2021 (2) TMI 343 - AT - Income Tax

Valuation of closing stock - disallowance of forward losses basing on the closing stock for the assessment year 2013-14, which would be the opening stock for the assessment year 2014-15 - HELD THAT - DR does not dispute the acceptability of the principal in accordance with which the Ld. AR seeks relief in this matter. The closing stock of the previous year has to be treated as the opening stock of the current year and there cannot be any quarrel to it. Because the assessee is playing this direction/clarification in order to get the matter stated under the Vivad-se-Vishwas Scheme, in the absence of any dispute as to the principle involved in this, we are of the considered opinion that there is no harm in issuing such clarification and we accordingly direct the authorities to treat the closing stock of the assessment year 2013-14 as the opening stock for the assessment year 2014-15. We accordingly clarify that the authorities may treat the closing stock of the Assessment Year 2013-14 as the opening stock for the assessment year 2014-15. With this observation we dispose of this appeal.

Summary

Issues:
Valuation of closing stock based on Net Realizable Value (NRV) for assessment year 2014-15.

Analysis:
The case involved an appeal by the assessee against the order of the Assessing Officer disallowing forward losses based on the valuation of closing stock for the assessment year 2014-15. The assessee valued its closing stock at a lower value than the cost price based on Net Realizable Value (NRV) in accordance with Accounting Standards. However, the Assessing Officer disregarded this valuation method and made an adjustment on account of the valuation of closing stock. The assessee contended that the closing stock of the preceding year should be considered as the opening stock for the current year, thereby challenging the disallowance of forward losses. The issue was narrowed down during arguments to focus on this disallowance.

The Assessing Officer had previously disallowed brought forward losses in the earlier year, which impacted the available loss carried forward by the appellant. The Commissioner of Income Tax (Appeals) upheld the disallowance, stating that there was no provision to keep such disallowances in abeyance. The appellant, aggrieved by this decision, appealed against the findings of the Commissioner.

During the appeal, the appellant sought a direction that the value of closing stock at the end of the assessment year 2013-14 should be considered as the opening stock for the assessment year 2014-15. The appellant referred to a previous Tribunal decision to support this argument. The Tribunal agreed with the appellant's submission, stating that the closing stock of the previous year should be treated as the opening stock of the current year. The Tribunal directed the authorities to treat the closing stock of the assessment year 2013-14 as the opening stock for the assessment year 2014-15, thereby allowing the appeal of the assessee for statistical purposes.

In conclusion, the Tribunal's decision provided clarity on the treatment of closing stock for consecutive assessment years, allowing the appellant to benefit from the valuation based on Net Realizable Value and the consideration of forward losses based on the opening stock value.