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TMI Blog1994 (3) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case and in law, the Tribunal was justified in holding that the replacement cost for the purpose of valuing the closing stock of virgin raw materials for the year ended December 31, 1974, has to be determined with reference to the price announced by M.M.T.C. for the quarter ending December 31, 1974, and not with reference to the price announced for the quarter commencing on January 1, 1975 ?" At the instance of the Department: "2. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in directing the Income-tax Officer to allow the loss to the extent of the difference between the price prevailing on August 27, 1974, and the ruling price on December 31, 1974 ?" The assessee is a pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red for the quarter beginning from January 1, 1975, which was lower than the actual cost of the materials incurred by the assessee at the rates prevailing during the quarter ending December 31, 1974. The Income-tax Officer did not accept the above valuation. He determined the value of the closing stock at the rate prevalent in the quarter ending December 31, 1974. According to him, the actual cost incurred by the assessee was the true principle of valuation of the closing stock. On appeal, the Commissioner of Income-tax (Appeals) did not approve the above principle and held that the basis of valuation could be the actual cost or replacement cost, whichever is lower. He, however, did not accept the valuation of the closing stock made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence between the contract price and the market price on the date of receipt of the material. This amount was claimed as a deduction by the assessee in the computation of its income which was disallowed by the Income-tax Officer. The disallowance was affirmed by the Commissioner of Income-tax (Appeals). However, on further appeal by the assessee, the Income-tax Appellate Tribunal held that the provision for anticipated loss on purchase contract should be allowed to the extent of the difference between the price which was prevailing on the date of contract, i.e., August 27, 1974, and the ruling price at the end of the accounting year, i.e., December 31, 1974. The Tribunal directed the Income-tax Officer to recompute the amount accordingly an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract in question no raw material was in fact purchased by the assessee during the relevant accounting year. The admitted position is that the assessee had merely entered into a contract on August 27, 1974, to purchase copper cathodes at certain rates. An irrevocable letter of credit was opened on September 28, 1974. However, till the last date of the accounting year, no material was received by the assessee. It was received only on March 12, 1975. On that date, according to the assessee, the price went down. On the basis of such change in the price that had taken place after the end of the accounting year, the assessee estimated the loss and made a provision for the same in the accounting year in which the contract had been entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X
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