2016 (6) TMI 897 - HC - Income Tax

Application of AS-2 of ICAI in valuation of the inventories of the damaged goods - ITAT held that the entire loss or difference in valuation will not be allowable in the year under consideration - Held that - Learned Counsel for the respondent has taken us to the evidence and contended that the appellant Company had gone into liquidation and therefore, the Tribunal has not committed any error in arriving at the conclusion as stated above. We have heard learned Counsels appearing for the respective parties and perused the records of the case. Considering the facts of the case, the issue raised in both the Appeals is answered in favour of the assessee

Summary

Issues:
Challenge to judgment of the Income Tax Appellate Tribunal regarding valuation of inventories and loss allowance for Assessment Year 1977-1978.

Analysis:
1. The appellant challenged the Tribunal's decision on valuing closing stock based on market price and the allowance of loss. The appellant argued that due to the 'MAOCARO' order, physical inventory revealed substandard goods, justifying market value. Citing a Delhi High Court case, the appellant contended that the market value should be the basis for valuation, not changing opening stock value. The Delhi High Court observed on AS-2 regarding including traveling costs in inventory valuation, with a distinction between direct and indirect costs. The Tribunal upheld that only direct travel costs should be included, not indirect costs, directing the Assessing Officer to verify and provide the benefit to the assessee.

2. The respondent argued that the appellant's liquidation justified the Tribunal's decision. After hearing both sides and reviewing the case records, the Court ruled in favor of the assessee, upholding the Tribunal's decision on inventory valuation and loss allowance. The appeal was dismissed with the direction for the Assessing Officer to implement the Tribunal's judgment after verification.