TMI Blog1992 (10) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... and Rs. 1,58,547 for the assessment years 1978-79 and 1979-80, respectively, made by the Income-tax Officer towards the credit made to the Molasses Storage Fund by the assessee ? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in upholding the order of the Commissioner of Income-tax (Appeals) who directed the Income-tax Officer to give the assessee deduction of the sum of Rs. 8,03,130 claimed as difference in stocks ? " The questions arose out of assessment proceedings for the assessment years 1978-79 and 1979-80. The assessee credited some amounts to the Molasses Storage Fund and claimed deduction because these amounts were to be utilised for erection of adequate storage facilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that hitherto the assessee-society was valuing the stock as at the end of the year on the basis of simple average method. But this year the stock is said to be valued on the basis of first in and first out method. On this basis a sum of Rs. 8,03,130.26 has been arrived at being the difference in value of actual stock and the value as per books. This difference in value of Rs. 8,03,130.26 has been debited to the profit and loss account. It is admitted by the assessee's representative that this sum of Rs. 8,03,130 represents difference in valuation of stock relating to the assessment years 1958-59 to 1977-78. In the first place, it has to be pointed out that the assessee has all along been following mercantile (sic) should have been prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus it is clear that the change in the mode of valuation was a bona fide change and in fact, this change brought out the real income. Mr. Raghavendra Rao contended that, between 1958-59 to 1977-78, stocks were being valued by applying the "average value" method and the change has actually resulted in altering the valuation of the stocks held during those years and, therefore, the difference arrived at by the assessee during the current assessment year is actually a difference attributable to the previous years and if so, the difference should be spread over during these years since the assessee has been following the mercantile system of accounting. The above contention overlooks the fact that the opening stock of the current year is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... according to it, its consistent practice was to value the work-in-process and finished products exclusively at the cost of raw materials, excluding overhead expenditure, because the goods being paints had limited storage life. It was found that at no time the assessee had claimed any deduction on account of deterioration or damage to its goods and that there was no justification to recognise a practice of valuing the stocks otherwise than in accordance with the well-recognised principle of accounting which required the stock to be valued at either cost ( raw material plus expenditure) or market price, whichever was lower. This finding of the Income-tax Officer was upheld by the Tribunal. At page 50, the Supreme Court summarised the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s at market value and thus anticipate the loss which he will probably incur at the time of the sale of the goods. Valuation of the stock-in-trade at cost or market value, whichever is the lower, is a matter entirely within the discretion of the assessee. But whichever method he adopts, it should disclose a true picture of his profits and gains. If, on the other hand, he adopts a system which does not disclose the true state of affairs for the determination of tax, even if it is ideally suited for other purposes of his business, such as the creation of a reserve, declaration of dividends, planning and the like, it is the duty of the Assessing Officer to adopt any such computation as he deems appropriate for the proper determination of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the past. There is no estoppel in these matters and the officer is not bound by the method followed in the earlier years." Again at page 56, it was held: " What is the profit of a trade or business is a question of fact and it must be ascertained, as all facts must be ascertained, with reference to the relevant evidence, and not on doctrines Or theories : 'no assumption need be made unless the facts cannot be ascertained, and then only to the extent to which they cannot be ascertained. There is no room for theories as to flow of costs ..... Minister of National Revenue v. Anaconda American Brass Ltd. [1956] 30 ITR 84, 99 ; [1956] AC 85, 102 (PC). " The Supreme Court reversed the High Court decision and upheld the contention of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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