TaxTMI 
TaxTMI 
2018 (3) TMI 895
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....stock as it had followed LIFO method which is not in accordance with Accounting Standard-2 (AS-2) issued by the Institute of Chartered Accountants of India. The books of accounts of the assessee were not rejected, by the AO. 3. Aggrieved the assessee carried the matter in appeal. The First Appellate Authority confirmed the order of the AO. Aggrieved the assessee is before us on the following revised grounds of appeal :- "1. On the facts and in the circumstances of the case, the learned CIT(A) erred in making addition of an amount of Rs. 2,41,45,140/- alleging suppression of value of closing stock, without appreciating the fact that the assessee has been consistently following LIFO method for valuation of closing stock since the inception of the business which has been accepted all along by the revenue in the earlier years. 2(a) The AO erred in having disallowed melting and hallmarking charges paid, alleging non-deduction of tax at source, although the impugned payment has not been made under any oral and documentary contract, warranting any such deduction. 2(b) On the facts and in the circumstances of the case, the learned CIT(A) erred in disallowing the entire payment mad....
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.... valued its closing stock at Rs. 1294.69 per gram is factually incorrect. 5. On the issue of deduction u/s 40(a)(ia) of the Act, he submitted that there is no contract with the person's, who are paid money towards hall marking charges or melting charges and hence the provision of section 194C of the Act would not apply. Alternatively it was submitted that the payee parties have already offered the said sums received by them to tax, in their income tax returns and in view of the second proviso to section 40(a)(ia) of the Act, no disallowance can be made in the hands of the assessee. It was submitted that the issue may be remitted to the AO for fresh adjudication and examine the issue as to whether the requirements of the 2nd proviso to section 40(a)(ia) have been fulfilled or not. 6. The ld. Departmental Representative, on the other hand, opposed the contentions of the assessee and submitted that the arguments of the ld. Counsel for the assessee that, the revenue has been accepting consistently, the method of valuation of closing stock followed by the assessee i.e. LIFO method is not correct, as the assessee commenced its business in the year 2001 and this case was never picked up....
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....rejected. It is not the case of the AO that there is any variations or differences in the quantities of closing stock. The only ground on which the addition has been made in this case, is that, LIFO method of stock valuation is not approved under AS-2 of the Institute of Chartered Accountants of India, which is notified by the Government, under the Income Tax Act. 8.3. The ld. CIT(A) goes a step further and holds that the adoption of LIFO method would lead to perpetual undervaluation of stock. He also concludes that the shop keepers would exhaust the old stock by giving discount to the customers and would only keep new stock. Both these conclusions in our view are not correct. 8.4. The principles of "valuation of closing stock" have been laid down in judgments of the various courts. We extract some for ready reference :- a)In the case of United Commercial Bank vs CIT 240 ITR 355 (SC) it is held as follows :- "The principles applicable in valuation of stock are (1) that for valuing the closing stock, it is open to the assessee to value it at the cost or market value, whichever is lower; (2) In the balance-sheet, if the securities and shares are valued at cost, from that no fi....
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....ate that valuation of closing stock under LIFO method cannot be done. At para-17 of AS-2 it is stated as follows : "A variety of cost formulas is used to determine the cost of inventories other than those for which specific identification of individual costs is appropriate." The formula used in determining the stock of an item of inventory needs to be selected with a view to providing the fairest possible approximation to the cost incurred in bringing the item to its present location and condition. Thus AS-2 does not specifically mention the LIFO method of valuation of closing stock is not an approved method. The choice of the method is always with the assessee. The only condition is that , it has to be regularly and consistently followed. 8.7. Be it as it may section 145A of the Act mandates that (a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be - (i) In accordance with the method of accounting regularly employed by the assessee. The section supports the above view expressed by us and also over rides section 145 of the Act. The act manda....