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2010 (11) TMI 691 - AT - Income TaxValuation closing stock - As per the decision of the Hon ble Supreme Court in the case of CIT vs. British Paints India Ltd. Method of valuation of Stock wherein the Hon ble Supreme Court once again considered it to be a well recognised principle of commercial accounting to enter in the P and L Account the value of stock-in-trade at the begging and end of the accounting year at cost or market price whichever lower - In view of this accounting principle held that the assessee has correctly valued the stock at the realisable value which is lower than the purchase cost. Loss on account of transit and storage loss - the assessee is only a trader and has imported goods of RBD Palmolein which was not sold during the year at all and Degummed Soya Bean Oil was partly sold during the year. Since the assessee does not have any storage facilities it has kept at Kakinada Mumbai and a third party surveyor has surveyed the stock by physical verification and another party has furnished the realizable value. On the basis of these the assessee made adjustments in the accounts on account of transit and storage loss. This is an incidental loss in the import and storage of assessee s trading business and without any reason the CIT(A) has rejected eventhough the assessee s books of account indicate that there was excess stock as far as Degummed Soya Bean Oil is concerned and shortage of RBD Palmolein - Held that the assessee s claim on account of transit and storage loss of net amount at Rs.11, 35, 089/- also was an eligible loss. Reopening assessment - Held that there is fall in net realisable value and loss due to transit has not been placed on record and this cannot be noticed unless the A.O. exercise little more effort - Since the A.O. neither enquired about the valuation eventhough purchase of goods from sister concern has been referred to Transfer Pricing Officer are of the opinion that the A.O. has not found any opinion at the time of completion of original assessment with reference to closing stock valuation and accordingly reopening on the issue of closing stock valuation is justified.
Issues Involved:
1. Reopening of assessment under section 147/148. 2. Valuation of closing stock at the lower of cost or net realizable value. 3. Deduction for transit loss of stock in trade. Detailed Analysis: 1. Reopening of Assessment under Section 147/148: The assessee contested the reopening of the assessment, arguing that it was based on a change of opinion, which is not permissible under the law. The CIT(A) held that the notice under section 148 was issued within four years from the end of the relevant assessment year, and therefore, the condition of "failure on the part of the appellant to disclose fully and truly all material facts" was not applicable. The A.O. had reason to believe that income chargeable to tax had escaped assessment based on information in the tax audit report, which indicated undervaluation of closing stock without a satisfactory explanation. The CIT(A) concluded that the reopening was justified as the A.O. had not formed any opinion on the issue of closing stock valuation during the original assessment. 2. Valuation of Closing Stock at Lower of Cost or Net Realizable Value: The assessee argued that the closing stock of RBD Palmolein was valued at the prevailing net realizable rate, which was lower than the cost, resulting in a loss of Rs.57,08,932 due to a fall in the net realizable value. The CIT(A) accepted the principle that closing stock should be valued at the lower of cost or market value but did not allow the ground raised by the assessee. The Tribunal held that the assessee correctly valued the stock at the realizable value, which was lower than the purchase cost, and thus the loss arising from the difference was correctly accounted for. The Tribunal referred to the Supreme Court's decisions in Chainrup Sampatram vs. CIT and CIT vs. British Paints India Ltd., which established the principle of valuing stock at cost or market price, whichever is lower. 3. Deduction for Transit Loss of Stock in Trade: The assessee claimed a loss of Rs.11,35,089 due to transit and storage loss. The CIT(A) rejected this claim, stating that the assessee had not provided full details. The Tribunal observed that the assessee, being a trader, had imported goods and incurred incidental losses due to transit and storage. The physical verification by a third-party surveyor and the valuation provided were considered reliable. The Tribunal concluded that the CIT(A) wrongly rejected the assessee's claim without justification, and the loss on account of transit and storage was allowable. Conclusion: The Tribunal allowed the assessee's grounds on the merits of the valuation of closing stock and transit loss. It directed the A.O. to delete the addition made. The issue of reopening the assessment was considered academic, as the Tribunal found the assessee's claims on merits to be correct. The appeal was partly allowed, with the A.O. directed to delete the addition. Order: The appeal is considered partly allowed, and the order was pronounced in the open court on 24.11.2010.
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