Valuation of closing stock of finished goods at realizable value/sale price not amounts to understatement of closing stock

Issue before Tribunal:

• Whether CIT(A) erred in law in deleting the addition of Rs. 4,93,319/- made by the A.O. on account of finished goods elaborately explained in the assessment order by taking the value as shown in the bills by the assessee.
• Whether CIT(A) erred in law in deleting the addition of Rs. 2,94,300/- by ignoring the fact that the assessee did not taken this plea at the time of assessment proceedings.
• Whether CIT(A) erred in law in deleting the additions of Rs. 6,32,250/- by ignoring the fact that the assessee has valued semi-finished goods as the raw material.

Brief Facts:

• Assessee is a company engaged in the business of manufacturing and sale of cycle chains, wheel and axles. Assessee its return of income for AY 1997-98 was filed disclosing loss of Rs. 27,09,520/- and income of Rs. 1,08,544/- under the provisions of Section 115J.
• The assessment was completed u/s 143(3) at a loss of Rs. 1,26,032/- thereby, making addition of Rs. 25,83,492/-. However, this assessment order was rectified by the Assessing Officer under Section 154 at a loss of Rs. 12,75,648/-.
• Addition was on account of understatement of closing stock amounting to Rs. 4,93,319/-, on account of difference in cost of machinery amounting to Rs. 2,94,300/- and on account of valuation of seni finished goods as raw material.
• On appeal CIT(A) granted part relief. On further appeal by revenue ITAT set aside the matter to the file of CIT(A).
• Pursuant to directions of the ITAT, CIT(A) passed the impugned order allwing the appeal of assessee.

Contention of the revenue:

It was contended on behalf of revenue that Hon’ble CIT (A) ignored various facts at the time of deciding appeal.

Contention of the assessee:

Assessee relied upon the order of CIT (A).

Held by the tribunal:

• The order of learned CIT(A) is well reasoned and order is passed after appreciating the facts involved in the case of the assessee.
• CIT (A) is right in holding that from the sale bills, it is evident that the assessee has valued the closing stock of finished goods at realizable value/sale price and as such there is no understatement of closing stock. Revenue did not submit any material in rebuttal of the findings of CIT (A). In view of the above, addition of Rs. 4,93,319/- is deleted.
• 6,74, 300/- being the cost of self manufactured machinery has been duly added in the computation of income. It is seen that it has been erroneously mentioned as Rs. 3,80,000/- in the footnote. Since entire the amount has been added in the computation, no further addition is called for. Addition of Rs. 2,94,300/- is deleted.
• Regarding addition of 6,32,250/- it was hold by CIT (A) that assessee has been following the same method of valuation of closing stock consistently for a number of years, which has been accepted by the Department in the earlier years. In fact, no addition on this account has been made in the order u/s 143(3) for the AY 1998-99.

Conclusion:

The Tribunal considered the order of CIT (A) and found it well reasoned. Tribunal also noticed that CIT (A) while deciding appeal examined sale bills and other documents filed before him. Hence ITAT did not find any reasoning to reverse the order of CIT (A).