1998 (12) TMI 46 - HC - Income Tax

Tax Tribunal Refusal to Refer Question on Stock Valuation Method by State Undertaking

The case involved an application by the Commissioner of Income-tax, Haryana, seeking a direction to the Income-tax Appellate Tribunal to refer a question ... Reference, Valuation Of Stock, Change In Method Of Valuation Of Stock Issues involved: Application u/s 256(2) of the Income-tax Act, 1961 seeking a direction to refer a question of law regarding the deletion of addition made by the Assessing Officer on account of undervaluation of closing stock.Summary:The case involved an application by the Commissioner of Income-tax, Haryana, seeking a direction to the Income-tax Appellate Tribunal to refer a question of law regarding the deletion of an addition made on account of undervaluation of closing stock by the assessee. The assessee, a State Government undertaking, initially valued the closing stock at Rs. 17,59,071.53 but later revised it to Rs. 9,45,973.24, leading to the addition of Rs. 8,13,090 by the Assessing Officer. The Commissioner of Income-tax (Appeals) and the Tribunal both ruled in favor of the assessee, accepting the change in valuation method as bona fide.The Revenue argued based on a Supreme Court decision that the Assessing Officer had the authority to correct the valuation if the correct mode was not adopted. However, the court noted that the cited case was different as it involved omission of overhead charges, unlike the present case where the change in valuation method was due to cost price being lower than market price and deemed bona fide.The respondent-assessee contended that the change in valuation method was rightly allowed as it was found to be bona fide and consistently used in subsequent years. The Tribunal upheld this view, stating that the change was bona fide and regularly employed by the assessee in subsequent years, hence no interference was warranted.The Tribunal's decision was based on the finding of fact that the change in valuation method was bona fide and consistently applied in subsequent years, leading to the dismissal of the application as the question sought to be referred was not a referable question of law.