1997 (6) TMI 41 - AT - Income Tax

Summary

Issues:
- Whether an assessee changing the method of valuation of closing stock is entitled to claim an adjustment in the value of the opening stock on the changed basis of valuation of closing stock.

Analysis:
1. The appeal dealt with the issue of whether an assessee, engaged in tea plantation and production, changing the method of valuation of closing stock can claim an adjustment in the value of the opening stock based on the changed valuation method. The assessee had changed the valuation method for closing stock, leading to an increase in profits. The Assessing Officer rejected the claim for deduction, stating that the increased value of closing stock would get adjusted in the following year due to the increased value of the opening stock.

2. The Tribunal analyzed the situation from a pragmatic approach, emphasizing that the closing stock and opening stock are distinct in accounts, and a change in the closing stock valuation method does not necessitate a change in the opening stock valuation method. The Tribunal highlighted that the stock carried forward from the previous year is different from the closing stock of the current year, and adjusting the opening stock based on the changed valuation method is not warranted.

3. Referring to judicial precedents, the Tribunal discussed the decision in the case of K.G. Khosla & Co. (P.) Ltd. and the subsequent decision by the Madras High Court in the case of CIT v. Carborandum Universal Ltd. The Tribunal noted that consistent application of a changed valuation method, even if temporarily detrimental to revenue, should be accepted. The Tribunal also cited the Supreme Court's decision in Chainrup Sampatram v. CIT, emphasizing that apparent detriment to revenue due to a changed valuation method would vanish over time.

4. The Tribunal further referenced the Bombay High Court's judgment in Melmould Corpn. v. CIT, where a similar controversy arose regarding the valuation of opening and closing stock. The High Court held that the assessee need not revalue the opening stock when permitted to revise the closing stock valuation method consistently. The Tribunal considered the Accountant's approach and principles from various High Court judgments supporting the view that a consistent changed valuation method should be accepted.

5. Based on the discussions and precedents cited, the Tribunal upheld the appellate order, dismissing the appeal. The Tribunal concluded that the assessee changing the method of valuation for closing stock was not entitled to an adjustment in the value of the opening stock based on the changed valuation method.

6. In conclusion, the Tribunal's detailed analysis and reliance on legal precedents supported the decision to dismiss the appeal, maintaining that a consistent changed valuation method for closing stock does not necessitate a corresponding adjustment in the valuation of the opening stock.