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TMI Blog1996 (7) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... in the vat which was not taken into account while valuing the stock? 2. Whether the Appellate Tribunal's finding that the change in the method of accounting is bona fide, is based on valid and relevant materials and is sustainable in law?" The assessee is a company engaged in the business of printing and publishing newspapers. In arriving at the value of the closing stock of metal and types, the assessee used to estimate the value of such metal and types on an ad hoc basis. Since the assessee used a special type of alloy for making types for printing and the alloy so received in the press room could not be easily quantified or evaluated, the assessee chose to change its method of valuation from the previous year, relevant to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned standing counsel appearing for the Department submitted that the assessee has not consistently followed a uniform method. If the molten metal in the vat had no value, the assessee would not have resorted to estimate such value in the past. According to learned standing counsel, the addition was justified so as to bring it on par with the real income for the year. Otherwise, the result for this year would be a distorted one. Even on the analogy of loose tools, learned standing counsel submitted, that in view of the text book of accountancy, the loose tools have to be valued both on the opening and closing day to arrive at the annual income. Therefore, according to learned standing counsel, in order to arrive at the real profit at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is issued from the store room. The adoption of the new method was treated as a change in the method of accounting regularly employed by the assessee and distorting the profits of the year. It was further submitted that the method followed by the assessee is justified in respect of the loose tools. For these reasons, it was submitted that the Tribunal was correct in accepting the order passed by the Appellate Assistant Commissioner in deleting the addition relating to the value of the alloy sent to the press room. We have heard both learned standing counsel appearing for the Department as well as learned counsel appearing for the assessee. The point for consideration is, whether the deletion of disallowance of Rs. 2,54,705 added by the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is own method of accounting, which is convenient and suitable for his business. The point for consideration is, that such kind of change of method of accounting should not interfere in the process of finding out the true profit of the year under consideration. The addition was made in the present case to neutralise distortion arising in the adjustment. If the change in the method of accounting as in a stock valuation, is bona fide and it is not adopted merely to reduce the tax liability, the change in the method of accounting is always acceptable. We have got to ascertain whether the change is bona fide and whether the new method can be considered to be a reasonable method or better method or a normal method generally considered as appropri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal that the adoption of this method is bona fide and is a permanent arrangement. The Revenue's only contention is that it was shown to be prejudicial to the Revenue. As pointed out in Chainrup Sampatram v. CIT [1953] 24 ITR 481 (SC) and Indo-Commercial Bank Ltd. v. CIT [1962] 44 ITR 22 (Mad), merely because the new method adopted by the assessee was detrimental to the Revenue, that alone can never be the basis for denying the right to change the method. Further, even though the change of the method has resulted in a detriment to the Revenue in the year in question, since the method is to be followed consistently year after year in future, this apparent detriment to the Revenue will get adjusted and disappear. Therefore, in view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be disallowed on such a ground. A notional or anticipatory loss resulting from a valuation of the closing stock, which an assessee was permitted to take into account in ascertaining his trading profits, stood on no different footing. It was a concession given to the assessee based on the well-recognised usage of the trade, and the principle underlying that concession was in no way violated when the assessee changed his method of valuation from cost to market value, if the latter was less than the cost price. If the revised basis of valuation was continued thereafter the profits and losses thereafter would be correctly computed." In CIT v. British Paints India Ltd., [1991] 188 ITR 44, the Supreme Court, while considering the valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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