L.K. SONS ALLOY PVT. LD.,,PUNE vs. ADDITIONAL COMMISSIONER OF INCOME-TAX,, PUNE

Briefly, the facts of the case are that the assessee is engaged in the business of Trading in Steel, Bars and Sheets & Running of Windmill project. A return was filed declaring total income of Rs.61.77 lakh. During the course of assessment proceedings, the AO observed that valuation of closing stock was not done properly. He considered only one of the items of closing stock, namely, Chrome Moly Steel which was valued by the assessee at Rs.3,49,78,586/-. The AO opined that the rate of valuation adopted by the assessee at Rs.54.86 per kg was not correct inasmuch as it ought to have been valued at average purchase rate.

He considered rate of Rs.61.57 per kg and worked out the addition at Rs.42,77,408/-. The ld. CIT(A) sustained the addition, against which the assessee has come up in appeal before the Tribunal.

We have heard the rival submissions through virtual court and gone through the relevant material on record. At the outset, we want to make it clear that the dispute in the instant appeal is not on the quantitative aspect of inventory but only on the valuation of a particular item of stock, namely, Chrome Moly Steel. The assessee valued the stock of Chrome Moly Steel by considering left over stock from the Opening Stock to the tune of 3,93,250 kg at Rs.48.94 per kg and out of purchases during the year of 2,44,566 kg valued at Rs.64.33 per kg. As against that, the AO averaged the opening stock and purchases to work out the per kg rate of Rs.61.57. In this regard, it is seen that the assessee has maintained complete item-wise stock tally, relevant parts of which has been placed on record. Page 40 onwards is a copy of Register of Chrome Moly Steel indicating Inward quantity, Outward quantity and Closing stock quantity. The assessee took physical verification of the stock at the end of the year, whose details are available at page 35 onwards of the paper book. Such details are backed by the relevant invoices. There cannot be any hard and fast formula of valuing stock only on the basis of FIFO if stock register indicates the position otherwise. When the assessee gave copious details of the inventory with the relevant value coming either from the opening stock or from fresh purchases during the year, the AO, in our considered opinion ought to have accepted the same. The assessee has been consistently following this method of valuation which has been accepted by the AO during the course of scrutiny proceedings for the assessment years 2008-09, 2009-10, later assessment years 2013-14 and 2014-15 as well. Copies of the relevant assessment orders have been placed on record. In view of the foregoing discussion, we are satisfied that the authorities below were not justified in rejecting the valuation done by the assessee and adopting the method of valuing the stock on the basis of average of opening stock and purchases. We, therefore, order to delete the addition.

In the result, the appeal is allowed.