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TMI Blog2013 (9) TMI 442X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act – Decided in favor of Assessee. Valuation of closing stock - Closing stock valuation, when changed, the opening stock ought to be revalued on the same basis as adopted for closing stock – Held that:- Relying upon the various cases, one of which is CIT Vs Dalmia Cement (Bharat) Ltd., [1995 (5) TMI 22 - DELHI High Court], wherein it was held that two principles applicable with regard to the valuation of sock are that the assessee is entitled to value the closing stock either at cost price or market value, whichever is lower, and that the closing stock must be the value of the opening stock in the succeeding year. It is, thus, clear that irrespective of the basis adopted for valuation in the earlier years, the assessee has the option to change the method of valuation of the closing stock at cost or market price, whichever is lower, provided the change is bona fide and followed regularly thereafter. Further, in the present case no any merit in the argument of the learned AR - The learned AO had rejected the valuation of closing stock of the assessee, and in a scientific method as far as possible based on the information furnished by the assessee, had worked out the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the appeal of the assessee filed against the rejection of application made u/s. 154 of the Act for rectifying the mistake of not having granted deduction u/s. 80 HHC of the Act, on the amount added to the business income." ITA No.1208/Ahd/2010 (Assessee's appeal for 2003-04) 3. Ground No.1:- "(4) In case the addition of Rs.1,06,09,194/- or any profit thereon comes to be upheld, the assessee ought to be allowed deduction under section 80 HHC in respect of the same." 3.1 The learned AR submitted before us that since the addition of Rs.1,06,09,194/- was upheld by the Tribunal vide its order dated 19-08-2010, it was pertinent for the revenue to consider such profit arising out of the addition to be profits of the business and accordingly, it should have been taken into account for computing deduction u/s 80 HHC of the Act. He pointed out to the provisions of section 80HHC (4C) [(baa)] of the Act which is reproduced hereunder for reference:- "[(baa) "profits of business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by - (1) .......... (2) .........."] 4. We find merits in the submission of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Date of pronouncement 01 4 ITC 245 (SC) CIT Vs The Ahmedabad New Cotton Mills Co. Ltd. 04-11-1929 02 (1946) 14 ITR 110 (Mad) CIT Vs Shri Visweswardas Gokuldas 14-12-1944 03 (1991) 188 ITR 44 AT 48, 56 (SC) CIT Vs British Paints 13-12-1990 04 (1992) 107 CTR 34 (Cal) CIT Vs Bengal Jute Mills Co. Ltd. 05-02-1990 05 (1999) 60 TTJ 125 (Ahd) ACIT Vs Shree Krishna Salt Industries 04-09-1997 06 (2008) 14 DTR 206 (Mum) (T) Hawkins Cookers Ltd. Vs ITO 11-08-2008 07 (2008) 297 ITR 77 (Del) Dept. s SLP dismissed 307 ITR 4 (St) CIT Vs Mahavir Alluminium Ltd. 11-28-2007 08 (2008) 26 SOT 141 (Bom) DCIT, Range 3(1) Mumbai s Beck India Ltd. 09-11-2008 09 (Statute) 307 ITR 4 Department s SLP dismissed against the judgment of Delhi High Court in the case of CIT Vs Mahavir Alluminium Ltd. reported in 297 ITR 77 20-10-2008 7. On this issue, we have also perused the decision in the following cases which are more relevant to the facts of the case before us:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the assessee to produce the stock register and manufacturing register for the diamonds and rough diamonds. It was revealed that the assessee did not maintaining quality wise and quantity wise details of polished diamonds which were manufactured or locally purchased. It was further observed that the closing stock value of polished diamonds was taken at an average actual cost. Various contentions were raised by the assessee to justify its stand. The learned AO rejected the claim of the assessee and worked out the value of polished diamonds at average cost of Rs.19282.90 per carat and made addition of Rs.66,90,772/-. This addition is confirmed by the learned CIT(A) and the Tribunal. It is apparent from the above fact that the assessee though engaged in a trade of high value precious stones, preferred not to maintain books of accounts accurately and value the stock in an acceptable scientific manner. Normally, stock has to be valued on the basis of cost or market value whichever is lesser. In trading and processing of diamond business, "lots" of diamonds are procured by paying lump sum; they are processed incurring cost and finally sold. In such circumstances, the value of closing st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Vs CIT, 202 ITR 789:- "Held, that the assessee could not be required to revalue the opening stock by excluding all overhead expenses when the assessee had been permitted to revise the method of valuing the closing stock for that year, as the assessee had decided to adopt this new method of valuation henceforth." (b) CIT Vs Dalmia Cement (Bharat) Ltd., 215 ITR 441(Del):- "Held, dismissing the application for reference, that the Tribunal had found that the change in the method of valuation of closing stock adopted by eh assessee was bona fide and the same method was followed by the assessee subsequently. On the basis of the aforesaid findings, the Tribunal came to the conclusion that a realistic method of valuation of closing stock of DBM dust in the present case would be to value the stock at nil. This was a finding of fact and no question of law arose therefrom (see p. 445 B, C). ....... The two principles applicable with regard to the valuation of sock are that the assessee is entitled to value the closing stock either at cost price or market value, whichever is lower, and that the closing stock must be the value of the opening stock in the succeeding year. It is, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the closing stock of the preceding year is accepted to be genuine by the assessee as well as by the revenue. Further, even if, there is any error, only at that point of time when such discrepancy which is not deliberate is unearthed, such error needs a correction because only at that point of time when such discrepancy is unearthed the resultant consequence of profit and loss crystallizes. Therefore, we dismiss this ground raised by the assessee. ITA No. No.1537/Ahd/2012 (Revenue's appeal for AY - 2003-04) 10. Ground No.1:- "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the A. O. to allow deduction u/s. 80 HHC on the business profit of Rs.2,06,05,646/- assessed by the A. O. 11. Since, we have decided ground No.1 of the assessee's appeal with respect to the same issue in favour of the assessee, this issue stands decided against the revenue and, therefore, we dismiss the this ground raised by the revenue. 12. Ground No.2:- "2. On the facts and in the circumstances of the case and in Law, the CIT(A) has erred in allowing the appeal of the assessee filed against the rejection of application made u/s. 154 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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