S. 145 : Assessment – Method of valuation of stock – Valuation of closing stock – To implement the incentive scheme, sugar was rightly valued at levy price which was less than the cost of manufacture of sugar.
The assessee company engaged in the business of manufacture and sale of sugar. The assessee valued the closing stock of sugar at levy price which is less than the cost price. Department valued the same at cost price. The question raised before the Apex Court was “whether on the facts and in the circumstances of the case, ITAT was right in holding that closing stock of incentive sugar has to be valued at levy price and not cost price”.
The court observed that, valuation of opening and closing stock is very important for true profits. An improper valuation could result in rejection of books of account though all that is needed for rectifying it, is to make an addition or necessary adjustment based on proper valuation. Valuation of stock, whatever may be the method, should be consistently followed. Method of valuation is generally at cost or the market value whichever of the two, is lower. As the incentive scheme was held to be a capital receipt in CIT v. Ponni Sugars and chemicals Ltd. (2008) 306 ITR 392(SC), the assessee is right in valuing the closing stock of incentive sugar at levy price which was less than the cost of manufacture of sugar (Cost price). The court also observed that “If we were to accept the case of the Department that the excess amount realised by manufacturer(s) over the levy price was a revenue receipt taxable under the Act, then the very purpose of the incentive scheme formulated by Sampat Committee would have been defeated. One cannot have a stock valuation which converts a capital receipt in to revenue income”. Appeals filed by the Department were dismissed. (A.Ys. 1992-93 to 1997-98 )(C.A. No. 7014 of 2012 arising out of SLP no 9263 of 2009 dated
26-9-2012 and others)
26-9-2012 and others)
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