TMI Blog2020 (2) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... king bonafide and genuineness warranting change of method of valuation of inventory. So, also for limited verification by the AO, we are remitting matter back to the file of the AO , wherein the assessee is directed to justify as to why it is adopting different method for valuing different components of inventories and whether the said differential methods for valuing different components of inventory are consistent with AS prescribed by ICAI. The assessee is directed to give justification before AO for adopting different method of valuing different components of inventory and to prove that these differential methods are consistent with AS-2 prescribed by ICAI and hence accordingly, there was no intent to reduce tax by applying new method of valuing finished goods. - ITA No.984/Chny/2007 - - - Dated:- 5-2-2020 - Shri Ramit Kochar, Accountant Member And Shri Duvvuru R.L. Reddy, Judicial Member For the Assessee : Mr.R.Sreenivasan, AR For the Department : Mr.A.Sundararajan, Addl.CIT ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER: Briefly stated that the assessee is in business of manufacture and sale of cotton yarn. This is second round of litigatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Appellate Tribunal. 5. The learned counsel for the Revenue submitted that the relevant Paragraphs 24 and 32 of the order of the Appellate Tribunal, dated 03.04.2009, are quoted below for ready reference : 24. After considering the rival contentions and the materials on record, we note that the assessee has changed the method of valuation of closing stock from the market price to the cost which has reduced the value of the closing stock. As per the accounting standards, the valuation of the stock should be at the cost market price, whichever is less. Therefore, there is no dispute that by adopting the cost price method for valuation of the closing stock, the assessee has followed the principle of accounting standards but at the same time the assessee should have also valued the opening stock on the same basis to maintain the uniformity and to avoid distortion of results. There is no bar in adopting the method of valuation which is bonafide but the method should be adopted for both, opening stock as well as closing stock. We note that the Assessing Officer has not discussed this issue in detail and in our view when the assessee has adopted the cost price method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Madras High Court was pleased to remit the matter back to the file of the Tribunal for adjudication of the issue of valuation of closing stock and that is how now we are seized of this matter. 2. The brief background of the issue is that the assessee was earlier valuing finished stock consistently at market price in preceding years which was accepted by Revenue , while in the year under consideration, the assessee changed the method of valuing finished stock at cost or market value whichever is lower as against valuing the finished stock at market value as was done in earlier years. This led to reduction of closing stock of finished goods as the same was valued to lower of cost or market price , as against method of valuing stock of finished goods at market price in the earlier years. The assessee,however, valued opening of stock of finished goods at market price which was method adopted for valuing stock of finished goods in earlier years. The AO accepted said change of method of valuing stock of finished goods but the AO was of the view, the same changed method be applied to opening stock of finished goods as well which led to additions to the tune of ₹ 47,45 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew when the assessee has adopted the cost price method for valuation of the closing stock, then the same method should be adopted for valuation of the opening stock also for the accounting year under consideration. Accordingly, we set aside the orders of the lower authorities, qua this issue and remit the same to the record of the Assessing Officer to decide this issue afresh by doing the valuation of opening stock as well as the closing stock at the cost price method. We have already seen that Hon ble Madras High Court was pleased to remit this issue back to the tribunal for fresh adjudication. Now, we are seized of this matter under directions of the Hon ble Madras High Court. While remitting matter back to the tribunal for fresh adjudication , the Hon ble Madras High Court referred to judgment of Division Bench in the case of M/s Kadari Ambal Mills Limited v. JCIT in TCA no. 430 of 2005 , judgment dated 20.06.2001.We have heard both the rival parties. The learned counsel for the assessee drew our attention to the orders passed by various authorities including tribunal in the first round of litigation. It was submitted by learned counsel for the assessee that only on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndard which is mandatory in nature, it become incumbent on the entities to compulsorily follow the same otherwise their accounts will not reflect true and fair view. Even for computing income chargeable to tax and payment of taxes, the income is to be computed after taking cognizance of AS s prescribed by ICAI, unless the AS s are in variation/conflict with provisions of the 1961 Act and in that scenario, provisions of the 1961 Act will prevail over AS. Thus, undisputedly method of valuing finished goods at cost or market value whichever is lower is as per AS prescribed by ICAI and thus it could be said that change in method of valuing finished stock was bonafide and the assessee has rightly applied the said changed method to closing stock of finished goods. This will also satisfy the mandate of Section 145A as was existing in the statute for relevant period. Once there is a change in method of valuing stock which is held to be genuine and bonafide and there is no intent to defraud revenue by changing method of valuing stock, some inconvenience is likely to take place in the first year as the closing stock of preceding year which has become opening stock of the year und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uniform method i.e., cost price. The dispute is as to whether different methods could be adopted, one for the opening stock and another for closing stock. The said controversy is already settled by this Court in the case of CIT Vs. Carborandum Universal Limited reported in 149 ITR 759 (Mad) . In that judgment, the issue was as to whether the closing stock is to be valued in the same method as what was applied to the opening stock. The High Court after considering the principles of valuation and also series of case laws held at page 765 as follows:- On a due consideration of the matter, we are inclined to agree with the view of the Tribunal. If the assessee is called upon to apply the new method of valuation to the opening stock of the accounting year as well, then, in consequence, the value of the closing stock of the year previous to the accounting year will also get altered and that will result in the modification of that assessment for the previous year.It is for this reason, the Tribunal has stated that though by adoption of the new method of valuation for the closing stock alone the assesses may, appear to get some unintended benefit, in course of time it will get ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this booklet there is a discussion about change from one valid basis to another valid basis. It states : 2. Where a change from one valid basis to another valid basis is accepted, certain consequences normally follow. The opening stock of the base year of change is valued on the same basis as the closing stock- Whether the change is to a higher level or to a lower level, the Revenue normally does not seek to revise the valuation of earlier years. It neither sacks to raise additional assessments, nor does it admit relief under the Terror or mistake' provisions. 3. It is not possible to define with precision what amounts to a change of basis. It is a convenience, both to the tax payer and to the Revenue, not to regard every change in the method of valuation as a change of basis. In particular, the Revenue encourages the view that change which involves no more than a greater degree of accuracy, or a refinements- should not be treated as a change of battler whether the change results in a higher or a lower valuation. In such cases the new valuation is applied at the end of the year without amendment of the opening valuation. (underlining ours)- The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to apply the new method of valuation to the opening stock of the accounting year as well, the value of the closing stock of the year previous to the accounting year will also have to get altered which will result in a modification of the assessment of that previous year. 7. Following the judgment of this Court cited supra and agreeing with the judgment of the Bombay High Court, we are of the view that the Tribunal is wrong in holding that there must be uniformity in the method of valuation of opening stock as well as the closing stock. In the instant case the Assessing Officer has accepted the valuation of the closing stock as on 31.03.1994 at cost price and also bona fide of the assessee is not in dispute. Further, the assessee has followed the new method consistently. Therefore, the order of the Tribunal is wrong in rejecting the contention of the assessee. Hence, we set aside the order of the Tribunal and restore the order of the Commissioner of income Tax (Appeals). In these circumstances, we answer the above questions of law in favour of the assesses and as against the Revenue. The Tax case (Appeals) stands allowed. No costs. However, for a limited verifi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
