2018 (2) TMI 1698 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on closing stock valuation in income tax assessment for AY 2008-09

The Tribunal upheld the CIT(A)'s decision in an appeal against the addition of closing stock valuation in the income tax assessment for AY 2008-09. The ... Addition of closing stock valuation - Held that:- The assessee’s impugned closing stock valuation is very much bonafide one in tune with accounting standard no.2 adopting for the first time in the current assessment year. Hon’ble jurisdictional high court’s judgment in CIT vs. Atul Products Ltd. [2001 (2) TMI 28 - GUJARAT High Court] holds that such an addition of sum difference reducing taxable income in case of change in stock valuation method is not sustainable as a resultant effect. DR next refers to assessee’s survey statement. This latter plea is not found germane to the instant issue since the CIT(A) has already concluded in his operative part that the preceding round of assessment had already dealt with this survey statement aspect. We therefore see no reason to interfere with the CIT(A)’s findings extracted hereinabove deleting the impugned addition. - Decided in favour of assessee Issues:Appeal against addition of closing stock valuation in income tax assessment for AY 2008-09.Analysis:The case involved an appeal by the assessee against the addition of Rs. 59,91,122 on account of the rejection of the valuation of closing stock of finished goods by the Assessing Officer. The CIT(A) considered the facts, assessment findings, and the assessee's contentions. The AO added the amount to the income, alleging that the change in valuation method was to reduce profit. The appellant argued that the new method followed was in line with Accounting Standard (AS-2) and provided a more accurate value of closing stock. The appellant demonstrated that the change in valuation method was not aimed at reducing taxable income, as evident from the subsequent years' disclosures and tax payments. The CIT(A) found the new method adopted by the appellant to be more scientific and logical, in accordance with prescribed standards. The appellant's turnover and disclosed income for the relevant years supported the genuineness of the valuation change. The CIT(A) restricted the addition to Rs. 1,98,230 for non-allocation of depreciation to closing stock, as required by AS-2.In the second round of litigation, the Departmental Representative argued that the CIT(A) erred in reversing the AO's addition of closing stock valuation. However, it was acknowledged that the assessee's valuation was bonafide and in compliance with AS-2. Citing a relevant high court judgment, it was established that such additions due to changes in stock valuation method are not sustainable. The Departmental Representative's reference to the survey statement was deemed irrelevant by the CIT(A), as it had been addressed in the earlier assessment round. Consequently, the CIT(A)'s decision to delete the addition was upheld, and the Revenue's appeal was dismissed.In conclusion, the Tribunal upheld the CIT(A)'s decision, emphasizing the genuineness and compliance of the appellant's valuation method with accounting standards. The addition was restricted to Rs. 1,98,230 for non-allocation of depreciation, and the Revenue's appeal was dismissed.