THE DCIT CIR 18(1), MUMBAI v. M/S. HINDUJA ESTATE DEVELOPERS, MUMBAI

ITA 3820/MUM/2008 | 2002-2003
Pronouncement Date: 29-07-2011 | Result: Dismissed

Appeal Details

RSA Number 382019914 RSA 2008
Assessee PAN AAAFH1685A
Bench Mumbai
Appeal Number ITA 3820/MUM/2008
Duration Of Justice 3 year(s) 1 month(s) 30 day(s)
Appellant THE DCIT CIR 18(1), MUMBAI
Respondent M/S. HINDUJA ESTATE DEVELOPERS, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 29-07-2011
Date Of Final Hearing 07-07-2011
Next Hearing Date 07-07-2011
Assessment Year 2002-2003
Appeal Filed On 30-05-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI P.M.JAGTAP ACCOUNTANT MEMBER & SHRI R.S. PADVEKAR JUDICIAL MEMBER. I.T.A. NO. 3820/MUM/2008 ASSESS MENT YEAR : 2002-03. DY. COMMISSIONER OF INCOME-TAX HINDUJA ESTATEDEVELOPERS CIRCLE-18(1) MUMBAI. VS. HINDUJA HOUSE 17 DR.A.B. ROAD WORLI MUMBAI 400 018. PAN AAAFH 1685A. APPELLANT. RESPONDENT. C. O. NO.96/MUM/2009 (IN IT A NO. 3820/MUM/2008) ASSE SSMENT YEAR : 2002-03. HINDUJA ESTATE DEVELOPERS DY. COMMISSIONER OF INCOME-TAX MUMBAI. VS. CIRCLE-18(1) MUMBAI. CROSS OBJECTOR. RESPONDENT. DEPARTMENT BY : S HRI GOLI SRINIWAS RAO. ASSESSEE BY : SHRI KESHAV BHUJLE. O R D E R. PER P.M. JAGTAP A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LEARNED CIT(APPEALS)-XVIII MUMBAI DATED 24-03-2008 AND THE SAME IS BEING DISPOSED OF ALONG WITH THE CROSS OBJECTION FILED BY THE ASSESSE E BEING C.O. NO. 96/MUM/2009. 2. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHI P FIRM WHICH IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION FILED BY IT ON 31-10-2002 DECLARING A LOSS OF RS.15 01 96 168/- WAS 2 ITA NO.3820/MUM/2008 & C.O. NO.96/MUM/2009 ASSESSMENT YEAR : 2002-03. INITIALLY PROCESSED BY THE AO U/S 143(1). SUBSEQUEN TLY IT WAS NOTICED BY THE AO FROM THE AUDIT REPORT FILED BY THE ASSESSEE ALONG W ITH ITS RETURN OF INCOME THAT THERE WAS A CHANGE IN THE METHOD OF VALUATION OF STOCK OF REAL ESTATE BY THE ASSESSEE FROM AT COST TO AT COST OR MARKET VALUE WHICHEV ER IS LOWER IN THE YEAR UNDER CONSIDERATION. AS FURTHER NOTED BY THE AO FROM THE AUDIT REPORT THERE WAS A REDUCTION IN THE VALUE OF CLOSING STOCK FROM RS.33 25 73 112/- TO RS.15 CRORES AS A RESULT OF THE SAID CHANGE. HE THEREFORE REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148 ON 28-03-2007 AFTER RECORDING THE REASONS. DURING THE COURSE OF REASSESSMENT PROCEEDINGS THE ASSESSEE WAS CALLED U PON BY THE AO TO JUSTIFY THE CHANGE IN THE METHOD OF VALUATION OF STOCK ADOPTED BY IT IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE