TMI Blog2015 (10) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding the Registrar of Companies (RoC) and the income tax authorities, the figures in such balance sheet for the closing stock of shares can simply be altered subsequently by adopting the device of “regrouping” by the Assessee, even by a Board resolution. That is a process unknown to the law. Even from the point of view of principles governing statutory accounts, such change cannot be simply given effect to in the balance sheet and P&L account for a subsequent year. For instance, such a change, as was sought to be made by the Assessee in the instant case, to the value of the closing stock of shares by treating it as investment instead of stock-in-trade, would affect (and perforce necessitate changes) in the balance sheet and P&L accounts for at least two financial years. It is doubtful if this can at all be done particularly if the statutory authorities including the RoC and the income tax authorities have already been provided with (and perhaps acted upon or accepted) such signed audited accounts for a particular financial year. The authorities concerned, and in particular the income tax authorities, ought to strictly scrutinise such claims as to 'regrouping' of figures appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee under Section 143 (2) of the Act. The AO noticed from Clause 11 of the tax audit report (TAR) in Form 3CD that there has been a change in the method of accounting affecting the profitability of the company. The inventory of shares valued at ₹ 9,83,45,399 had been treated as investment in the current year. Although the TAR stated that Annexure-3 thereto contained a note on the effect to the profitability of the Assessee, the AO found no such annexure. What was furnished by the Assessee before the AO was a copy of Schedule 4A forming part of the balance sheet and profit and loss (P L) account as on 31st March 2005. This, according to the Assessee, was the same as Annexure-3 to the TAR. The AO found that the basis of the valuation of the opening stock and closing stock of shares shown as investment was not clear. The Assessee had changed the treatment of the shares by treating them as investment instead of stock in trade. The AO concluded that when examined in the light of the CBDT circular dated 15th June 2007 and the decided cases, it was apparent that there was no justification for the change in the method of accounting during the current year by treating the stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m as investment prior to AY 2005-06 as evidenced by the auditor s report. Importantly, it was pointed out that the Assessee had shown the value of opening stock as on 1st April 2004 at ₹ 16,99,384/-which should have been taken at ₹ 6,88,64,982/-. It had transferred the balance stock of shares from the stock in trade and treated it as investment in the AY 2005-06. This is also evident from the Balance Sheet and P L account of AYs 04-05 and 05-06. The Audit report of AY 04-05 filed along with the return had shown different figures under the heads closing stock , purchase of shares , profit before taxation and balance carried over to Balance sheet as shown in the P L account of AY 05-06 under the head as at 31.3.04. This indicated that the figures in the Audit Report filed along with the return for AY 04-05 had not been shown in the previous year's column and was changed by the auditor for which a note in Annexure 3 was given which was deliberately not furnished along with the Audit report for AY 05-06. The AO then set out the changed figures under the different heads in a tabular form. The AO concluded that the Assessee had treated the shares as stock in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gures shown in the balance sheet for the year ending 31st March 2005 under the column concerning the position as on 31st March 2004 is the same as the original signed audited balance sheet for the year ending 31st March 2004 or has been changed. 12. It is, therefore, not clear whether after the signing of the audited balance sheet as on 31st March 2004 by Directors and CA any resolution was passed by the Board of Directors of the Assessee deciding to treat as investment the shares shown therein as stock in trade. This is an important aspect which does not appear to have merited attention by the CIT (A) or even the ITAT. 13. The Court would like to observe at this stage that it is inconceivable that after an audited balance sheet of a company for a financial year is signed by its Directors and statutory Auditors, and submitted to the statutory authorities, including the Registrar of Companies (RoC) and the income tax authorities, the figures in such balance sheet for the closing stock of shares can simply be altered subsequently by adopting the device of regrouping by the Assessee, even by a Board resolution. That is a process unknown to the law. Even from the point of view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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