Consistent stock valuation and cross-examination rights controlled deletion of additions for alleged revaluation and unaccounted sales.

A consistently followed and departmentally accepted stock valuation method cannot be displaced merely because the tax authority considers it inconvenient or imperfect, particularly where item-wise identification remains possible and no defect in the method is established. The Tribunal also noted that an addition based on third-party statements recorded behind the assessee's back, without cross-examination, violates natural justice and requires independent corroboration. Applying these principles, the closing stock revaluation addition and the gross profit addition on alleged unaccounted sales were deleted, as the record did not establish suppressed sales and contemporaneous stock records supported the assessee's explanation.

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Issues: (i) Whether the addition made on account of revaluation of closing stock was sustainable; (ii) whether the addition of gross profit on alleged unaccounted sales was sustainable.

Issue (i): Whether the addition made on account of revaluation of closing stock was sustainable.

Analysis: The assessee had consistently valued its historical jewellery stock at specific cost for decades, and the same method had been accepted in earlier and later scrutiny assessments. The material relied upon by the Assessing Officer did not establish that the method was defective or that the stock could not be identified item-wise. The Tribunal held that shortcomings or practical difficulties in the valuation method could not justify substitution of a different method where the consistent method had been accepted in the past and in a subsequent year.

Conclusion: The addition on account of revaluation of closing stock was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the addition of gross profit on alleged unaccounted sales was sustainable.

Analysis: The addition rested substantially on statements of a software supplier's representative recorded behind the assessee's back, without affording cross-examination. The Tribunal held that reliance on such statements violated natural justice. On merits also, the assessee demonstrated that the impugned entries in the software logs represented internal movements of stock for reasons other than sales, supported by contemporaneous records such as hallmarking and repair registers. The material did not establish suppressed sales.

Conclusion: The addition of gross profit on alleged unaccounted sales was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The additions on both disputed merits were held unsustainable, and the appeals succeeded in part while consequential and non-adjudicated grounds did not survive for separate decision.

Ratio Decidendi: A consistently followed and departmentally accepted method of stock valuation cannot be displaced on conjecture, and an addition based on third-party statements recorded without cross-examination offends natural justice and cannot be sustained absent independent corroboration.

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