COMMISSIONER OF INCOME TAX-GUJARAT-II versus KWALITY STEEL SUPPLIERS COMPLEX

Citation: [2017] 3 S.C.R. 1022 · Decided: 21-03-2017 · Supreme Court of India · Bench: A.K. SIKRI, ASHOK BHUSHAN · Disposal: Dismissed

Judgment (excerpt)

[2017] 3 S.C.R. 1022 
A 
COMMISSIONER OF INCOME TAX-GUJARAT-II 
B 
v. 
KWALITY STEEL SUPPLIERS COMPLEX 
(Civil Appeal No. 815 of 2007) 
MARCH 21, 2017 
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.] 
Income Tax Act, 1961 - s. 263 - Revision of orders prejudicial 
to Revenue - Valuation of closing stock - On facts, firm consisting 
C of two partners - Dissolution of partnership firm owing to death of 
one of the partner - However, business continued to be carried 011 
by the surviving partner - Valuation of the closing stock at cost 
price, by the assessee in return - Said method accepted by the 
Assessing Officer - CIT in exercise of his revisional jurisdiction 
uls.263 directed the AO to value the closing stock at the market 
D price - Tribunal upheld the same, however, the High Court set aside 
the order passed by the CIT - On appeal, held: When a t•.1siness 
continues, it may not be necessary to follow the market rate 10 value 
the closing stock - View taken by the Assessing Officer in accepting 
the book value of the stock-in-trade was a plausible and permissible 
E view - Thus, the CIT could not exercise his powers uls.263 - Order 
passed by the High Court upheld. 
Dismissing the appeals, the Court 
HELD: 1.1 Section 263 of the Income Tax Act, 1961 is 
enacted to empower the Commissioner with the authority of 
F 
revising the order of Assessing Officer, where the order is 
erroneous and the error has resulted in prejudice to the interests 
of the Revenue. As is clear from the language of the provision, 
there has to be a proper application of mind by the Commissioner 
to come to a firm conclusion that the order of the Assessing 
Officer is erroneous and prejudicial to the interests of the 
G Revenue. This provision cannot be invoked to correct each and 
every type of mistake or error committed by the Assessing 
Officer. While interpreting the expression 'prejudicial to the 
interests of the Revenue', it is also held that order of the 
Assessing Officer cannot be termed as prejudicial simply because 
H 
1022 
COMMISSIONER OF INCOME TAX-GUJARAT-II v. KWALITY 
1023 
STEEL SUPPLIERS COMPLEX 
Assessing Officer adopted one of the courses permissible in law A 
and it has resulted in loss of revenue, or where two views are 
possible and the Assessing Officer has taken one view with which 
the Commissioner did not agree. Where two view are possible 
and the Assessing Officer has taken one view and the CIT again 
revised the said order on the ground that he does not agree with 
B 
the view taken by the Assessing Officer, in such circumstances 
the assessment order cannot be treated as an order erroneous 
or prejudical to the interest of the Revenue. Reason is simple. 
While exercising the revisionary jurisdiction, the CIT is not 
sitting in appeal. [Paras 7-9)(1028-F-G; 1029-B-E] 
Malabar Industrial Co. Ltd. v. Commissioner of Income 
Tax' [2000) 243 ITR 83; CIT v. Arvind Jewellers [2003) 
259 ITR 502 - referred to. 
c 
1.2 In the instant case, the assessee-firm was constituted 
with two partners viz., mother and son and it came to be dissolved 
during assessment year because of the demise of one of the D 
partners-the mother. The assessee in the return had valued the 
closing stock at cost price. This method of valuation was accepted 
by the Assessing Officer. According to CIT, the said method could 
not be adopted in the case of a dissolved firm as in such a situation 
closing stock is to be valued at market rate. If the approach of E 
the Assessing Officer in accepting the cost based valuation of 
closing stock was totally impermissible, then CIT was perhaps 
right inasmuch as in such a situation, order of the Assessing 
Officer becomes erroneous and also prejudicial to the interest of 
the Revenue. [Para 10)(1030-F-G] 
1.3 The business did not come to an end as the other 
partner, viz., son, who inherited the share of the mother, continued 
with the business. In a situation like this, there was no question 
of selling the assets of the firm including stock-in-trade and, 
therefore, it was not necessary to value stock-in-trade at market 
F 
price. [Para 16)(1032-E-F) 
G 
1.4 The position which emerges from the *Sampatrama 
case, reiterated in **Sakthi case is that when a business continues, 
it may not be necessary to follow the market rate to valu~ the 
closing stock as the reasons because of which the same is to be 
H 
1024 
SUPREME COURT REPORTS 
[2017] 3 S.C.R. 
A done are not available. Thus, in the instant case the vie':" 

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