2018 (12) TMI 1249 - AT - Income Tax

Unaccounted stock difference and non revaluation of the value of stock - LIFO v/s FIFO method - Held that - So far the method of valuation of closing stock is concerned the assessee has been following the norm to compute the value of closing stock at cost and net reliable value whichever is lower by applying the LIFO method - quantitative analysis which has been prepared by the Registered Valuer at the time of survey and what is recorded in the stock register has no difference except for 215 gms which is due to mis-weighing of items. We note that the valuation of stock made by the assessee was well-established and was consistently being followed by the assessee in the earlier years. Once adopted method of valuing closing stock should be followed consistently unless there is cogent reason to change it. It is a well settled legal position that factual matters which permeate through more than one assessment year if the Revenue has accepted a particular s view or proposition in the past it is not open for the Revenue to take a entirely contrary or different stand in a later year on the same issue involving identical facts unless and until a cogent case is made out by the Assessing Officer on the basis of change in facts. For that we rely on the order of the Hon ble Supreme Court in RadhaSoamiSatsang vs. CIT 1991 (11) TMI 2 - SUPREME COURT . - Decided against revenue

Summary

Issues Involved:
1. Relief of Rs. 14,43,06,995/- due to stock valuation difference.
2. Non-acceptance of Accounting Standard AS-2 for inventory valuation.

Detailed Analysis:

Issue 1: Relief of Rs. 14,43,06,995/- due to stock valuation difference

The Revenue challenged the correctness of the order dated 19.08.2016, passed by the Commissioner of Income Tax (Appeals)-4, Kolkata, regarding the assessment for the Assessment Year 2011-12. The primary grievance was the relief of Rs. 14,43,06,995/- granted by the CIT(A) based on the quantitative analysis prepared by a Registered Valuer during a survey, which showed no significant difference from the stock recorded in the stock register, except for 215 grams due to mis-weighing.

The assessee, a trader of gold and diamond ornaments, had a discrepancy between the physical stock value determined during the survey (Rs. 25,36,11,394/-) and the stock value recorded in the books (Rs. 10,93,04,489/-), leading to a stock difference of Rs. 11,43,06,905/-. Although the assessee admitted to a stock difference of Rs. 8,82,68,862/- and agreed to pay Rs. 3 crore as additional advance tax, only Rs. 1 crore was deposited.

The Assessing Officer (AO) did not accept the assessee's contention, citing non-compliance with Accounting Standard-2 and discrepancies in the stock quantity of gold and diamonds. The AO applied the FIFO method, resulting in an addition of Rs. 14,43,06,905/- to the assessee's total income.

On appeal, the CIT(A) deleted the addition, noting that the quantitative analysis by the Registered Valuer matched the stock register, and the valuation method used by the assessee was consistent with previous years. The CIT(A) relied on the ITAT Kolkata's judgment in the assessee's case for Assessment Year 2009-10.

Issue 2: Non-acceptance of Accounting Standard AS-2 for inventory valuation

The Revenue argued that as per Companies (Accounting Standard) Rules, 2006, the assessee should follow Accounting Standard-2, which mandates the use of FIFO or weighted average method for inventory valuation. The LIFO method used by the assessee is not recognized by Accounting Standard-2 and does not provide a true and fair view of the inventory value.

The assessee's counsel argued that the method of valuation of closing stock had been consistently accepted by the department in previous years. The principle of consistency should allow the continuation of the same method unless a cogent reason for change is provided. The CIT(A) provided relief based on the ITAT Kolkata's decision in the assessee's case for Assessment Year 2009-10 and the principle that once an accounting policy is adopted, it should be followed consistently.

The Tribunal noted that the Companies (Accounting Standard) Rules, 2006, allow for different cost formulas if the nature of the product is specific. The assessee's method of valuing closing stock at cost or net realizable value, whichever is lower, using the LIFO method, was well-established and consistently followed. The Tribunal upheld the CIT(A)'s order, emphasizing the principle of consistency and the lack of a cogent reason to change the valuation method.

The Tribunal also referred to the Coordinate Bench's judgment in ITA No.442/Kol/2015 in the case of M/s Roopshree Jewellers (P) Ltd., which supported the use of the LIFO method for inventory valuation.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to provide relief to the assessee. The Tribunal emphasized the importance of consistency in accounting methods and the lack of a valid reason to change the established valuation method. The appeal filed by the Revenue was dismissed, and the order was pronounced in the open court on 27.07.2018.