TMI Blog1953 (9) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... d been doing in previous years and he added back the difference between ₹ 2,27,913 and ₹ 1,64,191 i.e. ₹ 63,722. The Appellate Assistant Commissioner and the Tribunal agreed with the decision of the Income-tax Officer. The assessee had pleaded that his usual method of accounting was that at the end of the year, for the purpose of the preparation of his profit and loss account, he used to value the closing stock either at cost price or at market price, whichever was lower, and that he had followed the same practice in the year in question. He further pleaded that by reason of the textile control restrictions, which came into force in June, 1943, there was an appreciable fall in the market price and he could not expect any relaxation of the controls and the rise in prices, so as to recover what he had paid for the stock. The Appellate Tribunal held-and it is also stated in the statement of the case-that the assessee had failed to prove that he had always valued the closing stock at the lower of the two prices, the cost price and the market price. It is stated in the statement of the case that the method followed in preparing the profit and loss account by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stock at a particular figure and the next morning on the first day of the next year he cannot value it at a different figure. In Halsbury's Laws of England, Hailsham Edition, volume 17, page 124, paragraph 232 is as follows :- It is to be observed that the allowance by the Inland Revenue authorities of a writing down of stock when market value is lower than cost is in effect the allowance of a reserve for a future unrealised loss, and as such is an exception to the general rule that precautionary reserves are not allowable. In Inland Revenue Commissioners v. Cock, Russell and Co. Limited [1937] 65 TLR 725 it was held that in valuing stock-in-trade for the purpose of ascertaining the profits of a business for revenue purposes it is proper to consider each item of stock separately and to take it at cost, or value it at market value, whichever is the lower. Clauson, L.J., in B.G. Utting Co. Ltd. v. Hughes ( H.M. Inspector of Taxes) [1940] 23 Tax Cas. 174 said :- The normal method of dealing with this item would be to make it up by calculating cost or market value, whichever is the lower, of the various assets represented. In Spicer and Pegler's Practical Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire stock could be sold at the prevailing market rate and necessarily bring in a profit. Whatever may be the reason for the rule it is now well settled that while the Income-tax Department is not entitled to anticipate profits and compute such anticipated profit as income the trader has been given a concession, not by any statute but by the general practice of accountancy, to value his closing stock at cost or market value whichever is lower, so that he may be able to spread out his loss. In the case before us on behalf of the Commissioner of Income-tax reliance is placed on the fact that the assessee has not claimed that he made a change in the method of accounting and his plea that he had always been valuing the stock at market price or cost price whichever was lower has not been found to be true. On behalf of the Commissioner of Income-tax reliance is also placed on the fact that the assessee had always been valuing his stock at cost price and, it is said, that he is bound by the method of accounting regularly followed by him and as he has not even alleged that he had made a change in the method of accounting there is no reason to give him any relief. Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question. Reliance is placed on the observations of their Lordships of the Judicial Committee in Commissioner of Income-tax, Bombay Presidency v. Ahmedabad New Cotton Mills Company Limited [1930] 57 IA 21 that The one thing that is essential is that there should be a definite method of valuation adopted which should be carried through from year to year, so that in case of any deviation from strict market value in the entry of the stock at the close of one year it will be rectified by the accounts in the next year. We were at one time inclined to the view that the words method of accounting in this section do not relate to the question of the valution of the closing stock but mean whether the assessee had been keeping his account on cash basis or on mercantile basis or had followed the hybrid system of accounting, that is, partly mercantile and partly cash. In view, however, of the observations made by their Lordships of the Judicial Committee in Commissioner of Income-tax, Bombay Presidency v. Ahmedabad New Cotton Mills Company Limited [1930] 57 IA 21, referred to above, and Commissioner of Income-tax, Bombay v. Sarangpur Cotton Manufacturing Co. Ltd., Ahmedabad [1938] 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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