Net realizable of stock to be taken as value it would fetch on actual sale in future

Brief of the case:

• The ITAT Kolkata in the case of M/s Mahendra Traders held that it is generally accepted prudent practice that the closing stock to be valued at lower of cost or net realizable value. Further, net realizable value means the value which the goods would fetch at the time of actual sale.
• Thus, when there is alteration in contract with the major buyer resulting into fetching lesser sale price in future, the assessee was justified in valuing the stock taking into consideration the reduced sale price.
  

Facts of the case:

• The assessee firm was engaged in trading of Iron and Steel, it got dissolved on 30.06.2005. After dissolution firm was converted into proprietorship concern with effect from 1.7.20005 and accounts for the period 1.7.2005 to 31.3.2006 are prepared separately.
• The firm in its tax audit report stated that valuation of stock has been done at cost or net realizable value whichever is higher.The AO found that the assessee is adopting First in First out (FIFO) method for valuation of stock. He also observed that MS scrap purchased between 9.6.2005 to 27.6.2005 were lying in closing stock as on the date of dissolution. Accordingly, AO substituted the value of closing stock in accordance with valuation method of cost of net realizable value whichever is higher, in which he adopted Rs. 18,470 as net realizable value (average final sale price made on 30.6.2005).As such AO made an addition of Rs. 12,54,947/-.
• On appeal to CIT(A) , the addition was deleted by him on the ground that the assessee had valued stock as per generally accepted prudence norm-cost or net realizable value whichever is higher and the otherwise so stated in tax audit report was mere a typo error.
• Aggrieved by the order of CIT(A) , revenue is in appeal before ITAT.
  

Contention of the Assessee: