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TMI Blog2007 (1) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the income on profits and gains can be properly deduced there from. The Authority for this proposition can be seen from the decision of the Supreme Court reported in CIT v. McMillan and Co. [1958] 33 ITR 182 2. As regards the valuation of closing, it is a settled law that an assessee is entitled to value the closing stock either on stock price or market price which ever is lower. In the decision reported in 44 ITR 22 (INDO COMMERCIAL BANK v CIT,) this Court took the view that the fact that the option exercised by an assessee is detrimental to revenue could never be the basis for denying him that option. Summarising the principle on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 145 enjoins an assessee to follow a regular method of accounting, so that profits and gains of business or profession or income from other sources could be computed in accordance with the accounting method regularly employed by the assessee. 6. In a decision reported in 255 ITR 351 ( CIT v PUNJAB STATE INDUSTRIAL DEV. CORPN .), the Punjab and Haryana High Court interpreting the word "regular", held that the provisions cannot be interpreted to mean that once a system of accounting is adopted, it can never be changed. 'Regular' cannot in the present context mean permanent. 7. In a decision reported in 279 ITR 434 ( SANJEEV WOOLEN MILLS v. CIT ), the Apex Court held that the Revenue 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 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, 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 entitled to reject the method of accounting alleging that it lacked bona fides. The learned counsel referred to a letter submitted before the Officer, which is extracted at page 2 of the paper book containing the assessment order. The reply stated that they had switched over the valuation from market value to the cost price which had been recommended by the Institute of Chartered Accountants of India. They also placed reliance on the decision reported in 149 ITR 759 ( CIT v. CARBORANDUM UNIVERSAL LTD ). A perusal of the decision shows that so long as the method of valuation adopted by the assessee gets recognition from the practising accountants and the commercial world for valuation of stock-in-trade, the adoption of that method cannot be questioned by the Revenue unless the change is found to be not bona fide or restricted for a particular year. 11. The learned counsel for the assessee submits that the Assessing Authority's view that the change over of method of valuation did not reflect true affairs of the profits of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cto does not support the case of the Revenue. In the absence of any such finding, we do not find any justification to go against or reject the accounts. 12. In the decision reported in 202 ITR 789 ( MELMOULD CORPORATION v. CIT ), the Bombay High Court at page 792 referred to the booklet called "Valuation 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. It is a convenience, both to the tax payer and to the Revenue, not to regard every change in the method of valuation as a change of bas ..... 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