2017 (3) TMI 1970 - HC - Income Tax

Average cost stock valuation under s.145(1) upheld where books were proper and AO failed to justify rejecting method

Tribunal found the assessee maintained proper books and consistently followed the average cost method for valuing closing stock under s.145(1); the AO did ... Method of accounting - whether the assessee was consistent in following the method of accounting provided in sub­section (1) of Section 145 of the Income Tax Act? - HELD THAT:- Tribunal [2013 (7) TMI 1252 - ITAT MUMBAI] has found that the assessee has maintained proper books of account. No defect has been pointed out by the AO either in the purchases or in the sales. The assessee was in the business of manufacturing and trading of jewellery. If the method of valuation of closing stock was not acceptable, then, the AO was obliged to not only discard the explanation of the assessee but also satisfy the Appellate Authority and the Tribunal in this case as to why such average cost method was accepted by the Assessing Officer in the earlier orders. Once the Tribunal comes to such a finding, then, that belies the contention of Mr. Pinto and particularly in relation to the average cost method followed consistently by the assessee. There has been no deviation from the same. We do not think that the Tribunal's order raises any substantial question of law. The appeal is devoid of merit. It is dismissed. The Tribunal's order 'does not raise any substantial question of law.' The Assessing Officer challenged the assessee's method of accounting under Section 145, alleging irregularity or non-compliance with standards notified under sub-section (2). The dispute, however, concerned whether the assessee consistently followed 'the method of accounting provided in sub-section (1) of Section 145.' The Tribunal found the assessee had 'maintained proper books of account,' with no defects pointed out in purchases or sales, and that the average cost method of valuing closing stock had been followed consistently. Absent material showing departure from notified standards or irregularity, the Assessing Officer was obliged to demonstrate why the average cost method accepted in earlier orders should be disturbed. The appellate court held the Tribunal's factual findings justified and concluded the appeal is devoid of merit; it was dismissed.