2018 (11) TMI 1331 - HC - Income Tax

Method of Valuation of closing stock - FIFO or LIFO method - as per the assessee undervalued the stock which was below the average cost price of gold - Held that - This Court had issued notice for considering the remand of the matter as was done by the Tribunal in case of the assessee for the Assessment Year 20072008. In response to such notice, Shri Tushar Hemani, learned counsel appeared for the assessee pointed out that the Tribunal orders for the Assessment Year 2007-2008 concerning two issues; one was the deployment of LIFO method for valuation of closing stock and the other was the portion declared by the assessee at the time of survey which remain unsold and which had come to the part of the closing stock adopted certain rate per gram of the gold. He pointed out that, insofar as applying LIFO method is concerned, the Tribunal had confirmed the view of the CIT(Appeal) and the remand was merely for the purpose of later issue. As perused the order of the Tribunal for the Assessment Year 2007-2008 and confirmed this position. It is therefore not necessary to remand the matter for proceedings. Thus sole question arises in the present appeal is therefore confined to LIFO method.

Summary

Issues involved:
Challenge to valuation of closing stock using LIFO method for business profit calculation.

Analysis:
The High Court of Gujarat heard a case where the Revenue challenged the Income Tax Appellate Tribunal's decision approving the assessee's use of the LIFO method for valuing closing stock, which the Revenue argued did not reflect the true business profit. The dispute arose during the assessment for the year 2010-2011, concerning a business engaged in manufacturing and selling gold ornaments. The Assessing Officer contended that the closing stock was undervalued by the assessee, as it was below the average cost price of gold. However, the assessee justified its use of the LIFO method for valuation. The CIT(Appeal) recognized the validity of the LIFO method, which had been consistently applied by the assessee and upheld by previous orders. Subsequently, the Revenue appealed to the Income Tax Appellate Tribunal, which affirmed the CIT(Appeal) decision. The High Court noted that the Tribunal had previously upheld the use of the LIFO method for the same assessee in a prior assessment year, and therefore, there was no need for a remand. The Court concluded that the LIFO method was legally recognized and had been consistently followed, leading to the dismissal of the Tax Appeal.

This case primarily revolved around the validity of the LIFO method for valuing closing stock in the context of business profit calculation. The Revenue disputed the method's accuracy in portraying the true business profit, while the assessee defended its use based on consistent application and legal recognition. The Assessing Officer's attempt to substitute the valuation based on average cost price was rejected by the CIT(Appeal) and subsequently upheld by the Tribunal. The High Court, after reviewing previous orders and confirming the validity of the LIFO method, found no grounds to remand the matter and dismissed the Tax Appeal solely focused on the LIFO method's application. The judgment highlights the importance of consistent application of valuation methods recognized by law in determining business profits and resolving disputes arising from differing valuation approaches.