WAS ALSO REQUIRED BY HI M TO SHOW CAUSE AS TO WHY THE SAID CHANGE SHOULD NOT BE REJECTED AND VALUE OF CLO SING STOCK SHOULD NOT BE TAKEN AT R.33.20 CRORES AS AGAINST RS.15 CRORES SHOWN BY THE ASSESSEE. IN REPLY THE FOLLOWING SUBMISSION WAS MADE BY THE ASSESSEE IN WR ITING : (I) THE ASSESSEE IS A PARTNERSHIP FIRM FORMED IN T HE YEAR 01.04.1995 AND ONE OF ITS BUSINESS IS TO DEVELOP REAL ESTATE. THE ASSE SSEE STARTED ACQUIRING LAND AT BANGALORE SITUATED AT CHENNAHALLI CHOKKANAHALL I VILLAGE JALA HOBLI BELLARY ROAD BANGALORE NORTH TALUKA KAMATAKA SI NCE APRIL 1995 AND THE DETAILS OF CQUISITION OF LAND YEARWISE ALONG WITH COST OF DEVELOPMENT INCURRED ON THE LANDS IS ALREADY GIVEN IN THE CHART (PER PARA 2 OF THE LETTER DATED 11.12.2007). FURTHER COPIS OF THE ASSESSEES BALANCE SHEET AND PROFIT & LOSS ACCOUNT FROM THE YEAR MARCH 1996 TO THE YEAR ENDED 31 ST MARCH 2001 ARE ENCLOSED FOR YOUR GOODSELFS PERUSAL (SEE ANNEXURE-1). IT MAY BE SEEN THAT THE ASSESSEE HAS BEEN RECEIVING ADVANCE A GAINST SALE OF THESE PLOTS SINCE A.Y. 1996. ADVANCE AGAINST SALE OF THESE PLOT S WERE CLAIMED BACK BY THE PARTIES IN THE YEAR ENDED 31 ST MARCH 2002 AS THE PRICES OF LAND HAD DIPPED BECAUSE OF THE GENERAL SLUMP IN THE REAL EST ATE BUSINESS AT BANGALORE. THE PARTIES WHO HAD GIVEN THESE ADVANCES WERE RE-N EGOTIATING THE TERM OF PURCHASE WITH THE ASSESSEE IN LIGHT OF THE FALL IN THE MARKET PRICES AND AS A RESULT RE-NEGOTIATING THE PRICES AT PRICES LOWER T HAN WHAT WERE EARLIER AGREED TO WOULD RESULT IN A LOSS TO THE ASSESSEE. THE PART IES THEREFORE TOOK BACK THE 3 ITA NO.3820/MUM/2008 & C.O. NO.96/MUM/2009 ASSESSMENT YEAR : 2002-03. ADVANCES GIVEN BY THEM FOR PURCHASE OF DEVELOPED PL OTS OF LAND AT BANGALORE. (II) CONSIDERING THESE FACTORS AS THE PRICES OF RE AL ESTATE HAD DIPPED IT WAS IMPERATIVE FOR THE ASSESSEE WHO WAS EARLIER VA LUING THE WORK IN PROGRESS OF REAL ESTATE AT COST IT BEING LOWER THA N THE MARKET VALUE; TO VALUE THE WORK IN PROGRESS OF REAL ESTATE AT MARKET VALUE WHICH IS LOWER THAN THE COST AS ON 31.03.2002. THE ASSESSEE THEREFORE AP POINTED KNIGHT FRANK REGISTERED VALUER OF HIGH REPUTE TO VALUE THE CLOSI NG STOCK OF WORK IN PROGRESS OF LAND AS ON 31.03.2002. THE GOVERNMENT R EGISTERED VALUERS ESTIMATED THE VALUE OF THESE DEVELOPED PLOTS AT RS. 15.00 CRORES AS AGAINST ITS COST OF RS.33 25 73 112/-. COPY OF THE VALUATION RE PORT ISSUED BY THE REGISTERED VALUERS IS ENCLOSED FOR YOUR NPERUSAL (S EE ANNEXURE 2). IN PARA 15 OF THE SAID VALUATION REPORT THE REGISTERED VAL UERS HAVE GIVEN THE