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TMI Blog2002 (9) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... s, if any, made during the year on account of stock dealings by taking into account the actual profits or losses if any made, computing the difference between the actual sale price and the cost price of stock for the accounting year 1993-94. It is an admitted fact before us, that the auditors of the assessee raised certain objections with regard to this type of stock valuation, and it was suggested that instead of taking the cost of stocks as the way of valuation, the assessee should adopt instead, the yardstick of cost of acquiring or market value, whichever is lower. In the month of October, 1994, the board of directors of the assessee passed a resolution adopting this changed method of valuation and such change was adopted by the assessee for the accounting year 1994-95, relevant to the assessment year 1995-96 with which we are concerned. It also so happens that the accounting standards (marked AS) issued from time to time by the Institute of Chartered Accountants of India issued their standard AS 13 and made it compulsory for accounting purposes, for accountants to adopt as from April 1, 1995, the method of stock valuation which was cost or market value, whichever is lower. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also, we have to assume sufficient ordinary prudent businessman like understanding, on the part of the assessee, which was, that the adopted change of valuation method was going to benefit it in the matter of its tax return substantially. In these circumstances, the Assessing Officer held that the method of changed valuation was detrimental to the Revenue and the Assessing Officer disallowed the loss of Rs. 50 lakhs (approx.) claimed by the assessee on the changed method. The assessee won before the Commissioner of Income-tax (Appeals) but lost before the Tribunal. From the Tribunal's order, we have found that according to it, the assessee could not claim the tax benefit on the changed valuation method because, according to the Tribunal, the conditions necessary for such change were not satisfied. We have felt very dissatisfied with this type of vague reasoning by the Tribunal. It is not enough merely to state generally that some condition has not been fulfilled and that condition is necessary; a specific mention of the condition is needed and also a specific finding as to why the assessee cannot be held to have satisfied that condition, before a verdict of disallowance is ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to tax as the income of the previous year in which such interest is due to the assessee. Provided also that nothing contained in this sub-section shall preclude an assessee from being charged to income-tax in respect of any interest on securities received by him in a previous year if such interest had not been charged to income-tax for any earlier previous year. (2) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where no method of accounting has been regularly employed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144." Mr. Poddar, appearing for the appellant-assessee, submitted that as far as the method of stock valuation itself is concerned, i.e., the principle of valuing it at cost or market value, whichever is less, the same is beyond the region of any dispute now. The Institute of Indian Accountants have enforced it and to value the shares by any other method would be challengeable today. Indeed as on date, because of the amendments incorporated in the Companies Act in the year 1998, as per section 211, sub-sections (3A) and (3C), the Central Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned with that issue here. Similarly, the Supreme Court was not concerned with the changing of the method of valuation in the case of British Paints [1991] 188 ITR 44 (SC). The case of Snow White Food Products Co. Ltd. v. CIT (No. 1) was also referred to us by Mr. Poddar, and it is a case decided by a Division Bench of our High Court. There are passages in that case, reported at [1983] 141 ITR 847, which positively indicate that the assessee is entitled to change his regular method of accounting by another regular method and that such a change did not need any prior approval of the income-tax authorities. It is also positively stated in the said case, that once the assessee-company does change its accounting method, it would be open to it to produce records and show, that it had followed such changed accounting method in subsequent years; the proof of such subsequent records had not been made in the Snow White (No. 1) case [1983] 141 ITR 847 (Cal), and the court pointed that out also. In the present case before us the assessee showed to the Tribunal that for the two subsequent assessment years following the assessment year 1995-96, viz., assessment years 1996-97 and 1997-98, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That the method gives rise to a picture of true accountings, and a reflection of the true profits, is also not disputed. In such a situation it would be a distraction to consider such cases as the case of B.S.C. Footwear Ltd. v. Ridgway [1972] 83 ITR 269 (HL), equivalent to [1971] 2 WLR 1313, where the House of Lords rejected a method of stock valuation by a retailer footwear dealer, who had adopted the method of slashing down the valuation of its unsold stock, on the basis of its own principles, not recognised in any standard general accounts procedures. The House of Lords observed that such slashing down of prices, deferred continuously the payment of tax, and such method of accounting was not acceptable. In the above case of British Paints [1991] 188 ITR 44 (SC) also the, point was as to the acceptability of the method of accounting itself. That is not the case here. Our case concerns the permissibility of changing one acceptable method and adopting another acceptable method which, in a manner of speaking, is even more acceptable than the former one. In these circumstances, questions Nos. (i) and (iii) must be answered in favour of the assessee with this added remark, even at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e construction of one part of the taxing statute, as applied to the assessee's case, tax which would otherwise to be payable by the assessee, becomes not payable in the, case in hand. (5) When the court is faced with a task of construction in the above manner, the court is not bound to make the construction in favour of the assessee, merely on proof by the assessee, that it has entered into no illegality and made no prohibited transaction. (6) The court would have to assess, in the facts and circumstances of each case, upon general principles of conscience and justice, whether the arrangement of affairs by the assessee, so as to cause the possibility of a reduction of tax incidence, can fairly be permitted to the assessee, as a genuine and legal means of tax reduction, employed by it in a commercially fair sense, or whether, allowing the assessee to earn the reduction, in the facts and circumstances of the particular case, is opposed to the public policy of not encouraging citizens, to engage themselves in dealings and transactions, designed primarily for the purpose of non-payment of tax only. Applying these principles formulated by ourselves to our case, we are faced with a s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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