2008 (8) TMI 192

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..... average cost method was justified? (ii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in deleting the addition of Rs. 17,33,319 made on account of change in the method of valuation of closing stock?" 2. The undisputed facts of the case are that the assessee, i.e., H. P. State Civil Supplies Corporation prior to the assessment year 1992-93 was following the "first in first out" (FIFO) method for evaluating the costs of its inventories. In the assessment year in question, the assessee changed the system and started following the system of "average cost valuation". The Assessing Officer came to the conclusion that the assessee could not change this method and rejected the plea of .....

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..... faced practical difficulty in segregating the stock because the stocks were kept in more than 250 different locations throughout the State of H. P. The appeal was allowed and now the Revenue has challenged this order in this appeal before this court. 4. Shri Vinay Kuthiala, learned counsel for the Revenue, has relied upon the judgment of the apex court in the Calcutta High Court in CIT v. National and Grindlays Bank Ltd. [1984] 145 ITR 457. In this case, the Calcutta High Court held that the change in the method of valuation of closing stocks if done bona fide and consistently followed in subsequent years cannot be disallowed. Shri Kuthiala also relied upon the judgments of the apex court in Sir Kikabhai Premchand v. CIT [1953] 24 ITR 506 .....

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..... d down that the assessee can change the method of valuation. Whenever there is a change in the method of valuation, there may be some distortion or discrepancy in the calculations of profits in the year in which the change takes place. But if the change is brought about bona fide and is in accordance with the normally accepted accounting practice, there is no reason why such a change should not be permitted. 8. In the present case, we find that the assessee was valuating its stock on the basis of FIFO method. It found that this method was not suitable since the stock was spread out over 250 locations and it would not be easy to valuate the same on the FIFO basis. Therefore, they decided to shift to the average cost basis. Assuming for the .....

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