TMI Blog1997 (8) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... udited/certified by the chartered accountant was attached; the assessment was completed for that year accepting the book results. In subsequent years also, upto asst. yr. 1987-88 the assessments had been completed on the basis of books of accounts maintained and in none of these years the closing stock shown had been disturbed. During the accounting period relevant to the asst. yr. 1987-88, a search under s. 132(1) was conducted and subsequent to that, assessment for that year was finalised; even for that assessment year the book results were not disturbed although on account of certain unaccounted purchase/sales, the assessee agreed to be assessed on a sum of Rs. 22 lakhs in addition to the income that worked out as per the books of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 87-88. 4. The assessee appealed to the CIT(A). The CIT(A) noted that the assessee had been following the regular system of accounting since last so many years and this method was based on accepted principles of accounting i.e., the cost or market price whichever is less and 'Last in First Out' (LIFO). He accordingly held that there was no justification for rejecting the book results by resorting to s. 145(1). He accordingly deleted the impugned additions of Rs. 11,17,245 and Rs. 54,706. 5. Shri B.P. Chavda, the learned Departmental Representative, strongly supported the order of the AO and submitted that the AO had given detailed reasons for rejecting the book version of the assessee. He submitted that the assessee had been following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the latest materials purchased will be the cost assigned to the first materials issued, until they are exhausted, then the price of the preceding lot is used and so on". He further relied upon the following paragraphs on valuation of stocks from different commentaries on advanced accountancy: Stock Valuation (a) The stock at the end should be valued at cost price. However, if the market price is less than the cost price then (to incorporate the prospective loss on sale of such stock) it is advisable to value it at market price. If market price is more than the cost price then such market price (in order to adhere to the convention of 'conservatism') is left out. Advance Accountancy, 3rd Edn. p. 382, by. R.L. Gupta, The Verifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... har 1977 Edn. p. 94 Valuation 5.12 The basis on which inventories are valued is determined by the management. The normal basis is cost or net realisable value whichever is lower. Statement of Auditing Practices Published by Institute of Chartered Accountants of India 1977 Edn. P. 32. Relying upon the above authorities, the learned counsel for the assessee repeatedly claimed that the assessee in fact had strictly followed 'at cost' method of accountancy and LIFO system which is recognised principle in valuation of closing stock. He, therefore, pleaded that the additions made on account of undervaluation of closing stock were uncalled for and the learned CIT(A) was justified in deleting the same. 7. We have considered the rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate the profit on the goods which actually have been sold at the incorrect figure…From this rigid doctrine one exception is very generally recognised on prudential grounds and is now fully sanctioned by custom viz., the adoption of market value at the date of making value at the date of making up accounts, if that value is less than the cost. It is of course an anticipation of the loss that may be made on those goods in the following year, and may even have the effect, if prices rise again, of attributing to the following year's results a greater amount of profits than the difference between the actual sale price and the actual cost price of the goods in question". Their Lordships proceeded: "While anticipated loss is thus taken into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O had been accepting the method of accounting being followed by the assessee. In the assessment order also the AO has nowhere mentioned that the closing stock being shown at cost does not include the other expenses such as freight, transport, octroi, etc. Therefore, there is nothing on record to suggest that the books of accounts maintained by the assessee during the normal course of business did not reflect the correct position of profits or that the assessee had suppressed any item of expenditure directly or indirectly to this stock in hand. The only point which weighed with the AO appears to be that over the years the value of goods held in stock by the assessee had gone up very high and that the closing stock being shown at the cost did ..... X X X X Extracts X X X X X X X X Extracts X X X X
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