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2016 (7) TMI 376 - AT - Income TaxValuation of closing stock - Investment in the GOLD - LIFO or FIFO method - Held that - In the instant case, the assessee had furnished the closing stock valuation workings as on 31.3.2006, 31.3.2007, 31.3.2008 and 31.3.2009 before the revenue. On going through the said workings, we are fully convinced with the method of accounting regularly employed by the assessee for valuation of closing stock of Gold and other jewellery. It is quite natural that jewellery being a fashion industry, the old stocks would most of the times remain with the assessee and the revenue cannot expect the old stocks to be sold out first though it would remain in the wish list of the jeweller. We find that the aforesaid valuation exactly fits into the accepted method of valuation for a jeweller as approved in the case of Cochin Tribunal in the case of ITO vs Sree Padmanabha Jewellery Mart 1986 (8) TMI 120 - ITAT COCHIN In any event, we hold that no addition could be made towards value of stock because the closing stock cannot be construed as a source of profit for the assessee. We place reliance on the decision of the Hon ble Supreme Court in the case of Chainrup Sampat Ram vs CIT reported in (1953 (10) TMI 2 - SUPREME Court ) in support of this proposition. We find that the assessee has been consistently following LIFO method of accounting for valuation of its closing stock of gold which has been accepted by the department in the earlier years even in scrutiny assessment proceedings of the assessee. Then there is no justifiable reason to reject the same method during the year under appeal. - Decided against revenue
Issues Involved:
1. Whether the CIT(A) was justified in deleting the addition made by the AO towards valuation of closing stock. 2. Whether the assessee's method of valuation of closing stock using LIFO (Last In First Out) was acceptable. 3. Whether the AO was justified in revaluing the closing stock using the average purchase price method instead of LIFO. Issue-wise Detailed Analysis: 1. Justification of CIT(A) in Deleting the Addition: The primary issue in this appeal was whether the CIT(A) was justified in deleting the addition of ?4,29,28,298/- made by the AO towards the valuation of closing stock. The CIT(A) held that the AO had accepted the LIFO method but contradicted himself by valuing the stock at the current year's average purchase price. The CIT(A) observed that the assessee had consistently followed the LIFO method, which is an acceptable and recognized method of accounting. The AO had not provided a proper basis for rejecting the method of valuation followed by the assessee and had not found any discrepancies in the books of accounts or stock registers maintained by the assessee. Consequently, the CIT(A) deleted the addition made by the AO. 2. Acceptability of LIFO Method: The assessee, a partnership firm engaged in the manufacturing of Gold, Diamond, and other precious and semi-precious stones, had consistently followed the LIFO method for valuing its closing stock. This method had been accepted by the revenue in earlier years, including scrutiny assessments. The AO had not found any defects in the books of accounts or stock registers maintained by the assessee. The CIT(A) and the Tribunal both noted that the LIFO method is a recognized method of accounting, and there was no reason to discard it. The Tribunal also referenced several judicial precedents supporting the acceptability of the LIFO method, including decisions from the Hyderabad Tribunal, Madhya Pradesh High Court, and other relevant cases. 3. AO's Revaluation Using Average Purchase Price Method: The AO revalued the closing stock of gold using the average purchase price method, arriving at a valuation of ?10,56,09,063/-. This was in contrast to the assessee's valuation of ?5,21,39,703/- using the LIFO method. The AO added making charges of ?1,05,84,671/- to this valuation. The CIT(A) and the Tribunal found that the AO's method contradicted his earlier acceptance of the LIFO method. The Tribunal emphasized that the regular system of accounting followed by the assessee could only be disturbed if defects were found in the books of accounts, which was not the case here. The Tribunal also cited the decision of the Hon'ble Supreme Court in Chainrup Sampat Ram vs CIT, which held that closing stock should not be valued higher than cost as it is not a source of profit. Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO towards the valuation of closing stock. It was concluded that the assessee's consistent use of the LIFO method was justified and recognized, and there was no basis for the AO to revalue the closing stock using the average purchase price method. The appeal of the revenue was dismissed, confirming that the LIFO method should be followed for the valuation of closing stock in this case. The Tribunal's decision was pronounced in the open court on 01.06.2016.
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