2004 (11) TMI 82 - HC - Income Tax

Valuation of the closing stock - Tribunal has recorded a categorical finding of fact that the appellant has not valued the closing stock at average cost price as it has also taken into consideration the value of the opening stock as on April 1 1990 whereas normally the opening stock being purchase for earlier year is utilized for manufacturing and it cannot be conceived that it was available at the end of the year. The principle of last come first go should apply. In this view of the matter we do not see any infirmity in the order of the Tribunal. - Thus on the finding recorded by the Tribunal that the valuation of the closing stock was not on the average cost price we are of the considered opinion that the Assessing Officer was justified in taking the price submitted by the marketing inspector for valuation of the closing stock.

Issues: Valuation of closing stock for assessment year 1991-92 under Income-tax Act, 1961.

Analysis:
The appellant, engaged in the manufacturing and sale of rice, disputed the valuation of closing stock during the assessment year 1991-92. The Assessing Officer questioned the basis of valuation, leading to a discrepancy in the closing stock value. The appellant valued common paddy at Rs. 199.87 per quintal and fine paddy at Rs. 200 per quintal. However, the Assessing Officer directed the appellant to provide market rates, resulting in a difference in valuation. The Commissioner of Income-tax (Appeals) and the Tribunal upheld the addition to the closing stock value. The appellant contended that the closing stock was valued based on the average cost price, a standard valuation principle. Conversely, the Revenue argued that the closing stock must be valued either at cost price or market price, with no room for an in-between valuation. The Tribunal found that the appellant did not adhere to the average cost price principle as it included the value of the opening stock from the previous year, which was not standard practice.

The court referred to various precedents to establish the correct method of valuing closing stock. It cited the case of Chainrup Sampatram v. CIT, emphasizing the purpose of valuing unsold stock to balance costs and determine actual profits or losses. Additionally, the court referenced CIT v. A. Krishnaswami Mudaliar, highlighting the importance of considering the value of stock-in-trade at the beginning and end of the year for accurate profit assessment. The judgment in CIT v. British Paints India Ltd. further stressed the necessity of accounting for stock-in-trade value at the beginning and end of the accounting year. Moreover, the court cited United Commercial Bank v. CIT, affirming that the assessee can choose to value closing stock at cost or market value, whichever is lower.

Based on the precedents and factual findings, the court concluded that the appellant did not value the closing stock at the average cost price, as it included the value of the opening stock improperly. Consequently, the Assessing Officer's decision to adopt the price certified by the marketing inspector for closing stock valuation was deemed justified. The court dismissed the appeal, ruling in favor of the Assessing Officer's valuation method, and ordered no costs to be awarded.

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