TMI Blog1928 (2) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... for a different year. We are told that the assessee makes up his accounts for each year ending December 31. Consequently the actual year we have to take here is the year ending December 31, 1925. 3. Similarly, in addition to the Income Tax there is an assessment for super-tax which under Section 55.is levied for the same year. The assessment here is annexture El, and precisely the same point arises as regards that. 4. Now what is common ground is that at any rate the stock at Income Tax the end of the year 1925 was undervalued in the company's return. Ahmedabad The company says it was also undervalued at the beginning of the year. That has not been strictly proved, but the whole case depends upon it, and therefore for the purposes of the present case we propose to assume that this is the case. Now what the Commissioner has done is this. He has rectified the value of the stock at the end of the year by substituting the true value of the stock as at that date, but he has declined to make the corresponding alteration as regards the stock at the opening of the year. He says that that ought not to be done because under a well-known principle of accountancy the opening value mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst risks, because after all an exact valuation of goods is not always an easy task. Some margin may fairly be allowed. But he contends that an expression like that would never cover a gross under-valuation as in the present case, for the erroneous valuation of the closing stock for the year 1925 is found by the Commissioner to be merely thirty-seven per cent, of the correct valuation. 8. On the other hand counsel for the company tendered before up a statement showing that over the past ten years there has really been no loss of tax to the Crown, but that taking one year with another, there has, if anything, been a loss to the company by adopting the methods that they have. For that purpose he tendered a statement showing the past value of the stock, and-so we understood-what would be the case if the true figures had been inserted. However, the statement was objected to by counsel for the Crown, and as it had not been laid before the Commissioner and undoubtedly required verification as regards the figures for the past years, we allowed the objection, and rejected the statement and did not look at it. 9. On the whole, however, we have not thought it necessary to send the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecide this point because counsel for the company was willing to waive it, and to treat the case as if any notice necessary under Section 23(2) had in fact been given. 13. I can, therefore, now deal with the point we have really got to decide, and in my judgment that point depends on Section 3, viz., the charging section, What then was the income of this company for the previous year, viz., the year ending December 31, 1925. Supposing for the sake of argument the company had only started business in that year, it would to my mind be clear that whatever the company's return had said, the proper mode of ascertaining the profits would be to take at its correct figure the value of the stock both at the beginning and the end of the year. It would be wrong to adopt the method of accepting the company's return for the beginning of the year and only to rectify the figures at the end of the year. But it is argued that the Commissioner is entitled to do that in the present case, and thereby in effect to put an under-value on the stock at the beginning of the year, because that under-value existed at the close of the preceding year as the company had been trading in the previous yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on April 12, 1922, he put its real value down at the end of that year at ₹ 6 a piece. On that he showed a loss for that particular year, and thereby I take it escaped assessment. But when it came to his return for the year beginning April 13, 1922, he did not put the stock at the real value of ₹ 6 a piece, but he inserted a fictitious sum of ₹ 13-8-0 a piece merely because that was what he paid for it in the year before assessment. The result naturally was this that it enabled him to escape the tax on profits for the year beginning April 13, 1922. But what does Sir Murray Coutts-Trotter say as to this (p. 842):- The question is not so much of law but of business common sense. But there is a principle involved which determines the legal position, and I think the answer is clear that, as the value of the stock on the 13th of April 1922 was in fact and in truth ₹ 6 a piece, the assessee is not entitled to reduce what are truthfully called his profits by putting the fictitious value of ₹ 13-8-0 a piece on the stock-in-trade merely because that was the sum he happened to pay for it before the year of assessment. In my opinion, to allow this to be done w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f fraud or dishonesty was made. At any rate when the matter came before the Commissioner he formulated no charges of dishonesty. Moreover, he has by his counsel declined to allow us in the case before us to go into the figures of the balance-sheets of the previous years. The case, therefore, is very different from the Madras case where the Commissioner laid before the Court all the material figures for the preceding years so that the Court could see precisely what had been done and precisely what was objected to by the Commissioner in that particular case. 22. The matter may further be tested by this that there are several clauses in the Act for protecting the public against frauds on the revenue. For instance, under Section 23 there is power to the Commissioner to impose a penalty on an assessee who deliberately furnishes inaccurate particulars. But it is not suggested here that the Commissioner has attempted to do anything of the sort, or has served any such notice on the assessee, or that he has complied in any way with the provisions of the section which requires the assessee to be heard and to be given an opportunity of being heard before any such order is made. Similarly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case. I would, therefore, reply as follows, via., In the assessment of the company for the year 1926-27 in respect of profits for the year 1925-26 the assessment Exhibits E and El ought to be varied by valuing at their true valuation the company's stocks both at the beginning and at the end of the year in question and not only by revaluing the stock at the end of the year. 28. I wish to add some observations on the reference itself. I am very jealous of the reputation of the Bombay High Court, and I aim very anxious that the work we have to do in important cases should be done in the best possible way. This is not merely from any selfish motive, because all lawyers of experience know that the better the work is done by the Bar and by the solicitors down to their humblest clerk, the easier becomes the task of the Bench, and the more likelihood is there of a correct decision being arrived at by that Bench, and also, I may say so with all respect, by any tribunal that may be superior to it. Bombay with its vast and growing commercial business is naturally attracting business of various sorts of a larger and more complicated nature. This in its turn results in greater comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e balance-sheet as under-cost. That w the first item on the debit side and as regards the closing stock balance on the credit side of the same account the valuation adopted by the company is described as under-cost. What the extent of the under-cost is is a matter which is not proved before us. 33. Shortly put, the Commissioner says that the assesses have in this balance sheet and in previous years assessed their stock balance at a value considerably below what it should be assessed at, and he claims that in the year under assessment the closing stock balance should be valued at a figure which he save is its correct value. That the value he places on it is correct is admitted. But he objects to the opening balance being valued in a similar way. 34. The objections of the Commissioner are baaed, firstly, on the rule of accountancy under which he suggests that the closing balance of the previous year must be the same as the opening balance of the succeeding year. Consequently, as the assessees have adopted a particular valuation as the closing balance of the previous year that valuation must be adopted for the opening balance of the year in question. 35. It appears to me that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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