2017 (11) TMI 462 - HC - Income Tax

Addition on account of under valuation of stock - identification of defective stock and justification to its valuation at reduced rate - Held that - CIT(A) has allowed the valuation on the basis of last years which was accepted by the assessee and the same was confirmed. In that view of the matter, the stock valuation method was used for the closing stock and we are of the opinion that no error has been committed by the CIT(A) and Tribunal. - Decided in favour of the assessee.

Summary

Issues:
- Valuation of closing stock
- Addition of under valuation of stock
- Disallowance of commission and Dalai

Valuation of Closing Stock:
The case involved the valuation of closing stock by an assessee engaged in the manufacturing and trading of Marble, Slabs, and Blocks. The Assessing Officer (AO) made additions on account of under valuation of closing stock and disallowance of commission and Dalai. The AO observed that the assessee failed to identify defective stock and justify its valuation at a reduced rate. The AO found discrepancies in the assessee's claims regarding defective stock and sales, leading to the conclusion that the reduction in stock value was an attempt to lower tax liability. The appellant challenged the decisions of the CIT(A) and Tribunal.

Addition of Under Valuation of Stock:
The primary issue revolved around whether the ITAT was justified in deleting the addition of ?2,11,29,247 made by the AO on account of under valuation of stock. The appellant argued that the CIT(A) and Tribunal erred in their decisions. The AO's observations regarding the lack of maintenance of defective stock records and discrepancies in the valuation method were crucial in this context. The appellant contended that the CIT(A) and Tribunal's decisions were erroneous.

Disallowance of Commission and Dalai:
Additionally, the AO made an addition of ?42,36,130 on account of disallowance of commission and Dalai. The appellant challenged this addition, emphasizing the method of valuation consistently adopted by the assessee over the years. The CIT(A) upheld the valuation method based on previous years, citing judicial precedents supporting the right of a taxpayer to employ their accounting methods. The High Court, considering the principle laid down by the Supreme Court, upheld the CIT(A) and Tribunal decisions in favor of the assessee, resulting in the dismissal of the appeal.

In conclusion, the High Court upheld the decisions of the lower authorities, ruling in favor of the assessee on the issues of valuation of closing stock and additions made by the AO. The Court emphasized the importance of consistent accounting methods and rejected the department's contentions, ultimately dismissing the appeal.