2016 (5) TMI 139 - AT - Income Tax

Adoption of method for valuation of stock - Held that - The assessee was justified in adopting a new method for valuation of stock we are of the opinion that the matter requires a fresh look by the Assessing Officer for verifying the correctness of the value arrived at by the assessee. We therefore set aside the orders of the authorities below and remit it to the file of the Assessing Officer for consideration afresh. The Assessing Officer shall also consider the view taken by him for the assessment year 1989-90 while disposing of the remitted issues.

Summary

Issues:
Appeal against order of Commissioner of Income-tax regarding valuation of closing stock for assessment year 1990-91.

Analysis:
The appeal filed by Revenue was against the order of the Commissioner of Income-tax (Appeals) regarding the valuation of closing stock for the assessment year 1990-91. The key issue revolved around the change in the method of valuation of stock by the assessee from net realisable value to cost or market price, whichever was lower. The Assessing Officer had made an addition for suppression in valuation of stock, which was deleted by the Commissioner of Income-tax (Appeals) for both assessment years 1989-90 and 1990-91. The Tribunal also upheld the deletion of additions for both years.

For the assessment year 1989-90, the hon'ble jurisdictional High Court remanded the matter back to the Assessing Officer to decide the legality of the method adopted by the assessee for valuing closing stock. The High Court emphasized the importance of disclosing a true picture of profits and gains while valuing stock-in-trade. The High Court's judgment highlighted the need for a remand to the Assessing Officer to reevaluate the method of stock valuation.

In the case of the assessment year 1990-91, the Assessing Officer once again made an addition for suppression in valuation of stock, which was deleted by the Commissioner of Income-tax (Appeals). The Commissioner observed that the change in the method of valuation was consistent and approved by the board of directors. The Commissioner relied on legal precedents supporting the method of valuation adopted by the assessee.

The Department contended that the Commissioner erred in deleting the addition for the assessment year 1990-91, as the issues stemmed from the change in valuation method introduced in the previous year. The Department argued that the assessee failed to justify the new method of accounting despite opportunities provided. However, the authorized representative supported the Commissioner's decision, citing legal judgments endorsing the method of valuation and the consistent application by the assessee.

Upon review, the Tribunal acknowledged the validity of the new method of valuation adopted by the assessee but emphasized the need for the Assessing Officer to verify the correctness of the valuation. The Tribunal set aside the orders of the lower authorities and remitted the matter back to the Assessing Officer for a fresh evaluation. The Tribunal directed the Assessing Officer to consider the view taken for the assessment year 1989-90 while addressing the remitted issues for the assessment year 1990-91.

In conclusion, the appeal of the Revenue was treated as allowed for statistical purposes, and the Tribunal's decision was pronounced on March 18, 2016.