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2019 (11) TMI 353 - AT - Income TaxDiminution of value and depreciation of closing stock - valuation of obsolete stock - disallowing depreciation on closing stock holding that the depreciation on the closing stock is not eligible deduction - HELD THAT - CIT vs. Indian Sugar Gen. Industry Export Import 2012 (4) TMI 281 - DELHI HIGH COURT while considering the question of law whether the finding of Income-Tax Appellate Tribunal was right in accepting the NRV as declared by respondent/assessee and was right in not adopting the cost price for computation of closing stock held that the assessee could have adopted the NRV method for valuation of closing stock and whether it is mandatory to value the cost on cost basis, it was held that Hon ble Apex Court in various decisions and observation that closing stock can be valued on cost price or market price, if the market price is less than the cost. However, the said principle does not apply, if the market value of the closing stock is more than the cost, as profit cannot be brought to tax on notional basis. The Hon ble Bombay High Court in Alfa Laval (India) Ltd. 2003 (9) TMI 43 - BOMBAY HIGH COURT also held that when assessee is valued the closing stock on obsolete items at 10% of the cost. Auditor s report justifying the valuation. The items were in fact sold in the subsequent year at a price less than 10% of the cost. It could not be said that valuation of obsolete item made by assessee was not proper. In view of the aforesaid discussion, we affirm the order of ld. CIT(A). Addition in book profit under section 115JB - HELD THAT - We find that we have affirmed the finding of ld. CIT(A) in deleting the addition. Therefore, the addition which was consequential to the addition of subject matter of Ground No.1. Therefore, this ground of appeal is also dismissed.
Issues:
- Deletion of addition of ?6,16,55,838 being diminution in the value of closing stock and claiming depreciation thereon. - Interpretation of the judgment in Alfa Laval (India) Ltd. case in relation to the deletion of the said addition. - Adjustment of the addition in book profit under section 115JB. Analysis: Deletion of Addition of Diminution in Closing Stock Value: The appeal by revenue challenged the deletion of an addition of ?6,16,55,838 in the valuation of closing stock by the Assessing Officer. The Assessing Officer disallowed the depreciation on closing stock, which the assessee claimed based on the Net Realizable Value (NRV) method. The assessee consistently valued its closing stock at lower of cost or NRV, following the rule of consistency. The ld. CIT(A) reversed the Assessing Officer's decision, emphasizing that the depreciation was not claimed as conceived by the Assessing Officer. The Tribunal affirmed the ld. CIT(A)'s order, citing various legal precedents supporting the valuation of closing stock at cost or market price, whichever is lower. Interpretation of Alfa Laval (India) Ltd. Judgment: The revenue contended that the decision in Alfa Laval (India) Ltd. case was not applicable to the present case as it involved a fixed rate of reduction in value, unlike the current scenario. However, the ld. CIT(A) relied on the Alfa Laval judgment to grant relief to the assessee. The Tribunal upheld the ld. CIT(A)'s decision, emphasizing the consistent valuation method adopted by the assessee and the absence of depreciation in the Profit & Loss A/c. Adjustment in Book Profit under Section 115JB: The third issue pertained to the adjustment of the addition of ?6,16,55,838 in book profit under section 115JB. The ld. CIT(A) had deleted this addition, and since the Tribunal affirmed the deletion of the primary addition, the adjustment in book profit also stood dismissed. The Tribunal's decision rendered the adjudication of this ground of appeal academic. In conclusion, the Tribunal dismissed the revenue's appeal, upholding the deletion of the addition related to the diminution in the value of closing stock and the consequential adjustment in book profit under section 115JB. The decision was based on the consistency of valuation method followed by the assessee and supported by legal precedents emphasizing the valuation of closing stock at cost or market price, whichever is lower.
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