9911796707
TMI Blog2018 (4) TMI 1528X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, AO was incorrect in disallowing sundry balances written off and claimed as bad debt under Section 36(1)(vii) - Decided in favour of assessee. Additions towards difference in valuation of closing stock - AO has considered the prevailing market rate in Indian market as on valuation date and then adopted cost to determine the cost or market rate whichever is less for valuing the closing stock - Held that:- For valuation of closing stock the assessee has to follow cost or market rate whichever is less and such market rate has to be determined on the basis of the prevailing market rate in Indian market as on the valuation date. If the assessee has considered the prevailing rate in Indian market to arrive at cost or market rate whichever is less, then there is no reason for the AO to deviate from the said method. But, the fact remains that as per the finding of the AO the assessee has determined a different market rate by adopting GJEPC rate to arrive at market rate which in our opinion is not in accordance with the prescribed method for valuation of closing stock. Therefore we set aside the issue to the file of the AO and direct him to determine the value of closing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards disallowance of bad debts claimed being sundry balances written off for ₹ 53,43,840/- and difference in value of closing stock at ₹ 54,11,304/-. 4. Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee submitted that it has written off sundry balances in the Balance Sheet in respect of both debits and credits which are irrecoverable for more than six years and the net result of written off of sundry balances has been considered as miscellaneous income. The assessee further submitted that it has written back the sundry balances appearing in the credit side of the Balance Sheet amounting to ₹ 1,18,94,846/- and sundry balances appearing in the debit side of the Balance Sheet at ₹ 53,43,830/- and the net result of ₹ 65,51016/- was offered as other income. The AO, while accepting the sundry balances written off appearing in the credit side of the Balance Sheet disallowed the sundry balances appearing in the debit side of the Balance Sheet on the ground that the conditions prescribed under Section 36(1)(vii) r.w.s. 36(2) are not fulfilled. In so far as the difference in value of closing sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O was right in rejecting the valuation of closing stock by the assessee and adopting cost or market rate as per the Indian market whichever is less to determine the value of closing stock. The relevant portion of the CIT(A) s order is extracted as under: - 5.3 I have considered the submissions carefully. It is seen that cost of purchases as per books is ₹ 21,08,385/- per kg (43,01,10,649 / 204 kg). As per the valuation adopted by the appellant, the market value is Rs,20,81,859/- per kg. It has adopted the lower of the two value and the value of the inventory of 204 kg at ₹ 20,81,859/- per kg. Gold being a commodity for which market value is readily ascertainable, I find that the AO was correct in considering the market value to be the local rate for gold prevailing on 31.03.2011. A contrary .valuation based on hypothetical landed cost of imported gold cannot be considered to be acceptable when there is local market rates available at which such gold can be sold or purchased. It is further seen that the AO has noted that the cost of purchases has been computed at ₹ 21,08,385/- per kg and the market value in the Indian local market is ₹ 2l,18,000/- per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot in accordance with the provisions of Section 36(1)(vii) r.w.s. 36(2), as the assessee has failed to prove that such debits are arisen out of the sales made in the earlier year. 8. Having heard both sides we do not find any merit in the finding of the AO for the reason that, when the AO has accepted credit side of the Balance Sheet, there is no reason for the AO to reject the sundry balances written off appearing in the debit side of the Balance Sheet only on the ground that the assessee has failed to file necessary evidence to prove that such debts are arisen out of the sales made in the previous financial year. We further observe that when the assessee has written off debit as well as credit balances, the net result of which may be debit or credit, it has to be treated either as income or expenses. We further observe that the assessee has filed certain evidences to prove that such advances are outstanding for more than six years and are arisen out of normal course of business like advances for expenses and other advances which are irrecoverable. Therefore, in our opinion the AO was incorrect in disallowing sundry balances written off and claimed as bad debt under Section 36( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the closing stock. We find that there is no error in the method followed by the AO to determine the cost or market price. For valuation of closing stock the assessee has to follow cost or market rate whichever is less and such market rate has to be determined on the basis of the prevailing market rate in Indian market as on the valuation date. If the assessee has considered the prevailing rate in Indian market to arrive at cost or market rate whichever is less, then there is no reason for the AO to deviate from the said method. But, the fact remains that as per the finding of the AO the assessee has determined a different market rate by adopting GJEPC rate to arrive at market rate which in our opinion is not in accordance with the prescribed method for valuation of closing stock. Therefore we set aside the issue to the file of the AO and direct him to determine the value of closing stock by adopting the cost or market rate whichever is less method as prescribed under Accounting Standard-2 for valuation of closing stock. If the AO finds the rate adopted by the assessee is in accordance with AS-2, then the AO is directed to delete the addition made towards difference in valuation o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
