TMI Blog2012 (7) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... directed against the order of ld.CIT(A)-II, Agra dated 10.05.2011 for the assessment year 2004-05, challenging the order of the ld. CIT(A) in confirming the addition of Rs.21,07,555/- on account of undervaluation of stock of silver. 2. The facts of the case are that the assessee is in the business of manufacturing of silver chains and components. Besides manufacturing on own account, the company is also doing job work for others. As per the AO, from the books of account it was seen that while doing job work the assessee had gained silver weighing 611.602 grams in doing job work. Out of that the assessee sold silver weighing 198.356 kg. for Rs.2335619/- and there remained balance silver of 413.246 kg. which assessee has shown as part of its closing stock. Assessee has valued the silver gained on account of wastage in doing job work at Rs.6670 per kg., however, as per the AO the rate of silver on 31.o3.2004 was Rs.11770 per kg. When asked as to why silver should not be valued @Rs.11770 per kg., it was submitted before the AO that no purchases were made and the valuation is done on cost or market price, whichever is lower. Therefore, it was submitted before the AO that as the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in valuing the metal addition at market price as on 31-03-2004 is totally unacceptable as per law as by the method adopted by Assessing Officer only the notional profit arise as Silver is highly speculative commodity and until unless the metal is sold it cannot be said that there is any profit to the appellant. In the year under consideration silver weighing 198.356 kg has been sold for Rs, 23,33,619/- and accordingly the sale consideration has been credited to the Trading Account as sale of silver and actual profit has been accounted for. 1.7 That section 145 does not lay down any specific method of valuation of closing stock. According to section 145 the business income shall be income normally computed in accordance with the method of accounting regularly employed. As already submitted above the appellant company has adopted the same method of valuation in the year under consideration as has been adopted in the preceding year. Hon ble Supreme Court in the case of Chainrup Sampatram vs. CIT 24 ITR 481 and in the case of Kika Bhai Prem Chand vs. CIT 24 ITR 506 has held that if any accounting principle is recognized and has been accepted than the stock valued according to that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 789 (Bombay) Under section 145 of the income Tax Act, 1961, the assessee can adopt a method of valuation which is to be followed by it regularly. It is an accepted principle of accounting that value of the stock can be determined at cost price or market price, whichever is lower. The two principles applicable with regard to the valuation of stock are that the assessee is entitled to value the closing stock either at cost or market price value, whichever is lower, and that the closing stock must be the value of the opening stock in the succeeding year. It, thus, clear that irrespective of the basis adopted for valuation in the earlier years, the assessee has the option to change the method of valuation of closing stock at cost or market price, whichever is lower, provided the change is bonafide and followed regularly thereafter. Whenever there is a change in the method of valuation, there is bound to be some distortion in the calculation of profits in the year in which the change takes place. But if, the change is brought about bonafide and is in accordance with the normally accepted accounting practice, there is no reason why such a change should not be permitted. The change h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is assessable as per sec. 28(iv) of the Act as per which the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable to the Income tax under the head profits and gains of business or profession . Admittedly the silver gain has accrued to the appellant during the course of its business operations. Therefore, the silver which has not been sold or consumed will form part of the closing stock and the same has to be valued at market price as on the last day of the financial year. Therefore, I am of the opinion that the addition has been rightly been made by the AO and the same is upheld. Grounds are dismissed. 3 In the result, appeal is dismissed. 3. The ld. counsel for the assessee reiterated the submissions made before the authorities below and also relied upon the judgments cited before the ld. CIT(A) as noted above. He has submitted that apart from the assessee being engaged in the business of manufacturing of silver chains and components, the assessee company is also doing job work for others and out of the job work, the assessee had gained silver and the AO had made notiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closing stock of gained silver in earlier years as well as in assessment under appeal. It is well settled law that whenever the closing stock is disturbed, it would enhance the opening stock of the next year. The assessee had been consistently following the same method of accounting and the notional value of the gained silver was taken. Therefore, on such notional value, the AO should not have presumed profit because ultimately, the assessee had been selling such gained silver periodically and whenever the sale is made, the difference in the stock price and sale was offered for taxation. In that event, the assessee would be showing more profit as against the valuation adopted by the AO. Moreover, if the closing stock valuation is enhanced, it would affect the opening stock of the next year and Revenue would not get anything out of the same. It is also well settled law that notional income should not be subjected to tax and only the real income should be brought to tax. AO has not disputed the sale made by the assessee of gained silver. Therefore, method of accounting adopted by the assessee consistently, should not have been disturbed by the AO without any just cause / reason. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
