TMI Blog2001 (2) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... r the provisions of section 256(2) of the Income-tax Act, 1961 (hereinafter referred as "the Act"), it has been prayed by the applicant that the Income-tax Appellate Tribunal be directed to refer to this court the following two questions arising out of the order dated May 12, 1996, passed by the Income-tax Appellate Tribunal, Ahmedabad Bench "B", in I.T.A. No. 1843/Ahd of 1990, for its opinion. "(1) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the Commissioner of Income-tax (Appeals) deleting the addition of Rs.2,93,56,000 representing the alleged undervaluation of closing stock? (2) Whether the Appellate Tribunal ought (not) to have appreciated that in the absence of any cogent reason fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax (Appeals). The Commissioner of Income-tax (Appeals) allowed the appeal and directed deletion of the amount referred to hereinabove. The Commissioner of Income-tax (Appeals), while allowing the appeal, observed that in subsequent assessment years, the change made by the assessee in the method of valuation was accepted. More over, the changed method of valuation of stock was also in accordance with one of the accepted methods of accounting. The submission of the assessee that the change was made so as to have the method of valuation in parity with the method adopted by other companies doing similar type of business was also accepted by the Commissioner of Income-tax (Appeals). Being aggrieved by the order passed by the Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the subject-matter of the said appeals are based on the Tribunal's order which is a subjectmatter of I.T.A. No. 351 of 1999. In the circumstances, we do not think it necessary to narrate the facts giving rise to the said appeals especially in view of the fact that the legal issue which has been involved in all the appeals and the I.T.A. is the same. The learned advocate, Shri B.B. Naik, appearing for the Revenue, has submitted that in all the cases there was an effort on the part of the assessee to reduce taxable income by undervaluing the stock. According to his submission, there was no justifiable reason for changing the method of stock valuation. He has relied upon the principles laid down by the Supreme Court in the case of McDowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the same industry were following the method which was adopted by the assessee, there was no reason for the Revenue to apply the principle laid down in the case of McDowell and Co. Ltd. [1985] 154 ITR 148 (SC), as there was no intention on the part of the assessee to reduce its taxable income with an oblique motive. According to him, even the Accountant Member had come to the conclusion that behind the change in the method of stock valuation, there was no mala fide intention on the part of the assessee. Even the judicial Member had not said that the change was with a mala fide intention. Thus, the Tribunal had come to the conclusion that the change was bona fide. According to the learned advocate, appearing for the assessee, if the change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was not with a mala fide intention. Thus, it is very clear that only with a bona fide intention the assessee had changed the method of stock valuation. It is true that, as a result of the change made in the method of stock valuation, the taxable income of the assessee had been reduced. Any change in any method of stock valuation is bound to make some change in the taxable income. Simply because, by virtue of the change introduced by the assessee, the taxable income of the assessee had been reduced, by no stretch of imagination, it can be said that the assessee had an intention to deliberately undervalue its stock so as to reduce its tax burden. Thus, it is not in dispute that the change in the method of stock valuation is bona fid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income of the assessee during the relevant assessment year. It is pertinent to note that even the Karnataka High Court has taken a view that when the method of stock valuation is changed and the change was bona fide, the change made by the assessee cannot be objected to by the Revenue. Moreover, in CIT v. Haryana Minerals Ltd.[2000] 242 ITR 704, the Punjab and Haryana High Court has also held that when there is a finding of fact to the effect that the change made in the method of stock valuation is bona fide, it is not open to the Revenue to add any amount in the taxable income of the assessee which results on account of the changed method of stock valuation. Thus, looking to the law laid down by several High Courts on the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X
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