9911796707
TMI Blog1992 (10) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... of method adopted by the assessee ? The material facts giving rise to this reference briefly are as follows: The assessee is a company engaged in the business of developing and manufacturing forest products for sale. For the assessment year 1979-80, the, assessee changed the method of accounting in relation to the valuation of closing stock. A claim was made before the assessing authority to say that the change was made for a bona fide reason and that the closing stock figures should be one as determined by the assessee for the purpose of income-tax assessment. The Income-tax Officer rejected the claim on the ground that the statutory auditors of the assessee had not agreed to the change in the method of accounting. The first appellate au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely because the changed method of accounting of the value of the closing stock was not agreed to by the statutory auditors. He further urged that even assuming that the changed method of accounting in relation to the valuation of closing stock was not acceptable, it was open to the Income-tax Officer to exercise his power under section 145 of the Act and adopt such method of computation as may be appropriate for determining the true income of the assessee. Admittedly, the Income-tax Officer did not find that the changed method of accounting was not bona fide but merely relied upon the statement of the statutory auditors that they would not approve the changed method of accounting and proceeded to add back a sum of Rs. 10,56,746 which is, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in CIT v. British Paints India Ltd. [1991] 188 ITR 44 (SC). The Supreme Court has held thus (headnote) : " (i) that even if the assessee had adopted a regular system Of accounting, it was the duty of the Assessing Officer under section 145 of the Income-tax Act, 1961, to consider whether the correct profits and gains could be deduced from the accounts so maintained. If he was of the opinion that the correct profits could not be deduced from the accounts, he was obliged to have recourse to the proviso to section 145 of the Income-tax Act, 1961". " The question to be determined by the Assessing Officer in exercise of his power under section 145 is whether or not income can properly be deduced from the accounts maintained by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such method of computation as he deems appropriate for proper determination of the true income of the assessee." What emerges from the above principles laid down by the Supreme Court is that when the assessing authority does not accept the assessee's method of accounting for the assessment year, then he could exercise power under section 145 to make such computation in such method as he determines for deducing the correct profits and gains. In this case, the Incometax Officer did not accept the changed method of accounting of the assessee merely on the basis of the objections taken by the statutory auditor. Not accepting the assessee's changed method of valuation, the Income-tax Officer had merely taken the figure of the statutory auditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounting of the assessee without holding or finding that the changed method for revaluing the opening stock is not bona fide. In this connection, we find that the Tribunal has only referred to the contentions of the assessee and the Revenue. The relevant portion of the order at para 3 of the Tribunal's order reads as follows : " In the further appeal before us, it was contended on behalf of the assessee, relying on the decision of the Supreme Court in the case of Chainrup Sampatram v. CIT[1953] 24 ITR 481, that it was a misconception to think that any profit arose out of the valuation of the closing stock. Reliance was also placed on the decision in the case of Ram Luxman Sugar Mills v. CIT [1967] 63 ITR 51 (All) and the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Officer had exercised the power under the proviso to section 145(1) of the Act on his finding that the method adopted is such that he could not properly deduce the income and for the purpose of proper computation had resorted to any other basis. The power of the Tribunal under section 254 of the Act can be exercised only in relation to the grounds arising in the appeal. It cannot go beyond the scope of the appeal and decide the question whether the Income-tax Officer has exercised the power under section 145(1) of the Act or not, which does not form the subject-matter of the appeal. It is apparent from the records that the Tribunal has not decided the actual question involved in the appeal, but has trenched upon the power exerc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
