9911796707
TMI Blog2007 (1) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... the power to reject the change in the method of valuation of closing stock when change itself is not genuine and bona fide. It is an accepted principle of law that under Section 145, first proviso to sub section (1), that even in cases where the accounts are correct and complete to the satisfaction of the Assessing Officer, in cases where the income could not be properly deduced therefrom, then it is open to the Assessing Officer to compute the income in such a manner as he may determine. The crux of the provisions under Section 145 is that even if the Assessing Officer accepts the assessee's method of accounting, he is not bound by the results flowing from the accounts. The Act enjoins a duty on the Assessing Officer to consider whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n him- to make such computation in such manner as he determines for deducing the correct profits and gains. This means that where accounts are prepared without disclosing the real cost of the stock-in-trade, albeit on sound expert advice in the interest of efficient administration of the company, it is the duty of the Income-tax Officer to determine the taxable income by making such computation as he thinks fit. " 4. Placing reliance on this decision, the learned counsel for the Revenue submits that considering the provisions of Section 145, it is only the Assessing Authority who has the right to change the system of valuation and that an Assessing Authority can ignore the method of valuation adopted by the assessee to arrive at the proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue is bound by the assessee's choice of method regularly employed. The method of accounting followed by the assessee cannot be substituted by the Assessing Officer merely because it is unsatisfactory. What is material for the purpose of Section 145 of the Income Tax Act, 1961 is that the method should be such as to enable a real income, profits and gains to be properly deduced therefrom. Speaking on the method of valuation on closing stock, in the decision reported in 250 ITR 871 (SAKTHI TRADING CO. v. CIT), the Apex Court held that, "...But on no principle can one justify the valuation of the closing stock at a market value higher than the cost as that will result in the taxation of notional profits which the assessee has not reali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the Apex Court held that if the method employed by the assessee did not enable the Assessing Authority to deduce the correct chargeable income, the Assessing Authority could apply different methods of accounting to deduce the income chargeable. As far as the valuation of closing stock is concerned, the recognized and settled legal position is that the closing stock has to be valued r at market value or cost value, whichever is low. 10. In the light of the settled principle of law and having regard to the fact that the term "regular" cannot mean a permanent pattern of accounting working, the learned counsel for the assessee submits that the method adopted by the assessee reflected the true income, and as such, the Revenue is not entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions, which were relied on by the assessee as well as by the Revenue, outline the principles given by the Apex Court as to the valuation. The only difference in the presentation of the argument between the parties herein is that while the Revenue contends that the system adopted by the assessee lacked bona fide, the assessee countered it by saying that following the well recognised system of accounting could not be stamped as lacking in bona fide. So long as the system followed by the accounting standards reflect the true profits of the business, the Revenue cannot reject the method as lacking in bona fide. A perusal of the order of the Assessing Officer indicates that such line of reasoning does not indicate that the method adopted did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of stock and work-in-progress- normally accepted accounting principles" brought out by Indian Merchants' Chamber Economic Research and Training Foundation, which may usefully be extracted here too, "2. Where a change from one valid basis to another valid basis is accepted, certain consequences normally follow. The opening stcok of the base year of change is valued on the same basis as the closing stock. Whether the change is to a higher level or to a lower level, the Revenue normally does not seek to revise the valuation of earlier years. It neither seeks to raise additional assessments, nor does it admit relief under the 'error or mistake' provisions. 3. It is not possible to define with precision what amounts to a change of basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
