ITAT upholds assessee's valuation method for closing stock of shares & securities, dismissing revenue's appeal

The ITAT dismissed the revenue's appeal and upheld the CIT(A)'s decision in favor of the assessee regarding the valuation of closing stock of shares and securities. The ITAT found the change in valuation method to be bonafide and in line with accounting standards, not driven by motives to lower profit as alleged by the Assessing Officer. The ITAT emphasized that any method resulting in a proper computation of income under tax law is acceptable, ultimately ruling in favor of the assessee.

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Issues:
1. Disallowance on account of understatement of closing stock of shares by change in method of valuation.
2. Consideration of accounting standard AS-2 in valuation of shares and securities.

Analysis:
1. The appeal was filed by the revenue against the order of Commissioner of Income Tax (Appeal)-I, Pune, regarding the disallowance on account of understatement of closing stock of shares due to a change in the method of valuation. The revenue contended that the change in valuation method was not justified and that the assessee should have followed a consistent valuation method as per accounting standard AS-2. The Authorized Representative supported the order of CIT(A), arguing that the change in valuation method was appropriate and in line with AS-2. The ITAT found that the change in valuation method was made in a bonafide manner after realizing the deficiency of the earlier method, which was universally accepted. The ITAT upheld the CIT(A)'s decision to allow the assessee's claim, stating that the change was not driven by motives to lower profit, as claimed by the Assessing Officer.

2. The second issue involved the consideration of accounting standard AS-2 in the valuation of shares and securities. The Assessing Officer rejected the change in valuation method, arguing that it was made in a year when the stock market crashed, resulting in a significant decrease in profit. However, the ITAT found that the change to value the closing stock at "cost or market price whichever is lower" was a proper method of accounting, as recognized by judicial forums. The ITAT emphasized that any method providing a proper computation of income as per IT Law is acceptable. The ITAT concluded that the change in valuation method was not made to lower profit, as assumed by the Assessing Officer, and upheld the CIT(A)'s decision to reverse the findings of the Assessing Officer.

In conclusion, the ITAT dismissed the appeal filed by the revenue, affirming the CIT(A)'s decision to allow the assessee's claim regarding the valuation of closing stock of shares and securities.

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