2013 (9) TMI 878 - HC - Income Tax

Court affirms assessee's closing stock valuation, allowing lower of cost or market price

The High Court upheld the Tribunal's decision regarding the valuation of closing stock for the assessment year 1987-88. The Court ruled in favor of the ... Change in method of closing stock - AO took the levy sugar and free sugar at the same price - Held that:- Quota is fixed by the Government every year and sales are made accordingly. Since there is no loss in the present year as well as in the subsequent year, there will be no impact of any change method of the book result. In view of the regular method adopted by the assessee in the past and accepted by the department, the method of valuation can not be changed during the assessment year under consideration. No reason has been given by the A.O. for changing the said method – Addition made is deleted – Decided against the Revenue. Issues:Valuation of closing stock for assessment year 1987-88.Analysis:The High Court of Allahabad heard an appeal filed by the department under Section 260-A of the Income Tax Act, 1961, against the judgment of the Income Tax Appellate Tribunal. The main issue was the valuation of the closing stock of a cooperative society engaged in sugar manufacturing and sale. The Assessing Officer (A.O.) had made an addition to the closing stock valuation, which was subsequently deleted by the first appellate authority and the Tribunal. The department challenged this deletion in the present appeal.The department argued that the assessee's method of valuing closing stock, by differentiating between levy sugar and free sale sugar, was incorrect. They contended that both types of sugar should be valued uniformly based on either cost price or market price, whichever is lower. The department cited a Supreme Court case to support their argument that every assessment year is independent, and the method adopted by the assessee was leading to incorrect results.On the other hand, the assessee justified the method followed in valuing the closing stock, stating that it had been consistently applied in previous years and was properly audited. They maintained that the valuation method need not be changed as there was no impact on the trading results. The assessee valued levy sugar at market price and free sale sugar at cost price, as market price was higher for the latter.After considering the arguments and facts presented, the High Court upheld the impugned order of the Tribunal. They noted that the method of valuation should be cost or market value, whichever is lower. Since the market value was lower for levy sugar and higher for free sale sugar, the assessee was entitled to value the closing stock at the lower of cost or market price. The Court found no reason to interfere with the appellate authorities' decision, as there was a concurrent finding based on the peculiar circumstances of the case.In conclusion, the High Court ruled in favor of the assessee and dismissed the appeal filed by the department, upholding the decision of the Tribunal regarding the valuation of the closing stock for the assessment year 1987-88.