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September 28, 2022

No addition if there is no change in stock valuation method despite valuation at average cost

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

No addition if there is no change in stock valuation method despite valuation at average cost

Facts and issues of the case

Aforesaid appeal by Revenue for Assessment Year (AY) 2012-13 arises out of the order of learned Commissioner of Income Tax (Appeals)-10, Chennai [CIT(A)] dated 10-03-2020 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) on 27- 02-2015. The grounds taken by the Revenue are as under:

The CIT-A (10) has erred in deleting the addition made that there is no justification on the part of the A.O for making an addition on account of difference in value of closing stock of Rs.2,30,64,097/-.

The learned CIT(A) failed to appreciate the facts that the assessee adopted average method in arriving the closing stock and offered Rs.1,319.72 per gram only. The average method will be adopted only or the gold which was brought in the previous years. In this case, there is no opening stock as per the statement given by the assessee for the old gold items. So, the closing stock value was adopted in the average purchase rate during the financial year 2011-12 and the average purchase cost was adopted at Rs. 2,480/- per gram.

The learned CIT(A) erred in facts that the assessee has not produced bills in respect of new gold  purchases and hence the A.O arrived at new purchase cost per gram at Rs.2,676.50 by taking the gold purchases from October to March as against the value per gram of Rs.1,048.354 shown by the assessee.

The learned CIT(A) erred in facts in not appreciating that the assessee has not furnished the detail and addresses of the goldsmith delivery bills and did not substantiate the rate per gram adopted by assessee in respect of gold ornaments and gold thali.

The Ld.CIT(A) erred in facts while interpreting the Remand Report submitted by the AO in concluding that the AO has not found anything adverse with respect to the accounts of the appellant and that therefore it goes to suggest that the AO has impliedly accepted the contention of the appellant as per the Remand Report whereas in fact the AO in the Remand Report clearly mentioned that the said additions have been made because of the difference in the valuation of the gold.

As is evident, the revenue assessee is aggrieved by deletion of addition as made by Ld. AO on account of valuation of closing stock.The Registry has noted delay of 82 days in the appeal, the condonation of which has been sought by the Revenue on the ground that the delay occurred due to lockdown situation arising out of Covid- 19 Pandemic. Considering the same, the delay is condoned and the appeal is admitted for adjudication on merits.

Observation by the court

The assessee being resident individual is stated to be engaged in trading of jewellery. Upon perusal of records, it could be seen that the assessee was subjected to Tax Audit and the assessee has valued its stock at average cost price. The valuation of the stock has been given in Schedule-D to the Tax Audit Report as placed on record. It could be observed that each category of stock has been valued by the assessee on the basis of average of cost price including the quantity and value of opening stock. As per financial statements, the assessee has opening stock of Rs.115.03 Lacs and having closing stock of Rs.167.79 Lacs. There is no evidence on record that the aforesaid method of valuation has been changed by the assessee during the year.

The Ld. AO has disturbed the aforesaid valuation primarily on the premise that there was no opening stock of old gold and gold ornaments. It has also been alleged that there is under valuation of stock. Thus, the addition was made as per following details: –

i.              Valuation of old gold                                                                                             Rs. 93.19 Lacs

ii.             Closing stock valuation on gold ornaments, casting & fancy items              Rs. 0.44 Lacs

iii             Stock valuation of gold ornaments and gold Thali                                           Rs.136.63 Lacs

Aggrieved the assessee assailed the addition before first appellate authority wherein the submissions made by the assessee were subjected to remand proceedings. It was admitted by Ld. AO that the valuation was made excluding the opening stock and further entire purchases were not considered while valuing old gold. After due consideration of assessee’s submissions as well as the contents of remand report, Ld. CIT(A) concurred with the submissions of the assessee and deleted the addition. It was noted by Ld. CIT(A) that nothing adverse was found by Ld. AO with respect to the accounts of the assessee. Aggrieved, the revenue is in further appeal before us.

It could very well be seen that the assessee is a trading concern. It has maintained category-wise stock details which has been valued at average cost. The assessee is subjected to Tax Audit which contain quantitative details and well valuation of stock under each category. There is no evidence on record that the aforesaid method of valuation has been changed by the assessee during the year. No difference in quantity has been found by Ld. AO. Therefore, the addition has rightly been deleted in the impugned order. Finding no reason to interfere in the impugned order, we dismiss the appeal of the revenue. The Ld. AR has submitted that in such a case the cross-objection would be rendered infructuous. Therefore, the cross-objection also stand dismissed as infructuous.


The appeal as well as cross-objection stand dismissed by the court.


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