TMI Blog1955 (3) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... titled law to value the stock of cotton at the end of the immediately preceding year (and thereby at the commencement of this year) at market rate, though the same was higher than cost price ? 2. From the statement of the case it appear that the assessee who is a Hindu undivided family submitted his returns for the Samvat year 2003-04 (October 25, 1946, to November 12, 1947). The family gets its income from house property, agriculture, Commission business in the name of Ramnarayan Shivnarayan of Partur and a yarn and cloth business in the name Shivnarayan Bros. at Secunderabad. A return field by the assessee showed a loss of ₹ 4,132 in speculation in Bombay which was sought to be deducted from the profits of the family bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation laws till 1352 F., in which year excess profits tax was levied. Prior to that merchants did not maintain regular accounts, or if they did maintain regular accounts, or if they did maintain regular accounts, they were not in the habit of preparing balance sheets or profit and loss accounts. The assessee appears to be one of those many persons and though he kept regular accounts, he was not in the habit of closing his accounts to profit and loss regularly each year. With respect to the stocks, he merely showed book balances in the cotton account. 5. Before the Hyderabad Income Tax was promulgated, it would appear from paragraph 6 of the statement of the case that though the assessee was subject to the Hyderabad excess p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en valued at cost and secondly, when the assessee made returns to excess profit tax, he had computed his profit on the basis of valuing the stock at cost. These contentions are repelled by the learned advocate for the assessee who states that throughout balances have been shown as book which do not amount to valuing the opening and closing stocks at cost price, that as the assessee has not followed any regular method of valuing the stock until the year of account he has a right to value the stocks either at market value or cost price, and that it is in exercise of that right he valued the stocks at market rate. With respect to the contention of the learned advocate for the Department that the assessee had valued stocks for the purpose of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r losses, as also the correctness of the balance sheet, depend considerably upon the manner in which the various assets are valued for purposes of inclusion in the balance sheet. As the correctness of the profits or losses of a business depends to a considerable extent on the valuation placed on the opening and closing stocks-in-trade or other assets, the assessee has been given the option to value them either at cost price or at market price, but if he has adopted one of these methods, he should regularly employ the same method and not change it at his will and pleasure. 9. We have, in the case of Vithal Reddy Ranga Reddy v. The Government of Hyderabad after a careful review of the relevant cases dealing with the question of v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deviated from this in the fifth chargeable accounting period in which the opening stock was valued at cost price but the closing stock was valued at market price. This case is, however, sought to be distinguished on the ground that where the assessee has not adopted any regular method of valuing stocks, he can only value his stocks either at cost price or at market price whichever is lower; as such it is contended that since the cost price is lower than the market price, the assessee should only be allowed to value the stock at cost price. In our view, this contention has no force. It may be a sound commercial practice for the assessee to adopt the lower of the two methods of valuation, but that is a relief intended to be in favour of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 100 each and has incurred an expense of ₹ 300 for ginning and pressing. The value of 50 bales would then be ₹ 5,30. During the year he sells 25 bales at ₹ 1 50 each, realising ₹ 3,750. The book balance at the end of the year would be 25 bales of cotton, leaving a book balance on that account ₹ 1,550 which may not represent either the cost price or the market price. In other words, book balance computed after crediting that particular account with the sale price of the item or items of asset stocks sold, whether at a profit or at a loss. 12. Having regard to all the circumstances in this case, as the assessee has not adopted any regular method of valuing his closing stocks, at the market ..... X X X X Extracts X X X X X X X X Extracts X X X X
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