Disclosure Made in Income Tax Return Form, Says Conversion of Closing Stock into Investment Not Taxable: ITAT [Read Order]

The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the disclosure made by a real estate developer in its Income Tax Return Form, stating that the conversion of closing stock of Rs. 56,82,707 into investment during the year under consideration is not taxable.

The Assessee, KGK Homes, a real estate developer, filed its 2018-19 income return for scrutiny assessment. The Income Tax Department (ITD) found that the firm undervalued its closing stock and converted the land from trade to investment without making the necessary disclosure.

The Income Tax Department (ITD) issued an order under Section 263 of the Income Tax Act, 1961, reopening the assessment. The order was based on the firm's undervaluation of closing stock by Rs. 16,59,040 and the lack of disclosure regarding the conversion of land from trade to investment. The assessee firm challenged the ITD's order in the Income Tax Appellate Tribunal (ITAT).

The assessee firm argued that the difference in previous years' working cannot be attributed to the current year and the firm has consistently followed the same expense appropriation methodology as the ITD. They argued that the NFAC's conscious decision to accept the firm's work was due to due application of mind.

They also argued that the firm made appropriate disclosures in the Audited Financial Statements regarding the conversion of stock from trade to investment and that this conversion was not taxable during the year under consideration.

The ITD argued that the assessee firm undervalued its stock by Rs. 16,59,040 and failed to disclose land conversion from trade to investment in its return of income. The ITD justified the firm's order under Section 263 as erroneous and prejudicial to the Revenue's interest.

The Tribunal observed that the methodology adopted by the appellant for the difference in closing stock had been consistently followed and accepted by the Income Tax Department in previous assessments, further supporting the NFAC's decision.

It was observed that the conversion of land into an investment was not taxable during the year under consideration, and therefore, there was no loss of revenue to the Income Tax Department.

The Two-member bench comprising Rathod Kamlesh Jayantbhai (Accountant Member) and Sandeep Gosain (Judicial Member) held that the order passed by the NFAC was not erroneous, and the appeal filed by KGK Homes was allowed, with the order passed by the Principal Commissioner of Income Tax, Jaipur, under Section 263 of Income Tax Act was set aside.

To Read the full text of the Order CLICK HERE

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