MARKET SCENARIO IN RESPECT OF PRICES OF DEVELOPED LAND WH ICH IS REPRODUCED FOR YOUR READY REFERENCE AS FOLLOWS : PROPERTY PRICES IN BANGALORE HAVE MOVED IN TANDEM WITH PRICE TRENDS IN OTHER CITIES. AFTER HAVING REACHED THEIR PEAK IN LATE 1995 VALUES HAVE FALLED BY 45% SINCE THEN. PRICES SEEM T O HAVE STABILISED NOW AFTER ALMOST SIX YEARS. DESPITE HIGH VACANCY RA TES CAPITAL VALUES ARE UNLIKELY TO FALL FURTHER AS THE GROWTH IS DEMAN D LED AND THIS DEMAND IS EXPECTED TO CATCH UP SLOWLY WITH SUPPLY. A SIGNIFICANT ASPECT OF BANGALORE IS THAT IT HAS IMMENSE POTENTIA L TO DEVELOP IN ALL DIRECTIONS. THE BIGGEST CONSTRAINTS IN THE RECENT PAST HAVE BEE N THE INFRASTRUCTURE BOTTLENECKS WHICH HAVE MADE PEOPLE SHY AWAY FROM B ANGALORE. POWER IS SHORT SUPPLY WATER SHORTAGES ARE BECOMIN G ENDEMIC AND ONLY 17% OF THE CITYS AREA IS IN ROADS LEADING TO TRAFFIC CONGESTION AND INCREASED POLLUTION.K THE PRIME RESIDENTIAL AREAS IN BANGALORE ARE KORAMA NGALA LAVELLE ROAD RICHMOND TOWN PALACE ORCHARD INDIRA NAGAR SADASHIV NAGAR JAYANAGAR AND DOLLARS COLONY. THE MARKET FOR THE RESIDENTIAL SEGMENT HAS STABILISED WITH ACTUAL USERS ENTERING T HE MARKET. THE DEMAND PATTERN HAS UNDERGONE A CHANGE. THE DAYS OF THE SUPER LUXURY APARTMENT CONCEPT ARE OVER AND PRESENTLY THERE IS G REATER DEMAND FOR SMALL APARTMENTS WITH GOOD QUALITY CONSTRUCTION ALO NG WITH AMENITIES 4 ITA NO.3820/MUM/2008 & C.O. NO.96/MUM/2009 ASSESSMENT YEAR : 2002-03. SUCH AS CLUBHOUSE SWIMMING POOL 100% POWER BACK U P FACILITIES COVERED GARAGE. (III) THE METHOD OF VALUATION OF CLOSING STOCK IN RELATION TO WORK IN PROGRESS OF REAL ESTATE AT COST OR MARKET VALUE WH ICHEVER IS LOWER IS AS PER RECOGNIZED ACCOUNTING PRINCIPLE IN LINE WITH THE AC COUNTING STANDARD AS PUBLISHED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. IN THIS REGARD WE ENCLOSE COPY OF THE ACCOUNTING STANDARD 2 ON V ALUATION OF INVENTORIES HIGHLIGHTING THE RELEVANT PORTION. THE AS 2 IS NO T APPLICABLE TO CONSTRUCTION CONTRACTS BUT THE CASE OF THE ASSESSE E IS OF A BUILDER DEVELOPER AND NOT OF A CONTRACTOR AND AS SUCH THE E XCLUSION IS NOT RELEVANT. THE MAIN PRINCIPLE PROPAGATED BY AS -2 IS THAT INV ENTORIES SHOULD BE VALUED AT THE LOWER OF COST AND NET REALIZABLE VALU E. THE AFORESAID MAIN PRINCIPLE HAS BEEN FOLLOWED BY T HE ASSESSEE FIRM. (IV) THE PRINCIPLES OF THE COMMERCIAL ACCOUNTING RE QUIRE THAT IS THE P&L ACCOUNT OF A NORMALLY ACCEPTED ACCOUNTING BUSINESS THE VALUES OF STOCK IN TRADE AT THE BEGINNING AND AT THE END OF THE PERIOD COVERED BY THE ACCOUNT SHOULD BE ENTERED AT COST OR MARKET VALUE WHICHEVE R IS LOWER. THIS IS ONE OF THE CARDINAL PRINCIPLES OF THE ACCOUNTING. IT IS A WELL ACCEPTED ACCOUNTING MAXIM THAT PROFITS ARE TO BE BOOKED WHEN REALIZED B UT LOSSES HAVE TO BE ANTICIPATED. THIS MAXIM IS BASED ON THE PRINCIPLE O F CONSERVATISM WHICH IS A GLOBALLY ACCEPTED ACCOUNTING PRINCIPLE. 