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TMI Blog1987 (9) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... t month of the accounting years, the assessee had purchased 6,789 quintals of paddy for Rs. 14,76,345. This indicated the ruling price of the paddy in the last month to be Rs. 217.46. Since the closing stock was valued at less than the last purchase, the Income-tax Officer proposed to increase in valuation of closing stock by Rs. 2,67,682. 2. The assessee stated that they were following the average cost method for all these years and therefore no addition need be made. This submission was rejected by the Income-tax Officer. According to him, the closing stock has to be valued at cost or market rate. There was no authority for valuing at average cost price. He, therefore, made an addition of the difference in the valuation. 3. In a simil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verage, standard costing, etc. He submitted that the assessee had been following the same method of valuation for all the earlier years and the subsequent years. What the assessee has done is to take the purchase price of the whole year and divided the same with the purchases made in that year and arrive at an average rate. Thus, in the asst. year 1981-82, the average price rate was Rs. 115.04, for the year 1982-83, it was Rs. 145.81 for the year 1983-84, it was Rs. 148.67 and for the year under appeal it was Rs. 157.53. It is true he submitted that the average purchase price will be different from the ruling rate in the last month. But, this also is to be taken into account while working out the average rate. Sometimes, the average rate wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55 ITR 442. Especially the observations at page 446 : "It must be said at the outset that the choice to account for income on an acceptable basis is that of the assessee, and not of the department. This is, however, not an unlimited choice, because the Income-tax Officer has always the liberty to examine the system of accounting regularly employed by the assessee, to determine whether the system of accounting is defective, and whether by following such system of accounting, correct profits can be deduced from the account books maintained by the assessee." 8. We have considered the submissions. We agree with Sri Ratnakar that there are reveal other methods of valuing closing stock other than the cost or market rate. A number of systems o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it throughout the year. The Income-tax authorities however contended that as the actual price of the closing stock was known or could be easily ascertained from the records in the assessee's possession, the stock must be valued at the actual cost price and not at the average price for the year : Held, that the stock might be valued at the option of the assessee at the average cost price of the entire stock purchased in the course of the year and need not be at the actual cost of the closing stock and that the method of valuation of the stock adopted by the assessee was correct. The liberty reserved to the assessee to choose his method of accounting by section 17 of the Travancore Income-tax Act (corresponding to section 13 of the India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been issues out of the stock for processing every day of the year of account, it will be impossible to attribute the issues to this or that purchase. In valuing the closing stock in such a case the only appropriate and available method would be to value it at the average cost taking into account all the purchases made during the period. The same is the case with reference to a stock say for instance, of fuel, wood, coal or oil all of which would be stored in one lump or lot and issues there out can be and would be made without regard to the date or the price of each purchase. It is unnecessary to multiply instances. It is sufficient to say that the point appears to be so obvious that a doubt was first entertained as to whether the point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd such advances at the beginning of the year was Rs. 10,484. It appears that Mr. Rao was asking for substantial increase in his salary but that was allowed at the end of the year. It was also agreed that the amount overdrawn to the extent of Rs. 10,000 would not be collected from him. It would appear that at the time he wanted to perform his daughter's marriage and had required some advance payments. It is on this account that Rs. 10,000 was written off. 10. The Income-tax Officer was of opinion that the write off was unconnected with business consideration and it was only like a gift. So it was not allowable. The Commissioner agreed with it. 11. In our opinion, on the facts stated the amount should be allowed as a deduction. It is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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