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2016 (10) TMI 1243 - AT - Income TaxAddition on undervaluation of closing stock - raw material was valued at lower of cost or market price and finished goods was valued at lower of estimated cost or market price - whether assessee deliberately undervaluing stock by following LIFO method of valuation of gold stock and proposed FIFO method of valuation of stock of gold to be appropriate for valuation of gold stock? - Held that - We find that the observation of the Coordinate Bench that the AO did not give any justifiable reason for rejection of LIFO method which has been followed consistently by the Assessee and which method the Revenue has been accepting for earlier years. Decision of Cochin Tribunal in the case of jeweler in ITO vs Sree Padmanabha Jewellery Mart 1986 (8) TMI 120 - ITAT COCHIN as relied by the Assessee wherein it approved the LIFO method. The Coordinate bench also discussed the decision of DCIT vs Vipin Aggarwal 2010 (7) TMI 1069 - ITAT CHANDIGARH which found no merit in not adopting the method of valuation of stock being consistently followed by the assessee which is being accepted from year to year in the absence of any contrary findings by the Assessing Officer. We hold that no addition is maintainable made on account of value of closing stock and the order of the CIT-A is justified and the grounds raised are dismissed. - Decided in favour of assessee.
Issues Involved:
1. Deletion of addition on undervaluation of closing stock. 2. Consistency in following the LIFO method of valuation of closing stock. 3. Attribution of value addition to specific financial years. Detailed Analysis: 1. Deletion of Addition on Undervaluation of Closing Stock: The Revenue contended that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in deleting the addition of ?8,73,46,711/- for undervaluation of closing stock. The Assessing Officer (AO) found discrepancies in the valuation of gold stock, particularly noting that the assessee had not claimed the value of stock of gold for the financial years (F.Y.) 2004-05 and 2005-06 during the assessment proceedings for the assessment year (A.Y.) 2009-10. However, the same was claimed during the assessment proceedings for A.Y. 2011-12. The AO proposed the FIFO method instead of the LIFO method used by the assessee, leading to the addition. The CIT-A deleted this addition, finding no justifiable reason for the AO's rejection of the LIFO method, which had been consistently followed and accepted in earlier years. 2. Consistency in Following the LIFO Method of Valuation of Closing Stock: The assessee consistently followed the LIFO method for valuing its closing stock of gold, a method accepted by the Revenue in previous years, including scrutiny assessments. The AO did not provide a justifiable reason for rejecting this method. The CIT-A and the Tribunal upheld the consistency of the LIFO method, emphasizing that the old stocks, due to the nature of the jewellery business, often remain unsold and are valued accordingly. The Tribunal cited multiple judicial precedents supporting the consistent application of an accepted accounting method unless there is a significant reason to deviate. 3. Attribution of Value Addition to Specific Financial Years: The Revenue argued that the assessee attributed the entire value addition to the stock of F.Y. 2010-11 without conclusively proving that no value addition was made to the stock of earlier financial years (2004-05, 2005-06, and 2006-07). The AO noted that the assessee failed to provide sufficient evidence or documentary proof regarding the rates for these earlier years. However, the CIT-A observed that the AO did not give any reason for rejecting the LIFO method and found the application of the gold rate per gram in F.Y. 2010-11 to earlier years (2004-05, 2005-06, and 2006-07) to be without basis. The Tribunal upheld this observation, noting that no addition could be made towards the value of stock as the closing stock cannot be construed as a source of profit for the assessee. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the CIT-A's deletion of the addition on undervaluation of closing stock. The Tribunal emphasized the consistent application of the LIFO method for valuation of closing stock, which had been accepted by the Revenue in previous years. The Tribunal also highlighted that the closing stock should not be considered a source of profit, aligning with judicial precedents. The appeal filed by the Revenue was dismissed, and the order of the CIT-A was upheld.
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