2001 (6) TMI 185 - AT - Income Tax

Summary

Issues: Valuation of closing stock - Undervaluation - Consistency in accounting method

The judgment by Appellate Tribunal ITAT Jodhpur involves the issue of the valuation of closing stock for the assessment year 1991-92. The assessee disputed the addition of Rs. 37,926 on the grounds of undervaluation of closing stock. The assessee valued the closing stock based on three categories: goods purchased recently at actual purchase price, goods purchased during the year at average cost, and goods remaining from the previous year at the same rate as the preceding year. The Departmental Representative argued that there was no proper record or evidence to support the valuation method used by the assessee, especially for M.S. tubers and M.S. sections. The Assessing Officer rejected the assessee's method and valued the stock at market price, leading to the addition. The key contention was whether the consistent accounting method adopted by the assessee should be accepted or if a different valuation method should be applied.

Upon considering the arguments and the cited legal precedent, the Tribunal found merit in the assessee's contentions. Referring to a Supreme Court decision, it was established that a trader's consistent and regular method of accounting should not be disregarded solely based on the authorities' preference for a different valuation method. The Tribunal noted that the assessee had physically identifiable and countable quantities of goods in separate heaps, supporting the distinct categorization of closing stock. Given the consistent application of the valuation method by the assessee and the lack of justification to reject it, the Tribunal ruled in favor of the assessee. Consequently, the addition made on account of undervaluation of closing stock was deleted, and the appeal was allowed in part.

In conclusion, the judgment emphasized the importance of consistency in accounting methods and upheld the assessee's valuation of closing stock based on the three categories specified. The decision highlighted the significance of following a regular and consistent approach in accounting practices, especially when valuing closing stock, to prevent arbitrary adjustments by the tax authorities.