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TMI Blog2017 (6) TMI 1270X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation of closing stock of finished goods was not forwarded by him to the Assessing Officer for giving an opportunity to verify the same, as required by Rule 46A of the Income Tax Rules, 1962 and there is thus a clear violation of the said Rule by the ld. CIT(Appeals) while giving relief to the assessee on this issue. Both the sides have agreed that if the actual cost of the relevant finished goods lying in the opening stock can be ascertained from the relevant stock records, the same has to be adopted for the purpose of valuation of closing stock unless the assessee is in a position to show that in case of certain items of finished goods lying in the closing stock, the net realisation value is lower than the cost so ascertained. Keeping in view this submission made by both the sides, we set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh after verifying the actual cost of the relevant items of finished goods lying in the closing stock from the relevant stock record maintained by the assessee. Appeal of the Revenue and that of the assessee both are treated as allowed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d details, it was noticed by the Assessing Officer that there was considerable difference in the rate applied by the assessee to arrive at the value of items of finished goods lying in the closing stock and the average sale price of the said items. The said difference as noticed by the Assessing Officer and pointed out in the tabular form was as under:- Item Quantity as on 31.03.2009 Rate/Kg. adopted for closing stock Value shown as closing stock Average sales price Difference in value of closing stock Mineral Oil Distillete (2633) 59832 Kg. Rs.35/Kg. 2094120.00 @Rs.54/-Kg. 3230928.00 1136800.00 Mineral Oil Distillete (2629) 215371 Kg. Rs.36.50/Kg. 7861041.50 @Rs.56/-Kg. 12060776.00 4199734.50 Garasole 110(17/99) 23029 Kg. Rs.36/Kg. 829044.00 @Rs.40.50/- Kg. 932674.50 103630.50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence valued at approx 35/kg. Out of 59832 kg approx 14865 kg was blending with other products and 33238 kg was sold between 01.04.09 to 31.12.09 at an average price of ₹ 45.115/ kg. Some of the stock had to be reprocessed over the period to be sold . 5. The above explanation offered by the assessee was not found acceptable by the Assessing Officer as the same was not backed with any supporting evidence to show that the finished goods lying in the closing stock were of down-graded quality having less value. He, however, agreed that in order to arrive at the cost of finished goods lying in the closing stock, gross profit was required to be deducted from the sale price of the finished goods. Accordingly, after reducing the gross profit at the rate of 12% as declared by the assessee as well as the expenses of carriage inward at 4%, the difference in the value of closing stock of finished goods was worked out by him at ₹ 48,00,000/- and an addition to that extent was made by him to the total income of the assessee in the assessment completed under section 143(3) vide an order dated 30.12.2011. 6. Against the order passed by the Assessing Officer under section 143(3), a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r value of the said items was taken on the ground that the said items were of poor quality has no legs to stand since it is a general explanation with no supporting documents to substantiate the same. In this view of the matter and considering the facts, the AO has increased the value of closing stock as on 31/03/2009 by a sum of ₹ 48,00,000/- and the same amount of ₹ 48,00,000/- is added to the total income of the appellant company. However, the appellant's contention is that the appellant has always been valuing its closing stock following Accounting Standard 2. The stock has been valued at Cost Price or Net realizable value, whichever is lower. It is submitted that GR 2428, GR 2629, GR 2633 have been manufactured by processing Bonmax (a aliphatic feed stock supplied by BRPL, Government of India Undertaking). The appellant had purchased Bonmax in bulk quantity on Trial Basis for producing special aliphatic fractions which are import substitute. The appellant furnished a statement detail showing the calculation of average cost of fractions produced from Bonmax (GR 2428,26292633) and the basis of valuation of closing stock of those grades of items and contented t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3 Garasol 110 23029 40.5 932674.5 37 852073 80601.5 19044174 14719742 4324431.8 It is further contended by drawing my attention to the contents of the above Table that even going by the AO's valuation principle, the addition should have been for only ₹ 13,72,363 (Rs.56,96,95 less ₹ 43,24,431) and not ₹ 56,96,795 as determined by the AO. However, the appellant reiterated that the valuation principle should be market price or cost price whichever is lower as per the generally acceptable accounting policy and practice. The appellant followed the same method of valuation of inventory on consistent basis for last several years. The AO has not relied upon on the generally accepted accounting practice of valuation based on lower of cost price or market price whichever is lower. However, as the above selling expenses were not considered by the AO, therefore, it is submitted that the basis of closing stock valuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ₹ 42 per kg minus G.P.12% = ₹ 37/Kg. However, I do not find any merit in the argument of the appellant that the basis of computation made by the AO based on selling price is not as per accounting standards since the appellant has valued the goods on the principle of cost price or market price; whichever is lower. In the light of the above discussion and finding and perusing the entire facts of the case, the addition made by the on account of value of closing stock is restricted to ₹ 13.72,363/- as against ₹ 48,00,000/- made by the AO. Thus, this ground of appeal is partly allowed . Aggrieved by the order of the ld. CIT(Appeals), the Revenue and assessee both are in appeals before the Tribunal. 7. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the difference in the valuation of closing stock of finished goods as pointed out by the Assessing Officer during the course of assessment proceedings was explained by the assessee by submitting that the relevant finished goods lying in the closing stock were of inferior or off-grade quality. Since the said explanation offered by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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