TaxTMI 
TaxTMI 
2014 (5) TMI 267
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.... of A.O, Assessee carried the matter before CIT(A). CIT(A) vide order dated 09.11.2009 allowed the appeal of the Assessee. Aggrieved by the order of CIT(A), the Revenue is now appeal before us and has raised the following grounds:- 1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. 40,00,000/- made on account of undervaluation of closing stock. 2. On the facts and in the circumstances of the case, the ld.CIT(Appeals) erred in appreciating the fact that the books results of the assessee was rejected u/s. 145(3) of the Act and the profit was estimated was due to the reason that the assessee had failed to include the making charged in valuing the closing stock in the jewellery and in the case of silver ornaments weighted average cost was not available with the assessee and also due to other defects. 4. Before us, it was submitted that though 2 grounds are raised but both are interconnected. We therefore proceed to consider both the grounds together. 5. During the course of assessment proceedings, A.O noticed that Assessee had worked out it closing stock by adopting "Average Cost" as against "Weighted Ave....
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....ensured-(a) that valuation is in accordance with the method of accounting regularly employed by the assessee, and (b) that such valuation has been further adjusted to include the amount of tax, duty, etc. paid or incurred to bring the goods to the place of their location and condition as on the date of valuation. So far as (a) above is concerned, it is seen that the assessee has regularly employed the weighted average cost method for valuation of inventory. This method has also been prescribed by the ICAI in AS-2. Para 5 of the Accounting Standard states that "inventories should be valued at the lower of cost and net realizable value". In para 16, it is further mentioned that the cost of inventories should be assigned by using the FIFO or weighted average cost formula. In para 17 the weighed average cost formula has been further explained as under: - "Under the weighted average cost formula, the cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period. The average may be calculated on account of periodic basis, or as each additional shipment is receive....
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....o be worked out the valuation at the end of the year and therefore the valuation worked out by the Assessee was not as per AS2 prescribed by Institute of Chartered Accountant. The ld. A.R. on the other hand supported the order of CIT(A) and further submitted that the Assessee has been consistently following the same method of accounting in earlier years and the method of accounting adopted by the Assessee has also been accepted by the Department while framing the assessment under section 143(3). He further submitted that the addition if made will be tax netural as the additions made to the closing stock will have to be considered as opening stock in subsequent years. He further submitted that on identical facts, the Hon'ble Tribunal in the case of Chimanlal Soni has decided the issue in favour of the Assessee. He also placed on record the copy of the aforesaid order in ITA 1663/AHD/2009 order dated 31.05.2012. He therefore submitted that the CIT(A) has rightly deleted the addition. 8. We have heard the rival submissions and perused the material on record. It is an undisputed fact that Assessee has valued on "Weighted Average Cost" followed in the current year. It is Assessee'....
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....e has accordingly held that the rate of Rs. 658. 64 per gm. applied by assessee to value its stock of 22 ct. new ornaments was correctly determined. The Ld. CIT (A) has further given a finding that the rate of Rs. 764/- gm is also not weighted average rate computed after considering all periodical transactions. He further gave a finding that the basis of ad-hoc addition ofRs.10 lac is not known. The finding of CIT (A) has not been controverted by the Department. No material has been brought on record by Revenue before us to controvert the aforesaid facts. In the case of ACIT vs. Shantilal Nagardas & Co. (supra) the co-ordinate bench has held when Revenue department accepted a method of valuation of closing stock in earlier years, on the same set of facts and circumstances of the case of the business of assessee, then the principle of consistency should be followed by Department while making the assessment though the principle of res-judicata does not apply to Income tax proceedings. Nevertheless, whatever the settled law is applicable in respect of valuation of closing stock but the pecularity of this case is that the A.O. has started to value the stock at close intervals of each m....