2012 (7) TMI 957 - AT - Income Tax

Summary

Issues involved: Valuation of closing stock u/s 234B, Method of stock valuation

Valuation of closing stock: The assessee, a partnership firm in the business of trading iron & steel goods, filed return for assessment year 2008-09 with total income of Rs. 31,27,810. The Assessing Officer added Rs. 4,78,53,941 for under-valuation of closing stock due to following FIFO method. The CIT(A) upheld this decision. The Tribunal noted that the assessee faced practical difficulties in segregating old and new stock due to stock being in a godown and sales being made on a Last In First Out (LIFO) basis. The Tribunal found the Assessing Officer's valuation lacked consideration for these practical challenges and wastage from cutting/slicing steel rolls. The Tribunal set aside the CIT(A) order, deleting the addition in closing stock and allowing the appeal.

Method of stock valuation: The assessee argued they followed FIFO method only for stock valuation, not for sales, due to practical constraints. The Department contended the assessee used LIFO method and did not show defective stock in registers. The Tribunal observed that the CIT(A) did not consider the difficulty in demarcating old and new stock in the godown. It agreed with the assessee that FIFO method for sales was impractical given the physical stock removal process. The Tribunal also noted the presence of waste material from cutting steel rolls, which the lower authorities failed to consider. Ultimately, the Tribunal set aside the CIT(A) order, emphasizing the practical challenges faced by the assessee in stock valuation and sales method.