Closing stock valuation at lower market value upheld where Revenue failed to prove any change in the assessee's regular accounting method.

Where an assessee's regular method of accounting is not shown to require closing stock to be taken at cost even when market value is lower, the lower market value may be adopted for closing stock. The Indian Income-tax Act requires income to be computed on the basis of the method of accounting regularly employed, and the Revenue bears the burden of proving any departure from that method. On the material before the HC, the Department failed to establish that the assessee was bound to value stock at cost or that there had been any change in the regular accounting method, so the assessee's valuation at market rate was upheld.

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Issues: Whether, on the facts and in the circumstances of the case, the assessee was entitled to value the closing stock at market rate.

Analysis: The assessee had valued the closing stock at the lower market value in the year in question. Under section 13 of the Indian Income-tax Act, income must be computed according to the method of accounting regularly employed by the assessee, but the Department must establish any departure from the regular method. The accepted accountancy rule permits closing stock to be taken at cost or market value, whichever is lower, and, on the material before the Court, there was no reliable basis to hold that the assessee had been regularly bound to value stock at cost even where market value was lower. The burden to prove a change in the regular method of accounting lay on the Department, and that burden was not discharged.

Conclusion: The assessee was entitled to value the closing stock at market rate, and the question was answered in the affirmative in favour of the assessee.

Ratio Decidendi: In the absence of proof that an assessee's regular method of accounting required stock to be valued at cost even when market value was lower, the assessee may adopt the lower market value for closing stock, and the Revenue cannot disallow it without proving a change in the regular method.

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