1986 (4) TMI 112

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..... ellery. The ITO observed that the assessee could not establish the valuation of the stock. He pointed out that the details were not there in the excise register as individual items were not noted there. The ITO was of the view that the assessee was valuing its gold jewellery according to its will and by not following any principle. The stock had not been valued either at market rate or at the cost price. He also noted that in spite of the increase in the rate of gold the gross profit had not increased and in this year had been shown of 23.5 per cent as against 24.8 per cent disclosed in the earlier year. The ITO was of the view that the assessee was manipulating the valuation of the closing stock so as to show the gross profit at a particul .....

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..... 0. 3. It has been vehemently argued before us by the ld. counsel for the assessee that ld. CIT(A) has not given any specific finding that the assessee was not following any regular system of accounting. He submitted that the assessee's method of valuing the closing stock was on the basis of "Last in first out". According to this system, the sales are taken to have come out of the purchases made before the closing day of the year and the necessity of going to the opening stock arises only if the purchases are not sufficient. The closing stock is presumed to be that stock which had remained after the sale of the stocks acquire freshly in the business. It was contended that this system has been followed by the assessee regularly and this was .....

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..... h item in the earlier years though the ITO has stated that the excise register was not kept in this regard. However, in the absence of any finding on the system being regularly followed by the assessee, we consider that the ITO should ascertain the facts of at least for six years to find out whether the claim of the assessee regarding following the last in first out system was born out, then the results shown cannot be disturbed unless the ITO gives a basis for coming to the conclusion that the true profits cannot be deduced. In case the assessee fails to show the regular system, then the proper course can be to value the closing stock on the basis of the average rate of the opening stock and the purchases unless there are specific facts be .....

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