2015 (6) TMI 712 - AT - Income Tax

Difference in valuation of closing stock - CIT(A) deleted addition - Revenue argued that the assessee company had not shown any finished or sorted material in the return of income - Held that - The assessee has placed a paper book containing its audited annual accounts, taxaudit report, certified valuation of stock by expert Lab Technician, invoices for the purchase of raw materials @ ₹ 275/- per MT. Page 32 of the paper book describes sorting of manganese ore in four different rate-wise categories. The assessee has also placed on record all details of raw and sorted material at page 34 of the paper book with all due certificates. There is also due matching of the quantity of the manganese ore before and after being sorted out. The Revenue fails to dispute contents thereof. We draw support from the above said record and hold that the assessee has placed overwhelming material in support of its claim of sorting of the raw material quality wise and valuing the same at cost or market price. We uphold the CIT(A) s findings in these circumstances and reject the Revenue s ground. - Decided in favour of assessee.

Summary

Issues Involved:
- Valuation of closing stock for AY 2007-08

Analysis:
- The Revenue's appeal for AY 2007-08 challenged the addition of Rs. 18,40,920 arising from the alleged difference in valuation of closing stock. The appellant, a company dealing in manganese ore, argued that the closing stock included unsorted material valued at lower of cost or market value. The Assessing Officer (AO) contended that since only raw material stock was shown, its value should be at the purchase price rate of Rs. 275 per metric ton. The appellant explained that after sorting, different realizable products were obtained, valued at lower of cost or market value. The AO rejected this explanation and added the difference to the closing stock value.

- In the appeal, the appellant reiterated its valuation method based on AS 2 issued by the Institute of Chartered Accountants of India, valuing raw material at lower of cost or net realizable value. Various realizable products obtained after sorting were detailed, with sale price ranges provided. The appellant submitted a certificate of valuation of stock by a Lab Technician and invoices supporting the valuation method. The appellant's method of valuing stock was compared to practices in other industries like the tea industry, where different qualities are sold at varied prices.

- Further submissions included details of machinery used for sorting, the sorting process adopted by the company, and explanations on the sale of different quality stock. The appellant presented gross profit workings and bills for the sale of waste to justify the valuation of closing stock. The AO valued the entire closing stock at the average purchase rate, not accepting the appellant's explanation that the closing stock included unsorted material. The AO failed to provide evidence to dispute the appellant's valuation method. The Tribunal upheld the CIT(A)'s findings, rejecting the Revenue's appeal and dismissing it.

This detailed analysis highlights the dispute over the valuation of closing stock, the appellant's valuation method based on lower of cost or market value, and the lack of evidence provided by the AO to justify the addition made to the closing stock value. The Tribunal's decision favored the appellant, emphasizing the overwhelming material presented in support of their valuation method.