INCOME TAX ACT, 1961

Section 145A

Accounting method - Undervaluation of closing stock - Method of valuation of the marble blocks - Defective stock

Assessee company was engaged in manufacturing, trading and export of marble tiles & slabs and valued its stock at cost or net realizable value estimated on the basis of quality/defects of stock, whichever is lower. Out of total closing stock, it considered 50% of the stock as defective and valued it at 55% of the cost. All other stock was valued at actual cost. AO observed that assessee had claimed defective closing stock at 50% of the total quantity of closing stock and valued the same at 55% of the cost. There was no basis of valuing stock as defective stock on lump-sum basis or on estimated basis. Assessee was showing defective stock year after year ranging from 25% to 75% and valuing the same at 25% to 50%. Further, when all defective stock was sold in the preceding year ended, than how it was possible that 50% of the stock become defective within the year. Accordingly, AO made addition by treating the defective stock as non-defective. Held: CIT(A) had returned a finding that there was no evidence to show 50% of stock of marble block is defective and also there was no justification for valuing such stock at 55% of its value. AO held that even in the stock register, assessee had not mentioned any stock as defective and no differentiation or marking was given in stock register. AO had carried out the necessary verification of stock register and such a finding was rebutted and thus attained finality. Further, how assessee had arrived at net realizable value @ 55% of cost was not clear. Assessee had failed to justify the quantum of defective stock of marble blocks and its realizable value, thereby the addition made by AO was confirmed.

REFERRED :

FAVOUR : Against the assessee

A.Y. : 2015-16

INCOME TAX ACT, 1961

Section 14A

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