3. A COPY OF VALUATION REPORT OF THE REGISTERED VAL UER WAS ALSO FILED BY THE ASSESSEE BEFORE THE AO TO JUSTIFY THE VALUATION OF RS.15 CRORES OF CLOSING STOCK TAKEN BY IT. THE RELEVANT PORTION OF THE SAID VALUA TION REPORT AS REPRODUCED BY THE AO IN HIS ORDER IS EXTRACTED BELOW : THERE ARE VERY FEW LAND BANKS OF SIMILAR TYPE IN THE IMMEDIATE SURROUNDING. LOCAL INQUIRIES REVEALED THAT RATES QU OTED FOR RESIDENTIAL LAND IN THE SURROUNDING AREA IS IN THE REGION OF RS.14-18 L AKHS PER ACRE. WE UNDERSTAND THAT THE COMPANY HAS ALREADY SPENT APPRO XIMATELY RS.1.96 CRORES ON ROADS AND AN ADDITIONAL RS.1.07 CRORES ON LAYING OF UNDERGROUND HUME PIPES FOR ELECTRICAL CABLING ETC. HOWEVER THIS UN LIKELY TO DIRECTLY IMPACT THE VALUE OF THE LAND. 5 ITA NO.3820/MUM/2008 & C.O. NO.96/MUM/2009 ASSESSMENT YEAR : 2002-03. WE HAVE ALSO MADE INQUIRIES AND HAVE OBTAINED OFFIC IAL RATES FROM THE SUB REGISTRARS OFFICE TO ASCERTAIN GUIDELINE VALUES FOR REGISTRATION PURPOSES AND HAVE BEEN PROVIDED WITH THE FOLLOWING RATES : HOBLI / VILLAGE MARKET VALUE FOR REGISTRATION OF CONVERTED LANDS IN RS./SQ.FT. MARKET VALUE FOR REGISTRATION OF CONVERTED LANDS IN RS./ACRE. CHOKANHALLI 20 871 200 CHENNAHALLI 20 1 306 800 KADIGANAHALLI 35 1 524 600 FURTHERMORE THOUGH THE TIPE OF THIS LAND IS SITUAT ED CLOSE TO THE MAIN ROAD A SIGNIFICANT PORTION OF THIS LAND IS NOT VERY CLOSE TO THE MAIN ROAD AND HENCE HAS A LOWER VALUE. THIS LAND WOULD HENCE HAVE TO BE DISCOUNTED ACCORDINGLY. BASED ON THESE TERMS OF REFERENCE METHODOLOGY ASS UMPTIONS SALE OF LAND IN THE VICINITY LOCATION ADVANTAGES MONEY ALREADY SPENT ON PROVISION OF INFRASTRUCTURE ETC. AND PRESENT CONDITIONS OF THE REAL ESTATE MARKET WE BELIEVE THE AVERAGE RATE FOR LAND IN THE VILLAGES M ENTIONED ABOVE WOULD BE IN THE REGION OF RS.13 LAKHS PER ACRE. THUS AREA OF LAND = 115 ACRES RATE PER ACRE = RS.13 LAKHS PER ACRE VALUE OF THE LAND = RS.14 95 00 000/- RS.15 00 00 000/- (RUPEES FIFTEEN CRORES) 4. THE AO DID NOT GIVE ANY CREDENCE TO THE VALUATIO N REPORT OF THE REGISTERED VALUER FILED BY THE ASSESSEE AND REJECTED THE SAME OBSERVING THAT IT WAS NOTHING BUT A SELF SERVING EVIDENCE. HE ALSO DID NOT FIND ANY M ERIT IN THE EXPLANATION OFFERED BY THE ASSESSEE TO JUSTIFY THE CHANGE IN METHOD OF VALUATION OF CLOSING STOCK. 