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TMI Blog1952 (4) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... at the end of the accounting year, applying the well-known principle of commercial accountancy, the assessee adopted the market value (say for example ₹ 300) of the goods on that date as it was lower of the two values, namely the market value and the cost price. Having done that in valuing the closing stock he correctly adopted that value of ₹ 300 as the value of the opening stock for the succeeding year. But at the end of the succeeding accounting year instead of again applying the principle, that he should have valued the closing stock either at the market value or the cost price whichever is lower, adopted the same value of ₹ 300 at which the opening stock was valued, when the market price was say ₹ 400. Here it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is to his advantage. What is now urged in support of the contention that the opening stock and the closing stock in the accounting year could be valued at the same figure is that the value of the opening stock represents really the replacement value of the goods at the time and, therefore, it represents the cost price of the stock. In valuing the closing stock as under the rule already stated he has got the option to adopt either the cost price or the market rate whichever is lower; it is claimed that he is entitled to adopt this notional cost price because it is lower than the market rate. In the illustration given, the sum of ₹ 300, the value of the opening stock during the accounting year, is undoubtedly lower than the market va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whichever is lower. In the illustration if the market price goes to ₹ 600 he could value the closing stock at ₹ 500, the cost price, and no question of profits being taxed before they are earned would arise. The rule of accountancy adopted all over England and as also adopted in India is to construe the cost price as original cost price and not a notional cost price and liberty should be given to the assessee to adopt either the original cost price or the market value. There is no authority in support of the position that the cost price means notional cost price. On the contrary decisions in which the application of the rule was considered are against this contention. In the decision is Commissioner of Income-tax, and Excess P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of the opening stock for the succeeding year. This, it was pointed out, was not warranted and was opposed to principles of commercial accountancy and the rule that in arriving at trading profits the trader has the option of choosing either the market value or the cost price whichever is lower cannot be applied in the manner in which it was done by the assessee in that case. These decisions, in our opinion, clearly point to the conclusion that the method which the assessee has adopted in valuing the closing stock in the present case is not supported either on principle or authority. In these circumstances the question referred to us must be answered in the negative and against the assessee. As the assessee has failed he must pay ..... X X X X Extracts X X X X X X X X Extracts X X X X
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