TMI Blog2014 (11) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... in certain years because as per the AO the other method would have been more preferable - The method of accounting cannot be substituted by the AO merely because it is unsatisfactory. What is material for the purposes of section 145 of the Income Tax Act, 1961 is, the method should be such that the real income, profits and gains can be properly deduced - No material has been brought on record by the Revenue to show that the assessee has not adopted the average market rate of last month of the year for the purposes of valuation of closing stock of cotton, cotton seeds and oil consistently and regularly for the purposes of its account - the lower authorities were not justified in valuing the closing stock of the assessee on the basis of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in this appeal. 3. Ground no. 2.1 (1) is directed against the order of the Commissioner of Income Tax (Appeals) confirming the addition on account of valuation of closing stock of ₹ 4,61,305/-. 4. The brief facts of the case are that the Assessing Officer observed that the assessee does not have any basis for valuing the closing stock, the assessee does not maintain day to day stock register as evident from the audit report, the quantity-wise details are also not maintained, there is fall in the gross profit ratio from 0.76% in the earlier year to 0.45% in this year. The Assessing Officer further observed that the only basis of valuation of closing stock of finished goods is the market value and therefore, revaluin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e there was no question of under-valuation of closing stock. It was submitted that higher valuation of closing stock has resulted in higher notional profit which were realised or not. The value of closing stock is to be made at cost or market value whichever is lower basis which is he generally accepted rule of commercial practice. The assessee relied on the following decisions: A.L.A. Firm vs CIT (1991) 189 ITR 285 (SC) Chairnrup Sampatram vs. CIT (1953) 24 ITR 481 (SC) CIT vs. Ahmedabad New Cotton Mills Co. Ltd. 4ITC 245 (PC) 6. The Commissioner of Income Tax (Appeals) after considering the submissions of the Authorized Representative of the assessee confirmed the action of the Assessing Officer by observing as under: 2.1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rief facts of the case are that the Assessing Officer observed that as per the tax audit report filed by the assessee under clause 12(a), the basis for valuation of closing stock was market price . The Assessing Officer further observed that from the sale bills produced by the assessee, it is observed that the rate of cotton sold on 29.03.2006 was ₹ 5061.60 per quintal, rate of cotton seeds sold on 25.03.2006 was ₹ 855/-per quintal and rate of wash oil sold on 24.03.2006 was ₹ 3,520/- per quintal. The assessee has adopted the rate of cotton seeds for valuation of closing stock as ₹ 825/- per quintal which is not the market price. Therefore, the Assessing Officer adopted the rate shown in the sale bills as the rate f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuted by the Assessing Officer merely because it is unsatisfactory. What is material for the purposes of section 145 of the Income Tax Act, 1961 is, the method should be such that the real income, profits and gains can be properly deduced therefrom. No material has been brought on record by the Revenue to show that the assessee has not adopted the average market rate of last month of the year for the purposes of valuation of closing stock of cotton, cotton seeds and oil consistently and regularly for the purposes of its account. Further, it is also not the case of the Revenue that the method does not afford the true picture of the profits. Therefore, in our view, the lower authorities were not justified in valuing the closing stock of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details. Therefore, 25% of the expenses claimed to have been incurred by the assessee for gunny bags was disallowed and added to the total income. 14. On appeal, the Commissioner of Income Tax (Appeals) held as under: I have considered the submissions made by the A.R. of the appellant and the observations of the assessing officer in the assessment order. As seen from the assessment order, A.O. disallowed on estimate 25% of the expenses on the gunny bags. Appellant contends that no show-cause was given by the A.O. which appears to be true going by the discussion on the issue in the assessment order. A.O. is directed to verify the working regarding consumption of gunny bags (furnished by appellant in the written submissions reproduced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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