CIT v. Superior Crafts - Taxpublishers.in

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers2013 TaxPub(DT) 0614 (Del-HC) : (2013) 353 ITR 0101 : (2013) 082 DTR 0209 INCOME TAX ACT, 1961 --Accounting method--Valuation of closing stock Change in method of valuation of stock--In the assessment year 2002-03, the assessing officer had directed special audit under section 142(2A). After receiving a special audit report, the assessing officer rejected the closing stock as declared by the respondent assessee and held that there was under-valuation of closing stock. The Commissioner (Appeals) confirmed the said addition, but by the impugned order the Tribunal has deleted the said addition. The contention raised by the appellant revenue is that the decision of the Tribunal is perverse. Counsel for the appellant has placed reliance on three facets. Firstly, stock register was not maintained or at least not produced before the assessing officer. She submits that the assessing officer has recorded that the stock register had been possibly maintained by the assessee but deliberately not produced. Secondly, in the special audit report, adverse remarks have been recorded, but not given due credence by the Tribunal. Lastly, it is submitted that there was a change in method of valuation of closing stock. In this connection, she has drawn attention to the table noted by the assessing officer, who has held that the closing stock was bifurcated into three categories; finished goods, semi-finished goods and goods under process. The assessing officer has stated that the opening stock of finished goods was valued @ 90% of the sales recorded/made for first 20 days of the beginning of the year, i.e., 1-4-2001 to 20-4-2001 but the closing stock was valued @ 90% of the sales made in the period of 15 days after end of the financial year from 1-4-2002 to 15-4-2002. Similarly, 'Semi finished Goods' and 'Goods under Process' were valued @ 74% and 64% of the sale value, respectively but the period of days was 20 days and 35 days for the purpose of opening stock but 15 days and 20 days for the purpose of closing stock. She has drawn inspiration from the findings recorded by the Commissioner (Appeals), who has held that there was change in the method of valuation of closing stock as the assessee had computed the closing stock by applying different periods in which the sales were made viz. the opening stock. Thus, an anomaly has resulted and the consequence was understatement of closing stock. *Held:* The stand of the appellant revenue that there was a change in the method in the valuation of closing stock is false and wrong. Findings to this effect recorded by the Commissioner (Appeals) and the assessing officer are incorrect. The assessee's case, which has been accepted by the Tribunal, is that the assessee was not maintaining stock register on a daily basis. This fact is also mentioned in the audit report and stated in the report submitted by the special auditor. The allegation that stock register was maintained but not produced is an assumption or surmise without any foundation. The assessee undertakes physical stock inventory at the end of the financial year. The physical inventory is divided and consists of four categories; finished goods; semi finished goods; work under process; and raw material. The finished goods are valued at 90% of the sale value, i.e., the sale price received on sale made in the next year. Semi finished goods and goods under process are valued at 74% and 60% of the sale value. The raw material is valued at costs. The assessing officer has not disturbed or disputed the closing stock of raw material. The closing stock of finished, semi finished or work-in-process, it is not disputed was sold in the next assessment year and sale value was received when the export was made. The contention of the revenue is that opening stock and closing stock of finished, semi-finished or work in process must be sold/exported within the same time period. For example, opening stock of finished goods was sold within 20 days and therefore closing stock of finished goods should have sold/exported within 20 days. Accordingly, entire exports made in 20 days should be treated as closing stock of finished goods. The time period during which the finished goods, unfinished goods and goods under process, etc., were sold and exported depends upon various factors, like, availability of container, inspection by the importer's agent, need and requirement of the importer, time of shipment, etc. The closing stock, whether finished, semi finished, etc., need not be sold/ exported within a fixed/specified period each year. There cannot be any such assumption and it is not logical to accept this proposition. The contention of the revenue is that opening stock and closing stock must be sold/exported within the same period, cannot be accepted. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0614 (Del-HC) : (2013) 353 ITR 0101 : (2013) 082 DTR 0209

INCOME TAX ACT, 1961

--Accounting method--Valuation of closing stock Change in method of valuation of stock--In the assessment year 2002-03, the assessing officer had directed special audit under section 142(2A). After receiving a special audit report, the assessing officer rejected the closing stock as declared by the respondent assessee and held that there was under-valuation of closing stock. The Commissioner (Appeals) confirmed the said addition, but by the impugned order the Tribunal has deleted the said addition. The contention raised by the appellant revenue is that the decision of the Tribunal is perverse. Counsel for the appellant has placed reliance on three facets. Firstly, stock register was not maintained or at least not produced before the assessing officer. She submits that the assessing officer has recorded that the stock register had been possibly maintained by the assessee but deliberately not produced. Secondly, in the special audit report, adverse remarks have been recorded, but not given due credence by the Tribunal. Lastly, it is submitted that there was a change in method of valuation of closing stock. In this connection, she has drawn attention to the table noted by the assessing officer, who has held that the closing stock was bifurcated into three categories; finished goods, semi-finished goods and goods under process. The assessing officer has stated that the opening stock of finished goods was valued @ 90% of the sales recorded/made for first 20 days of the beginning of the year, i.e., 1-4-2001 to 20-4-2001 but the closing stock was valued @ 90% of the sales made in the period of 15 days after end of the financial year from 1-4-2002 to 15-4-2002. Similarly, 'Semi finished Goods' and 'Goods under Process' were valued @ 74% and 64% of the sale value, respectively but the period of days was 20 days and 35 days for the purpose of opening stock but 15 days and 20 days for the purpose of closing stock. She has drawn inspiration from the findings recorded by the Commissioner (Appeals), who has held that there was change in the method of valuation of closing stock as the assessee had computed the closing stock by applying different periods in which the sales were made viz. the opening stock. Thus, an anomaly has resulted and the consequence was understatement of closing stock. Held: The stand of the appellant revenue that there was a change in the method in the valuation of closing stock is false and wrong. Findings to this effect recorded by the Commissioner (Appeals) and the assessing officer are incorrect. The assessee's case, which has been accepted by the Tribunal, is that the assessee was not maintaining stock register on a daily basis. This fact is also mentioned in the audit report and stated in the report submitted by the special auditor. The allegation that stock register was maintained but not produced is an assumption or surmise without any foundation. The assessee undertakes physical stock inventory at the end of the financial year. The physical inventory is divided and consists of four categories; finished goods; semi finished goods; work under process; and raw material. The finished goods are valued at 90% of the sale value, i.e., the sale price received on sale made in the next year. Semi finished goods and goods under process are valued at 74% and 60% of the sale value. The raw material is valued at costs. The assessing officer has not disturbed or disputed the closing stock of raw material. The closing stock of finished, semi finished or work-in-process, it is not disputed was sold in the next assessment year and sale value was received when the export was made. The contention of the revenue is that opening stock and closing stock of finished, semi-finished or work in process must be sold/exported within the same time period. For example, opening stock of finished goods was sold within 20 days and therefore closing stock of finished goods should have sold/exported within 20 days. Accordingly, entire exports made in 20 days should be treated as closing stock of finished goods. The time period during which the finished goods, unfinished goods and goods under process, etc., were sold and exported depends upon various factors, like, availability of container, inspection by the importer's agent, need and requirement of the importer, time of shipment, etc. The closing stock, whether finished, semi finished, etc., need not be sold/ exported within a fixed/specified period each year. There cannot be any such assumption and it is not logical to accept this proposition. The contention of the revenue is that opening stock and closing stock must be sold/exported within the same period, cannot be accepted.