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Issues involved: Dispute regarding valuation of closing stock for the assessment year 2007-08.
Facts: The Assessing Officer (AO) noted that the assessee had valued stock costing Rs. 18.00 lacs at Rs. 1,06,800. The assessee explained that due to operational slowdown, market trends, and competition from cheap products, the stock of Mortise lock set was valued at Rs. 200 per lock. The AO rejected this explanation, stating that the stock should be valued at cost price or market price, whichever is lower. The AO added the difference to the closing stock. Before CIT(A): The assessee disputed the AO's decision, citing Accounting Standards AS-2 and a judgment of the Bombay High Court accepting valuation of obsolete stock at a lower value. CIT(A) agreed that net realizable value is an accepted method, considering the stock's obsolescence and non-movement for over 5 years. CIT(A) deleted the addition made by the AO. Before ITAT: The assessee reiterated that the stock was obsolete and non-moving, with no sales in previous or subsequent years. In the following assessment year, the remaining amount was written off, and the stock value was shown as nil. The assessee urged confirmation of CIT(A)'s order. ITAT's Decision: ITAT upheld CIT(A)'s decision, stating that valuation of closing stock at cost price or net realizable value is acceptable. The net realizable value should be based on a proper basis, and in this case, the assessee's valuation was reasonable and consistent with subsequent years' filings. The appeal of the revenue was dismissed. Conclusion: The ITAT upheld the CIT(A)'s decision to delete the addition made by the AO regarding the valuation of closing stock, emphasizing the acceptability of valuing stock at net realizable value based on market experience and business principles.
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