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TMI Blog2007 (5) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 1996, and particularly when in the past the assessee has been valuing the closing stock of zinc concentrate for captive consumption at the weighted average cost. The facts giving rise to this civil appeal briefly are as follows: At the relevant time the respondent-assessee was a Government company, in this civil appeal we are concerned with the assessment year 1996-97. The assessee was engaged in the business of producing zinc concentrate which was utilized by the assessee captively. During the assessment year 1996-97, zinc concentrate got accumulated to the extent of 84,000 metric tones (approximately). It was not possible to consume the said quantity as the accumulated stocks contained low metal content and high impurity level of sili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the Assessing Officer that there was no export sale during the said year was not relevant as the goods were lying in stock and they were supposed to be sold out in the succeeding years. According to the assessee the goods were actually exported out of India in subsequent years. Aggrieved by the order of the Assessing Officer the assessee-respondent preferred an appeal before the Commissioner of Income-tax (Appeals) which was partly allowed. The assessee further carried the matter in appeal before the Income-tax Appellate Tribunal which deleted the additions made to the income of the assessee. Aggrieved by the decision of the Income-tax Appellate Tribunal, the Department preferred an appeal before the Division Bench of the High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ca and, therefore, it was not fit for captive consumption. The learned advocate submitted that under the above circumstances with the permission of the Government, the assessee had to segregate the quantity which was capable of captive consumption and the balance of the stock which was not capable of captive consumption and which had to be sold. However, there were no buyers in India for the accumulated stock. The learned advocate urged that the portion of the stock which had to be sold constituted a new commodity. The learned advocate submitted that the auditors failed to recognize such segregation. In the circumstances, according to the assessee, a new commodity came into existence during the financial year 1995-96 which had to be given a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned advocate submitted that it was open to the assessee to value the inventory in the present case at below cost. In rejoinder, Mr. P. P. Malhotra, the learned ASG appearing on behalf of the Department urged that the auditors' report is the basis of the assessment order. It was pointed out that while valuing the closing stock it was not open to the assessee to say that the net realisable value estimated on the basis of the LME price resulted in a loss; that it was lower than the WAC and that there was reduction in value. Learned counsel submitted that even under the accounting principles though reduction in value was admissible, the same was possible only in the year in which the sale took place and since in the present case there were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the loss that may be made on the goods in the following year. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the dosing stock is not brought into the account as no prudent trader would care to show increased profits before actual realisation. This theory that the closing stock is to be valued at cost or market price whichever is lower, is now generally accepted as an established rule of commercial practice and accountancy. To the same effect is the judgment of this court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44. In the said judgment it has been held that it is a well-recognized principle of commercial accounting to enter in the profit and loss account t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t realizable value at the domestic prices. It is for this reason that auditors in their report have categorically stated that if the net realizable value stood estimated in accordance with the past accounting policy (at domestic prices) the profits of the company would have been higher by Rs. 27.08 crores. This report of the auditors is not erroneous as is sought to be urged on behalf of the assessee. There is no rectification of the said report. In the case of British Paints [1991] 188 ITR 44 it has been held by this court that if the fall in the price has the effect of merely reducing the prospective profits (which appears to be the case if one looks at the auditors' report) there would be no justification to discard the valuation at cost ..... X X X X Extracts X X X X X X X X Extracts X X X X
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