TMI Blog2009 (6) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... law on disregarding the MoU between the company and erstwhile partnership firm whereby all the liabilities of the firm including contingent liabilities were to be borne by the company. The learned CIT(A) has wrongly and illegally confirmed the action of AO." 3. The assessee is a limited company engaged in the business of manufacturing of condensed milk, Ghee and butter. During the asst. yr. 2002-03, it was found by the AO, in a scrutiny assessment, that it had changed its system of accounting in respect of valuation of closing stock of inventories. In earlier years they were valued 'at cost' while in this year the same have been valued 'at net realizable value'. The assessee was asked to provide reason for such change in the system of the valuation of closing stock to justify its acceptance by the IT Department. The assessee explained as under: "Note on valuation of closing inventory Please refer to para (6) of Annex. W to the auditors report which is submitted as under: On the basis of the examination of stock records, we are of the opinion that the valuation of stock is fair and proper in accordance with the accepted accounting principles except that the finished goods hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets should not be carried in excess of amounts expected to be realized from their sale or use. Estimates of net realizable value are based on the most reliable evidence available the time the estimates are made as to the amount of inventories are expected to realize. These estimates take into consideration fluctuations of price or cost directly relating to events confirm the conditions existing at the balance sheet date. However, materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be used are expected to be sold at or above cost but, when there has been decline in the price of materials and it is estimated that the cost of the finished products will exceed net realizable value, the material are written down to net realizable value. In such circumstances, the replacement cost of materials may be the best available measure of their net realizable value. An assessment is made of net realizable value as at each balance sheet date. It is accepted accounting principle that all determined losses should be considered before finalizing the accounts and the same is directed by CBDT to be observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be mentioned that statutory auditors in this case have given a finding that the valuation of the stock is fair and appropriate and according to the accepted accounting principles except that of finished goods. 8. He was also of the opinion that the decision of the Madras High Court in the case of CIT vs. Andhra Prabha Ltd. (1997) 143 CTR (Mad) 387 : (1998) 231 ITR 81 (Mad) is not applicable as the facts of this case arc very different. According to him, the decision of the Hon'ble Supreme Court in the case of United Commercial Bank vs. CIT (1999) 156 CTR (SC) 380 : (1999) 240 ITR 355 (SC) wherein the Hon'ble Supreme Court laid down stress over the consistency in the method of valuation. The case cited, according to the learned CIT(A), was contrary to the position taken by the assessee in changing method of valuation regularly employed in the earlier year. 9. According to the learned CIT(A), the decision of the Kerala High Court in the case of Abad Fisheries vs. CIT (2000) 159 CTR (Ker) 293 : (2000) 244 ITR 21 (Ker) is not of much help as according to him the AO has not accepted that change in the method of valuation of stock was bona fide. It is on these lines that he confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Kerala High Court in the case of Abad Fisheries vs. CIT. The learned Departmental Representative further argued the cases relied upon by the assessee are not applicable as most of them related to the provisions of s. 145 and not the provisions of s. 145A and, therefore, have to be cautiously applied. 12. We have carefully gone through the records and considered the rival submissions. The provisions of s. 145 dealing with 'the method of accounting' and s. 145A dealing with 'the method of accounting in certain cases' which are relevant to decide the case before us are reproduced below: "145-(1) Income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' shall, subject to the provisions of sub-s. (2), be computed in accordance with either cash or mercantile system of accounting regularly by the assessee, (2) The Central Government may notify in the Official Gazette from time to time Accounting Standards to be followed by any class of assessees or in respect of any class of income. (3) Where the AO is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aration or presentation of the financial statement by an assessee. The said clause reads as under: "9. A change in an accounting policy shall be made only if the adoption of a different accounting policy is required by statute or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statements by an assessee." 14. The provisions of s. 145A start with non obstante clause. A clause beginning with "notwithstanding anything contained in this Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force" is sometimes appended to a section in beginning, with a view to give the enacting part of the section in case of conflict an overriding effect over the provision or Act mentioned in the non obstante clause, Union of India vs. G.M. Kokil (1984) Supp. SCC 96. It is equivalent to showing that in spite of the provision or Act mentioned in the non obstante clause the enactment following it will have full operation or that the provisions impressed in the non obstante clause will not be an impediment for the operation of the enactment. Thus, a non obstante clause may be used a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods and inventories, which is required for the purpose of determining the income under the head "Profits and gains of business", whereas the provisions of s. 145 are general provisions, dealing with the method of accounting in general for the purpose of determining the income of the assessee, who is deriving income under the head "Business" or "Other sources". If a special provision is made on certain matter, that matter is excluded from the general provision. Reference may also be made to the decision of the Supreme Court in Venkateshwar Rao vs. Government of Andhra Pradesh AIR 1966 SC 828. The principle is expressed in the maxims generalia specialibus non derogant, and generalibus specialia derogant. 18. In the light of the discussions above, in our view the AO as well as the CIT(A) have correctly disallowed the resultant loss, which was mainly on the basis of change in the method of valuation of the inventories. Before parting, we may observe that various case laws relied upon on both sides related to the period prior to s. 145A were introduced. In our view, as we have discussed earlier, the provisions of s. 145A have disabled the assessee from frequently changing the met ..... X X X X Extracts X X X X X X X X Extracts X X X X
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