TMI Blog2007 (5) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... he court was delivered by S. H. KAPADIA J.- A short question which arises for determination in this civil appeal is : Whether the Income-tax Appellate Tribunal was justified in law, on the facts and circumstances of this case, in holding that the method adopted by the assessee for valuation of closing stock of "zinc concentrate" at the international rate, was in order, particularly when there was no export during the financial year ending March 31, 1996, and particularly when in the past the assessee has been valuing the closing stock of zinc concentrate for captive consumption at the weighted average cost. The facts giving rise to this civil appeal briefly are as follows: At the relevant time the respondent-assessee was a Government comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores was not in accordance with the accounting policy of the company and if the inventory would have been valued at the domestic price then the company's profit would have been higher by Rs. 27.08 crores. According to the Assessing Officer, in view of the above auditors' report, an addition was required to be made to the income of the assessee for the accounting year ending March 31, 1996. According to the assessee-respondent, the allegation made by the Assessing Officer that there was no export sale during the said year was not relevant as the goods were lying in stock and they were supposed to be sold out in the succeeding years. According to the assessee the goods were actually exported out of India in subsequent years. Aggrieved by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report the Department was right to add back to the income of the assessee for the financial year ending March 31, 1996. Mr. K. Sampath, the learned advocate appearing on behalf of the assessee-respondent, on the other hand submitted that the accumulated stock had no market for sale in India. He urged that the assessee was a Government company; that the accumulated stock of zinc concentrate had low metal content and it had high impurity level of silica and, therefore, it was not fit for captive consumption. The learned advocate submitted that under the above circumstances with the permission of the Government, the assessee had to segregate the quantity which was capable of captive consumption and the balance of the stock which was not capa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the LME price was the best estimate of the market value of the said commodity on March 31, 1996. The learned advocate also relied upon the circular of the Central Board of Direct Taxes which stated that the Department was not entitled to deviate from the Accounting Standards. According to the learned advocate for the assessee, the Department has failed to take into account the principle of anticipated losses while valuing the closing stock. The learned advocate submitted that it was open to the assessee to value the inventory in the present case at below cost. In rejoinder, Mr. P. P. Malhotra, the learned ASG appearing on behalf of the Department urged that the auditors' report is the basis of the assessment order. It was pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch appears in a trading account is merely intended to cancel the charge for the goods purchased which have not been sold which should necessarily represent the cost of the goods. If it is more or less than the cost, then the effect is to state the profit on the goods actually sold. From this doctrine there is one exception, namely, the adoption of market value at the date of making up of accounts, if that value is less than the cost. This is in anticipation of the loss that may be made on the goods in the following year. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the dosing stock is not brought into the account as no prudent trader would care to show increased profits before actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the assessee was right in writing down the inventory (zinc concentrate) below the cost price by estimating its net realisable value at the LME price and not by estimating its net realizable value at the domestic price. There is no dispute in the present case that as on March 31, 1996, the international prices of zinc concentrates were lower than the domestic prices thereof. Further, in the past the assessee has been valuing zinc concentrates at net realizable value at the domestic prices. It is for this reason that auditors in their report have categorically stated that if the net realizable value stood estimated in accordance with the past accounting policy (at domestic prices) the profits of the company would have been higher by R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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