TMI Blog1985 (10) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... d air and gas compressors. We are concerned with the assessment year 1973-74 for which the previous year is a period of 15 months commencing from 1-10-1971 to 31-12-1972 and the two subsequent assessment years 1974-75 and 1975-76 for which the previous years ended on 31-12-1973 and 31-12-1974, respectively. There is no dispute that the facts in regard to the addition in question in each of these three years are identical. We find that the department had come up in appeal in the assessment year 1973-74 against the decision of the AAC, deleting the addition of Rs. 2,74,764 in IT Appeal No. 730 (Bom.) of 1977-78. The Tribunal by their order dated 17-5-1978, examined this issue in detail in paragraphs 14 to 27 of their order and felt that this point had been decided by the AAC without a proper determination of the necessary facts. They, therefore, set aside the order of the AAC on this point and restored the matter to his file for fresh disposal in accordance with law and in the light of their earlier observations. The Tribunal also clarified that both the assessee and the department were free to bring to the notice of the AAC the appropriate material in support of their rival cases in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the separately earmarked portion of the stores was subsequently discarded by the assessee and that the stocks which were declared as obsolete had been lumped with the other scrap except for the brass and bronze scraps, which were valuable scraps and kept in special earmarked scrap-bins. 4. The Commissioner (Appeals) next examined the question whether the value of the stock that had become obsolete and written off in the books of account could be considered as a loss incidental to the carrying on of the business and whether the method followed by the assessee in this regard was a scientific and rational method which did not distort the profit figures of the assessee-company. The Commissioner (Appeals) held that the assessee was engaged in the manufacturing of several types of pneumatic tools and air compressors of various designs, as per the requirements of the consumers, that these designs and models did undergo frequent changes and that the components and spares which were manufactured in a year might have little or no value at all in the subsequent years. He was of the view that for the ascertainment of the true profit, it would be necessary for a businessman to determine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that the amounts written off by the assessee in the stock accounts in every year under consideration was in order. He further held that the non-retention of any value in respect of this discarded stock in the assessment year 1975-76 and onwards was purely dictated by the exigencies of accounting and was not likely to distort the profit figures in the long turn. He, therefore, upheld this claim of the assessee. 5. The Commissioner (Appeals) then examined the further question whether it was proper for the assessee to write off as obsolete stocks on the basis of inventory as on the 30th day of September of each year and especially when the previous year of the assessee ended on 31-12-1972. It was pointed out by the assessee that the exercise of inventorising the obsolete stock out of several hundred items, is a time consuming job and that this exercise has to be gone through well before the close of the accounting year and that the assessee, for this purpose, starts inventorising obsolete items of stock in the month of September, but that the write off is actually made at the end of the accounting year. The Commissioner (Appeals) accepted this explanation offered by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals) has referred to two specific instances by way of illustration. They are the cases of receiver strips used in compressors of the value of Rs. 12,754 which totally became obsolete due to alteration of design. Similarly 740 items of perforated stocks of the value of Rs. 11,322, which were used as a component in the filter element, were found to become obsolete due to alteration of filter element frame from wool to fibre glass wool and that consequently the perforated screen used in the wool frame became no longer usable and had to be discarded. There is no material placed by the revenue that these are incorrect. The Commissioner (Appeals) has also referred to the four broad classifications of obsolete stocks into castings, bar materials, blanks and finished parts, adopted by the assessee while preparing these inventories of obsolete stocks in the first two years and the basis on which they were valued as obsolete stocks. The Commissioner (Appeals) had also discussed the reasons as to why the assessee discarded this method of valuation of obsolete stocks in 1975-76 by taking the total value of the obsolete stocks as nil. The Commissioner (Appeals) has also taken note of the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further held that the change in the method of valuation was detrimental to the revenue was not a relevant factor in deciding whether the assessee had the right to change the basis of valuation, and that in deciding whether the changed method of valuation of closing stock attracted the proviso to section 13, it was not a correct approach to see whether the losses of previous years would also enter into the claim made by the assessee for the accounting year. Their Lordships pointed out that an actual loss sustained by the sale of securities below the cost price could not be disallowed on such a ground, and that a notional or anticipatory loss resulting from a valuation of the closing stock, which an assessee was permitted to take into account in ascertaining his trading profits, stood on no different footing. According to their Lordships, it was a concession given to the assessee based on the well recognised usage of the trade, and the principle underlying that concession was in no way violated when the assessee changed his method of valuation from cost to market value, if the latter was less than the cost price. Their Lordships pointed out that if the revised basis of valuation was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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