HARI OIL & GENERAL MILLS,KOLKATA vs. ACIT, CIRCLE-43, KOLKATA, KOLKATA

The assessee in the present case is a partnership-firm, which is engaged in the business of manufacturing of Mustard Oil and Cake. The return of income for the year under consideration was filed by it on 22.08.2009 declaring total income of Rs.30,05,620/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has been regularly following the method of valuation of stock at ‘cost’ or ‘realizable value’, whichever is lower, but the Palledari expenses incurred during the year under consideration were not added ./2014 Assessment year: 2009-2010 Page 2 of 4 proportionately in the value of closing stock. According to him, the said expenses mainly inclusive of loading, unloading and packing were in the nature of direct expenses incurred by the assessee in connection with purchases and the same, therefore, were liable to be included on proportionate basis while determining the value of closing stock. Accordingly, such expenses worked out on proportionate basis at Rs.1,39,258/- were added by the Assessing officer to the value of closing stock of the assessee and the addition to that extent was made by him to the total income of the assessee in the assessment completed under section 143(3) vide an order dated 30.12.2011.

Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) confirmed the addition made by the Assessing Officer on account of alleged under-valuation of closing stock by the assessee for the following reasons given in paragraph no. 4.3 of his impugned order:- “4.3.: Decision:- The Appellant has shown in closing stock raw material of Rs.3,15,67,704/-. The Palledari Expenses of Rs.17,16,884/- has been claimed on debit side of P&L A/c. and it is loading, unloading and packing expenses for raw materials. The Appellant has not used a part of this expense in closing stock. Closing stock does not give rise to profit on its own if properly computed. Closing Stock value merely represents balancing charge for cost, which appears on expense side of P&L account in the form of purchases and other direct expenses. If computation of closing stock value does not include all direct costs, closing stock does not truly reflect the value of stock and to that extent profit of the year gets reduced. Thus closing stock is not a source of income or loss, but in the case where direct costs and purchases are not proportionately included in the closing stock, the value of stock becomes lower than required as per balancing charge and the profits becomes lower than what ought to have resulted on sales. Thus, the A.O. has rightly increased the value of stock and thus has rightly increased the profit/income by Rs.l,39,258/-.

I have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the ld. counsel for the assessee, the Palledari expenses in question were mainly incurred on weighing of mustard seeds and the same not being in the nature of direct expenses incurred by the assessee for acquisition of raw material were not liable to be included in the value of closing stock determined on the basis of ‘cost’ or ‘realizable value’, whichever is lower. He has also submitted that the said expenses on proportionate basis were not included by the assessee even in the value of opening stock and if the same are included in the value of opening stock, which was more in quantitative terms than in closing stock, there would be no addition to the total income of the assessee for the year under consideration. He has also submitted that the value of closing stock as taken by the assessee for the year under consideration has been adopted as the value of opening stock for the immediately succeeding year and the consequential effect of the addition made in the year under consideration, which is required to be given for the immediately succeeding year, would be revenue neutral. He has contended that the addition made in the year under consideration otherwise would result in double taxation of the same amount. Keeping in view all these submissions made by the ld. counsel for the assessee, which have remained uncontroverted by the ld. D.R., I am of the view that the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of the alleged under-valuation of closing stock is ./2014 Assessment year: 2009-2010 Page 4 of 4 not sustainable. Accordingly, I delete the same and allow this appeal of the assessee.

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on September 02, 2016.