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Issues:
Valuation of closing stock considering exchange rate fluctuation. Analysis: The appeal pertains to the assessment year 1998-99 where the only ground raised was the addition made by the Assessing Officer in the valuation of closing stock due to exchange rate fluctuation. The Assessing Officer relied on the judgment in the case of CIT v. British Paints India Ltd. (1991) to justify the addition. The Appellate Tribunal considered the submissions of the assessee, who argued that the exchange fluctuation amount was debited to the Profit and Loss Account and should not be considered as part of closing stock. The assessee contended that the expenditure incurred was in the nature of interest for obtaining credit and should not be treated as part of the purchase cost for closing stock valuation. The Tribunal analyzed the issue based on the judgment in the British Paints India Ltd. case, which highlighted that excluding all costs other than raw material for stock valuation distorts the true state of business for tax computation. The Tribunal observed that the exchange rate fluctuation directly related to imports in the closing stock. It emphasized that the expenditure on exchange rate fluctuation was directly linked to the purchase of raw material, forming part of the material cost. The Tribunal dismissed the appeal, concluding that the fluctuation loss on imported raw material should be considered in the closing stock valuation, in line with the principles established in the British Paints India Ltd. judgment. The Tribunal rejected the argument that the exchange rate fluctuation should be treated as a revenue expenditure, emphasizing that it is directly attributable to the cost of material purchased. The Tribunal upheld the Assessing Officer's decision, stating that the fluctuation loss on imported raw material is a part of the closing stock value. The Tribunal highlighted that the principles of the Income-tax Act prevail over accounting standards, and the judgment in the British Paints India Ltd. case applies to the present case. Consequently, the appeal was dismissed, affirming the addition made by the Assessing Officer in the valuation of closing stock due to exchange rate fluctuation.
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