TMI Blog2008 (4) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... on June 30, 1983. The assessee, a limited company, is manufacturer of power transformers normally supplied to the State Electricity Boards and large companies. The Punjab State Electricity Board (PSEB) placed an order for 12 transformers of 33/11 KV class. The assessee-company manufactured one transformer and called upon the PSEB to take delivery after inspection. The delivery was taken in December, 1982, after some correspondence was exchanged between the parties. In the mean time, two more units were manufactured by the assessee, but the PSEB did not undertake inspection nor did it respond to the request for accepting it delivery of the two transformers. It appears that after exchange of correspondence between the parties, PSEB cancelled the order placed with the assessee-company. The assessee, therefore, moved the Indian Trans-formers Manufacturers Association for intervention in the matter and simultaneously filed a writ petition before the High Court seeking direction to the PSEB. During the pendency of the aforesaid proceedings as the accounting period ended on June 30, 1983, the assessee-company finalised its accounts which were approved by the board of directors on Dece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. No doubt, the assessee-company has been following the right method of accounting for valuation of the closing stock but in view of the facts and circumstances of the case, the manner in which it valued the closing stock of the two transformers is not justified. The market value or cost value, whichever is less, is to be taken for valuation of the closing stock but in the present case, there is no reliable and convincing market price of the transformers. There is nothing in the appeal record to show that if the quotation was asked for in general from the open market. The two transformers were not out of date or damaged or otherwise not usable and so in that view of the matter, their value being run down to one-third can-not be conceived of only because it has been tailor-made as per the specification and design given by the PSEB. Only one single quota-tion cannot be the indicator of the market value so far as the price of the transformer is concerned. In our considered view, the learned Commissioner of Income-tax (Appeals) has rightly directed to deter-mine the value of the transformers at cost price particularly when in view of the fact that at the relevant period the wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transformers at which price subse-quently PSEB had taken delivery of the transformers. It was further sub-mitted that in the case of CIT v. British Paints India Ltd. reported in [1991] 188 ITR 44 (SC), the apex court has laid down that under section 145 of the Act the Assessing Officer had sufficient powers, not only that, but was duty bound to make computation of income in such manner so as to deduce correct profits and gains. That in a case where accounts are pre-pared without disclosing the real cost of the stock-in-trade the Assessing Officer was duty bound to determine the taxable income by substituting such cost so as to reflect the correct trading profits of the year. It was, therefore, urged by the learned advocate that there was no reliable evi-dence in support of the market price adopted by the assessee which would permit the authorities to substitute the same. 9. The facts are not in dispute. The Tribunal has categorically found that the assessee-company has been following the right method of accounting for valuation of the closing stock. After recording such a finding the Tri-bunal has gone on to state that in view of the facts and circumstances of the case the manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce for the purpose of valuing the closing stock it is open to the authorities to disturb the same by bringing cogent and reliable evidence on record to establish that the market price is not what has been shown by the assessee, but is something else. 12. In the facts of the present case, the authorities have approached the issue, to say the least, in a confused manner. After discarding the market value adopted by the assessee, the authorities have, more particularly, the Commissioner (Appeals) and the Tribunal, proceeded to adopt the cost price as the value of the closing stock. There is no basis, there is no evidence to discard the market value shown by the assessee merely because such a value is one-third of the sale price. The sale price would not indicate in any manner that the market price shown by the assessee was not the market price as on June 30, 1983, i.e., the last day of the accounting period merely because subsequently higher sale price has been realised. The Tribunal has also failed to appreciate that even the Commissioner (Appeals) had after disturbing the valuation put on the closing stock directed the Assessing Officer to adopt the same valuation of the opening s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciated value of the closing stock is not brought into the account, as no prudent trader would care to show increased profit before its actual realisation. This is the theory underlying the rule that the closing stock is to be valued at cost or market price, whichever is the lower, and it is now generally accepted as an established rule of commercial practice and accountancy. As profits for income-tax purpose are to be computed in conformity with the ordinary principles of commercial accounting unless of course, such principles have been superseded or modified by legislative enactments, unrealised profits in the shape of appreciated value of goods remaining unsold at the end of an accounting year and carried over to the following year's account in a business that is continuing are not brought into the charge as a matter of practice, though, as already stated, loss due to a fall in price below cost is allowed even if such loss has not been actually realised. . . . Again, it is misconception to think that any profit `arises out of the valuation of the closing stock' and the situs of its arising or accrual is where the valuation is made. As already stated, valuation of unsold stock ..... X X X X Extracts X X X X X X X X Extracts X X X X
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