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TMI Blog1999 (9) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... oods on a more scientific basis by eliminating selling and administration overheads hitherto included. As a result, the value of closing stock and consequently profit is lower by Rs. 8,51,815." The AO rejected the new method and made the impugned addition of Rs. 5,29,700 observing as under: "Change in accounting method: The assessee during the previous year has changed its accounting method of valuing closing stock. This has resulted in profits being lower by Rs. 5,29,700. The assessee was therefore, asked why this difference should not be brought to tax. The assessee had initially replied that only Rs. 5,29,700 would be taxed but subsequently withdrew this claim. Following the Supreme Court decision in the case of CIT vs. British Paints Ltd. (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC) to which the facts of this case squarely apply, I hold that Rs. 5,29,700 which is the reduction in the value of closing stock as a result in the change of accounting method has to be taxed." 3. On appeal, the CIT(A) confirmed the action of the AO again relying on the Supreme Court decision in the case of CIT vs. British Paints Ltd. (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC). 4. Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is a recognised system of accounting. According to the learned counsel, refining the system resorted to at the end of the year does not compel the assessee to apply refined system for valuing the opening stock. He therefore, submitted that there is no justification for the impugned addition of Rs. 5,29,700. 5. Shri Naresh Kumar, the learned Senior Departmental Representative, strongly supported the orders of the authorities below. 6. We have considered the rival submissions and perused the facts on record. The method of valuation of stock is a part of assessee's method of accounting. Thus, an assessee's method of valuation of stock would be binding on the ITO under s. 145(1) of the Act. It is well accepted that it is open to an assessee to change his method of accounting and to decide what method of accounting he/she will follow. The assessee has to establish that he has, in fact, changed his regular method of accounting and that such change is on regular or permanent basis. If the altered method is an acceptable method of accounting, it would normally follow that the profits can be properly ascertained therefrom. Hitherto, the assessee was valuing the closing stock by takin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that where method of valuing closing stock on total cost is found unscientific and is changed to works cost, and the change is found to be bona fide and not for reducing income for income-tax purposes, the changed method was found reasonable. The Calcutta High Court in Snow White Food Products Co. Ltd. vs. CIT (1982) 29 CTR (Cal) 8 : (1983) 141 ITR 861 (Cal), has held that the year where a change in the method of accounting is introduced for the first time it is to be examined by the Revenue authorities whether the change introduced is meant to be regularly followed or not. Where it is found that the assessee has changed his regular method of accounting by another recognised method and has followed the latter method regularly it is not open to the Revenue authorities to go into the question of bona fide of the introduction and continuation of the change. 8. From the above legal discussion, it may be noted that the Courts have gone to the extent of saying that an assessee is free to change its method of accounting provided the change is a bona fide one. It is evident from the facts of the case as discussed supra that the assessee has changed from total cost method to direct cost m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT vs. Allana Sons (P) Ltd. (1993) 114 CTR (Bom) 448 : (1995) 216 ITR 690 (Bom). The addition of Rs. 8,753 is accordingly deleted. 13. Ground Nos. 3, 4 and 5 read as under: "3. In view of the facts and circumstances of the case the lower authorities have erred both on facts as well as in law in treating a sum of Rs. 7,04,849 as assistance as revenue receipt. Company submits that the amendment being retrospective not applicable for the asst. yr. 1989-90. 4. In view of the facts and the circumstances of the case the AO has erred both on facts as well as in law in disallowing assessee company's claim of Rs 12,69,750 out of the Revenue expenditure in connection with the increase in authorised capital of the company. Company submits that claim is allowable as revenue expenditure. Same may please be allowed. If it is ultimately decided claim is not allowable revenue expenditure, deduction may please be allowed under s. 35D of the IT Act. 5. In view of the facts and the circumstances of the case assessee-company is submits that deduction under s. 80HHC calculated on deemed exports also Assessee-company's claim may please be allowed." At the time of hearing, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der s. 80-I of the Act. On appeal, the CIT(A) concurred with the findings of the AO. 16. Shri B.K. Khare, the learned counsel for the assessee submitted that the above items of income were earned during the course of business/industrial activities of the assessee-company. Without prejudice to this basic contention, in the alternative, he argued that at any rate, though such income may not be regarded as income springing from the industrial undertaking but nevertheless it should be regarded as diminution in expenditure incurred by the said industrial undertaking, especially in the matter of finance charges. The learned Departmental Representative relied upon the orders of the authorities below. 17. We have heard the rival submissions and perused the facts on record. This Bench in the case of Dy. CIT vs. Jagdish Electronics (P) Ltd. (1998) ITD 542 (Pune) has held that incomes by way of accumulation of surplus funds which have direct nexus with the industrial activity of the assessee have to be considered while computing deduction under s. 80-I of the Act. Keeping in view the ratio laid down by this Bench in the aforesaid decision, we direct as follows: (1) Interest on deposit w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have no nexus with the industrial undertaking. Accordingly, we hold that the amount of Rs. 1.31 lakhs does not qualify for deduction under s. 80-I. (10) Dividend received - Rs. 59.86 lakhs (11) Profit on sale of asset - Rs. 38.71 lakhs (12) Profit on sale of investments - Rs. 4.13 lakhs (13) Profit on sale of units - Rs. 12.65 lakhs All these items do not qualify for deduction under s. 80-I of the Act as these are not related to industrial activity (14) Provisions written back-Rs. 18.17 lakhs This expenditure relates to manufacturing process and is a part of the manufacturing activity. Accordingly, an amount of Rs. 18.17 will qualify for consideration under s. 80-I. This ground accordingly succeeds in part. 18. Ground Nos. 7 and 8 read as under: (7) In view of the facts and circumstances of the case the AO has erred both on facts as well as in law in charging interest under s. 234A and interest under s. 234B. The same may please be cancelled." (8) Assessee denies its liability to interest under s. 234A and 234B and therefore same may please be cancelled. At the time of hearing, both these grounds have not been pressed. The same are therefore, dismissed. 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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