The Calcutta High Court quashed the decision of the Commissioner of Income Tax ( CIT ) as proper scrutiny conducted by the Assessing Officer ( AO ) on allegations of under valuation of the closing stock.
The scrutiny assessment for the year under consideration was completed by order determining the total income of the assessee at Rs. 3,19,86,520/-. The Commissioner of Income Tax, Kolkata, invoked his powers under Section 263 of the Income Tax Act alleging that the assessing officer has completed the assessment in hasty manner and has accepted the return of income without making necessary enquiry and verification and therefore the order is prejudicial to the interest of the revenue.
The assessee submitted their reply however, the CIT rejected the contention raised by the assessee and affirmed the proposal in the show cause notice and directed the assessing officer to make necessary investigation on the three issues pointed out and pass orders in accordance with law. Aggrieved by such order, the assessee preferred appeal before the tribunal. The tribunal allowed the appeal and challenging the said order this appeal has been preferred by the revenue.
With regard to the alleged allegation of understatement of closing stock, the assessee has submitted that they had valued the stock at cost on First-in First-out basis or the market price whichever is less that they have duly maintained complete stock record in their computer system item wise which contains full details of opening stock, purchases made, sales made and closing stock giving quantity, rate and value. Further the assessee stated that the computer system automatically computes the value of closing stock on FIFO basis and there is no change and/or possibility of any understatement in valuation of the closing stock.
Thus, taking note of the aspect that the stock statement submitted by the bank and the stock as per the stock register were exactly matching with each other, the tribunal agreed with the assessee’s submission that the assessing officer has conducted due enquiry and thereafter completed his scrutiny assessment. The tribunal also noted that the CIT in his order under Section 263 has only observed that there is a possibility of understatement in the closing stock without a specific finding on the said aspect.
A Division Bench comprising Chief Justice TS Sivagnanam and Justice Hiranmay Bhattacharyya observed that “In the preceding paragraphs, we have noted as to the exercise conducted by the assessing officer in the scrutiny assessment which was examined by the tribunal and found that the due enquiry conducted by the assessing officer and after perusal of the documents, stock register etc. the assessment was completed. The tribunal also re-appreciated the factual position and found that the CIT while exercising power under Section 263 of the Income Tax Act has not recorded a specific finding that it is as case of no enquiry by the assessing officer rather the observation was there could be a possibility of understatement of the closing stock.”
“Thus, we are satisfied that the tribunal rightly interfered with the order passed by the CIT and allowed the appeal of the assessee” the Court concluded.
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