Keshri Export Vs ITO (ITAT Surat)
Introduction: The Keshri Export vs. ITO (Income Tax Officer) case, as heard by the Income Tax Appellate Tribunal (ITAT) Surat, pertains to the Assessment Year 2017-18. This case revolves around the dispute concerning the valuation of closing stock and whether the assessing officer had the authority to make additions to the value of the closing stock without rejecting the books of account maintained by the assessee.
Background and Assessment: The case begins with the filing of the return of income by the assessee, Keshri Export, for the Assessment Year 2017-18. The return declared a total income of Rs. 6,72,826. The Income Tax Department subsequently selected the case for scrutiny, and notices were issued to the assessee under various sections of the Income Tax Act.
Valuation of Closing Stock: During the assessment, the assessing officer focused on the valuation of closing stock, particularly the discrepancy in the valuation method used by the assessee. The assessee had valued its closing stock of finished goods at a lower rate per carat than the opening stock, resulting in a difference.
Assessing Officer’s Decision: The assessing officer, in response to the discrepancy in valuation, made an addition to the assessee’s income. This addition was based on the assumption that the closing stock should have been valued at the same rate per carat as the opening stock.
Assessee’s Appeal: Dissatisfied with the assessing officer’s decision, the assessee filed an appeal with the Commissioner of Income Tax (Appeals) [CIT(A)]. In its appeal, the assessee argued that the assessing officer could not make additions to the valuation of closing stock without rejecting its books of accounts. It also cited relevant case laws to support its stance.
CIT(A)’s Decision: The CIT(A) partially allowed the assessee’s appeal. Instead of rejecting the books of accounts, the CIT(A) considered the valuation methodology adopted by the assessee. After applying accounting standards and principles, the CIT(A) concluded that the assessing officer’s addition was excessive. Consequently, the CIT(A) reduced the addition significantly, providing the assessee with substantial relief.
ITAT Surat’s Verdict: The case was further appealed to the ITAT Surat. The ITAT upheld the decision of the CIT(A) and dismissed the appeal filed by the assessee. The ITAT agreed that rejecting the entire books of account was not warranted, as the issue at hand was the valuation of stock. The ITAT confirmed the method used by the CIT(A) to compute the closing stock’s value by adopting an average rate per carat.
In the Keshri Export vs. ITO (ITAT Surat) case for Assessment Year 2017-18, the ITAT Surat ruled that the assessing officer did not need to reject the entire books of accounts when addressing the discrepancy in the valuation of closing stock. Instead, the ITAT upheld the CIT(A)’s decision to consider the correct valuation methodology and apply accounting standards. This case highlights the importance of adhering to proper accounting practices and principles when valuing stock to avoid unnecessary additions to taxable income.
FULL TEXT OF THE ORDER OF ITAT SURAT
Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2017-18, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short “the ld. CIT(A)”], National Faceless Appeal Centre (In short ‘NFAC’), Delhi, dated 04.10.2022, which in turn arises out of an assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), dated 05.12.2019.
2. The grounds of appeal raised by the assessee are as follows:
“(1) The learned CIT(A) was not justified in re-estimating addition to the value of closing stock particularly when the AO had not rejected books.
(2) On the facts and circumstances of the case, the learned CIT(A) ought to have deleted the addition altogether.
(3) The assessee craves to add, alter or vary any of the grounds of appeal.”
3. At the outset, Ld. Counsel for the assessee, informs the Bench that assessee does not wish to press ground no.2; therefore we dismiss ground no.2 raised by assessee as not pressed.
4. We note that appeal filed by the assessee for assessment year (AY).2017-18, is barred by limitation by one hundred three (103) days. The Learned Counsel for the assessee moved a petition/affidavit, requesting the Bench to condone the delay. The contents of the affidavit filed by the assessee for condonation of delay, are reproduced below:
“AFFIDAVIT
1) I, Vitthalbhai Karamshibhi Gabani, aged 61 years of 13, Gurunagar Society, Opp. Baroda Prestige, Varachha Road, Surat-395006, state on solemn affirmation as under.
2) I say that I am one of the partners of Keshri Exports having PAN ABKPG0905D.
3) During the Income-tax assessment year 2017-18, Keshri Exports has filed appeal before the Income-tax Appellate Tribunal, Surat with a delay of 103 days stated as under.
(4) Primarily, delay occurred in filing the appeal is on account of the unit of Keshri Exports totally closed down with entire manufacturing activity suspended since 2016. Keshri Exports sold its manufacturing unit in March, 2016 as it could not survive the financial crunch.
