TMI Blog2007 (5) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... 2000 are adumbrated herein. The respondent-assessee filed its return of income along with audit copies of profit and loss account and balance-sheet for the assessment year 1995-96 on November 30, 1995, declaring the total income of Rs. 18,226 before the Income-tax Officer, Jabalpur. Thereafter, the matter stood transferred to the Commissioner of Income-tax, Special Range, Jabalpur, where the revised return was filed by the assessee on June 28, 1996, declaring a total loss of Rs. 26,93,100. During the assessment proceeding it was found by the Assessing Officer that the assessee had valued the closing stock of parental chick and hatched eggs at nil. The Assessing Officer after calculating the total number of birds as per the books of account and the average selling price of each parental bird valued the closing stock of parental flock at Rs. 39,44,880 and credited the same to profit and loss account. After making due adjustments calculated after allowing deductions and making additions to the extent it is permissible, the Assessing Officer determined the total income of the assessee at Rs. 51,22,520. Being aggrieved by and dissatisfied with the aforesaid order of the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be treated as the stock-in-trade. The Tribunal has misdirected itself being persuaded by the method of accounting adopted by the assessee on the ground that the said method of accounting has been suggested by the Institute of Chartered Accountants of India because there is no other mode of accounting available for evaluation of parental flock on the last date of the accounting year. Mr. L.L. Sharma, learned counsel appearing for the assessee in all the cases submitted as under: (a) Both, the Commissioner of Income-tax (Appeals) and the Tribunal, have specifically returned a finding by analysing the facts in issue that the parental flock is not the stock-in-trade. (b) The purchase of parental flock is of one day old chicks which are reared under the prescribed hygienic conditions for six months and after collection of the eggs, a procedure has to be undergone to convert them to a commercial flock intended for sale and it cannot be regarded as stock-in-trade. (c) The first appellate authority has categorically and unequivocally noted that the parental flocks merely produce the eggs from which chicks are further hatched in scientific manner and it is these chicks which form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied and on that basis dismissed the appeal. The matter travelled to the High Court in reference and it was contended that the said bars remained there during the rest of accounting year, their value at the market rate at the closing of the year being an increment to the goods at Bikaner, the profit accrued at Bikaner, with the result that it was exempted. The High Court rejected the said contention on the ground that "notional profit" represented by the appreciation in value of the stock-in-trade "emerges out of the valuation and only when it so emerges it arises or accrues. The source of the profit is thus the valuation, and its situs is where the valuation is made and the firm's business at the site of the firm and all the stock-in-trade of the firm is necessarily drawn into the valuation wherever they may be physically situated. The High Court further held that the profit which is the result of the stock valuation of a business in the 'sui generis' a type by itself, to which the ordinary notions' of a physical accrual will not apply. It comes into existence when the valuation is made and since it arises out of the valuation, it arises in respect of the whole stock-in-trade, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excludes, for the valuation of the stock-in-trade, all costs other than the cost of raw materials for the goods-in-process and finished products, is likely to result in a distorted picture of the true state of the business for the purpose of computing the chargeable income. Such a system may produce a comparatively lower valuation of the opening stock and the closing stock, thus showing a comparatively low difference between the two. In a period of rising turnover and rising prices, the system adopted by the assessee, as found by the Tribunal, is apt to diminish the assessment of the taxable profit of a year. The profit of one year is likely to be shifted to another year which is an incorrect method of computing profits and gains for the purpose of assessments. Each year being a self-contained unit, and the taxes of a particular year being payable with reference to the income of that year, as computed in terms of the Act, the method adopted by the assessee has been found to be such that income cannot properly be deduced therefrom. It is, therefore, not only the right but the duty of the Assessing Officer to act in exercise of his statutory power, as he has done in the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of buying and selling land, land may be his stock-in-trade but in the case of an assessee who has invested his savings in land and gets income from the land or the structures put up on the land, the land is his capital asset. Therefore, one of the indications for deciding as to what is stock-in-trade is whether a particular assessee is buying or selling the commodity or whether he has merely invested his amount with a view to earn further income or with a view to carry on his other business. It may be pointed out that 'trade' means that particular business activity where the person engaged in the profession buys or sells. All businesses may be carried on for the purpose of earning a profit but that particular kind of business where the businessman buys and sells a commodity can only be designated as 'trade'. This conclusion of ours is fortified by the decision of the Court of Appeal in England in Wheatley v. Smithers [1907] 2 KB 684." It is submitted by Mr. Rohit Arya, learned senior counsel for the Revenue that a hypothetical example can be taken. If an assessee makes huge purchases of the parental flock at the beginning of the year and does not show the same as closing stock fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f production and the Assessing Officer cannot take the value collectively. Thereafter, the said authority has opined that the revenue expenses at best on each bird would be spent at the cost of not less than Rs. 5 though actually the cost is lawfully deduction in the year in which it has been spent and put to use. Being of this view the said authority directed deletion of the amount added by the Assessing Officer. The Tribunal referred to the decision rendered by the Gujarat High Court and analysed the essential characteristics of the stock-in-trade. The Tribunal opined. that if there is any exploitation of the commodity from which the income is derived it cannot be termed as stock-in-trade. The Tribunal further expressed the view that what was purchased by the assessee is the parental flock which is one day old chick and that was not for sale but for rearing them by adopting a process for collecting eggs. In that backdrop the Tribunal held that the eggs that were laid by the parental flock and that the chicks which were for the purpose of sale alone can be termed as the stock-in-trade. The assessee has relied on the agreement entered into between him and Venkateshwara Hatcheries P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, which in their turn, are hatched to become chicken, thus they really do grow in their own way; (ii) though their productivity in a particular accounting year may be zeroed but their sale value cannot be regarded to be nil unless it is so proven to that effect by adducing adequate evidence that they have been totally discarded or destroyed; (iii) the logic that it is discarded for nominal value by itself cannot change the perception of the conception of stock-in-trade inasmuch as the value still exists and a living species being utilised in a business cannot be compared to that of an item which is brought in stock to be sold; and (iv) the chick which grows with time has the effect potentiality to be sold and some permission of the supplier has been brought on record to show that it has no-objection for the sale of the old parental flocks after expiry of the productive period stipulated in the franchise agreement. These aspects have been missed and thereby an erroneous conclusion has been arrived at. The singular facet which really has signification is that it is a raw material, if we permit ourselves to say so, has the potentiality to transform itself into a different category ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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