TMI Blog2012 (8) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... nue of seeking to multiply the number of stent with the average costs by stents in the possession of the respondent would lead not only to estimated cost of closing stock but also distort the profit and/or loss obtained. This is so as the method employed by the revenue completely ignores the valuation of the individual stent. Therefore, on merits, we find no fault with the method adopted by the assessee of valuing closing stock which has been upheld by the CIT(A) and the Tribunal - Decided in favor of assessee. - INCOME TAX APPEAL NO.5278 OF 2010 - - - Dated:- 1-8-2012 - S.J.VAZIFDAR M.S. SANKLECHA, JJ. Mr.Suresh Kumar for the Appellant. Mr. F. V. Irani with Mr. Atul Jasani for the Respondent. JUDGMENT ( Per M.S. SAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) The respondent is engaged in the business of trading and distribution of medical components and equipment such as stents and other products. 4) For the assessment year 2003-04, the respondent had valued its closing stock on the basis of costs as the same was lower than its net realizable value (market value). The respondent has consistently arrived at the value of its closing stock by application of costs or market value whichever is lower. The respondent-assessee has been keeping a record of the stents in its possession. The individual cost of the stents depending upon its value ranges from approximately from Rs.342/- to Rs.16,766/- per unit for the respondent. During the course of the assessment proceedings for the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g stock was justified by the Assessing Officer on the basis that the respondent assessee was maintaining its inventories on the basis of First in- First out method and therefore the costs of the stents would be that of the recent purchases. Consequently, the value of the closing stock was enhanced by Rs.37.08 lacs resulting in addition of the above amount to the respondent's income. 5) The Commissioner of Income Tax (Appeals) by an order dated 22/5/2007 allowed the respondent's appeal. He held that the respondent was regularly following a recognized method of valuation of stock i.e. cost or market price whichever is lower and had not been following the method of valuation of stock on the basis of average cost of purchase of all stents. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was not questioned at that time, would not debar the revenue from contesting the method of valuation of closing stock for the current assessment year. On merits, he commended us to accept the reasoning of the Assessing officer to arrive at the closing stock of the stents on the basis of the over all average price of stents purchased during the previous year ending 31/3/2003. This is particularly so as the respondent assessee followed the method of first in first out of keeping inventory. Consequently, the purchases made during the year would be in stock available at the end of the year and not earlier stock. Therefore, purchase price of the closing stock in the peculiar facts of the respondent-assessee's case has to be done on the av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions. The entire object of valuation of closing stock is the correct determination of the profit and loss resulting from a business activity carried on during the course of the year. The Act itself does not provide for any particular method of computing closing stock though the principles of accounting do require that valuation of the closing stock and the opening stock should be taken into account at cost or market price whichever is lower. In the present case there is no dispute between the revenue and the respondent that the valuation of the stock has to be done on the basis of the costs or market value whichever is lower. They are also agreed that in the present case the costs of the closing stock is lower than the market value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount the fact that the inventories are maintained by them on First in first out basis. 10) There can be no dispute with the submission of the revenue that there is no bar in the revenue contesting the correctness of the method adopted to arrive at the valuation of the closing stock on the ground that the same has been accepted in the earlier years. This has been so held by the Apex Court in the matter of CIT Vs. British Paints India Ltd. reported in 188 ITR 44. However the challenge to the method of valuation adopted for the current year has to be on the basis that the method adopted by the assessee does not correctly reflect the valuation of the closing stock. In the present case, we find that the respondent has adopted the method of v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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