2014 (4) TMI 695 - AT - Income Tax

Valuation of stock - Addition made on account of suppression of value of stock Held that - Scrutiny assessment was framed u/s a43(3) wherein the assessee company has accepted the reworking of opening/closing stock at average cost and accepted the addition also, in the assessment year 2009-10 framed u/s 143(3) the assessee has revised return of income due to reworking of the opening/closing stock at average cost - in assessment year 2010-2011 also, the assessee has revised return of income due to reworking on opening/closing stock at average cost thus, the matter is required to be remitted back to the AO for reworking of the opening/closing stock at average cost and fresh adjudication Decided in favour of Assessee.

Summary

Issues:
Valuation of closing stock for assessment year 2006-07 under Section 143(3) of the I.T. Act.

Analysis:
The appeal was filed against the CIT(A)'s order regarding the valuation of closing stock for the assessment year 2006-07. The AO had made an addition by disregarding the valuation of closing stock, which was further enhanced by the CIT(A). The assessee contended that they agreed to adopt the computation method used by the AO in the assessment year 2007-08 for valuing stocks at average cost. The CIT(A) observed that the assessee agreed with the method adopted by the AO in the previous year. The CIT(A) reworked the valuation of stocks, resulting in a net addition that the assessee accepted. The AO had added a significant amount towards the undervaluation of stock, which was disputed by the assessee.

The AO applied the cost price per unit, which was the sale price reduced by the gross profit margin, to arrive at the addition amount. The assessee argued that since the gross margin varied for different product categories, valuing the stock by deducting the average margin from the average sale prices of different categories was incorrect. The CIT(A) did not provide the benefit of the increase in opening stock for A.Y. 2006-07, leading to an enhanced addition amount. The assessee raised concerns about the CIT(A) enhancing the income without a show cause notice, as required by Section 251(2) of the Act.

The Tribunal considered the arguments and noted the inconsistent approach in valuing stocks in previous assessment years. The Tribunal found that the AO had reworked the valuation of opening/closing stock at average cost in subsequent years, which the assessee had accepted. Given this consistent approach, the matter was remanded to the AO for reworking the opening/closing stock at average cost for the assessment year in question. The Tribunal directed the AO to decide the matter afresh while providing the assessee with a due opportunity. The appeal was allowed for statistical purposes.

In conclusion, the judgment focused on the valuation of closing stock for the assessment year 2006-07, emphasizing the need for consistency in valuation methods and providing the assessee with a fair opportunity to address the valuation issues.