INCOME TAX ACT, 1961

Section 145

Accounting method - Estimation of gross profit - Estimate on account of alleged excess stock -

Assessee's grievance was that CIT(A) was not justified in confirming the addition made by AO on estimation on account of alleged excess stock. Assessee submitted that the stock inventorised taken were not correct in spite of objection having been raised during the course of survey as it was not practically possible for taking such huge stock with limited manpower at that point of time. It was pointed out that no goods have been sold on price quoted by assessee and survey team has taken maximum retail price (MRP) printed on the items without considering a fact that on such kind of items MRP was printed on higher side and cost price/purchase price is generally 20-30% less than the MRP printed thereon. Held: Valuation of stock-in-hand the general rule adopted was cost price or fair market value whichever is less whereas in present case survey team had valued the stock of assessee by taking MRP without considering some relevant factors viz., sales price includes GP approximately 8 to 10%, stock inventorised includes old and absolute stock also and rebate onaccount of damaged, discolour and outdated materials should be allowed and MRP printed on the items cannot be taken as basis for valuation of stock because MRP is generally 20 to 25% higher than actual purchase price charged by the manufacturer/wholesaler. Valuation of stock should have been done by considering the said three factums, therefore, AO was directed to allow 20% rebate on the value adopted by the survey team for inventorised/taking valuation of stock.

REFERRED :

FAVOUR : Partly In assessee's favour

A.Y. :

INCOME TAX ACT, 1961

Section 37(1)

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