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TMI Blog2014 (5) TMI 470X X X X Extracts X X X X X X X X Extracts X X X X ..... uch tinkering with the method is unjustified when the exercise does not materially alter the profits - such petty additions should be avoided on the ground of materiality, as AS-1 which talks about materiality, consistency, prudence etc. is part of the I.T. Act after it is notified u/s 145(2). Adjustment made to total value of closing stock and consumption of stock is uncalled for - If valuation of closing stock is changed then the value of opening stock should also be changed on the same basis or method - The closing stock of a particular year is the opening stock of the subsequent year - the method of valuation of closing stock is materially affecting the accounts and profits disclosed by the assessee – the adjustment sought to be made is revenue neutral and at best may result in preponement or postponement of revenue - Accounting standards notified by the CBDT u/s 145(2) mandate that the concept of materiality be taken into consideration when finalizing the accounts of an assessee – the addition made on account of proportionate inward transport charges is set aside – Decided in favour of Assessee. - ITA No. 1127/Ahd/2011 - - - Dated:- 25-4-2014 - Shri D. K. Tyagi And Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49/- in the value of closing stock and thereby made addition to the income of the assessee of Rs 2,58,049/- which was confirmed on appeal by the Ld. CIT(A) on the ground that there will be impact in the profit of the assessee in the year of change of method of accounting but will become neutral in nature in subsequent years. We find that in the similar facts and circumstances of the case, the Delhi Bench of the Tribunal in the case of Hero Motocorp Limited (supra) while deciding the issue whether freight expenses incurred on account of purchases were to be included in the value of closing stock or not, held as under: 7.13. We have considered the submissions and the material filed by both the parties. The issue in question is regarding method of valuation of closing stock. The primary contention of the assessee is that it had to make emergency purchases and that these stocks so purchased were immediately consumed. In such exceptional situations, the assessee has directly accounted the freight and import clearing charges to the profit and loss account. This means that such raw material stocks are not part of closing stock at all. Further, this fact is not rebutted by the DR. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided in one year might not apply in the following year, where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year . 7.18. This view has been followed by the Hon'ble Delhi High Court in the case of CIT vs. Neo Ploy Pack (P) Ltd [2000] 245 ITR 492 and the Hon'ble Bombay High Court in the case of CIT vs. Gopal Purohit [2011] 336 ITR 287. 7.19. Further, the Hon'ble Supreme Court in the case of CIT vs. Realest Builders and Services Limited (2008) 307 ITR 202 held that: In cases where the department wants to tax an assessee on the ground of the liability arising in a particular year, it should always ascertain the method of accounting followed by the assessee in the past and whether change in method of accounting was warranted on the ground that profit is being underestimated under the impugned method of accounting. If the Assessing Officer comes to the conclusion that there is underestimation of profits, he must give facts and fig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been distortion of profits or that the books of account did not reflect the correct picture. In the absence of any reason whatsoever, there was no warrant or justification to depart from the previous accounting system which was accepted by the Department in respect of the previous years. 7.22. In the present case, the Revenue has rejected the method of accounting which is consistently followed by the assessee on the ground that there may be chance where in a particular year, the method adopted by the assessee may result in underestimation of profits. However, the Revenue failed to demonstrate with facts and figures that the impugned method of accounting may result in material underestimation of profits. On the contrary, the assessee has demonstrated that the change in the method of accounting for year under appeal would result in loss to the revenue as the opening stock would also require similar adjustment and the cascading effect will be loss to revenue. We observe that in many of the additions made in this case by the revenue, the consistent method of accounting is unnecessarily disturbed, though it has been accepted in many years. In our view such tinkering with the met ..... X X X X Extracts X X X X X X X X Extracts X X X X
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