Tribunal Affirms CIT(A) Decision, Deletes Rs. 2,68,357 Addition, Supports Assessee's Consistent Valuation Method.

Assistant Commissioner of Income-tax Versus Jagdish Chand Prop.

Assistant Commissioner of Income-tax Versus Jagdish Chand Prop. - [2004] 2 SOT 112 (CHD.) Issues involved: Appeal against deletion of addition on account of enhancement of value of closing stock for assessment year 1994-95.

Summary:
The appeal by the revenue was against the deletion of an addition made on account of enhancement of the value of the closing stock for the assessment year 1994-95. The Assessing Officer applied the average rate of purchases to value the closing stock, resulting in an addition of Rs. 2,68,357. The Commissioner of Income-tax (Appeals) deleted this addition, stating that the method of valuation followed by the assessee, based on the average of the rates of opening stock and purchases, was consistent and in line with judicial pronouncements. The Tribunal upheld the decision of the Commissioner, dismissing the revenue's appeal.

The Assessing Officer's action was based on the decision of the Hon'ble Supreme Court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44, which justified the use of average purchase rates for valuing closing stock. However, the assessee argued that the "weighted average cost" method was recognized by accounting standards issued by the Institute of Chartered Accountants of India, providing the fairest approximation to cost incurred in bringing items to their present location and condition.

Upon careful consideration of the submissions, the Tribunal noted that the main item in the closing stock was plain ornaments of gold, and the assessee had not sold the entire stock of gold ornaments from the opening stock. Applying the purchase rate to this stock would result in an unjustified addition to the income of the assessee, contrary to established principles. The Tribunal found that the method of valuation adopted by the assessee, based on the average cost of opening and purchases, was correct and in accordance with accounting standards. As the revenue did not argue that a similar method was followed in earlier years, the Tribunal confirmed the deletion of the addition by the Commissioner of Income-tax (Appeals).

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the decision to delete the addition on account of the enhancement of the value of the closing stock for the assessment year 1994-95.