TMI Blog2001 (4) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... f stock for the income tax purpose which is different from that employed in preparing its final accounts.' 2. On verification of the return, the Assessing Officer found that the assessee has claimed a loss of Rs. 60,06,290 on account of stock valuation which was the difference in the value of stock shown in the balance sheet at cost (Rs. 10, 19,3 2,104) and the value on the basis of the market rate or cost whichever is lower (Rs. 9,57,40,18 1). He found that no such claim was made in earlier year 1994-95 nor was there any such claim in assessment year 1993-94. He, therefore, disallowed the claim of the assessee. 3. Before the CIT(A) the assessee submitted that the assessee has been consistently following one system-of valuation in respect of closing stock of shares and securities for income-tax purposes and that was "cost or market rate whichever is lower'. In the audited account for the year under consideration for the first time, the valuation of closing stock was made on cost basis which was higher than the market rate. This change in the accounts was stated to be because of the change in the provisions of the Companies Act, 1956 which require every company to value its st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Ltd [1991] 188 ITR 44 and the other in the case of Tuticorin Alkali Chemicals Fertilizers Ltd v. CIT [1997] 227 ITR 172 and a decision of Privy Council in the case of CIT v. Sarangpur Cotton Mfg. Co. Ltd. [1938] 6 ITR 36 and submitted that the mere fact that assessee has been preparing its accounts on a different basis cannot be a ground for rejecting the claim of the assessee on the basis of a system regularly being adopted by the assessee - a system which is a well-recognised one in the standard accounting systems as well as by various judicial-pronouncements and precedence. The learned counsel of the assessee further submitted that the observation of the Assessing Officer that no such claim was made by the assessee in the earlier years is true but that was because of the fact that the assessee was following the same system of accounting in the accounts as well as for preparing the return, ie. by valuing the closing stock on the basis of 'cost or market rate whichever is lower". 5. We have heard the parties and considered their rival submissions. The Privy Council in the case of Sarangpur Cotton Mfg. Co. Ltd. held that section 13 of the Indian Income-tax Act, 1922 (which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot properly be deduced therefrom irrespective of the fact that method so employed results in favour of the assessee or against the assessee. The method of valuation of closing stock on the basis of cost or market rate whichever is lower is a well established rule of commercial practice and accountancy and has been recognised time and again by various judicial decisions. To support that, in the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481 (SC) it was observed - 'As the entry for stock which appears in a trading account is merely intended to cancel the charge for the goods purchased which have not been sold, it should necessarily represent the cost of the goods. If it is more or less that the cost, then the effect is state the profit on the goods which actually have been sold at the incorrect figure.... From this rigid doctrine one exception is very generally recognised on prudential grounds and is now fully sanctioned by custom, viz., the adoption of market value at the date of making up accounts, if that value is less, than cost. It is of course an anticipation of the loss that may be made on those goods in the following year, and may even have the effect, if prices rise a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to put the value of shares and securities at cost and if the market value is lower, it was to be shown separately in brackets. The assessee-bank has been following the system of valuing the stock in the accounts at cost but for the purpose of income-tax at cost or market price whichever is lower and in that context the Supreme Court held that the assessee was entitled to claim the loss irrespective of the fact that a different value was appearing in the balance sheet and final accounts of the assessee. In that case also the closing stock was being valued at cost for the purpose of statutory balance sheet consistently for 30. For income-tax return, valuation was at "cost or market value whichever was lower'. That practice was accepted by the department and it was held that there was no justifiable reason for not accepting the same. Similar is the position in this case as well. It was further observed that preparation of the balance sheet in accordance with the statutory provision would not disentitle the assessee in submitting the income-tax return on the real-taxable income in accordance with the method of accounting adopted by the assessee consistently and regularly. That cann ..... X X X X Extracts X X X X X X X X Extracts X X X X
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