TMI Blog1998 (7) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... This was illustrated by the Tribunal in assessee's own case in ITA No. 143/(Bom.)/1979 vide para 8 as under : Units Cost ----- ----- Opening stock 20 100 Purchases 30 170 ----- ----- 50 270 weighted average cost 5.4 per unit The above average cost was applied to the units consumed by the assessee during the year upto 31-12-1974 to the raw material consumed in the process of manufacturing. 3. However, the assessee changed its method of valuation of closing stock to LIFO method. According to this method, the material purchased last is presumed to be consumed first The rational behind it is that the cost of product is determined on the basis of cost of raw material purchased during the year. It is pertinent to note that the assessee has continued to adopt the LIFO method consistently till date. 4. The above change in the method of valuation of stock was rejected by the Assessing Officer for assessment year 1976-77 and made the addition of Rs. 58,46,535 which was confirmed by the CIT(A). On further appeal to the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application was made by the department. Accordingly, he found the method as correct and accepted the valuation made by the assessee on the basis of LIFO method. The Assessing Officer vide his order dated 30-4-1990 also rectified the assessments for assessment years 1983-84 to 1988-89 by accepting the LIFO method. The Assessing Officer has also accepted the assessee's method upto assessment year 1993-94. 8. Surprisingly, the matter has again been re-opened by the Assessing Officer in assessment year 1994-95 by rejecting the aforesaid method adopted by the assessee and accepted by the revenue from assessment years 1977-78 to 1993-94. The reasons given by him are that the Tribunal in latter decisions in the cases of P. N. Gadgil and Kirloskar Cummins Ltd. has decided the issue in favour of the department. The CIT(A) has confirmed the order of the Assessing Officer since according to her the LIFO system of valuation of stock is defective and true profits cannot be ascertained. According to the CIT(A) though the last purchases are at the highest cost, the same are taken at lowest cost as LIFO system provides consumption of last purchased first than the purchases in the opening stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to him, the Tribunal in the subsequent decisions in the case of P. N. Gadgil and M/s. Kirloskar Cummins Ltd. has rejected the LIFO method for valuing the stock. It was further contended by him that if true profits cannot be deduced from the method adopted by the assessee then the book results can be rejected and true profits can be arrived at by applying the correct method despite the fact that incorrect method was consistently being applied by the assessee in the past. In support of this contention, he relied on the decision of the Supreme Court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44 / 54 Taxman 499. It was also the submission of the learned Sr. D.R. that the Privy Council in Anaconda American Brass Ltd. s case (supra) has rejected the LIFO method. In view of these submissions, he justified the order of the CIT(A). 11. The rival submissions of the parties as well as material placed before us and the case law referred to by the parties have been considered. The crucial question arising in this appeal for our consideration is whether the issue which had become final and acted upon by the parties could be reopened again in the year under conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax authority from doing something which would be unjust and inequitable. These principles apply not only to the income-tax authorities strictly so called but also to the Income-tax Appellate Tribunal; for, though the Appellate Tribunal is not included in the class of income-tax authorities in the Act, it is a part of the machinery for collection of income-tax, and is not in the same position as the High Court, the jurisdiction of which is purely advisory." 13. The same view has been reiterated by the Apex Court in the case of Radhasoami Satsang (supra). The relevant portion of the judgment is extracted as below : "Strictly speaking, res judicata does not apply to income-tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year." 14. The study of the aforesaid two decisions clearly shows that the settled po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to the new method, the closing stock was valued at the value at which opening stock was valued. In case the closing stock was more than the opening stock, the excess stock was valued at average price of the purchase made during the year. This method of valuation was described as last in first out (LIFO) method. The issue before the Tribunal was whether the assessee could be allowed to change the method of valuation. We have gone through the said order of the Tribunal. The Tribunal nowhere says that LIFO is incorrect method. On the contrary, it was observed that although such method is one of the recognised method, in the case of jewellers, it was not appropriate method. Therefore, it is incorrect to say that the Tribunal's decision disapproved the LIFO method for all kinds of businesses. In our view, that decision is distinguishable on the facts of the case and has to be restricted to the facts to that case. Therefore, the said decision cannot be considered as fresh material for reopening the issue. However, it is pertinent to note that the said decision also disapproved the FIFO method in the case of jeweller which has been applied to the present case by the lower authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod. Therefore, it is wrong to say that LIFO method is incorrect method. 19. It has been observed by the learned CIT(A) that such method may be recognised for corporate accounting, but it does not give the correct and true profits for the purposes of Income-tax Act. The defect pointed out by her is that the profits are lowered by this method as stock purchased in the last are valued at lower rates of past years, while such stock should be valued at the cost of the material purchased in the last. This observation of the learned CIT(A) is based on assumptions; viz. (i) that price of the material will always rise; (ii) that material is always consumed in the seriatim in which it is purchased. In our opinion, no method can be described as incorrect on the basis of assumption. If assumptions are to be taken into consideration, then such assumption may be to the contrary also. The possibility of prices being declined at the end of the year cannot be ruled out. Similarly, the consumption of raw-material out of stock purchased in the last, cannot be ruled out. On the basis of such assumptions LIFO method cannot be described as incorrect. Rather, it would be incorrect to apply the FIFO me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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