TMI Blog1992 (12) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent. M/s. Doom Dooma Tea Company Ltd., incorporated in the United Kingdom, was a foreign company. On account of restrictions imposed by the Reserve Bank of India, foreign participation in the company had to be brought below 75 per cent. under the provisions of the Foreign Exchange Regulation Act, 1973. Therefore, a device was adopted for incorporating a new company which has less than the maximum prescribed foreign participation. The new company, M/s. Doom Dooma Tea Company Ltd., was incorporated on December 26, 1977. The new company took over the assets and liabilities of the foreign company on January 1, 1978, and obtained the certificate of entitlement to commence business on March 9, 1978. The stock in hand of the foreign company b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal. Section 145 of the Act deals with the method of accounting. The part of the section relevant for the purpose of this case is quoted below: "145. Method of accounting.- (1) Income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' shall be computed in accordance with the method of accounting regularly employed by the assessee : Provided that in any case where the accounts are correct and complete to the satisfaction of the Income-tax Officer, but the method employed is such that, in the opinion of the Income-tax Officer, the income cannot properly be deduced therefrom then the computation shall be made upon such basis and in such manner as the Income-tax Officer may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tageous to the assessee. If the Assessing Officer is not satisfied about the correctness or the completeness of the accounts of the assessee, or where no method of accounting has been regularly employed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144. In Chainrup Sampatram v. CIT [1953] 24 ITR 481, the Supreme Court observed as follows (at page 485) : "The true purpose of crediting the value of unsold stock is to balance the cost of those goods entered on the other side of the account at the time of their purchase, so that the cancelling out of the entries relating to the same stock from both sides of the account would leave only the transactions on which there have been actual sales i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted different method of keeping account, or of valuation. The method of accounting regularly employed may be discarded only if, in the opinion of the taxing authorities, income of the trade cannot be properly deduced there from. Valuation of stock at cost is one of the recognised methods. No inference may, therefore, arise from the employment by the company of the method of valuing stock at cost, that the stock valued was not stock-in-trade. " in A. L A. Firm v. CIT [1991] 189 ITR 285, the Supreme Court dealt with the case of a dissolved firm. The court referred to a number of decisions holding that the principle of valuing the closing stock of business at cost or market price at the option of the assessee is a principle that would ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and payments or on the basis of turnover. It has long been recognised that the right method of assessing profits and gains is to take into account the value of the stock-in-trade at the beginning and the value of the stock-in-trade at the end as two of the items in the computation. " The basic fact which has to be borne in mind in deciding the question under reference is that the assessee is a new company which commenced business only in the previous year relevant to the assessment year in question. The assessee did not have any opening stock manufactured by it. The only opening stock, if it can be so called, was the stock manufactured by the foreign company and taken over by the assessee at the commencement of the previous year. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... object only if it is of the opinion that the method employed is such that the income cannot be properly deduced therefrom. The Tribunal has taken the view that the assessee adopted the same system of accounting for valuing the opening stock and closing stock and that there is no basis for taking the view that the income cannot be properly deduced from the method employed by the assessee. This view is consistent with law. For the aforesaid reasons, we uphold the view taken by the Appellate Tribunal that the assessee had properly opted to value the closing stock at cost price in the first year of its business. The question referred is answered in the affirmative, i.e., in favour of the assessee and against the Revenue. A copy of this judg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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