ITA No.558/Coch/2023 :Asst.Year 2017-2018

Parties Involved

Facts Summary

The assessee filed a return of income declaring a total income of Rs.37,690. The case was selected for scrutiny, and the Assessing Officer (AO) determined the income at Rs.6,06,500 by making an addition under the head of underreporting of closing stock. The AO added the value-added tax along with the value shown in the closing stock, estimating an additional income of Rs.5,68,812. The assessee filed an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)), which was dismissed. The assessee then filed an appeal before the Income Tax Appellate Tribunal (ITAT) contending that the method adopted by the AO was incorrect. The Tribunal heard the appeal and found that the AO erred in making additions only to the closing stock without considering the overall valuation impact in the revenue account.…

Legal Issues

• 1. The learned Assessing Officer erred under circumstances and facts of the case and in law in making an addition of Rs. 5,68,810/- being incorrect calculation of VAT on the Closing stock and then application of section 145A which required disclosure as per Income Computation and Disclosure Standards II Valuation of Inventories (ICDS-II). The AO should have appreciated the fact that income Computation and Disclosure Standards II Valuation of Inventories prevails over the provisions of Section 145A of the Income Tax Act, 1961.
• 2. The learned AO erred in making additions only to a chosen limb - being VAT adjustments of closing stock (on Adhoc basis) without considering the overall valuation impact in the revenue account.

Judgment Outcome

Decided in favour of Partly Assessee / Partly Revenue.

Precedents Relied Upon

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