Minor Adjustments made to Valuation of Goods not amount to Under-Valuation of Stock: ITAT [Read Order]

The Income Tax Appellate Tribunal Ahmedabad Bench presided by Ms. Annapurna Gupta, Accountant Member and Mr. Mahavir Prasad, Judicial Member has held that minor adjustments made to valuation of goods not amount to under-valuation of stock.

The appellant, Chirai Salt (India) Pvt. Ltd. is engaged in the business of manufacturing of Refined and Free-flow Salt and Trading of Salt. During the course of assessment proceedings the Assessing Officer compared the average rate of closing stock of raw material and finished goods, with the average rate of stock surrendered during survey and noting that the rate as at the end of the impugned year was less. The AO made an addition on account of alleged undervaluation of stock of raw materials Rs.11,44,111/- and of finished goods Rs.36,35,672/-, aggregating to Rs.47,79,799/-.

The Tribunal has observed that the under-valuation as per the Revenue authorities is barely 3% in the case of raw material and 7 to 8% in the case of finished goods. Further the entire exercise of adopting the average rate as on the date of survey is purely adhoc. The opening stock of raw material was valued at a lesser average rate than the rate admitted during survey, while the opening stock of finished goods was valued at a higher average rate. The average rate admitted during survey considered to be the appropriate rate for valuation of finished stock was not understandable.

The Tribunal while deleting the addition made on account of under-valuation of stock of raw material and finished goods holds that “we find that the entire exercise by the Revenue authorities, treating the stock of raw material and finished goods of the assessee as under-valued is totally arbitrary, without any basis and highly immaterial, considering the adjustment made to the valuation of these goods to the extent of 3% and 8% only which is too minor to hold that the assessee had attempted any under-valuation of stock”.

Mr. K.C. Thaker appeared for the appellant and Mr. Urjit Shah appeared for the respondent.

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