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Issues involved:
The judgment deals with the issue of change in the method of valuation of closing stock in accordance with Accounting Standard-2 issued by the Institute of Chartered Accountants of India for assessment year 2002-03. Summary: Issue 1: Change in method of valuation of closing stock The assessee, a private limited company, changed the method of valuation of closing stock from 'net realizable value' to 'lower of cost or net realizable value' as per Accounting Standard-2. The Assessing Officer rejected this change, stating it was to reduce taxable profits. The ld. CIT(A) upheld this decision, emphasizing the need for consistency in valuing opening and closing stock. The appellant argued that the change was mandatory u/s 211(3)(c) of the Companies Act, and consistently followed in subsequent years. The Tribunal noted that the change was made to comply with statutory requirements, hence not mala fide. Issue 2: Valuation of opening stock in relation to closing stock The lower Revenue authorities contended that the valuation method of opening stock should match that of closing stock. However, the Tribunal held that the valuation of closing stock is to determine true profits of the current year. It cited judicial precedents to support the principle that a change in the method of valuation of closing stock does not necessitate a similar change in the valuation of opening stock. The Tribunal allowed the appeal, emphasizing that opening stock need not be disturbed in case of a bona fide change in the method of valuation of closing stock. In conclusion, the Tribunal allowed the appeal of the assessee, recognizing the validity of the change in the method of valuation of closing stock and clarifying the principles regarding the valuation of opening stock in relation to closing stock.
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