Commissioner Of Income-Tax v. Sadhuram G Andani

O/ITR/103/1995 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE NO. 103 of 1995 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME-TAX....Applicant(s) Versus SADHURAM G ANDANI....Respondent(s) ================================================================ Appearance: MR NITIN K MEHTA, ADVOCATE for the Applicant(s) No. 1 MR RK PATEL, ADVOCATE for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIandHONOURABLE MR.JUSTICE K.J.THAKER Date : 05/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.The following question has been referred by the Income Tax Appellate Tribunal, Ahmedabad under Section 256(1) of the Income Tax Act, 1961 arising out of the Tribunal’s order dated 01.09.1989 in ITA No. 596 & 641/Ahd/89 pursuant to the order dated 18.02.1992 passed by this Court whereby the Tirbunal was directed to draw up a statement of case and raise and refer the said question: Whether the Appellate Tribunal is right in law and on facts in deleting the penalty imposed under section 271(1)(c ) by the Income-Tax Officer? 2. The assessee is carrying on business of construction houses for Gujarat Housing Board. In addition it had also constructed flats on its own as Appollo Park Flats and Sarawati Chambers. Proceedings u/s 147(a) of the Act were initiated on the ground that the assessee did not disclose the value of closing stock of 8 flats which had not been sold until the end of the relevant accounting year. Against the said order of assessment, the assessee has preferred an appeal before the CIT(A) and the CIT(A) reduced the quantum of penalty, against which, the Revenue as well as assessee preferred appeal before ITAT. The ITAT dismissed the appeal filed by revenue and allowed the appeal of assessee. The ITAT deleted the entire amount of penalty imposed by CIT(A). The Tribunal drew up a statement of Case and referred the question of law stated hereinabove to this Court and accordingly this reference has come before us for consideration. 3. Heard the learned advocates appearing for the parties and considered the submissions. The main reference between the parties has already been concluded by this Court in the case of Sadhuram Gordhandas vs. CIT reported in 253 ITR 695, wherein this Court has observed as under: to this Court and accordingly this reference has come before us for consideration. 3. Heard the learned advocates appearing for the parties and considered the submissions. The main reference between the parties has already been concluded by this Court in the case of Sadhuram Gordhandas vs. CIT reported in 253 ITR 695, wherein this Court has observed as under: “13. 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 revenue's stand that the sale had taken place in subsequent accounting period, i.e., previous year relatable to the assessment year 1972-73. As per assessment order dated 31-3-1980 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 (Appeals) is available at pages 80 to 84 of the paper book. In his order dated 25-4-1981, the learned Commissioner (Appeals) has specifically come to a conclusion after appreciating the evidence on record that there is no sale even during the assessment year 1972-73 and 'hence the question of taxing profit on sale of flats does not arise'. In the order dated 4-5-1981 giving effect to the order of the Commissioner (Appeals), we find that the assessee has been assessed on the total income as was originally assessed, deleting the addition made for the assessment year 1972-73. We were informed at the bar that the appellate order dated 25-4-1981 for the assessment year 1972-73 has been accepted by the revenue and no further proceedings for the said year are pending. 14.The resultant effect of the aforesaid position is that the revenue has accepted the stand that there are no sales taxable during the accounting period relevant to the assessment year 1972-73. This was the basis, viz., that sales had taken place in the subsequent accounting period and, hence, the assessee was required to show the closing stock for the year under consideration, for reopening assessment of the year under consideration and making addition of Rs. 32,000. Once it is found on facts that no sales have taken place in subsequent year, the entire basis on which the action of the Income Tax Officer is found disappears. In view of this position there would be no reason to uphold the view of the Tribunal. Moreover, there is nothing on record to show that the sum of Rs. 60,000 shown by the assessee in its trading account was not the market price as was held by Tribunal, because in fact as can be seen from the accounts, the said sum had actually been received from the purchasers. Further, it cannot be disputed that it was for the assessee to adopt the valuation of closing stock at cost or market price whichever is lower, that being the settled legal position. The assessee having adopted the market price for the purpose of valuation, it would not be possible to uphold the order of the Tribunal. 15. Mr. B.D. Karia, the learned counsel, appearing on behalf of the applicant-assessee did not press question No. 1 referred at the instance of the assessee and, hence, we decline to answer the same. Therefore, on the assumption that the reopening proceedings had been validly initiated, we hold that the Tribunal was not justified in valuing the closing stock at Rs. 92,000 resulting in addition of Rs. 32,000, especially when the closing stock had been properly valued on the basis of the market price which was lower of the two i.e., market price or cost. Hence, we answer question No. 5 in the negative, i.e., in favour of the assessee and against the revenue. ” 4. In that view of the matter, no elaborate reasons are required as this Court, in the case of the same assessee, has already answered the said question by holding that the addition made by ITO on the basis of market price was not justified. Therefore, we answer the question raised in the present appeal in favour of the assessee and against the Revenue. Reference is answered accordingly. (K.S.JHAVERI, J.) divya (K.J.THAKER, J)