Income Tax Act, 1961

--Valuation of closing stock--Provision for impairment of stock No evidence that valuation was not correct--Assessee reduced the value of stock on account of impairment and defects on the footing that the 'net realizable value' of the stock had fallen below its cost price and in support of the valuation, assessee submitted the basis of the estimate which was prepared by its technical department. Assessing officer rejected the same and made addition to business profit. On appeal, Commissioner (Appeals) observed that though assessee was right that there was some diminution in the value of inventory, complete details were not available. Therefore, he restricted the addition to 50%. On cross-appeals filed, Tribunal, found that valuation method was consistently followed by assessee and there was no defects or irregularity in the details submitted by assessee. The method of valuing the closing stock at cost or net realisable value, whichever was lower is a recognised and accepted principle of accounting. Held : Findings of the Tribunal also were not challenged and claim of assessee was also supported by necessary details. Further on valuation of the closing stock, any alleged difference or discrepancy tends to balance itself over a period of years if the same method was consistently followed. This is because the closing stock of one year becomes the opening stock of the succeeding year, therefore, it was more important to see whether the same method of valuation of stock was followed consistently by assessee so that there was no distortion of profit and no substantial question of law arose.

Income Tax Act, 1961, Section 145A

in The Delhi High Court

Badar Durrez Ahmed & R.V.Easwar, J.J.