TaxTMI 
TaxTMI 
2021 (5) TMI 398
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....on u/s.263 in respect of valuation of closing stock when the same was not the subject matter of "Limited scrutiny" in the assessment completed u/s.143(3) on the facts and in the circumstances of the case. 4. For that Id Pr. CIT is not justified to enhance the valuation of closing stock by Rs. 15,53,849/- when there is no deviation in the method of valuation of stock consistently followed by the assessee on the facts and in the circumstances of the case." conformity with CBDT instructions on the facts and in the circumstances of the case." 3. At the time of hearing, ld A.R. of the assessee did not press Ground Nos.2 & 3, therefore, both the grounds are dismissed as not pressed. 4. Ground No.1 of appeal is general in nature and hence, requires no adjudication. 5. Ld A.R. of the assessee pressed Ground No.4 which relates to enhancement of valuation of closing stock by Rs. 15,53,849/-. 6. Facts of the case are that the assessee company derives income from trading of iron ores. The original assessment was completed u/s.143(3) of the Act on 23.11.2016 determining the total income at Rs. 2,13,61,760/-. Thereafter, the Pr. Commissioner of Income Tax-1, Bhubaneswar i....
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.... Rs. 3601) instead of Rs. 82,44,039/- as declared by the assessee. As such, closing stock was undervalued by Rs. 1,98,29,357/- (Rs. 2,80,73,396 - Rs. 82,44,039) and the AO ought to have added back the same to the total income of the assessee, which he has not done. 4. It may be mentioned here that the valuation of closing stock is a vital factor in determining the taxable income of an assessee from business, as correct profit cannot be ascertained unless the opening and closing stock are valued correctly. Though, the valuation of stock does not generate funds, it does affect taxable income of the assessee. Once a particular method of valuation is adopted, the same should be continued in subsequent years." 7. In reply to show cause notice, the gist of the submissions of the assessee before the ld. Pr. CIT is as under: i) In the tax audit report at 35(a) of Form 3CD, quantitative details of iron ore fines was given and shortage has been disclosed at 3205 MT. ii) The closing stock of 7796MT is mentioned before deduction of shortage. iii) The assessee had maintained proper record and inventory of iron ore fines. iv) The assessee is not re....
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....which is accepted and recognised method of valuation of closing stock. Ld A.R. referred to following decisions of the Tribunal to contend that the FIFO method by the assessee has been accepted by the Tribunal: i) ITAT Kolkata in the case of Rupam Jewellers vs ACIT in ITA No.267/Kol/2017 for A.Y. 13-14. ii) ITAT Cuttack in the case of Sree Alankar vs Pr. CIT in ITA No.108/CTK/2018 for A.y. 12-13 order dtd.12.9.18. 11. Replying to above, ld CIT DR vehemently supporting the impugned order submitted that Pr. CIT rightly observed that the assessee had claimed to have adopted FIFO method for valuation of closing stock of 4591.325 MT, which was valued @ Rs. 1795/- per MT amounting to Rs. 82,44,039/-. Ld CIT DR further explained that during the course of proceedings before the Ld. Pr. CIT, the assessee furnished its method of valuation of closing stock giving the details in a tabular form, based on cost prices reflected in purchase invoices, issued by some parties from whom, the assessee has purchased iron ores. Ld. Pr. CIT further submitted that the computation of cost per MT of stock as submitted by the assessee has been found to be incorrect. Therefore, Pr. CIT w....
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....e year and same was shown as inventory under the head of "current assets" in the balance sheet as on 31.3.2014. It was also clear that tax auditor at point no.14(a) of Form 3CD stated that the method of valuation of closing stock employed in the previous year is "FIFO at actual cost". From the quantitative details of items of goods shown at point no.35a of the tax audit report, it it was clear that the closing stock of iron ore was 7796 MT and shortage/excess was 3205 MT. However, the tax auditor in the Annexure to the audit report certified that inventory had not been physically verified by the management during the year and the company had not maintained any record for wastages/losses". 15. From these facts, Pr. CIT, prima facie, observed that the closing stock has been undervalued by the assessee, the AO ought to have added back the amount of under valuation to the total income of the assessee, which has not been done. In this regard, we are of the considered view that when some glaring facts revealed from the tax audit report, the valuation of closing stock is not proper and as per the principles adopted for valuation of closing stock, then obviously, the AO was required to ....