1993 (3) TMI 357 - HC - Income Tax

Summary

Issues Involved:
The issue involves the valuation of closing stock of tea by an assessee-company for the assessment year 1982-83, specifically focusing on the change in the method of valuation from selling price to 'since realised' or 'estimated realisable value'.

Summary:

Valuation Method Change Dispute:
The case pertains to the assessment of Delta Plantation Ltd., formerly known as Khari Katia Tea Estates (P.) Ltd., for the assessment year 1982-83. The assessee-company, engaged in tea cultivation and sale, decided to alter its stock valuation method from selling price to 'since realised' or 'estimated realisable value' starting from the calendar year 1981. The Income Tax Officer (ITO) disallowed this change, adding back a loss of Rs. 4,46,180 to the total income of the assessee-company for the year.

Commissioner's Decision:
Upon appeal, the Commissioner (Appeals) upheld the ITO's decision, stating that while the assessee could change the valuation method, it should not result in a loss of revenue. Consequently, the disallowance of Rs. 4,46,180 was confirmed.

Tribunal's Ruling:
Subsequent appeal to the Tribunal argued that a change in valuation method should not be disallowed solely due to revenue loss. The Tribunal noted that the closing stock of one year becomes the opening stock of the next year, thus negating any revenue loss. Moreover, the Tribunal recognized the industry practice of valuing tea stock at 'since realised' or 'estimated realisable value' and overturned the previous decisions, deleting the disallowance amount.

Legal Interpretation and Remand:
The High Court referred to Accounting Standard 'AS-2' on valuation of inventories and Spicer & Pegler's accounting practices in the tea industry, supporting the assessee's valuation method. Emphasizing the importance of consistent application of the chosen method, the Court highlighted that a bona fide change in valuation should be accepted, even if it initially impacts revenue. As the Tribunal did not assess the consistency of the new method, the Court remanded the matter for further examination.

Conclusion:
The High Court declined to answer the reference question and remanded the case to the Tribunal for reevaluation in light of the observations made, emphasizing the acceptance of a consistent and recognized valuation method in the tea industry.