2012 (11) TMI 101 - AT - Income Tax

Addition on account of undervaluation of closing stock Held that - Bonafide change in the method of valuation of closing stock, as suggested by AS-2, has not been denied anywhere - detailed finding recorded by Commissioner of Income Tax (Appeals) to the effect that the assessee s explanation of the difference in valuation of closing stock is quite clear, convincing and comfortable to the accounting standard AS-2 and there is no reason not to accept the same, has not been controverted by department bringing any positive material on record - appeal of the revenue stands dismissed

Summary

Issues:
Appeal against deletion of addition on account of change in method of valuation of closing stock for assessment year 2007-08.

Analysis:
The appeal was filed by the revenue challenging the deletion of an addition of Rs. 9,88,363 made on account of a change in the method of valuation of closing stock. The Assessing Officer found that the assessee had changed the method of valuation from market price to cost or net realizable value, resulting in a reduction of profit. The Commissioner of Income Tax (Appeals) deleted the addition after considering the submissions made by the assessee. The appellant argued that the change in valuation method was in compliance with revised accounting standard AS-2. The Commissioner found the explanation provided by the assessee to be clear, convincing, and conformable to AS-2. The Central Government had also notified accounting standards to be followed by assessees under section 145(2) of the Act. The Tribunal upheld the decision of the Commissioner, stating that a bonafide change in the valuation method must be accepted, especially when it complies with accounting standards. The Tribunal found no reason to interfere with the deletion of the addition, as the department failed to bring any positive material on record to refute the findings of the Commissioner.

In conclusion, the Tribunal dismissed the revenue's appeal and upheld the deletion of the addition on account of the valuation of closing stock. The decision was based on the bonafide change in the valuation method in compliance with accounting standards, as per the provisions of AS-2 and the notification by the Central Government. The Tribunal emphasized the importance of accepting such changes when they are made in accordance with statutory requirements and accounting standards.