Classic Ornaments Private Limited Vs DCIT (ITAT Mumbai)
Weighted Average Cost method ignored? – Mumbai ITAT sends gold stock valuation addition back for fresh examination
In a significant ruling involving gold jewellery stock valuation, the Mumbai ITAT set aside an addition of ₹1.36 crore made on account of alleged undervaluation of closing stock, after observing that the lower authorities failed to properly examine the assessee’s method of valuation based on Accounting Standard-2 (AS-2) and ICDS-II.
The assessee, engaged in the business of manufacturing and trading of gold ornaments, had consistently valued its inventory at “cost or net realisable value (NRV), whichever is lower” by following the Weighted Average Cost formula. During scrutiny proceedings, the AO alleged that the assessee had failed to provide proper bifurcation of 18 ct., 22 ct. jewellery and gold bars in the opening and closing stock and further observed that gold prices had substantially increased during the year.
The assessee clarified that it did not maintain any year-end stock of gold bars, since gold bars were immediately issued to workers for conversion into ornaments. It was also explained that the assessee mainly dealt in 22 ct. jewellery, while 18 ct. jewellery was manufactured only against specific customer orders.
