V.RIYAZ AHMED,VANIYAMBADI vs. ACIT, VELLORE

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ITA 3084/CHNY/2018Status: DisposedITAT Chennai06 July 2022AY 2015-164 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal found that the assessee consistently followed accepted accounting principles and Section 145A in valuing its closing stock. The differing valuations for local and imported units were justified due to price variations and quality differences.

What were the facts?

The assessee, a leather manufacturer, valued its closing stock of semi-finished leather based on the lower of cost or net realizable value, differentiating between locally procured and imported units. The Assessing Officer (AO) made an addition for alleged under-valuation of closing stock, which was confirmed by the CIT(A).

What were the issues?

The primary issue was whether the valuation of closing stock by the assessee was justified or if it amounted to under-valuation as alleged by the AO and confirmed by the CIT(A).

Which sections of the Income-tax Act were involved?

Section 145A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI

Before: HON’BLE SHRI V. DURGA RAO & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2015-16 arises out of the order of learned Commissioner of Income Tax (Appeals)-13, Chennai [CIT(A)] dated 03.08.2018 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 22.12.2017.The assessee has filed concise grounds of appeal

1.

which read as under: 1. The order of the Income tax officer is against facts and law of the case. - 2 - ITA No: 3084/Chny/2018

2.

The dosing stock of locally procured and imported leather pieces vary in size, selection & quality and hence cannot be valued at same rate.

3. The valuation of closing stock was as per the generally accepted accounting principles which are consistently being followed by the assessee. 4. The CIT(A) did not give the appellant a reasonable opportunity of being heard in the case. The documents asked for during the appeal were duly provided. After accepting the submitted documents, there were no objections raised and no additional documents were asked. However, the case was dismissed without giving any reasons & opportunity of being heard. 5. The appellant, therefore, pray that the appeal may be admitted and orders may be passed rendering justice to the appellant.

As evident the sole subject matter of appeal is addition arising out of valuation of closing stock. After hearing rival submissions and after careful consideration of material on record, the same is adjudicated as under.

2. The assessee is engaged in manufacturing of leather. It reflected closing stock of 34493 units of semi-finished leather. The same include 15975 local units which were valued at Rs.484/- per unit. It also includes 18518 imported units which are valued at approx. Rs.271/- per unit. The average rate per unit came to Rs.369/- per unit. The Ld. AO observed that considering average of opening stock value, purchase value and sale value per unit, the rate per unit of closing stock would be Rs.456/- per unit. Accordingly, the assessee was put to notice during assessment proceedings. The assessee defended the same on the ground that the closing stock was based on lower of cost price or net realizable value. The imported units were purchased at much lower price than the local price. The assessee also submitted that the closing stock value varies from unit to unit and the value is based on gradation process adopted by the assessee based on personal inspection of each unit. The closing stock consists of damaged pieces due to intermediate process and also - 3 - ITA No: 3084/Chny/2018 rejected pieces. The assessee also contended that imported component of the semi-finished leather pulls down the average closing stock value as it was of low quality and the quality could not be improved despite the best efforts of the assessee. However, alleging that there was under- valuation of closing stock for Rs.29.90 Lacs, Ld. AO added the same to the income of the assessee. The Ld. CIT(A) confirmed the stand of Ld. AO on the ground that the assessee did not furnish any supporting evidences. Aggrieved, the assessee is in further appeal before us.

3.

Upon careful consideration, we find that the assessee adopted consistent method of valuing its closing stock and the same was as per the provisions of Section 145A as well as in accordance with accepted accounting norms and conventions. From the perusal of Tax Audit Report, it could be gathered that the closing stock of leather include two varieties which were valued on the basis of lower of cost or net realizable value. It has also been shown to us that the imported price per unit was much lower than the local price. The closing stock of imported unit was computed based on imported cost whereas local units were valued on the basis of local cost. Naturally, different varieties would be valued differently. This being so, the disturbance in valuation of closing stock by Ld. AO could not be held to be justified. By deleting the impugned addition, we allow the appeal.

4.

The appeal stand allowed in terms of our above order. Order pronounced on 06th July, 2022.

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