Closing stock revaluation under wealth-tax requires evidence of market value above book value; gross profit rate alone is insufficient.

Rule 2B(2) of the Wealth-tax Rules, 1957 permits reworking closing stock value only where there is evidence that the market value exceeds the book value by the prescribed margin. A high gross profit rate by itself is not sufficient to establish that the closing stock was undervalued, and evidence from sales around the accounting year-end or other material is required. On the facts noted, the Revenue produced no such evidence, so the revaluation of closing stock was not justified and the additions based on that exercise were deleted.

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Issues: Whether the value of closing stock could be reworked for wealth-tax purposes under Rule 2B(2) of the Wealth-tax Rules, 1957 merely on the basis of a high gross profit rate, without evidence that the market value exceeded the book value by the statutory margin.

Analysis: The rule could operate only where there was evidence showing that the market value of the asset was more than the book value by the prescribed percentage. The Revenue did not adduce evidence from sales around the end of the accounting year or any other material to establish the market value of the closing stock. Reliance only on the gross profit rate was held to be an unsafe and insufficient basis for concluding that the book value was below market value by 20 per cent.

Conclusion: The revaluation of closing stock was not justified and the additions made on that basis were rightly deleted.

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