TMI Blog1925 (1) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... e, and I think that the question as he has framed it is so beset with assumptions and begged questions that it would be impossible to decide fairly what the seal point in this case is by any answer that could be given to the highly involved question he formulated. 3. The facts here are very simple. The assessees are a firm of piece-goods merchants in this city and they keep their books and render their accounts to the income-tax authorities in what is known, generally as the mercantile system of accounts. It is obviously very rough and ready method; but, it is the one that they have adopted and the one that the income-tax authorities are prepared to accept (provided they are satisfied with the honesty of the items set out) as giving suff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f those goods had been put down at ₹ 13-8 a piece, their cost price, there still would have been a trading loss of some ₹ 45,000, so that the assessees really stood to gain nothing if the figure of ₹ 6 was an under-valuation. Now comes the next year. In that year they start off their debit side to stock on the 13th of April 1922, 7,573 pieces at ₹ 13-8 a piece by which means they work out a loss of ₹ 15,000 and odd. The contention of the income-tax authorities is that the stock on the opening of the account must be put at the same value as it was put as stock left on hand on the other side of the previous year's account. That seems so obvious that one must scrutinize carefully what is said against it. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll guarantee trading losses--and at the end of the year he goes to his underwriters and says: I bought at ₹ 13 8 a piece at the beginning of the year. It is now worth ₹ 6; ₹ 7-8 is my loss; please pay me ₹ 7-8. I do not know what defence the underwriters would have to that claim. Suppose that, he goes again next year to the under-writers with the same purpose of having his trading loss underwritten, what are the under-writers going to say if he says that the value of the same stock is ₹ 13-8 a piece? The under-writers would say: We paid you yesterday a partial loss on the footing that these goods had deteriorated to ₹ 6 a piece; now you again value them at ₹ 13-8. Of course, the first observatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse, be entitled in this trading year to treat the difference between ₹ 6 and ₹ 4 i.e. ₹ 2 as another loss justly debited to this year. But in the event of the price going up above the-market rate at the beginning of the year which we must take as an accurate valuation, the difference is his profit. 6. In our opinion the answer that we should return to the question is that the assessee, having elected in the previous year to value his stock at the market price of ₹ 6 a piece for the purpose of showing his trade loss during that year, is not entitled in the succeeding account to revert to the purchase price figure as re presenting the value of the goods, but is bound by the market price which he has fixed and been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . At the end of the year the value of these goods fell in the market to ₹ 6 per piece according to his own statement. In submitting his statement to income-tax authorities for the year April 1921 to March 1922 (Ex. A), he has taken into account the falling price in the market for the whole stock in calculating his loss for the year though he had not sold the stock. He has treated the remaining stock in his hand at the end of the year 7,573 pieces as being worth only ₹ 6 a piece and on that footing he has estimated his loss. In the next year instead of taking that stock as being worth ₹ 6 at which he valued it the day previous to the beginning of the year he valued it at ₹ 13-8 again and on that footing he has estimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee to do so. Having been allowed to treat his loss as one on the stock in hand the previous year, he cannot be allowed again to treat as a loss on the sales in respect of the same stock the next year. That is the only point that really arises in this case. 10. I entirely agree with the learned Chief Justice in the answer that he has proposes to give to the income-tax authorities that we consider that they were right in treating the second year's statement as erroneous in putting ₹ 13-8 as the initial value of the stock he had on hand and that he was only entitled to put ₹ 6 as the value of that stock. This is not a case really of the assessee having made no profit no profit for the second year, for that entirely ..... X X X X Extracts X X X X X X X X Extracts X X X X
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