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TMI Blog1986 (12) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... ever was lower', there was a loss to the extent of Rs. 4,64,547, on the basis of the IAC's order under s. 144B, the relevant portion of which reads as follows: "The company has all along been valuing the closing stock of shares at cost. As assessee can change its method of valuation of closing stock provided it is bona fide. During the accounting year under consideration, the company earned a huge profit of Rs. 5,90,530, form speculation in sharers. So the reason for changing the method of valuation in this particular year is not far to seek. The company has changed the method of valuation of the shares during the year in order to set off the loss of Rs. 4,64,547 arising on account of such valuation against the aforesaid speculation profit and to reduce it so that it does not pay the taxes which the company would have been liable to pay. In these circumstances, the change of method of valuation has not been bona fide. The CIT(A) agreed with the aforesaid finding of the IAC by observing, Inter alia, vide paragraphs 23 and 24 of his order that the appellant suddenly and arbitrarily chose to change the method of accounting, simply because it suited its purpose. Such self-serving ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of shares. It has been stated that before the ITO the assessee submitted extracts from the proceedings of the minutes of the meeting of the Board of Directors held on 7th July, 1975 which recorded the reasons for effecting the change in the valuation of closing stock of shares and debentures in the following manner:— "The Chairman informed the Board that the closing stock of shares and debenture have all along been valued "at Cost" But there has been fluctuations and steep fall in the value of the shares and debentures held by the Company over a number of years because of the said reasons, the Chairman felt that the closing stock of shares and debentures valued "at cost" does not reflect he correct financial position of assets. To present a true and correct financial position of the assets, he suggested to change the method of valuation of closing stock of shares and debentures from "At Cost" to "At Cost or Market Rate whichever is lower." The first of such valuation of closing Stock shall be made on the close of the running accounting year i.e. on 30th June, 1976 and the said new method shall be regularly followed subsequently year after year. Thereafter the following resolu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in the past valued its stocks at the cost price both at the beginning and at the end of the year. In the subsequent year, the assessee opened the account with stocks valued at cost price and closed it with a valuation at the market price which was much higher than the cost price. The ITO valued the stocks both at the beginning and at the end of the year at cost and thereby made addition by resorting to the provision to s. 13 which was upheld by the High Court. He also referred to various other decisions in support of the CIT(A) order that a change effected in the method of valuation of shares by the assessee, unless for bona fide reasons, cannot be accepted. Decisions relied on are CIT vs. Achrulal (1938) 68 ITR 255 (Nag), Kanwalnen Hamir Singh vs. CIT (1938) 69 ITR 675 (All) in the matters of M/s Chouthmal Golpachand (1938) 6 ITR 733 (Cal), Inuestment Ltd vs. CIT(1970) 77 ITR 533 (SC). Finally the Departmental representative referred to the Supreme Court decision in the case of workmen of Associated Rubber Industry Ltd. vs. Associated Rubber Industry Ltd. and anr (1985) 48 CTR (SC) 35 : (1986) 157 ITR 77 (SC) and stated that the method of valuation of shares adopted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Mad) as under: "A notional or anticipatory loss resulting from a valuation of the closing stock, which an assessee is permitted to take into account in ascertaining his trading profits, stands on no different footing. It is a concession given to the assessee based on the well recognised usage of the trade, and the principle underlying that concession is in no way violated when the assessee changes his method of valuation from cost to market value, if the latter was less than the cost price. If the revised basis of valuation is continued thereafter the profits and losses thereafter would be correctly computed." The aforesaid decision of the Madras High Court has been referred to by the Calcutta High Court in the case of Snow White Food Products Co. Ltd. (1982) 29 CTR (Cal) 8 at 13. (1983) 141 ITR 861 at 872 (Cal) wherein it has been observed that "the law appears to be settled that an assessee is entitled to change his regular method and such a change can be effected in respect of a part of the assessee's income." The Supreme Court in the case of Investment Ltd. vs. CIT (1970) 77 ITR 533 at 537 : 538 (SC) observed as follows: "A taxpayer is free to employ, for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppears to us that it is in this context only that the expression "good faith" and "bona fide" occur in the observations in the earlier judgment noted earlier. The earlier judgments referred to in this context are the decisions of the Calcutta High Court in the case of CIT vs. Eastern Bengal Jute Trading Co. Ltd. (1978) 112 ITR 575 (Cal) and CIT vs. Rajasthan Investment Co. vs. (P) Ltd.(1978) 113 ITR 294 (Cal). The High Court on a due consideration of the Calcutta High Court decision in the case of M/s Chouthmal Golapchand (1938) 6 ITR 733 (Cal) and in the case of Reforms Flour Mills P. Ltd. vs. CIT (1978) 114 ITR 227 (Cal) held that where it is found that an assessee has changed his regular method of accounting by another recognised method and has followed the latter method regularly, thereafter, it is not open to the Revenue authorities to go into the question of bona fides on the introduction and continuance of the change, Snow White Food Products Co. Ltd. (1982) 29 CTR (Cal) 8 at 14 : (1983) 141 ITR 861 at 874 (Cal). The assessee's ld. counsel furnished before us copies of the ITO's orders for the asst. yr. 1978-79 and 1979-80 from which it reveals that the ITO accepted the chan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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