TMI Blog2017 (3) TMI 1184X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted by Tribunal. This is findings of facts. - Decided in favour of Assessee. - Income Tax Appeal No. 115 of 2010 - - - Dated:- 8-3-2017 - Hon'ble Sudhir Agarwal And Hon'ble Ravindra Nath Mishra-II, JJ. For the Appellant : D.D.Chopra, Manish Mishra For the Respondent : Mudit Agarwal, Sri Mudit Agrawal ORDER ( Delivered by Hon'ble Sudhir Agarwal, J. ) 1. This appeal under Section 260-A of Income Tax Act 1961 (hereinafter referred to as Act 1961 ) has been filed by Commissioner of Income Tax, Lucknow (hereinafter referred to as Revenue ) assailing judgment and order dated 08.07.2010 passed by Income Tax Appellate Tribunal, Lucknow Bench, Lucknow (hereinafter referred to as Tribunal ) in Appeal No. I.T.A. No. 170/Luc/2010 for Assessment Year (hereinafter referred to as ''A.Y'.) 2006-07. 2. Appeal was admitted on the following substantial questions of law:- (I) Whether it is necessary that revaluation of closing stock routed through profit and loss account and accordingly Assessing Authority had rightly added the amount of rupees one crore in the income of assessee which has been reversed by Appellate Authorities? (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch irregularity in balance sheet. Consequently, it added ₹ 1,00,00,000/- as income of Assessee vide assessment order dated 29.12.2008. There are some other additions with which we are not concerned in this appeal. 7. Assessee preferred an appeal before Commissioner of Income Tax (Appeals)-I, Lucknow {hereinafter referred to as ''C.I.T.(A)'}. C.I.T.(A) considered this question in para 3.3 and his findings contained in para Nos. 3.3.2, 3.3.3 and 3.3.4 are reproduced as under:- 3.3.2. From the above facts, I find that the intention of the appellant company was to transfer the plot of land from its current inventories to the fixed assets account. The only question for consideration is as to whether the act of revaluation of the said plot of land by rupees one crore by passing the contra entry as discussed above leads to any impact on the taxable income of the appellant company. In my view, the revaluation of a fixed asset does not lead to any taxable income for an assessee. It is apparent from the order that it is not the case of the AO that the conversion of current asset to fixed asset is fraudulent; in other words, the AO has not doubted the fact of such co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he conversion of ''Current Assets' to ''Fixed Assets was fraudulent. It is also not the case of the AO that the market value of the said plot was not higher than the book value shown under the head ''Current Assets in the preceding years. The AO himself made the addition of ₹ 1 Crore considering the market value of the plot in question at ₹ 1 Crore. We, therefore, considering the facts of the present case, are of the view that the market value of the plot was higher than the book value and when the plot was transferred from Current Assets to Fixed Assets , the assessee was justified in taking the value of the plot at market price and since the plot was not transferred or sold to any outsider, the adjustment of the difference in market price and book value was to be adjusted by passing a journal entry. Therefore, in our opinion, the assessee rightly increased the value of the Fixed Assets and the similar amount was credited in the ''Revaluation Reserve A/c'. Now, the question arises as to whether the ld. CIT (A) was justified in sustaining the addition of ₹ 5,00,750 out of the addition of ₹ 1 Crore made by the AO. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to ₹ 1,00,00,000/- and in order to balance account, a cross entry in the account was passed. This entry was passed by debiting ledger account of Quinton Road, Lucknow plot by ₹ 1,00,00,000/- crediting Revaluation Reserve Account by the same amount. The said entry neither reduced Assessee's income of the year nor gave rise to any income, real or imaginary. Purpose was only to reflect correct value of the land in books. An income can be subjected to tax only if it has been received or deemed to have been received, has accrued or is deemed to have accrued. The plot in question was transferred from current assets to fix assets and return entries were made in the annual year 2006-07. Although transfer was made in F.Y. 2005-06, effect of the entry was given to the balance sheet by Auditors in the opening balance of A.Y. 2007-08. Value of closing stock as on 31.03.2006 in balance sheet of A.Y. 2006-07 was ₹ 15,44,99,424/- and value of closing stock on 31.03.2006 in the balance sheet of A.Y. 2007-08 was ₹ 14,39,98,674/-. 14. He further submitted that effect of above adjustment entry is that Assessee's income in A.Y. 2007-08 stood enhanced to ₹ 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otally misconceived. There is neither such proposition of law recognized, nor any well known accounting system so provides. 21. In National Hydro Electrical Power Corporation Limited versus C.I.T. (2010), 3 SCC 396, Court observed that broadly there are two types of reserves:- (i) those that are routed through profit and loss account and (ii) those which are not carried out via profit and loss account. For example a capital reserve such as share premium account. 22. Therefore the basic assumption that every Reserve has to route through profit and loss account, either way is incorrect. Moreover, it is not the case of A.A. that any income has been received or accrued or deemed to have received or accrued. Only transfer of entry was made by Assessee. Unless an income is received or accrued or deemed to accrue, it is not chargeable to tax under Act 1961. There is no finding that this conversion of current asset to fix asset is fraudulent. With respect to market value of the plot also, since A.A. himself makes an addition of ₹ 1,00,00,000/- therefore value taken by assessee was also acceptable to him. If that be so, Assessee, while transferring entry from current asset to fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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