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TMI Blog2004 (9) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... (AS-11) prescribed by ICAI. It was to be taken as on the last day of the accounting period. Perusal of the decision of the jurisdictional High Court in Melmould Corpn. s case [ 1993 (2) TMI 82 - BOMBAY HIGH COURT] makes it clear that if the change is bona fide , one time loss occurred due to the change cannot be rejected outrightly. In this case, the Hon ble High Court held that the assessee could not be required to revalue the opening stock by excluding all overhead expenses when the assessee has been permitted to revise the method of valuing the closing stock for that year, as the assessee has decided to adopt this new method of valuation henceforth. The stand of the Revenue that though the change adopted by the assessee was right, the only objection of the Revenue that it should be in accordance with section 145 and section 145 came into effect from the subsequent year and therefore the change made by the assessee during the year under consideration is to be rejected. This stand is without any merits. It is true that the Income-tax Act is a code by itself. Section 145 is applicable even if there is no change of method in the accounting principles prescribed by ICAI. But here is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de for re-examination along the above lines. The ground is accordingly disposed." 3. Suffice to say that this issue stands squarely covered in favour of the assessee by the decision of the Hon ble Supreme Court in CIT v. Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275 1 . There is no dispute that the assessee has accounted for both the purchases and the closing stock net of Modvat credit. Respectfully following the aforesaid judgment of the Supreme Court, this ground is allowed. 4. Coming to the second ground by the assessee, it is directed against the order of the CIT(Appeals) in rejecting the claim of the assessee for adopting net interest concept while computing deduction under section 80HHC and thereby reducing Rs. 11,61,845 under clause ( baa ) of the said section. According to the assessee, the entire claim should have been allowed. 5. The ld. representative for the assessee produced order of the Tribunal dated 28-5-2003 in assessee s own case for the assessment year 1995-96 in ITA No. 263331/Mum./1998, wherein similar issue was agitated by the assessee. Vide para 5 of the order, the Tribunal remanded the matter to the file of the Assessing Officer to redo the matter in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting policy - Current assets/liabilities are translated at the exchange rates prevailing at the year end as against exchange rates realised followed in earlier year. Above change in accounting policy is in view of Accounting Standard-11 and has the effect of understanding the profit of the current year by Rs. 36,94,620." In addition to the above, CIT also noticed that excess deduction under section 80-IA was allowed to the assessee. 12. It was contended by the assessee that there was a change in the accounting policy inasmuch as the current assets/liabilities in respect of export proceeds and import duties were accounted at the exchange rates prevailing at the year end as against policy of exchange rates realised in earlier year. It was further submitted that the change had become necessary in view of Accounting Standard (AS-11) which came into effect from 1st April, 1995 and it was also mandatory. It was further submitted that the assessee had no alternative but to follow the Standard and value the creditors in respect of imports and debtors in respect of the exports at the exchange rates prevailing at the year end as per paragraph 7( a ) of the Accounting Standard. It was furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given at pages 11-12 of the assessee s paperbook, particularly page 12 item (2), the assessee s representative submitted that the change in accounting method followed by the assessee regularly was changed as there was a mandatory change in the Accounting Standard, which had come into effect during the year under conside-ration. The CIT s observation that section 145 came into effect from 1-4-1997 i.e. relevant to assessment year 1997-98 has nothing to do with the change of the assessee s method. Assessee was bound to follow AS-11 as laid down by the ICAI. Assessee s change was bona fide under the circumstances and assessee was following the change in the method consistently thereafter. AS-11 is evidenced vide paperbook pages 22 to 29. Assessee s change in the method has been accepted by the Revenue in all the subsequent years. Relying upon the decision of the jurisdictional High Court in the case of Melmould Corpn. v. CIT [1993] 202 ITR 789 1 (Bom.), assessee s representative submitted that if the change in the method of valuing the closing stock is bona fide , change in the method of valuing closing stock cannot be rejected by the Revenue. Assessee cannot be required to revalue t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Hon ble Supreme Court in the case in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 4 submitted that CIT can invoke section 263 if the order of the Assessing Officer is erroneous and it is prejudicial to the interests of the Revenue. It is true that both the conditions must co-exist. But if due to an erroneous order of the AO, if the Revenue is losing the tax lawfully payable by a person, the order is certainly prejudicial to the interests of the Revenue. In the instant case, the ld. DR submitted, as rightly noted by the CIT, section 145 of the Income-tax Act came into effect from 1-4-1997 onwards i.e. applicable to assessment year 1997-98. Income-tax law is a code by itself. It need not go outside to decide and to find out whether some items are taxable or not. The guidelines issued by the ICAI cannot overlook the provisions of the Income-tax Act. Hence the ld. DR submitted that the order of the CIT passed under section 263 is in the right direction and by the change effected by the assessee, Revenue has lost its due share and therefore the order by the Assessing Officer without considering these facts is certainly erroneous and prejudicial to the interests ..... X X X X Extracts X X X X X X X X Extracts X X X X
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