TMI Blog1979 (5) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... yrs. 1974-75 1975-76. The ITO has without proper verification of he valuation of the closing stock completed the assessment for these two years which according to the CIT was erroneous and prejudicial to the Revenue. He accordingly set aside these two years directing the ITO to reframe fresh assessments. 3. At the time of hearing of the appeal Sh. M.C. Purohit counsel of the assessee has submitted before us that the ITO has applied his mind while computing the total income of the assessee, by making an addition of Rs. 8,500 and Rs. 30,000 for the asst. yrs. 1974-75 and 1975-76. He has drawn our attention to the order of the ITO and his written reply submitted before the CIT in response to show-cause notice under s. 263. Considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld ornaments in broken condition containing a large percentage of impurity. It is a common market practice that the old ornaments are purchased after estimating the silver contents in those old ornaments. The CIT on the other hand has valued the closing stock at the average rate of both the opening stock and the purchases during the year, i.e. the mean between the average rate of the opening stock and the average purchase price during the year. It is observed that the valuation adopted by both the parties are not based on the principle of accountancy. There are various methods of valuation of closing stock. Out of such accepted rule is that closing stock should be valued at close or market value whichever is the lower. In this case, neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ornaments paid by the assessee was lower than the prevailing market price of silver. From these facts, it is clear that the contention of the assessee for valuing of the closing stock, he has taken into account the silver contents in each item of article is not correct. The assessee has also not given us the list of the closing stock to verify the truth of his statement. It is true that the ITO had made an addition in both these years in the trading account and the assessment for both these years has been made more or less on agreed basis. The argument of the Ld. Counsel is that the assessment made, on agreed and the more or less a Gentleman's agreement and the Department is bound by it. We do not agree with the Ld. Counsel. If any agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n setting-aside the order of the ITO under s. 263. 6. As stated above both the methods applied by the assessee and as well as the CIT are not in accordance with the principle of accountancy. In our opinion, the closing stock should have been valued at the average purchase rate or the market rate whichever is lower. In this case, we find the market rate was much higher than the purchase rate. We, therefore, hold that the closing stock of the silver for these two years should be valued at the purchase rate which comes to Rs. 465 per kg. and Rs. 782 per kg. for the asst. yrs. 1974-75 and 1975-76. The ITO should bear in mind that the opening stock of silver should be also revalued as per the purchase rate of the immediate preceding year. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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