Section 145 of the Income Tax Act, 1961 – Valuation of Stock – Matter remanded back to AO for fresh adjudication after conducting a proper verification and enquiry.

Facts: Assessee- RIICO is a Rajasthan State Government Enterprise and its primary objective was to set up of industrial areas in the State of Rajasthan. The land acquired by the assessee for the purpose of creating industrial parks is stock-in-trade and carried out development activities in such industrial areas and valued its closing stock of land at actual direct development expenditure (less grant utilized) incurred on the area in stock. The management realizing that disposal/realization of land under litigation/encroachment is not possible in near future, it was considered appropriate to value such stock of land at ZERO price. AO held that value of land cannot be taken at NIL and further held that the assessee has changed its method of valuation during the year under consideration and accordingly an addition was made by AO. CIT(A) partly allowed the appeal of the assessee.On further appeal, ITAT remitted back the matter to AO. Being aggrieved, assessee went on appeal before High Court.

Held, that Tribunal has observed that though the land which was under encroachment and litigation cannot be valued at the cost or prevailing market price but the value of such land would definitely be very less due to defects and deficiency of not available to the assessee for immediate use. However, the land in litigation or encroachment which is still shown as part of the closing stock of the assessee cannot be value at nil. Further the valuation of the land has to be determined on the basis of the actual status of the land in each case and it cannot be valued applying a standard parameter for each and every case of encroachment or litigation.The Tribunal considering the decisions of Coordinate benches of the Tribunal itself in assessee's own case, set aside the issue to the record of the Assessing officer for fresh adjudication after conducting a proper verification and enquiry – RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LTD. Vs. ASSTT. CIT [2020] 423 ITR 625 (RAJ)