6 ITA NO.3820/MUM/2008 & C.O. NO.96/MUM/2009 ASSESSMENT YEAR : 2002-03. ACCORDING TO HIM IT WAS NOT OPEN TO THE ASSESSEE T O CHANGE THE METHOD OF VALUATION OF CLOSING STOCK AS IT SUITS IT AND THERE WAS NO SUCH OPTION GIVEN TO THE ASSESSEE BY THE LEGISLATURE TO ADOPT THE METHOD OF VALUATION AS PER HIS CONVENIENCE. HE THEREFORE REJECTED THE CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK ADOPTED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERA TION AND INCREASED THE VALUATION OF CLOSING STOCK OF REAL ESTATE TO RS.33 20 81 303/ - WHICH RESULTED IN THE ADDITION OF RS.18 25 73 112/- TO THE TOTAL INCOME OF THE ASSESS EE 5. AGAINST THE ORDER PASSED BY THE AO U/S 143(3) RE AD WITH SECTION 147 AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEA RNED CIT(APPEALS) CHALLENGING THE VALIDITY OF THE SAID ASSESSMENT AS WELL AS DISP UTING THE ADDITION MADE ON ACCOUNT OF INCREASE IN THE VALUE OF CLOSING STOCK. THE LEARNED CIT(APPEALS) DID NOT FIND ANY MERIT IN THE GROUND TAKEN BY THE ASSESSEE CHALLENGING THE VALIDITY OF ASSESSMENT MADE BY THE AO AND DISMISSING THE SAME HE UPHELD THE VALIDITY OF ASSESSMENT MADE BY THE AO U/S 143(3) RED WITH SECTI ON 147. 6. WHILE DISPUTING THE ADDITION MADE BY THE AO ON A CCOUNT OF INCREASE IN THE VALUE OF CLOSING STOCK THE FOLLOWING SUBMISSION WA S MADE ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS): (I) THAT THE APPELLANT IS A PARTNERSHIP ENTITY CONSISTI NG OF ONLY TWO PARTNERS WHO ARE CORPORATE ENTITIES. AS PER SECTIO N 211(3A) (3B) & (3C) OF THE COMPANIES ACT 1956 W.E.F. 01.04.1998 IT IS MANDATORY FOR CORPORATE ENTITIES TO DRAW UP THEIR ACCOUNTS PE R ACCOUNTING STANDARDS RECOMMENDED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). IT WAS MANDATORILY REQUIRED BY THE PA RTNERSHIP FIRM TO FOLLOW THE ACCOUNTING STANDARDS AS LAID DOWN BY THE ICAI SO THAT ITS ONLY TWO PARTNERS BEING CORPORATE ENTITIES COULD CO MPLY WITH THE PROVISIONS OF SECTION 211 OF THE COMPANIES ACT FAIL ING WHICH THE PARTNERS BALANCE SHEET COULD NOT GIVE A TRUE AND FA IR VIEW OF THE STATE 7 ITA NO.3820/MUM/2008 & C.O. NO.96/MUM/2009 ASSESSMENT YEAR : 2002-03. OF AFFAIRS AS REQUIRED BY THE COMPANIES ACT 1956. T HEREFORE AS PER ACCOUNTING STANDARD 2 WHICH IS MADE MANDATORY THE APPELLANT FIRM HAD TO REVALUE ITS STOCK-IN-TRADE OF REAL ESTATE AT COST OR MARKET VALUE WHICHEVER IS LOWER CONSIDERING THAT THE MARKET VAL UE HAD FALLEN BELOW THE COST. THE METHOD OF ACCOUNTING WAS NOT CH ANGED EARLIER AS THE COST WAS LOWER THAN THE