TMI Blog2001 (9) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals) on the point was totally untenable having no factual basis and whether the said finding is not contrary to the consistent stand adopted by the Income-tax Officer in the form of mere undervaluation of closing stock? 4. Whether, the Tribunal had jurisdiction to put a new case altogether against the assessee of 'non-disclosure' rather than 'under disclosure' changing the entire complexion of the case? 5. Assuming that the reopening proceedings were validly initiated, whether the Tribunal was further justified in valuing the closing stock of Rs.92,000 resulting in addition of Rs.32,000 on merits especially when the closing stock was properly valued by the assessee at market price or cost whichever is lower at the initial stage? 6. Whether, the Tribunal was correct in justifying the rough and ready cost of construction leading to the addition of Rs.32,000 to the taxable income of the assessee?" The assessee is a registered firm. The business of the assessee is that of a building contractor and in the course of its business it purchases a plot of land and after constructing flats, shops, etc., sells the completed premises. The assessment year is 1971-72 and the releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is proposed for addition for the assessment year 1971-72." It is pertinent to note that the assessments for assessment years 1971-72 and 1972-73 were reopened simultaneously and the reassessment proceedings were also conducted simultaneously and that is how the aforesaid common show-cause notice for two assessment years was issued by the Income-tax Officer. Thereafter, the Income-tax Officer analysed the combined trading account pertaining to construction of the "Appollopark" flats and "Saraswati Chambers" and came to the conclusion that the sale of eight flats of Saraswati Chambers declared by the assessee at Rs.60,000 was in reality not effected before the close of the accounting period. According to the Income-tax Officer, the said eight flats in Saraswati Chambers had actually been sold by executing hire purchase agreement on May 21, 1971, which date fell beyond the accounting period relevant for the assessment year under consideration and, hence, according to the Income-tax Officer, the sale had taken place in the assessment year 1972-73. The Income-tax Officer was thus of the opinion that it was necessary for the assessee to show the value of the said eight flats in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer. It was submitted that it was at the behest of the Income-tax Officer that the assessee had submitted the said working and that the same could not be treated as an admission as being cost of the flats as was sought to be done by the Tribunal. Our attention was further drawn to the extract from the accounts to show that the amount of Rs.60,000 was treated as sale price of the said flats in view of the fact that the relevant payment had been received from different purchasers between December 29, 1970, to January 28, 1971, and that all the dates fell within the accounting year under consideration. Mr. Karia further submitted that as per hire purchase agreement, which was entered into by the assessee with the intending purchasers, over and above the down payment made by the purchasers they were required to pay a lease rent of Rs.150 per month, for a period of 20 years. That the assessee had shown the lease rent accordingly for each of the subsequent assessment years commencing from the assessment year 1972-73 and the same has been brought to tax accordingly and thus if the assessee was saddled with the addition of so called closing stock there would be two fold ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ually have been sold at the incorrect figure ...... From this rigid doctrine one exception is very generally recognised on prudential grounds and is now fully sanctioned by custom, viz., the adoption of market value at the date of making up accounts, if that value is less than cost. It is of course an anticipation of the loss that may be made on those goods in the following year, and may even have the effect, if prices rise again, of attributing to the following year's results a greater amount of profit than the difference between the actual sale price and the actual cost price of the goods in question' (extracted in paragraph 281 of the Report of the Committee on the Taxation of Trading Profits presented to British Parliament in April 1951). While anticipated loss is thus taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into the account, as no prudent trader would care to show increased profit before its actual realisation. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever is the lower, and it is now generally accepted as an established rule of commercial pract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase transaction was market price of the property in relation to such transaction and that is how the assessee treated the same and entered accordingly in the trading account. As mentioned hereinbefore on a point of fact it was found necessary to ascertain whether the addition of Rs.32,000 made as closing stock during the year under consideration was given credit as opening stock of the next year. We had called for the papers relatable to the assessment year 1972-73. This became necessary in view of the fact that it was the Revenue's stand that the sale had taken place in the subsequent accounting period, i.e., previous year relatable to the assessment year 1972-73. As per assessment order dated March 31, 1980, for the assessment year 1972-73, the Income-tax Officer recast the trading account and took Rs.92,000 as opening stock for the said year and worked out the profits accordingly. It is pertinent to note that he has taken sales at Rs.1,48,000 as having occurred during the previous year relevant to the assessment year 1972-73. The assessee challenged the said treatment of addition and the order of the learned Commissioner of Income-tax (Appeals) is available at pages 80 to 84 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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