TMI Blog2017 (2) TMI 1352X X X X Extracts X X X X X X X X Extracts X X X X ..... t consistent with the law laid down. In the matter of Sugar as we have noted above in Commissioner of Income Tax versus Ponni Sugars and Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT ) Court allowed valuation of closing stock at levy price though it was less than cost of manufacturer of sugar. A.O. in fact has completely lost sight that the intention of valuation of stock in trade is not to penalize Assessee by computing a hypothetical income which has yet to be earned by Assessee but the object is that a proper valuation of entire stock must be available so that profit and loss in the particular Assessment Year must be asserted in the best possible manner. We, therefore, are of the view that Tribunal has erred in law in upholding v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63,05,208/- as had been made in the assessment on account of alleged under-valuation of closing stock? (ii) Whether the valuation of closing stock being based on realizable value as had been quantified by actual realisation after the close of the accounting year could be validly interfered with by the Tribunal, even though assessee's version stood fully supported by the accounting principle and law laid down by the Hon'ble Apex Court? Facts in brief necessary to appreciate and answer the aforesaid questions are stated as under. Assessee is a private limited Company incorporated under the provisions of Companies Act, 1956 (hereinafter referred to as Act, 1956 ). It is engaged in manufacture of 'khandsari sugar' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortation charges, etc., appeal of Revenue was not accepted. Assessee's cross-appeal was dismissed. Hence Tribunal allowed appeal of Revenue though partly but granting substantial relief by upholding addition of ₹ 63,05,208/- made by A.O. and otherwise findings recorded by CIT(A) were reversed. In this backdrop, a question has to be considered about principles on which valuation of closing stock has to be made. In this regard, Tribunal has relied on the judgment in Commissioner of Income Tax versus British Paints India Ltd. (1991) 188 ITR 44. Before us also, learned counsel appearing for Revenue relied on the same while on the part of Assessee reliance is placed on another judgment in Challapalli Sugars Ltd. Vs. The Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further observed that average price fetched to the Assessee between April, 2010 to August, 2010 will not be relevant for determining cost of closing stock as on 31.03.2010. He, thereafter, took the price of khandsari sugar received by Assessee as on 02.04.2010, i.e., ₹ 3060/- and on that basis, A.O. made valuation of closing stock which came to ₹ 63,05,208/-. CIT(A) while taking an otherwise view held that valuation of closing stock by Assessee, on the basis of net realisable value, and also considering the accounting standard is justified and in consonance with the law laid down in Chainrup Sampatram versus Commissioner of Income Tax (1953) 24 ITR 481 (SC) and in Challapalli Sugars Ltd. Vs. The Commissioner of Income Tax, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1961, or of that Act as modified by the provisions and schedules of the Acts regulating excess profits duty, as the case may be. For example, principles of commercial accounting require that in the profit and loss accounts of merchant's or manufacturer's business, the values of the stock- in-trade at the beginning and at the end of the period covered by the account should be entered at cost or market price, whichever is lower, although there is nothing about this in the taxing statute..... (emphasis added) The above passage was quoted with approval in Commissioner of Income Tax versus British Paints India Ltd. (supra) where Court said that a well recognized principle of Commercial Accounting to enter in the profit and loss acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits of business could only be ascertained by comparison of assets and liabilities of the business at the opening and closing of the accounting year. The method that an Assessee adopts for closing is an integral part of accounting, within the meaning of section 145. There are different methods of valuation of closing stock. The popular system is cost or market, whichever is lower. However, adjustments may have to be made in the principle, having regard to the special character of assets, the nature of the business, the appropriate allowances permitted, etc., to arrive at taxable profits. (emphasis added) In the present case, Tribunal has not looked into this aspect of the matter that valuation can be made on the basis of actual cos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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