MARKET VALUE AND IN AY 2002-03 THE MARKET VALUE BECAME LOWER THAN THE COST HENCE THE SAME WAS REFLECTED. THIS FACT IS OBJECTIVELY VERIFIABLE. BON AFIDE CHANGE IN THE METHOD OF ACCOUNTING WHICH IS IN ACCORDANCE WITH M ANDATORY ACCOUNTING STANDARD IN RELATION TO REVENUE RECOGNIT ION AND STOCK VALUATION SHOULD BE ACCEPTABLE AND SHOULD NOT BE RE JECTED. IN ANY CASE PROFIT DOES NOT FLOW FROM THE STOCK. THE VALU E OF CLOSING STOCK OF A YEAR AUTOMATICALLY GETS CARRIED FORWARD TO OPE NING STOCK OF THE NEXT YEAR AND DEBIT WOULD ACCORDINGLY BE LOWER FOR THE NEXT YEAR AND AT THE TIME OF REALIZATION THAT IS SALE THE SALE CONSIDERATION WOULD GET REDUCED FROM SUCH DEPRECIATED VALUE. THEREFORE OVE R A PERIOD OF TWO YEARS CHANGE IN THE STOCK VALUATION IS TAX NETURAL . (II) ON THE AOS OBSERVATIONS THAT THE AUDITORS REPORT PERTAINING TO THE CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK OF STOCK-IN-TRADE OF LAND IS PIVOTAL TO THE ISSUE THE APPELLANT HAS DRA WN MY ATTENTION TO A DECISION RENDERED IN THE CASE OF KARNATAKA STATE FO REST INDUSTRIES CORPORATION VS CIT 201 ITR 674 (KAR) WHERE THE H IGH COURT HELD THAT THE AUDITORS REPORT AND OBSERVATIONS CARRIES SUBSTANTIAL WEIGHT BUT A BLAND RELIANCE ON THE AUDITORS REPORT IS NOT JUSTIFIED AND THE COMPLIANCE WITH REFERENCE TO SECTION 145 OF THE ITA MUST BE INDEPENDENTLY TESTED. 7. AFTER TAKING INTO CONSIDERATION THE SUBMISSION M ADE BY THE ASSESSEE AS ABOVE AS WELL AS THE MATERIAL AVAILABLE ON RECORD B EFORE HIM THE LEARNED CIT(APPEALS) ARRIVED AT THE FOLLOWING CONCLUSIONS : (I) THE CHANGED METHOD OF VALUATION OF STOCK IS IN ACCORDANCE WITH UNIVERSALLY ACCEPTED ACCOUNTING PRINCIPLE AND IS AL SO IN ADHERENCE TO THE MANDATORY ACCOUNTING STANDARD. 8 ITA NO.3820/MUM/2008 & C.O. NO.96/MUM/2009 ASSESSMENT YEAR : 2002-03. (II) THE CHANGED METHOD HAS NO QUANTUM FOR THE PREC EDING YEAR AS ON FACTS UNDER THE CHANGED METHOD ALSO THE STOCK VALUA TION OF PRECEDING YEAR HOLDS GOOD. (III) IN ANY CASE THE CHANGE IN METHOD IS TAX NETURAL BE CAUSE THE CLOSING STOCK OF ONE YEAR BECOMES OPENING STOCK OF SUBSEQUE NT YEAR AND THE DATE OF SALE THE EARLIER EFFECT OF CHANGE OF METHOD WHETHER PLUS OR MINUS GETS SQUARED OFF COMPLETELY AND THEREFORE O VER A PERIOD TAXABLE INCOME REMAINS UNCHANGED. (IV) THE VALUATION ADOPTED BY THE ASSESSEE FOR MARKET VA LUE IS BASED ON VALUATION REPORT OF REGISTERED GOVT. RECOGNIZED VAL UE OF INTERNATIONAL REPUTE. (V) IT IS A WELL SETTLED PRINCIPLE IN LAW THAT EVERY AS SESSEE IS ENTITLED TO ARRANGE ITS AFFAIRS AND FOLLOW THE METHOD OF ACCOUN TING AS