2015 (10) TMI 1872 - AT - Income Tax

Valuation of closing stock - CIT(A) allowing of claim of the assessee as the part value of the opening stock of finished goods on 1.04.2002 - Held that - The figure of the value of the opening stock of finished goods of last year is not disputed. There can be no dispute on the proposition that the value of closing stock of preceding year constitutes value of opening stock of the current year. Under no circumstances there can be any difference between the value of closing stock shown in the accounts of preceding year and the value of opening stock of the current year. Though the reflection by the assessee of ₹ 33.91 lac in its P & L Appropriation account is an erroneous approach of showing the value of opening stock, which amount should have been in fact, considered in entirety in the trading account, but such an erroneous accounting treatment cannot impact the calculation of correct total income. In our considered opinion the ld. CIT(A) was justified in enhancing the value of opening stock of finished goods with ₹ 33.91 lac and thereby reducing the total income to this extent. We therefore, countenance the view taken by the ld. CIT(A) on this issue. - Decided against revenue.

Summary

Issues:
Allowing claim of part value of opening stock of finished goods as deduction.

Analysis:
The appeal by the Revenue challenged the allowing of the claim of the assessee for a specific amount as part value of the opening stock of finished goods. The assessee changed the method of valuation of closing stock of finished goods, resulting in a difference in the value of opening stock for the current year. The Assessing Officer initially rejected the claim as it was not part of the revised return. The ld. CIT(A) upheld the rejection based on a Supreme Court judgment. However, the Tribunal held that the claim could be considered without revising the return and directed the AO to reevaluate the claim. In the subsequent proceedings, the AO again denied the deduction, but the ld. CIT(A) accepted the claim. The Tribunal, after reviewing the facts, concluded that the assessee was entitled to increase the value of the opening stock by the specific amount, thereby reducing the total income accordingly. The Tribunal supported the ld. CIT(A)'s decision on this issue and dismissed the Revenue's appeal.

The crux of the dispute centered on whether the assessee could increase the value of the opening stock by a particular amount to adjust the total income. The Tribunal noted that the value of the closing stock of the preceding year should align with the opening stock value of the current year. Despite an accounting error in the treatment of the specific amount in the P & L Appropriation account, the Tribunal found that the ld. CIT(A) was correct in enhancing the opening stock value by the said amount, leading to a reduction in the total income. The Tribunal supported the view that the specific amount should be considered in the trading account to reflect the accurate total income. Consequently, the Tribunal upheld the decision of the ld. CIT(A) on this issue, dismissing the Revenue's appeal.