Excess profits tax computation cannot revalue trading stock already fixed in income-tax assessments.

Under the Excess Profits Tax Act, the standard period profits and capital employed had to be computed consistently with the income-tax computation for that period. The proviso to Rule 1 of Schedule I bound the Excess Profits Tax Officer to the profits already determined under the Indian Income-tax Act, and Rule 1(2) of Schedule II did not permit a fresh revaluation of trading stock. Deductions for reduced asset values were confined to those allowable for income-tax purposes, so the officer could not alter opening or closing stock figures used in the income-tax assessment. The higher stock valuation was therefore impermissible.

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Issues: Whether, on the true construction of Rule 1 of Schedule II to the Excess Profits Tax Act, the Excess Profits Tax Officer could revalue the assessee's trading stock at cost price higher than the figure adopted in the income-tax assessment for the standard period.

Analysis: The standard profits and the capital employed during the standard period were to be worked out under the Excess Profits Tax Act in a manner linked to the income-tax computation. The proviso to Rule 1 of Schedule I bound the Excess Profits Tax Officer to the profits already determined for the standard period under the Indian Income-tax Act. Rule 1(2) of Schedule II, read with the scheme of the Act, showed that deductions for reduced values of assets were those allowable for income-tax purposes, and that the officer could not disturb the opening or closing stock figures which formed part of the income-tax profit computation. The distinction between deductions that are "allowable" and debts "which has been allowed" did not authorise a fresh revaluation of trading stock.

Conclusion: The Excess Profits Tax Officer could not substitute a higher stock valuation for the value already adopted for income-tax purposes in computing the standard period profits and capital, and the question was answered against the Commissioner.

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