ITO Vs Varsha Mills (ITAT Jodhpur)
Summary: The Jodhpur Bench of the Income Tax Appellate Tribunal dismissed the Revenue’s appeal for Assessment Year 2017-18 and upheld the deletion of additions of Rs. 2,79,03,981/- on account of valuation of damaged guar gum stock and Rs. 3,36,49,500/- under Section 69A of the Income Tax Act, 1961 on account of cash deposits during the demonetization period.
The assessee was engaged in manufacturing and trading agricultural products, principally guar gum and its by-products, Churi and Korma. During the relevant year, its factory and stock were taken over by the bank after the assessee’s Phalodi bank account became an NPA. The assessee subsequently found that its stock of guar gum had been damaged due to rain, germs, bacteria and alleged negligence while the premises remained under the bank’s possession. The damaged stock could not be sold as normal guar gum and was processed into Churi/Korma.
The Assessing Officer rejected the assessee’s valuation of the closing stock and adopted an NRV of Rs. 82.58 per kg based on an internet website, resulting in an addition of Rs. 2,79,03,981/-. The assessee contended that it had consistently followed Accounting Standard-2 (AS-2), under which inventories are valued at the lower of cost and net realisable value. TaxGuru’s publication on AS-2 confirms that inventories are required to be valued at the lower of cost and net realisable value and explains that the cost may not be recoverable where inventories are damaged or their selling prices have declined. [Accounting Standard 2: ‘Valuation of Inventory’](https://taxguru.in/chartered-accountant/accounting-standard-2-valuation-inventory.html?utm_source=chatgpt.com) The TaxGuru reproduction of the revised AS-2 also expressly provides for write-down of damaged or obsolete inventories to net realisable value. [Revised Accounting Standard-2 Valuation of Inventories](https://taxguru.in/chartered-accountant/revised-accounting-standard-2-valuation-inventories.html?utm_source=chatgpt.com)
