost" which resulted in lowering of income as compared to the original returns filed by the assessee. AO did not agree with that the method of change in valuation of closing stock and he added the difference in the valuation of closing stock. The CIT(A) on the basis of decision of Hon'ble apex Court held that there was clear distortion of profits due to change in method, hence accepted the method by Department should have been followed by the assessee. He, accordingly upheld the stand taken by the AO. HELD THAT:- Admittedly the assessee did not revise any of the returns for assessment years under consideration prior to date of search carried out in the case of the assessee. In the case of a person where a search is initiated u/s.132 or books of account, other documents or any assets are requisitioned u/s.132A after the 31st May, 2003 assessment has to be made u/s.153A. Sec. 153A(1) contains non obstante clause and hence provisions of this section will override the provisions of s. 139, s. 147, s. 148, s. 149, s. 151 and s. 153 of the Act. Under s. 153A(1) the AO is empowered to issue notices to the assessee searched for a period of six years in order to assess the income on the basis of material found during the course of search. The second proviso to s. 153A(1) provides that the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in s.153A(1) pending on the date of initiation of search u/s.132 or making of requisition u/s.132A as the case may be shall abate. Therefore, after initiation of search no assessment in respect of pending assessment shall be made and AO is empowered to issue notice u/s.153A to assess or reassess the total income of six assessment years immediately preceding assessment year relevant to the previous year in which such search was conducted or requisition was made. The assessee had valued the closing stock for asst. yrs. 2000-01 to 2005-06 on average cost method which has resulted in reduction of taxable income in all the years ranging from Rs. 8,975 in asst. yr. 2001-02 to Rs. 9,00,797 in asst. yr. 2005-06. It is a fact that all the assessee are required to maintain the stock registers during the course of normal business activities. It is not difficult to identify the items purchased, the date of purchase and their costs. Hence we do not find any substance in the argument of the assessee that it is impossible to value the closing stock at "actual cost" particularly in view of the fact that the assessee had been valuing the closing stock at cost price from very beginning of the business. The concluded proceedings cannot be reopened on the ground that the assessee had incorrectly valued the closing stock in those years. The assessee had filed returns of income for all the six assessment years u/s.139(1). The assessments or reassessments cannot be made in these years by invoking the provisions of s. 147 after initiation of search proceedings in view of second proviso to s.153A(1). From the facts it is clear that the assessee had changed the method of valuation of the closing stocks for six assessment years to reduce the profits and hence the change in the method of valuation is not bona fide. As regards the contention of the assessee that it is impossible to value the closing stock at cost price in the case of jewellers, this is a sweeping generalization without having any material on records to prove. The assessee had not filed any evidence to support its contention and hence deserves to be rejected. The income, for the purpose of reassessment cannot be reduced beyond the income originally assessed. In the assessment years before us, returns of income for asst. yrs. 2000-01 to 2005-06 have been accepted u/s.143(1) and, therefore, in view of the decision of Hon'ble Supreme Court in the case of Sun Engineering Works (P) Ltd.[1992 (9) TMI 1 - SUPREME COURT], the assessee cannot be permitted to claim the benefit of closing stock by changing the method of valuation as it becomes favourable to the assessee. Therefore, in view of the discussions in search proceedings u/s.153A, which are for the benefit of the Revenue, assessee is not permitted to value the closing stock for concluded years at average cost price. Accordingly, the AO as well as CIT(A) was justified in rejecting the change in method of valuation adopted by the assessee for all these years. Hence, we do not find any infirmity in the order passed by the CIT(A), confirming the additions made by the AO due to change of method of valuation.
|