Revaluation of closing stock upheld; assessment addition quashed after valuation method and net realizable value accepted.

Assessee's revaluation of old and damaged closing stock was performed via year-end stock verification, branch-level identification, director supervision and auditor approval, producing a quantified reduction of Rs.26,88,599 which the AO overstated. Tribunal found the valuation method scientific and reasonable, not arbitrary, and noted audited books were not rejected under the applicable accounting acceptance rule; consequence: the addition made by the assessing officer for alleged undervaluation of closing stock is unwarranted and is therefore held unjustified.

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Issues: Whether the addition of Rs. 1,25,98,834 made by the Assessing Officer on account of revaluation of closing stock is justified.

Analysis: The assessee is a society dealing in hardware items operating in remote locations. Stock verification statements and auditor-certified valuation reports were produced showing earlier downward valuation of old/damaged stock aggregating Rs. 99,10,235 up to 31.03.2014 and a further reduction of Rs. 26,88,599 during the relevant year, which together correspond to the claimed diminution in realizable value. The valuation exercise involved physical verification supervised by the Director of Societies, identification of old/damaged stock by branch heads, and estimation of realizable value with auditor approval; the methodology applied a percentage of MRP to estimate realizable value and was evidenced across years. The Assessing Officer did not invoke Section 145(3) to reject the audited books of account. On the record, the further reduction debited in the relevant year is limited to Rs. 26,88,599 and the overall valuation method is demonstrated as reasonable and non-arbitrary.

Conclusion: The addition of Rs. 1,25,98,834 on account of valuation of closing stock is deleted and the ground is allowed in part in favour of the assessee.

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