Regular accounting method for obsolete stock valuation cannot be rejected merely because some items later fetch higher prices.

An assessee's consistently followed method of valuing obsolete and slow-moving spare parts could not be rejected for income-tax purposes where it had been regularly employed and was capable of yielding true profits and gains. Section 13 required computation according to the method of accounting regularly used by the assessee unless the proviso applied, and neither the later realisation of some items above cost nor a different valuation given to a bank justified disturbing the closing stock valuation. The stock was not excluded from inventory, and the method reflected the gradual decline in value in a falling market. The addition to closing stock was therefore not sustainable.

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Issues: Whether the Tribunal was justified in sustaining the revision of the closing stock valuation by rejecting the assessee's consistently followed method of valuing obsolete and slow-moving spare parts.

Analysis: The assessee had regularly employed the same method of stock valuation for several years, and the record did not show that the method was improper, patently false, or incapable of yielding the true profits and gains. Section 13 of the Income-tax Act required the income, profits and gains to be computed in accordance with the method of accounting regularly employed by the assessee, unless the proviso was attracted. The Tribunal relied chiefly on the fact that some items later fetched prices above cost, and also on the different valuation furnished to a bank, but neither circumstance justified rejection of the accounting method for income-tax purposes. The stock was not excluded from inventory, and the valuation reflected the gradual decline and slow movement of the goods in a falling market caused by the ban on import and assembly of the cars.

Conclusion: The Tribunal was not justified in disturbing the assessee's valuation method, and the addition to closing stock could not be sustained.

Ratio Decidendi: Where an assessee has regularly employed a recognised method of accounting and the method enables true profits and gains to be deduced, the revenue cannot reject it merely because individual items later realise a higher price or because a different valuation was furnished for another commercial purpose.

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