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TMI Blog1989 (8) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... erence of the Tribunal that there were changes effected in regard to the valuation of stock of finished goods from time to time was based upon material and/or evidence on record and is otherwise perverse?" This reference is numbered As I. T. Reference No. 163 of 1986. Both the references were heard together. The facts are that the assessee-company is engaged in the business of manufacture and sale of ball bearings. In the course of the assessment proceedings, it was found by the Income-tax Officer that, for and up to the assessment year 1971-72, the assessee-company valued its closing stock of finished goods on the basis of listed selling price less expenses to the extent of 26 per cent. But, during the previous years relevant to the assessment years under reference, it adopted a new method of valuation of finished goods. In these years, the closing stock of finished goods was valued at the listed selling price less 30 per cent. to 32 per cent. on account of selling expenses and a further reduction of 20 per cent. on account of unrealised profits. The Income-tax Officer did not accept the new method of valuation of finished goods adopted by the assessee-company. He rejected the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he earlier years, for and up to the assessment year 1971-72, the assessee company reduced the listed selling price by only 26 per cent. thereof on account of selling expenses, such reduction for the assessment year 1972-73 was 50 per cent. which included, inter alia, deduction for estimated unrealised profit at 20 per cent. and in some years for excise duty as well. Even this new method was not followed by the assessee-company consistently in the sense that another method was substituted in its place on and from the assessment year 1978-79. In other words, the new method was followed by the assessee-company only during the assessment years 1972-73 to 1977-78 and, even in those years, the method of valuation of closing stock was not consistent. In this view of the matter, the Tribunal affirmed the orders of the tax authorities all of whom rejected the method of valuation of stock of finished goods adopted by the assessee-company in the years under reference. At the hearing of this reference, Dr. Pal, learned counsel appearing for the assessee-company, submitted, inter alia, that the assessee-company was consistently valuing its closing stock of finished goods at cost or market p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly recorded a further finding of fact that the new method adopted by the assessee-company for the assessment years 1972-73 to 1977-78 was discontinued and was not followed in the subsequent years. We have considered the rival contentions. It is by now well settled that the method of stock valuation is a part of the method of accounting. Where an assessee regularly employs a method of accounting, its income has to be computed in accordance with such regular method. An assessee is also entitled to change his regular method of accounting by another regular method. But there cannot be any casual departure in regard to the method of accounting adopted by the assessee. It has been held by this court in Champalal Baid v. CIT [1967] 65 IT R 670 that the tax authorities can reject the method of stock valuation adopted by an assessee if it is not followed by him consistently year after year. In this case, the Tribunal has recorded a finding of fact that, for and up to the assessment year 1971-72, the assessee-company was valuing its closing stock by making a uniform reduction of 26 per cent. on account of selling expenses from its listed sale price. It is not the contention of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue relating to extra shift allowance, the Tribunal decided the matter against the assessee-company by holding that allowance for double shift and triple shift working should be calculated with reference to the number of days for which the particular plant or machinery had actually worked extra shift. This view of the Tribunal finds support in the decision of this court in Anantapur Textiles Ltd. v. CIT [1979] 116 ITR 851. Dr. Pal, appearing for the assessee, invited our attention to the decision of the Kerala High Court in CIT v. Punalur Paper Mills Ltd. [1988] 170 ITR 37. In this case, their Lordships of the Kerala High Court referred to the Circular of the C.B.D.T. F.No. 10/83/63-ITA(II) dated September 28, 1970, wherein it was clarified by the Central Board of Direct Taxes that where a concern has worked double shift or triple shift, extra shift allowance will be allowed in respect of the entire plant or machinery used by the concern without making any attempt to determine the number of days on which each machine actually worked double or triple shift during the relevant previous year. Their Lordships of the Kerala High Court, following the said circular which was benevolent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of days each machinery or plant worked in a factory is cumbersome, the existing instructions and the present clarification are aimed at simplifying the calculation of extra shift allowance. " The Revenue contends that this question is now concluded by the decision of this court in I. T. Reference No. 31 of 1983 ( National Standard Duncan Ltd. v. CIT), where the judgment was delivered on July 10, 1989. There, Dr. Pal only relied on the decision in Punalur Paper Mills Ltd. [1988] 170 ITR 37 (Ker), but our attention was not drawn to the subsequent instruction dated February 26, 1985, issued by the Central Board of Direct Taxes. We have held in National Standard Duncan Ltd. that the Board's circular or instruction contrary to the interpretation of the rule made by the court cannot bind the court. However, a benevolent circular issued by the Board, not on the basis of construction of the rule contrary to the decisions of the court but to mitigate any hardship on the application of statutory provisions as interpreted by the court even if it deviates from the statutory provision, may be issued, which would be binding on the income-tax authorities. It appears to us that in the ins ..... X X X X Extracts X X X X X X X X Extracts X X X X
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