Case Law Details
Brief of the Case: ITAT Kolkata held In the case of Das Plaza vs. ITO that the closing stock has to be taken at the end of the year not in the middle of the year. If any addition has to be made that to be made only difference in the value as at the end of the year. If the value of the opening stock is lesser, the stock has to be valued as per the method valuation followed by the assessee.
Facts of the Case
A survey u/s 133A was conducted on the assessee. During the course of the survey, stock to the extent of Rs.7, 17,217/- was found, which was undisclosed in the opinion of the revenue. The value of the stock was taken after written the percentage of the gross profit @ 20%. The assessee submitted that the value was not correctly taken and has made the calculation on the basis of average cost method as has been regularly followed by the assessee. The Assessing Officer was not satisfied as in his opinion the average prices of the items were shown much below the rate disclosed in the opening stock and, therefore, he made the addition of Rs.7,17,217/-. Also, It was noted by the survey team that there is an excess stock of belts and bags of Rs. 42,677 and Rs.65,048/-.
Contention of the Assessee
The assessee submitted that the value was not correctly taken and has made the calculation on the basis of average cost method as has been regularly followed by him.
Contention of the Revenue
In the opinion of the Assessing Officer, the average prices of the items were shown much below the rate disclosed in the opening stock and, therefore, he made the addition of Rs.7,17,217/-.
Held by CIT (A)
The CIT (Appeals) held that the discovery of the survey party made it clear that the assessee did not maintain his books of account properly. The stock was inventoried at Rs. 40, 17,716/- while as per the records of the assessee, the value of stock was Rs.27, 85,000/- as on the date of the survey. He also noted that the assessee had shown the total sales of Rs.39, 51,315/- and, therefore, took the view that the turnover of a shopping mall for the whole year cannot be Rs.40, 00,000/- and, therefore, he confirmed the order of Assessing Officer.
Held by ITAT
Sales shown by the assessee has duly been accepted by the Revenue, but the CIT(A) just observed that the amount of sale of the shopping mall for all the year cannot be Rs.40,00,000/-. Without bringing any cogent material or evidence on record, there had been survey but no evidence was brought on record that the sales of the assessee were much higher than what had been recorded in the books of account. The AO while making the addition allowed a discount to the assessee out of the MRP of the inventory at the rate of 20%. The basis of reduction of MRP by 20% has not been given. We are of the view that the closing stock has to be taken at the end of the year not in the middle of the year. If any addition has to be made that has to be made only difference in the value as at the end of the year.
Also regarding observation that the assessee showed the opening stock in each quantity and its average rate is much lower than the current purchase rate in respect of some purchase bills of the current year cannot be the basis for making the addition as the price of the goods cannot be static. Cost means at what price the assessee has bought the goods. If the value of the opening stock is lesser, the stock has to be valued at a price at which it was bought according to the method valuation followed by the assessee. There is no change in method of valuation of stock.
In regard to excess stock of belts and bags, we noted that the addition of excess stock has been valued on estimate basis not on actual cost. Stock has been valued by deducting the estimated gross profit from the printed price. We have already held that this cannot be a method as has been followed by the assessee. The assessee is following the method of valuation of the stock at average cost.
Accordingly, appeal of the assessee allowed.
