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2017 (2) TMI 164 - ITAT MUMBAI

2017 (2) TMI 164 - ITAT MUMBAI - TMI - Reopening of assessment - Disallowance of undervaluation of stock - assessee of following FIFO method for valuation of inventory - Held that:- We find that the assessee had submitted complete details showing summary of fabric purchased and sold specifically showing the quantity, rate and value of the opening stock, purchases and closing stock before the authorities below and as such no defect has been pointed out by Revenue accept that FIFO method of valuat .....

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neutral as the closing stock/inventory of the relevant previous year is opening stock/inventory of the immediately succeeding financial year. The assessment order dated 30-11-2010 passed u/s 143(3) of the Act for assessment year 2008-09 in the case of instant assessee wherein no addition has been made by Revenue on account of method of valuation of inventory is placed on record in file. Revenue has not been able to bring on record that how by following FIFO method of valuation of inventory base .....

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e appellate order dated 19-02-2015 passed by the learned Commissioner of Income Tax (Appeals)- 17, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2007-08, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 22nd March, 2013 passed u/s 147 r.w.s. 143(3)(ii) of the Income-tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (her .....

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and circumstances of the case the Hon'ble CIT (A) erred in disallowing ₹ 38,87,031/ - and erred to understand the concept of AS 2, Valuation of Inventories under FIFO basis of Accounting. Ground No. 4 : On the facts and circumstances of the case the Hon'ble CIT (A) erred in initiating penalty proceedings u/ s 271(1)(c) of the Income Tax Act, 1961. 3. The brief facts of the case are that the assessment u/s 143(3) of the Act was completed in the case of the assessee on 27th November .....

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s certified by the Proprietor. Also, tax auditor had mentioned that the method of valuation of closing stock was at cost and also furnished the quantity details in Annexure 'F' to form 3CD. The assessee had offered the value of closing stock @ ₹ 119.69 per mt. However, it was noticed that the opening stock and purchases was made at the average rate of ₹ 160.44 and ₹ 149.78 per mt respectively. Thus, the assessee has understated the value of closing stock of ₹ 38,8 .....

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t of closing stock. We would like to inform you that the assessee had valued the closing stock at the rate of ₹ 119.69/-. But according to the reasons for reopening the case , it should be valued at ₹ 154.5/-. We would like to inform that the assessee had purchased goods at an average rate of ₹ 177/- for the first 8 months of the financial year i.e. , from April to November. Then for the next three months i.e. , December to February the assessee had purchased goods at an averag .....

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e last 3-4 months, as explained above, was low as compared to the cost of the goods sold during the year. Hence, the valuation of the closing stock comes to ₹ 119.69 which is the actual cost of the goods forming part of the closing stock as per the FIFO method of inventory accounting followed by the assessee. Thus, there is no undervaluation of stock. The A.O. rejected the contentions of the assessee and observed that in the tax audit report the assessee had credited ₹ 1,31,36,283/- .....

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of the Act, the assessee filed first appeal before the ld. CIT(A) who rejected the contentions of the assessee and dismissed the appeal. Before the ld. CIT(A) , the assessee contended that the assessee is trader in fabric and following the FIFO method of cost formulae for valuation of inventory but the A.O. did not accepted the submissions of the assessee and made an addition of ₹ 38,87,031/- being difference in the valuation of inventory. The assessee submitted following details to expla .....

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has been consistently following FIFO method for the past many years which is accepted by the Revenue and this method of accounting is also allowed as per the AS-2 issued by the Institute of Chartered Accountants of India. The assessee having submitted the monthly summary of the fabric purchased and sold during the year and all other details in support of the claim of closing stock valuation which is absolutely clear as the provisions of section 145A of the Act relating to method of stock valuati .....

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hever is lower based on the arithmetic on the one hand and prudence on the other is also to be followed for computing income of the assessee. In support, the ld. CIT(A) relied upon the decision of Hon ble Supreme Court in the case of Chainrup Sampatram v. CIT (1953) 24 ITR 481 (SC) and Investment Limited v. CIT (1970) 77 ITR 533 (SC). It was observed by learned CIT(A) that the assessee is contending that it is consistently following FIFO method for valuation of inventory while the auditors of th .....

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istently following FIFO method of cost formulae for valuation of his stock/inventory. He submitted that complete details were submitted before the authorities below like summary of fabrics purchased and sold by giving quantitative rate and value, copy of purchase bills etc. The copy of tax audit report was also submitted before the authorities below. He submitted that in the case of relative of the assessee in ACIT v. Dinesh V. Bahirwani, the Mumbai Bench of this tribunal in ITA No. 7479/Mum/201 .....

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A.Y. 2009-10 accepting FIFO method of stock valuation. It is further noted that assessee had submitted copies of bills and other evidences to justify valuation based upon FIFO method. Further, nothing wrong could be pointed out by the Ld. DR in the detailed and well reasoned findings of Ld. CIT(A). Further, it is noted by us that closing stock of the impugned year had become opening stock of the next year. Thus, viewed from this angle also, overall tax effect taking both the years into account w .....

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pted by Revenue. The ld. Counsel submitted that in the immediately succeeding year i.e. assessment year 2008-09, the A.O. had framed an assessment order dated 30-11-2010 u/s 143(3) of the Act in the case of the assessee itself whereby he accepted the method of valuation of stock followed by the assessee, said assessment order is placed in file. 7. The ld. D.R., on the other hand, submitted that the method of valuation of inventory followed by the assessee is FIFO method, hence, the authorities b .....

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entioned that all details were submitted, and the learned counsel for the assessee submitted that in the subsequent year , the Revenue has accepted the same method of valuing inventories followed by the assessee. It was submitted that there is no evasion of tax as tax effect is revenue neutral as closing stock of the current year is opening stock of the immediately succeeding year. The Tribunal in ITA No. 7497/Mum/2014 for assessment year 2010-11 dated 18.10.2016 has deleted the addition made by .....

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ollowed by the assessee and accepted by Revenue, which could not be controverted by authorities below as well by learned DR. This method for valuation of inventory is consistently followed by the assessee and regularly accepted by the Revenue and Revenue could not point out any deficiency in the method of accounting for valuation of inventory followed by the assessee and how the correct profit could not be computed by following the method adopted by the assessee in view of the mandate of provisi .....

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f this Tribunal in the case of relative of the assessee in ACIT v. Dinesh V. Bahirwani, , in ITA No. 7497/Mum/2014 for assessment year 2010-11 vide orders dated 18-10-2016 had accepted the contentions of the said tax-payer by observing as under:- 4.3. We have carefully gone through the facts of the case and well reasoned findings recorded by the Ld. CIT(A). It is noted that the assessee has been following FIFO method for valuation of its stocks in all earlier and subsequent years and no addition .....

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