(5) As a result, there was no administrative set up for looking after filing the appeal; the accountant Chintan Raval also left the organisation in 2017. Further, partner of Keshri Exports Shri Valjibhai Gabani, who was primarily responsible for looking after the accounts, administration and legal matters passed away on 10-12-2021.
(6) With the other partners after taking appropriate legal advice, eventually filed the appeal before the Tribunal was field on 16-3-2023.
(7) Keshri Exports confirms that in past, there has never been any delay in such filing or any compliance.
(8) This affidavit is done to assert the above facts.
(9) For this affidavit, e-stamp bearing e-certificate been used.”
5. Based on the reasons mentioned in the above affidavit, the ld Counsel contended that delay in filing the appeal may be condoned.
6. On the other hand, ld DR for the Revenue argued that reasons mentioned in the affidavit, are not sufficient reasons to condone such huge delay. The assessee needs to explain each day of delay which the assessee has failed to do so, hence delay may not be condoned.
7. We heard both the parties on this preliminary issue. We note that primarily, delay occurred in filing the appeal is on account of that the unit of Keshri Exports totally closed down with entire manufacturing activity suspended since 2016. Keshri Exports sold its manufacturing unit in March, 2016, as it could not survive the financial crunch and as a result, there was no administrative set up for looking after filing the appeal. The accountant also left the organisation in 2017. Further, partner of Keshri Exports Shri Valjibhai Gabani, who was primarily responsible for looking after the accounts, administration and legal matters passed away on 10.12.2021. The exercise of discretion in condonation of delay in matters of limitation, has to be carried out [within the meaning of “Sufficient Cause” as envisaged in Section 5 of Limitation Act. Hence, the general rule of law of limitation is that an extension shall not be granted under Section 5 if there is no sufficient cause or cogent ground for the condonation of delay, the onus of proving which lies on the assessee as clearly laid down in the judicial pronouncements by the Highest Courts of Law.
8. In the case of Perumon Bhagvathy Devaswom, Perinadu Village v. Bhargavi Amma (Dead) by LRs, (2008) 8 SCC 321, the Hon’ble Supreme Court had enunciated certain principles which are applicable while considering applications for condonation of delay under Section 5 which may be summarized as follows:
(i) The words “sufficient cause“, as appearing in Section 5 of Limitation Act, should receive a liberal construction when the, delay is not on account of any dilatory tactics, want of bona fides, deliberate inaction or negligence on the part of the applicant/assessee, in order to advance substantial justice. The words “sufficient cause” for not making the application within the period of limitation” should be understood and applied in a reasonable, pragmatic, practical and liberal manner, depending upon the facts and circumstances of the case.
(ii) The decisive factor in condonation of delay is not the length of delay but sufficiency of a satisfactory explanation.
(iii) The degree of leniency to be shown by a court depends on the nature of application and facts and circumstances of the case. For example, courts view delays in making applications in a pending appeal more leniently than delays in the institution of an appeal. The courts view applications relating to lawyer’s lapses more leniently than applications relating to litigant’s lapses.
(iv) Want of ‘diligence’ or ‘inaction’ can be attributed to an applicant/assessee only when something, required to be done by him, is not done. When nothing is required to be done, courts do not expect the applicant/assessee to be diligent. Where an appeal is admitted by the High Court and is not expected to be listed for final hearing for a few years, an assessee is not expected to visit the court regularly to ascertain the current position but await information from his counsel about the listing of the appeal.
9. We note that in assessee`s case the delay is not on account of any dilatory tactics, deliberate inaction or negligence on the part of the applicant, therefore having regard to the reasons given in the petition, we condone the delay and admit the appeal for hearing.
10. Briefly stated, the relevant material facts are as follows. The assessee has filed his return of income on 30.09.2017, declaring total income of Rs.6,72,826/-. The return of income was processed u/s 143(1) of the Income Tax Act, 1961. Later on, the assessee`s case was selected for scrutiny under CASS. Accordingly, notice u/s 143(2) of the Act was issued on 28.08.2018 and duly served upon to the assessee. Further, notice u/s 142(1) issued along with detailed questionnaire and notice u/s 142(1) issued online on 15.01.2019, and duly served upon to the assessee. In response to the statutory notices issued u/s 143(2) and 142(1) of the Income Tax Act, 1961, the assessee filed required details from time to time before the assessing officer. During the year under consideration, the assessee is engaged in the business of trading in polished and rough diamonds. During the course of assessment valuations of inventories have been verified by assessing officer and it was observed by the assessing officer from the Audit Report that the assessee has shown the valuation of closing and opening stock of finished goods as under:
