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TMI Blog2002 (12) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... luation of the closing stock of the free sugar held by it. The assessee valued the closing stock of the free sugar at Rs. 330 per quintal when its accounts were finalised on October 25, 1983, whereas the assessee closed its accounts for the assessment year in question on September 30, 1983, and according to the Assessing Officer, the assessee ought to have taken the selling rate of sugar prevailing on September 30, 1983, which was Rs. 352 per quintal. The Assessing Officer was of the opinion that there was an undervaluation of the closing stock of the free sugar at the rate of Rs. 22 per quintal and found that the assessee had 99,636 quintals of free sugar as the closing stock as on September 30, 1983, and made an addition of Rs. 21,91,992 towards undervaluation of the closing stock of the sugar. The Assessing Officer made an addition of the said sum and completed the assessment. The assessee challenged the order of the Assessing Officer before the Commissioner of Income-tax (Appeals), Chennai, and the Commissioner of Income-tax (Appeals) held that the assessee was not entitled to value the closing stock on the basis of the rate prevailing at some point of time or the other in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om both sides of the account would leave only the transactions on which there have been actual sales in the course of the year showing the profit or loss actually realised on the year's trading. The recognised accounting practice was approved by the Supreme Court in Chainrup Sampatram's case [1953] 24 ITR 481 and it referred to in paragraph 8 of the Report of the Committee on Financial Risks attaching to the holding of Trading Stocks, 1919, which reads as follows: " 'As the entry for stock which appears in a trading account is merely intended to cancel the charge for the goods purchased which have not been sold, it should necessarily represent the cost of the goods. If it is more or less than the cost, then the effect is to state the profit on the goods which actually have been sold at the incorrect figure...From this rigid doctrine one exception is very generally recognised on prudential grounds and is now fully sanctioned by custom, viz., the adoption of market value at the date of making up accounts, if that value is 'less' than cost. It is of course an anticipation of the loss that may be made on those goods in the following year, and may even have the effect, if prices rise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icular accounting year and whether the correct income earned in the year can be deduced therefrom. The Supreme Court in CIT v. British Paints India Ltd. [1991] 188 ITR 44, after noticing the decision in B.S.C. Footwear Ltd. v. Ridgway (Inspector of Taxes) [1972] 83 ITR 269 (HL) and the decisions rendered by the Privy Council as well as by the Supreme Court, laid down the law as under: "Any system of accounting which excludes, for the valuation of the stock-in-trade, all costs other than the cost of raw materials for the goods-in-process and finished products, is likely to result in a distorted picture of the true state of the business for the purpose of computing the chargeable income. Such a system may produce a comparatively-lower valuation of the opening stock and the closing stock, thus showing a comparatively low difference between the two. In a period of rising turnover and rising prices, the system adopted by the assessee, as found by the Tribunal, is apt to diminish the assessment of the taxable profit of a year. The profit of one year is likely to be shifted to another year which is an incorrect method of computing profits and gains for the purpose of assessment. Each ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounting which was followed systematically by the assessee, no addition could be made when the assessee valued the closing stock. This decision apparently supports the case of the assessee. But, on a closer reading, it does not support the case of the assessee. In the case before the Delhi High Court, no doubt it is true, the assessee adopted the market value prevailing subsequent to the last date of the accounting but, however, there was a finding by the Appellate Tribunal that the correct profit could be ascertained from the method of accounting systematically followed by the assessee. On the other hand, on the facts of the case, though the Tribunal has found that the assessee was following the system regularly, there was no finding by the Appellate Tribunal that the profit of the year could be ascertained from the method of accounting followed by the assessee. In the absence of any such finding of fact that the profit of the year could be ascertained from the method of accounting followed by the assessee, the decision of the Delhi High Court in CIT v. Mahalakshmi Sugar Mills Co. Ltd. [1993] 200 ITR 275, is not applicable to the facts of the case. On the other hand, learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted, it will lead to a situation that the assessee may finalise its accounts on a convenient date subsequent to the end of the accounting year when the market value of the stock is at a low ebb and thereby the income earned in one accounting year is not taxed which will be against the provisions of the Income-tax Act, as it will be open to the assessee to finalise and close its accounts at its choice. Learned counsel for the assessee submitted that the Tribunal has recorded the finding of fact that the assessee was following the recognised method regularly and, therefore, this court sitting in reference should not disturb that finding. Learned counsel referred the decision in CIT v. J.V. Gupta and Sons (HUF) [2000] 241 ITR 861 (Delhi) and submitted that the powers of the court under section 256(1) of the Income-tax Act, 1961, are advisory in nature and this court has no power to reframe a question or consider new issue. We are unable to accept the said submission of learned counsel for the assessee. We are not reframing any new question, nor are we disturbing the finding rendered by the Tribunal that the assessee was following the regular system. But, we have found that there w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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