2016 (5) TMI 139 - AT - Income Tax

Tribunal remands stock valuation method evaluation back to Assessing Officer for assessment year 1990-91

The Tribunal allowed the Revenue's appeal for statistical purposes, remanding the matter back to the Assessing Officer for a fresh evaluation of the ... Change in method of valuation of stock - valuation of stock at cost or market price, whichever is lower - consistency in accounting method - remand for verification of stock valuation - interdependence of assessments between successive yearsChange in method of valuation of stock - valuation of stock at cost or market price, whichever is lower - consistency in accounting method - Whether the assessee was justified in adopting the method of valuing closing stock at cost or market price, whichever is lower, for the impugned year. - HELD THAT: - The Tribunal accepted that an assessee may change its method of valuation provided the new method is one accepted in normal commercial practice and is followed consistently. The Tribunal noted authority establishing that valuation at cost or market price, whichever is lower, is an accepted method. On the facts the assessee had adopted the new method from the accounting year ending March 31, 1989 and had followed it subsequently; the Tribunal therefore concluded that the assessee was justified in adopting the changed method for the impugned year. [Paras 12]Assessee was justified in adopting the method of valuing closing stock at cost or market price, whichever is lower.Remand for verification of stock valuation - interdependence of assessments between successive years - Whether the correctness of the values arrived at by the assessee required fresh verification and whether the matter should be remitted to the Assessing Officer for reconsideration. - HELD THAT: - Although the new method of valuation was an acceptable method, the Tribunal found that none of the authorities below had verified the correctness of the cost computations made by the assessee for opening and closing stocks. The correctness of opening stock depends upon the outcome of the pending reassessment for 1989-90. In view of these unverified aspects the Tribunal held that the matter required fresh consideration and directed that the Assessing Officer examine the assessee's workings and the view taken for assessment year 1989-90 while disposing of the remitted issues. [Paras 12, 13]Orders of the authorities below set aside and matter remitted to the Assessing Officer for fresh verification and consideration, including regard to the assessment for 1989-90.Final Conclusion: The Tribunal held that the assessee was justified in adopting valuation at cost or market price, whichever is lower, but set aside the orders below and remitted the matter to the Assessing Officer to verify the correctness of the values and to consider the position in light of the assessment proceedings for 1989-90; the Revenue's appeal is treated as allowed for statistical purposes. Issues:Appeal against order of Commissioner of Income-tax regarding valuation of closing stock for assessment year 1990-91.Analysis:The appeal filed by Revenue was against the order of the Commissioner of Income-tax (Appeals) regarding the valuation of closing stock for the assessment year 1990-91. The key issue revolved around the change in the method of valuation of stock by the assessee from net realisable value to cost or market price, whichever was lower. The Assessing Officer had made an addition for suppression in valuation of stock, which was deleted by the Commissioner of Income-tax (Appeals) for both assessment years 1989-90 and 1990-91. The Tribunal also upheld the deletion of additions for both years.For the assessment year 1989-90, the hon'ble jurisdictional High Court remanded the matter back to the Assessing Officer to decide the legality of the method adopted by the assessee for valuing closing stock. The High Court emphasized the importance of disclosing a true picture of profits and gains while valuing stock-in-trade. The High Court's judgment highlighted the need for a remand to the Assessing Officer to reevaluate the method of stock valuation.In the case of the assessment year 1990-91, the Assessing Officer once again made an addition for suppression in valuation of stock, which was deleted by the Commissioner of Income-tax (Appeals). The Commissioner observed that the change in the method of valuation was consistent and approved by the board of directors. The Commissioner relied on legal precedents supporting the method of valuation adopted by the assessee.The Department contended that the Commissioner erred in deleting the addition for the assessment year 1990-91, as the issues stemmed from the change in valuation method introduced in the previous year. The Department argued that the assessee failed to justify the new method of accounting despite opportunities provided. However, the authorized representative supported the Commissioner's decision, citing legal judgments endorsing the method of valuation and the consistent application by the assessee.Upon review, the Tribunal acknowledged the validity of the new method of valuation adopted by the assessee but emphasized the need for the Assessing Officer to verify the correctness of the valuation. The Tribunal set aside the orders of the lower authorities and remitted the matter back to the Assessing Officer for a fresh evaluation. The Tribunal directed the Assessing Officer to consider the view taken for the assessment year 1989-90 while addressing the remitted issues for the assessment year 1990-91.In conclusion, the appeal of the Revenue was treated as allowed for statistical purposes, and the Tribunal's decision was pronounced on March 18, 2016.