RECOGNIZED BY LAW. IT IS ONLY IN THOSE CASES WHERE THE METHOD ADOPTED BY THE ASSESSEE RESULTS IN DISTORTION IN PROFITS THAT THE DEPARTMENT CAN INSIST IN SUBSTITUTION OF METHOD SO ADOPTED. THE CHANGE IN MEHOD AS MADE BY THE ASSESSEE IS BONAFIDE AND THERE IS NOTHING BR OUGHT ON RECORD BY THE AO TO REBUTE THIS PRESUMPTION AS SPELT OUT BY T HE ASSESSEE IN THE SUBMISSIONS DTD. 20.12.2007. 8. THE LEARNED CIT(APPEALS) ALSO FOUND THAT THE REL IANCE OF THE AO ON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CAS E OF CIT VS. MAHESHCHAND GUPTA 279 ITR 396 (ALL.) WAS CLEARLY MISPLACED AS THE ISSUE INVOLVED IN THE SAID CASE AS WELL AS THE MATERIAL FACTS RELEVANT THERETO WERE ENTIRELY DIFFERENT FROM THAT OF THE CASE OF THE ASSESSEE. ACCORDINGLY BASED ON THE CONCLUSIONS ARRIVED AT BY HIM AS ABOVE THE LEARNED CIT(APPEALS) DIRECTED THE AO TO ACCEPT THE VALUATION OF CLOSING STOCK AS DECLARED BY THE ASSESSEE AND TO DE LETE THE ADDITION MADE ON THIS ISSUE. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(AP PEALS) THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL CHALLENGI NG HIS ACTION IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF INCREASE IN T HE VALUE OF CLOSING STOCK WHEREAS THE ASSESSEE HAS FILED A CROSS OBJECTION CH ALLENGING THE ACTION OF THE 9 ITA NO.3820/MUM/2008 & C.O. NO.96/MUM/2009 ASSESSMENT YEAR : 2002-03. LEARNED CIT(APPEALS) IN UPHOLDING THE VALIDITY OF R EASSESSMENT MADE BY THE AO U/S 143(3) READ WITH SECTION 147. 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS WELL SETTLED THAT IF THE CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK ADOPTED BY THE ASSESSEE IS BONAFIDE A ND THE CHANGE SO MADE IS CONSISTENTLY FOLLOWED BY THE ASSESSEE IN THE SUBSEQ UENT YEARS THERE IS NO JUSTIFIABLE REASON NOT TO ACCEPT THE SAME MERELY BECAUSE IT HAS RESULTED IN UNDERVALUATION OF CLOSING STOCK AS WELL AS LOSS OF REVENUE. IN THE PR ESENT CASE THE NEW METHOD ADOPTED BY THE ASSESSEE TO VALUE THE CLOSING STOCK AT COST OR MARKET PRICE WHICHEVER IS LOWER IS A WELL RECOGNIZED METHOD UNIV ERSALLY ACCEPTED FOR VALUATION OF CLOSING STOCK IN TRADE. THE ASSESSEE IN THE PRES ENT CASE IS A REAL ESTATE DEVELOPER AND SINCE THE STOCK OF REAL ESTATE CONSTITUTED ITS STOCK IN TRADE THE METHOD ADOPTED BY IT TO VALUE THE STOCK OF REAL ESTATE IN OUR OPI NION WAS A MORE PROPER AND SUITABLE METHOD THAN THE METHOD EARLIER ADOPTED TO VALUE THE CLOSING STOCK AT COST. THE CHANGE IN THE METHOD OF VALUATION OF CLOSING ST OCK ADOPTED BY THE ASSESSEE THUS WAS BONAFIDE AND AS RIGHTLY OBSERVED BY THE LE ARNED