1994 (3) TMI 85 - HC - Income Tax

High Court rules in favor of Revenue on stock valuation & disallows loss claim on copper cathodes purchase contract.

The judgment favored the Revenue in both issues presented. The High Court held that the closing stock must be valued based on the price prevailing on ... Accounting Year, Business Expenditure, Closing Stock, Raw Material Issues Involved:The judgment involves two main issues: 1. Valuation of closing stock of raw materials for the year ending December 31, 1974.2. Allowance of anticipated loss on a purchase contract for copper cathodes.Valuation of Closing Stock:The assessee, a public limited company, valued its closing stock based on the principle of 'cost or replacement cost, whichever is lower.' The controversy arose when the replacement cost for valuing the closing stock of virgin raw materials was in question. The Income-tax Officer insisted on valuing the stock at the rate prevailing in the quarter ending December 31, 1974, while the assessee calculated the replacement cost based on the prices announced for the quarter commencing on January 1, 1975. The Commissioner and the Tribunal supported the Officer's view. However, the High Court held that the closing stock must be valued with reference to the price prevailing on December 31, 1974, as it was the last date of the accounting year, rejecting the assessee's method. The judgment favored the Revenue on this issue.Anticipated Loss on Purchase Contract:The second issue revolved around a contract entered into by the assessee with M.M.T.C. for purchasing copper cathodes. The material was not received by the assessee until after the accounting year ended on December 31, 1974. The assessee estimated a loss due to the decrease in market price and claimed a deduction for the anticipated loss. The Income-tax Officer disallowed the deduction, which was upheld by the Commissioner but overturned by the Tribunal. The High Court disagreed with the Tribunal's decision, stating that since no material was purchased during the accounting year and no property passed to the assessee, the anticipated loss could not be claimed as a deduction. Therefore, the judgment favored the Revenue on this issue as well.This reference under section 256(1) of the Income-tax Act, 1961, was disposed of accordingly, with no order as to costs.