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TMI Blog2002 (9) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... TH RAY., MS. INDIRA BANERJEE. JUDGMENT AJOY NATH RAY J.-This is an appeal under section 260A of the Income-tax Act, 1961, from an order of the Tribunal dated April 5, 2002, passed in respect of the assessment year 1995-96. The brief facts leading to the controversy in this case are as follows: Although the assessee was in business for quite some years past, yet it entered into the business of dealing in stocks and shares for the first time in the assessment year 1994-95 in respect of which the previous year ended on March 31, 1994. For the assessment year 1994-95, the assessee had adopted the method of taking the cost of acquiring of stocks for the purpose of valuing the closing stock-in-trade of shares held by the assessee at the end of the year. For the assessment year 1994-95 return had been made on this basis of stock valuation, i.e., valuing the stock at the cost of acquiring and returning the profits, if any, made during the year on account of stock dealings by taking into account the actual profits or losses if any made, computing the difference between the actual sale price and the cost price of stock for the accounting year 1993-94. It is an admitted fact be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee is the change in the accounting method of stock valuation, and the change only, has been pointed out repeatedly by the assessee in the return, in the remarks by its auditors and accountants, and in representations before the Department also, at every stage. Suppression, misrepresentation and dishonesty these are not to be found anywhere in the papers or facts of this case. The problem, however, arises whether in law the assessee was entitled to change its valuation method, in the above facts and circumstances, knowing fully well that it would drastically reduce its tax liability. One other remark we also make in this respect, and that is that the assessee must be assumed to have been fully aware that the change in the valuation method would benefit it greatly in the matter of tax incidence. Just as honesty, in the previously explained sense, we have to assume on the part of the assessee in this case, so also, we have to assume sufficient ordinary prudent businessman like understanding, on the part of the assessee, which was, that the adopted change of valuation method was going to benefit it in the matter of its tax return substantially. In these circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year in this case being 1995-96?" The sole section which is material for our consideration from the Income-tax Act is section 145 thereof which, as it stood at the material time, is set out below: "145. Method of accounting - (1) Income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' shall be computed in accordance with the method of accounting regularly employed by the assessee: Provided that in any case where the accounts are correct and complete to the satisfaction of the Assessing Officer but the method employed is such that, in the opinion of the Assessing Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Assessing Officer may determine: Provided further that where no method of accounting is regularly employed by the assessee, any income by way of interest on securities shall be chargeable to tax as the income of the previous year in which such interest is due to the assessee. Provided also that nothing contained in this sub-section shall preclude an assessee from being charged to income-tax in respect of any interest on secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lexibly until he winds up business. The proposition could hardly be disputed by Mr. Ghosh, who appeared for the Revenue. We refer in this regard to a Division Bench decision of our court, given in the case of CIT v. National and Grindlays Bank Ltd. [1984] 145 ITR 457, and since the point is so well settled, we need not dilate upon it any further. Both the Assessing Officer and the Tribunal have opined, on the supposed authority of the British Paints case [1991] 188 ITR 44 (SC), that an assessee is compelled to follow the same method of accounting, which is adopted, and regularly followed by it, and such method cannot be departed from unless there is good reason for the same. The case Of British Paints [1991] 188 ITR 44 (SC) lays down no proposition of this sort. It was a case where the Supreme Court rejected the assessee's method of stock valuation, where it included in such valuation, the costs only, and ignored totally the overheads. We are not concerned with that issue here. Similarly, the Supreme Court was not concerned with the changing of the method of valuation in the case of British Paints [1991] 188 ITR 44 (SC). The case of Snow White Food Products Co. Ltd. v. CIT (No. 1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and law. In case the assessee's accounts and dealings disclose an irregularity, which tends to distort the true view of accounts, or profits, or the commercial transactions, then and in that event, the assessee cannot take the benefit of such distortion. The change in the accounting method must not be too frequent, and the assessee must not lend itself liable to this criticism, that it is changing its accounting method every now and then, with a view to reduction of tax liability, and with that view only in its mind. Such extreme cases might no doubt occur, but the present case is not one such. Before we step on to the second question framed by us and before we leave questions Nos. (i) and (iii), which really go in hand, we also have to point out that in this case, the acceptability of the method of accounting adopted by the assessee was not in dispute. The method was acceptable. The method is the correct method, accepted by all the accountants. That the method gives rise to a picture of true accountings, and a reflection of the true profits, is also not disputed. In such a situation it would be a distraction to consider such cases as the case of B.S.C. Footwear Ltd. v. Rid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court has spoken, one has to speak very carefully in the same field. With the greatest of respect, and to the best of our lights, what we say below in regard to tax avoidance and tax evasion, is not inconsistent with the dicta of the Supreme Court and, in our opinion, correctly summarises the tax court's approach in the modern day. (1) The distinction between tax evasion and tax avoidance is still prevalent. (2) Generally speaking tax evasion is the result of such things as illegality, suppression, misrepresentation and fraud. (3) Tax avoidance is the result of actions taken by the assessee, none of which is illegal or forbidden by the law in itself and no combination of which is similarly forbidden or prohibited. (4) The permissibility of a tax avoidance, will fall to be decided, when and only when, on the basis of the facts and transactions truly and correctly disclosed by the assessee, a point of law arises, whether, on a certain reasonable construction of one part of the taxing statute, as applied to the assessee's case, tax which would otherwise to be payable by the assessee, becomes not payable in the, case in hand. (5) When the court is faced with a task ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the tax return is not something which can be held in any manner against the assessee. The second question is, therefore, also answered in favour of the assessee. The answer is that an assessee is permitted to change its method of stock valuation honestly and in accordance with the above principles of permitted tax avoidance set out above; and that in this case the assessee changed its stock valuation method correctly and is entitled to the tax benefit arising therefrom. We have already answered the first and the third questions in favour of the assessee. The appeal is, therefore, allowed. The order of the Commissioner of Income-tax (Appeals) is accordingly restored and the order of the Tribunal is set aside. The present section 260A casts a duty upon the court to make an order as to costs (by way of sub-section (5)), Considering the facts and circumstances of this case and the good grounds of the assessee and the unsatisfactory manner of disposal of the case by the Tribunal, we award that the assessee be paid one third the costs to be assessed by the Department, such assessment to be made in this case as if it were a regular appeal from a decree passed on the original side ..... X X X X Extracts X X X X X X X X Extracts X X X X
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