1989 (12) TMI 72 - AT - Income Tax

Tribunal Upholds Valuation of Closing Stock in Tax Dispute Decision

The Tribunal upheld its decision regarding the valuation of closing stock of free sugar, rejecting the assessee's contentions. The Tribunal valued the ... Method Of Accounting, Valuation Of Stock Issues:1. Valuation of closing stock of free sugar.2. Whether the Tribunal made a mistake in valuing the closing stock.3. Finding on the second alternative ground of the assessee.Analysis:1. The main issue in this case revolves around the valuation of the closing stock of free sugar by the Tribunal. The assessee contended that the total stock of free sugar on the closing date was 71,439 qtls and argued that a mistake was made in valuing the remaining unsold stock. The assessee claimed that 42,704 qtls were sold, and the balance 28,789 qtls should be valued at the prevailing market rate as on 30-11-78. The Senior Department Representative disagreed, asserting that the Tribunal's decision was not erroneous and that rectification under section 254(2) of the I.T. Act was not warranted. The Tribunal accepted the principle that the amount realized up to 30-11-78 should be considered for valuing the closing stock, but it did not agree to value the unsold stock based on the rate prevailing on 30-11-78.2. The Tribunal's decision was further scrutinized by the assessee, who argued that the closing stock should be valued on the last date of the previous year, which was 30-6-78. The assessee had consistently followed the method of valuing stock based on cost or market rate, whichever was lower. It was noted that the cost on the last date of the previous year was Rs. 207.86 per qtl, while the market rate was Rs. 260 per qtl. The Tribunal valued the remaining free sugar of 28,789 qtls at the cost of Rs. 207.86 per qtl. The Tribunal also considered the decontrol of sugar from 17-8-78 and valued the entire quantity of levy sugar at Rs. 186.60 per qtl. The Tribunal's decision was upheld as it gave effect to the sale of free sugar in levy sugar and did not warrant correction under section 254(2) of the I.T. Act.3. The second alternative ground raised by the assessee was whether the method adopted for valuation was bona fide and not intended to defeat the interest of the revenue. The Tribunal had partially accepted the system of valuation adopted by the assessee but did not find the change made during the year under appeal to be entirely bona fide. The Tribunal directed the ITO to value the closing stock based on the principles discussed in the judgment. Ultimately, the misc. application filed by the assessee was partly allowed, indicating that the Tribunal's decision was upheld with some modifications based on the arguments presented.