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Judgment
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as ‘the CIT(A)’) dated 16.01.2025, for AY 2018-19.
The solitary issue raised by the assessee in appeal is against the addition of Rs.14,29,702/- on account of alleged change in method of valuation of stock, confirmed by the CIT(A).
Shri K. Sampath, appearing on behalf of the assessee submits that the assessee filed its original return of income for AY 2018-19 on 29.09.2018. At the time of filing Audit Report the Auditors of the company inadvertently in Column 14.b against the query “deviation from the method of valuation prescribed under section 145A, marked “Yes” instead of “No”. Subsequently, when the Auditors realized their mistake, the Auditors clarified that AY 2018-19 was the first year when GST provisions were made applicable. Due to new adaption of GST provisions, while submitting the Tax Audit Report, the stock was calculated on the basis of Cost or NRV, whichever is lower. The same has been mentioned in significant accounting policies and notes on account. The Auditors further clarified that there is no change in method of stock valuation, the assessee has been consistently following same method for valuation of stock as was followed in the preceding assessment years. The clarification issued by the Auditors is at page 201 and 202 of the paper book. The return of the assessee was processed u/s.143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the CPC making addition of Rs.14,29,702/- on account of change in method of valuation of stock. The assessee filed rectification petition u/s.154 of the Act before the Assessing Officer (AO). The CPC rejected assessee’s rectification petition and sustained the addition. Aggrieved by the order of CPC rejecting assessee’s petition u/s.154 of the Act, the assessee filed appeal before the CIT(A). The CIT(A) vide impugned order dismissed appeal of the assessee. The ld. AR submits that since there has been no change in method of accounting of closing stock as has been clarified by the Auditors, the addition be deleted.
Per contra, Shri Manoj Kumar representing the department vehemently defending the impugned order prayed for dismissing appeal of the assessee. The ld. DR submits that, the addition has been made by CPC on the basis of Auditors Report.
Both sides heard, orders of the authorities below examined. The solitary addition made by the AO/CPC is on account of alleged change in method of accounting of valuation of closing stock. It has been contended that the Auditors in the Audit Report has inadvertently mentioned “Yes” instead of “No”, against the query in Column 14.b with regard to any deviation in the method valuation prescribed u/s.145A. The assessee has placed on record clarification from the Auditors that on account of inadvertent mistake, “Yes” was punched instead of “No”, in column 14.b. Considering entire facts of the case, I deem it appropriate to restore this issue back to the file of AO for the limited purpose of examining the method of valuation of closing stock in the impugned assessment year adopted by the assessee. If, there is no deviation in the method of valuation of closing stock from the preceding assessment years, no addition is warranted. The Revenue cannot take advantage of inadvertent mistake in Auditor’s Report. It is a well settled law that the State can only collect legitimate taxes from its subjects.
In the result, impugned order is set aside and appeal of the assessee is allowed for statistical purpose.