CIT(APPEALS) IN HIS IMPUGNED ORDER THERE WAS NOTHING BROUGHT ON RECORD BY THE AO TO DISPUTE OR DOUBT THE BONAFIDES OF THE ASSESSEE OR TO SHOW THAT THE NEW METHOD ADOPTED BY THE ASSESSEE WAS NOT CONSISTENTLY FOLLOWED BY IT. AS CL AIMED BY THE ASSESSEE ON THE BASIS OF VALUATION REPORT OF THE REGISTERED VALUER THE MARKET PRICE OF THE STOCK OF REAL ESTATE WAS LOWER THAN ITS COST AND THE SAME T HEREFORE WAS ADOPTED BY THE ASSESSEE BY ADOPTING THE WELL RECOGNIZED AND WELL A CCEPTED METHOD OF VALUING THE STOCK AT COST OR MARKET PRICE WHICHEVER IS LOWER. A S SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) AS WELL AS BEFORE US THE VALUATION OF CLOSING STOCK FOR THE IMMEDIATELY PRECEDING YEAR WA S TAKEN AT COST AND SINCE THE 10 ITA NO.3820/MUM/2008 & C.O. NO.96/MUM/2009 ASSESSMENT YEAR : 2002-03. MARKET VALUE OF THE SAID STOCK ON THE RELEVANT DATE WAS HIGHER THAN ITS COST THERE WAS NO QUANTUM IMPACT ON THE VALUE OF THE SAID STOC K TAKEN AS OPENING STOCK FOR THE YEAR UNDER CONSIDERATION EVEN IF THE SAME IS VA LUED BY ADOPTING THE NEW METHOD VIZ. COST OF MARKET PRICE WHICHEVER IS LOWER . HAVING REGARD TO ALL THESE FACTS OF THE CASE WE ARE OF THE VIEW THAT THERE WA S NO JUSTIFIABLE REASON FOR THE AO TO REJECT THE CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK ADOPTED BY THE ASSESSEE AND THE LEARNED CIT(APPEALS) WAS FULLY JUS TIFIED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF INCREASE IN THE VALUE OF CLOSING STOCK. THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING R ELIEF TO THE ASSESSEE ON THIS ISSUE IS THEREFORE UPHELD AND THE APPEAL OF THE R EVENUE IS DISMISSED. 10. AS A RESULT OF OUR DECISION RENDERED ABOVE WHIL E DISPOSING OF THE APPEAL OF THE REVENUE DELETING THE ENTIRE ADDITION MADE BY TH E AO ON ACCOUNT OF INCREASE IN THE VALUATION OF CLOSING STOCK THE ISSUE RAISED IN THE CROSS OBJECTION FILED BY THE ASSESSEE CHALLENGING THE VALIDITY OF ASSESSMENT MAD E BY THE AO HAS BECOME INFRUCTUOUS/ACADEMIC. WE THEREFORE DISMISS THE CR OSS OBJECTION FILED BY THE ASSESSEE AS INFRUCTUOUS. 11. IN THE RESULT THE APPEAL OF THE REVENUE AS WEL L AS THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. . ORDER PRONOUNCED ON THIS 29 TH DAY OF JULY 2011. SD/- SD/ - (R.S. PADVEKAR) (P.M. JAGTAP) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI DATED: 29 TH JULY 2011. WAKODE 11 ITA NO.3820/MUM/2008 & C.O. NO.96/MUM/2009 ASSESSMENT YEAR : 2002-03. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR H-BENCH. (TRUE COPY ) BY ORD ER ASSTT. R EGISTRAR ITAT MUMBAI BEN CHES MUMBA I.