9911796707
TMI Blog2002 (12) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... 992-93 and to suppress the profits of the subsequent assessment year 1993-94. Accordingly, the following questions of law arise for determination: "(a) Whether, on the facts and in the circumstances of the case and in law, the Income-tax Appellate Tribunal was justified in holding that the higher market rate method of valuation of closing stock adopted by the assessee is correct, without appreciating that acceptance of the said method has resulted in a doctored abnormal gross profit ratio of 2054.60 per cent. which, by no yard stick of the basic principles of accountancy can be held as proper reflection of income? (b) Whether, on the facts and in the circumstances of the case and in law, the Income-tax Appellate Tribunal was justified in holding that the assessee has followed the market rate method for valuation of closing stock for several years, therefore, the same cannot be disturbed by the Assessing Officer, without appreciating that section 145 of the Income-tax Act fully empowers the Assessing Officer to alter the method of accounting adopted by the assessee if he has reason to conclude that the correct income cannot be deduced from the said method? (c) Whether, on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and by valuing the closing stock also at Rs. 90 per kg. Accordingly, the value of the closing stock was reduced by the Assessing Officer from Rs. 8,69,13,158 to Rs. 6,01,71,130 and, consequently, the net profit was reduced by the Assessing Officer from Rs. 6,40,11,915 to Rs. 3,72,73,634 and profits from business at Rs. 3,78,01,032. For the sake of brevity we hereinafter refer the assessment year 1992-93 as the "first year" and the assessment year 1993-94 as the "second year". Consequently, the Assessing Officer restricted the deduction under section 80HHC to Rs. 3,78,01,032 instead of Rs. 6,45,39,313 which the assessee would have got if the gross profits was taken at Rs. 7,13,03,219.99. Being aggrieved, the assessee carried the matter in appeal to the Commissioner of Income-tax (Appeals). The appeal was dismissed. Being aggrieved, the assessee carried the matter in appeal to the Tribunal which took the view that as per the usual practice followed by the assessee for the last several years the closing stock was valued at market price. The Tribunal further found that the Assessing Officer was wrong in applying the principle of "Lower of cost or market value" particularly when there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at, in the first year this was done because, there were export sales whereas in the second year, there were no exports. Therefore, the entire device was to claim maximum deduction under section 80HHC in the first year and in the second year the attempt was to suppress the profits. He, therefore, contended that the Assessing Officer was right in valuing the closing stock of the first year at Rs. 90 per kg. as the opening stock was also valued at Rs. 90 per kg. Therefore, the Assessing Officer was right in valuing the opening stock in the second year also at Rs. 90 per kg. He contended that each assessment year is a unit by itself. That, merely because in the past the Department accepted the valuation of closing stock at a higher market rate vis-a-vis the value of the opening stock will not debar the Assessing Officer from invoking the proviso under section 145(1) as it stood at the relevant time. On behalf of the assessee, Smt. Jagatiani, learned counsel for the assessee, submitted that for the last several years prior to the assessment years in question, the assessee has been following a system of accounting under which the assessee was valuing the closing stock at the market rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, for the assessment year 1992-93, the assessee valued the opening stock of finished goods at Rs. 90 per kg. However, they valued the closing stock for the same assessment year at Rs. 130 per kg. The reason was obvious. In the assessment year 1992-93, the assessee had earned export profits amounting to Rs. 7,07,88,773. Therefore, as per the computation of income filed by the assessee, the amount of profit under the head "Profits and gains of business" is shown at Rs. 6,40,11,915 in its returns. The office is directed to take the returns for the two assessment years on record and mark as X-(Colly). In the same computation, they have claimed deduction under section 80HHC also at Rs. 6,40,15,212. The petitioner's export turnover and the total turnover was the same at Rs. 34,70,406. The formula applicable was "business profit multiplied by export turnover divided by total turnover". Therefore, if one cancels out export turnover against total turnover, the quantum of deduction will be the same as the profits from business because in the formula the ratio of export turnover divided by total turnover has to be applied to business profits. We will demonstrate this point. In the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see had returned a loss of Rs. 54,420 whereas if the value of the opening stock in the second year is calculated at Rs. 90 as done by the Assessing Officer then, there is income of Rs. 2,67,38,280, which arises on account of the differences in the rates of Rs. 130 and Rs. 90 per kg. Therefore, the Assessing Officer was right in adding back Rs. 2,67,38,281 to the income of the assessee for the assessment year 1993-94. Therefore, there is no merit in the argument of the assessee that by the method followed by the assessee, there is no escapement of tax. In the circumstances, the Assessing Officer was right in applying the principle "lower of the cost or market value." Numerous judgments were cited before us in support of the contention that the valuation of the closing stock at the market rate is a well accepted system of accounting/valuation. We are not required to go into those judgments as in all those judgments, it has been stated that the valuation of the closing stock at the market rate can be applied provided the Assessing Officer was in a position to deduce income and in cases where there is no escapement of tax. In the present case, on the facts, the Assessing Officer was j ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
