ITAT upheld adoption of new method of valuation of stock

1. The assessee was engaged in the business of manufacture of sugar, had during the previous year made a change in method of valuation of stock. Change was from net realisable value, to cost or market price whichever was lower. AO refused to accept the change in method of valuation in the assessment done and made an addition for suppression in valuation of stock. Since assessee had followed the new method for impugned assessment year also, persisted with the earlier method and made an addition of Rs.61,55,000/-, as suppression in valuation.

2. CIT(A) deleted the additions. It was was upheld by the Tribunal on Revenue's appeal. The matter was remanded by the High Court to AO for reconsideration. AO confirmed his earlier decision. CIT(A) again deleted the addition. 3 On appeal, the ITAT held as under:

"As per the assessee, it was consistently following the new method since A. Y. 1989-90 and in subsequent years, Department had accepted the changed method of stock valuation. Assessment for A. Y. 1989-90 is still to be done pursuant to the judgment of Hon'ble jurisdictional High Court. None of the lower authorities have verified whether assessee's working of the cost or market price whichever was lower of the stock, as on 01.04.1989 and stock as on 31.03.1990 were correctly made. Though CIT (A) was justified in taking a view that assessee could change its method of accounting to cost or market price whichever was lower for valuing its stock, correctness of the cost arrived at by the assessee were not verified by any of the authorities below. Cost of opening stock will also depend on the assessment done by the AO for A. Y. 1989-90 pursuant to the judgment of Hon'ble jurisdictional High Court reproduced by us at para six above.

3. In the result, though we hold that assessee was justified in adopting a new method for valuation of stock, we are of the opinion that the matter requires a fresh look by the AO for verifying the correctness of the value arrived at by the assessee. We, therefore, set aside the orders of the authorities below and remit it to the file of AO for consideration afresh.”

Case Reference - Deputy Commissioner of Income tax Vs. M/s. Sri Chamundeshwari Sugar Ltd.

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE

BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND

SHRI. VIJAY PAL RAO, JUDICIAL MEMBER

I.T.A No.1538/Bang/2013

(Assessment Year : 1990-91)