1988 (3) TMI 34 - HC - Income Tax

Summary

Issues Involved:
1. Valuation of closing stock using the "works cost" method for the assessment year 1979-80.
2. Whether guarantee commission constitutes revenue expenditure.

Valuation of Closing Stock:
The assessee switched to the "works cost" method for closing stock valuation in the assessment year 1979-80, replacing the earlier "total cost" method. The Income-tax Officer disagreed with this change and added the difference in valuation to the income. The Commissioner of Income-tax (Appeals) found the change to be bona fide and directed the opening stock to be revalued on the same basis. The Tribunal upheld the assessee's plea, emphasizing that interference with the valuation was unwarranted if the change was made for genuine reasons. The Tribunal's decision was supported by various cases, and it was held that the Revenue cannot intervene if the change was not for tax avoidance purposes. The court ruled in favor of the assessee, affirming the Tribunal's decision.

Guarantee Commission as Revenue Expenditure:
The second question regarding guarantee commission as revenue expenditure was resolved in favor of the assessee based on a previous decision in Addl. CIT v. Akkamba Textiles Limited [1979] 117 ITR 294. The court answered this question in the affirmative, supporting the assessee and ruling against the Revenue.

Conclusion:
The High Court of Andhra Pradesh upheld the Tribunal's decision regarding the valuation of closing stock using the "works cost" method for the assessment year 1979-80, emphasizing that the change was made for bona fide purposes and not for tax avoidance. The court also ruled in favor of the assessee regarding the treatment of guarantee commission as revenue expenditure, citing a previous decision in support of this ruling.