1999 (8) TMI 41 - HC - Income Tax

Business Loss, Valuation Of Stock, Change In Method Of Valuation, Reference, Finding Of Fact, Business Expenditure

Summary

Issues:
1. Entertaining additional ground on surtax as deduction in income tax computation.
2. Allowing claim of loss on revaluation of slow-moving raw material.
3. Excluding borrowed capital for relief under section 80J of Income-tax Act.

Analysis:

Issue 1:
The court referenced the decision in Smith Kline and French (India) Ltd. v. CIT, where it was held that surtax cannot be allowed as a deduction in computing business income under the Income-tax Act. As this issue was covered by the Supreme Court decision, the court returned it unanswered.

Issue 3:
Referring to Lohia Machines Limited v. Union of India, the court held that borrowed capital must be excluded when computing capital under rule 19A of the Income-tax Rules for the purpose of relief under section 80J of the Income-tax Act. Therefore, the court answered this question in the negative, favoring the Revenue.

Issue 2:
The controversy revolved around the valuation of slow-moving raw material by the assessee. The Assessing Officer disallowed the claimed loss on revaluation due to lack of scientific basis and inconsistency in valuation method. However, the Appellate Assistant Commissioner accepted the claim, emphasizing bona fide reasons for revaluation. The Tribunal upheld this decision, noting specific instances supporting the revaluation and the absence of a market for the items. The Tribunal found the change in valuation method permissible and consistent. The court, relying on the Tribunal's findings, upheld the allowance of the claimed loss, emphasizing the assessee's right to change valuation methods if done bona fide and consistently.

In conclusion, the court found no infirmity in the Tribunal's conclusion on the valuation issue, affirming the allowance of the claimed loss. The court's decision was based on the Tribunal's factual findings and the assessee's right to change valuation methods bona fide. Therefore, the second question was answered in favor of the assessee and against the Revenue.