Pr. Commissioner Of Income Tax (Central)- 3 vs. Sh . Charchit Agarwal

Facts

The appellant, Pr. Commissioner of Income Tax (Central)-3, filed an appeal against an order of the Income Tax Appellate Tribunal (ITAT) dated February 22, 2018. The appeal concerned the deletion of Rs. 3,38,58,247/- and further relief of Rs. 1,02,10,375/- granted to the respondent, Sh. Charchit Agarwal. The dispute arose from the respondent's change in the method of valuation of stock from an average rate to the cost price using the FIFO method. The revenue challenged this change, arguing that the respondent had previously accepted the average rate method and that the change was not revenue neutral. The ITAT's decision, which upheld the respondent's change in valuation method, is under challenge.

Held

The Court held that the issues canvassed were purely questions of fact, as evidenced by the ITAT's findings. Regarding the first issue, the Court noted the ITAT's detailed analysis of the reconciliation statements provided by the assessee, supported by documentary evidence, which the revenue failed to refute. The ITAT found no infirmity in the CIT(A)'s deletion of the addition on account of unaccounted stock. Regarding the second issue, the Court observed that the ITAT accepted the assessee's valuation at cost price, noting that this was an accepted method and that the revenue had accepted it in subsequent years. The ITAT also cited Accounting Standard 2. The Court concluded that the issue was at most revenue neutral, as the stock would either become opening stock for the next year, be sold, or remain in closing stock. Consequently, the Court found no substantial question of law arising from the ITAT's order.

Key Issues

1. Whether the ITAT erred in law and fact by confirming the deletion of Rs. 3,38,58,247/- and allowing further relief of Rs. 1,02,10,375/- by accepting the assessee’s change of stock valuation method to cost price following FIFO, despite the assessee having previously accepted the average cost method at the time of search? (Section 69 of the Income Tax Act, 1961) 2. Whether the ITAT erred in accepting the assessee’s change of valuation method on the grounds that closing stock becomes opening stock and is therefore revenue neutral, without considering that the assessee would not have pursued the change if it were truly revenue neutral? Petitioner's Arguments: The appellant contended that the ITAT erred in allowing the change in the stock valuation method. They argued that the respondent had previously accepted the average rate of cost of stock adopted by an approved valuer at the time of search. Furthermore, they argued that the ITAT's reasoning that the change was revenue neutral was flawed, as the respondent's pursuit of the change indicated it was not so. Respondent's Arguments: The respondent argued that the change in valuation method was justified. The ITAT's findings, as extracted in the judgment, indicate that the respondent provided detailed reconciliations supported by documentary evidence for discrepancies found during a search. The ITAT also noted that the respondent had previously used the average cost method, and the revenue had accepted the cost price method in earlier assessment years. The ITAT also referred to Accounting Standard 2, which allows valuation at cost or market value, whichever is less.