Commissioner of Income Tax vs Heynon India Ltd.

The Revenue is aggrieved by an order dated September 22, 2006, passed by the Income Tax Appellate Tribunal, Delhi Bench H, New Delhi ("the Tribunal") in I.T.A. No. 3187/Del/2003 relevant for the assessment year 1998-99. According to learned Counsel for the Revenue, the tax effect in this case on a notional basis is about Rs. 47.65 lakhs, although she does not deny that the assessee has been assessed at a loss. According to learned Counsel for the Revenue, deletion of additions made by the Assessing Officer (AO) will be carried forward to the subsequent years and may reduce the taxable income for those years. Therefore, according to her, the appeal may be entertained. Notwithstanding the fact that the tax effect is nil, we have heard the matter on the merits.

Learned Counsel for the Revenue has urged two issues. The first is with regard to the deletion by the Commissioner of Income Tax (Appeals) and the Tribunal of an addition of Rs. 54.46 lakhs made by the Assessing Officer on account of a discrepancy between the accounts of M/s Polar Industries Ltd. in the assessee''s account and the accounts maintained by M/s Polar Industries Ltd. It appears that M/s Polar Industries Ltd. maintains one account of the assessee in its books of account, while the assessee maintains three different accounts�two under the head "Sundry Creditors account" for FBD and Pump Division and one unsecured loan account.

According to the assessee, the difference arose on account of the fact that the amount was debited by M/s Polar Industries Ltd. but a corresponding entry was not made by the assessee.

The Commissioner of Income Tax (Appeals) was of the view that even if the assessee was associated with Polar Group of Industries, it was possible for such a discrepancy to arise in the normal course of dealings between the parties. The Commissioner of Income Tax (Appeals) was satisfied with the explanation of the assessee and held that it has been able to reconcile the difference in the balance as pointed out by the Assessing Officer. Accordingly, the addition of Rs. 54,46,789 was deleted by the Commissioner of Income Tax (Appeals). As mentioned above, this has been upheld by the Tribunal on the same ground as the Commissioner of Income Tax (Appeals). On examining this issue, we find that the view taken concurrently by the Commissioner of Income Tax (Appeals) and the Tribunal is a reasonable view based on the explanation tendered by the assessee and is not vitiated by any perversity. We do not find that any substantial question of law arises out of this finding.

The second issue urged by learned Counsel for the Revenue is with regard to the addition of Rs. 81.68 lakhs being the difference between reduction in value of stock and the sale price. The Commissioner of Income Tax (Appeals) was of the view that the valuation of stock had been carried out by the assessee in a reasonable manner. The market value had been taken to be the average of the sale value of the goods during the year. The Commissioner of Income Tax (Appeals) observed that this manner of valuation was in accordance with the method consistently followed by the assessee. It was also found that a decrease in stock of Rs. 1.09 crores was partly due to the sale of finished goods at lower than cost and partly due to diminution in the value of the closing stock. The explanation given by the assessee for making loss on such sales was found by the Commissioner of Income Tax (Appeals) to be reasonable and supported by documentary evidence, which ought not to have been ignored by the Assessing Officer. The Tribunal accepted the view of the Commissioner of Income Tax (Appeals) and added that the Assessing Officer has not made out any case that the assessee realized an amount more than that declared in the sales invoices.

We find that no substantial question of law arises out of this finding as well, based as it is on facts. There is no merit in the appeal.

Dismissed.