Closing stock valuation, export reimbursement, and leasehold depreciation issues were resolved in favour of the assessee.

Closing stock could continue to be valued at the lower of cost or net realizable value where the Revenue failed to show a proven change in method or any perversity in the Tribunal's factual findings. Export loss reimbursement was not required to be built into closing stock value or taxed on a notional accrual basis because no enforceable right to receive the amounts had crystallised. Depreciation on leasehold rights and allied interests could not be denied merely because title was not registered, since possession and acquisition of the relevant interest satisfied the statutory conditions. The assessee succeeded on all three issues.

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Issues: (i) Whether the Tribunal was right in holding that there was no change in the method of valuation of closing stock and in accepting valuation at net realizable value or cost, whichever was lower; (ii) whether export loss reimbursement from manufacturers was required to be included in the closing stock valuation or taxed on accrual basis; (iii) whether depreciation could be denied on leasehold rights and allied interests for want of registered ownership.

Issue (i): Whether the Tribunal was right in holding that there was no change in the method of valuation of closing stock and in accepting valuation at net realizable value or cost, whichever was lower.

Analysis: The material on record did not establish that the assessee had consistently valued closing stock only at cost in earlier years. The findings recorded by the Tribunal showed that, on the facts, stock had been valued at cost where that was lower and at net realizable value where that was lower, and the Revenue failed to produce contrary accounts or reliable material to demonstrate perversity. The settled rule of commercial accounting permits valuation of closing stock at cost or market price, whichever is lower, and unrealized appreciation is not brought to tax.

Conclusion: The Tribunal's finding on absence of a change in method of valuation was upheld and the issue was decided in favour of the assessee.

Issue (ii): Whether export loss reimbursement from manufacturers was required to be included in the closing stock valuation or taxed on accrual basis.

Analysis: The reimbursement claimed by the assessee was not shown to arise from any enforceable statutory or contractual obligation, and the record showed that receipt of the amounts was uncertain in some cases. In these circumstances, the amounts could not be forced into the valuation of closing stock as part of net realizable value, nor taxed merely on a notional accrual basis when the right to receive was not crystallised.

Conclusion: The addition on this count was not sustainable and the issue was decided in favour of the assessee.

Issue (iii): Whether depreciation could be denied on leasehold rights and allied interests for want of registered ownership.

Analysis: Registered title was not treated as the sole test for depreciation where the assessee was in possession and had acquired the relevant interest in the property. The governing principle applied was that absence of a registered sale deed, by itself, does not defeat depreciation if the assessee otherwise satisfies the statutory conditions.

Conclusion: The Revenue's objection was rejected and the issue was decided in favour of the assessee.

Final Conclusion: The common legal challenges to the additions failed, the assessee's method of valuing closing stock at lower of cost or net realizable value was sustained, and the appeals were dismissed.

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