Opening stock and closing stock valuation discrepancy did not raise a referable question of law under the Income-tax Act.

The High Court considered whether an Assessing Officer had ignored opening stock while making additions for undervaluation of closing stock, so as to raise a referable question of law under section 256(2) of the Income-tax Act, 1961. On the assessment records, the officer had accepted the opening balance from the profit and loss account, made additions only for the discrepancy in closing stock valuation, and the subsequent year's opening balance reflected the earlier enhancement. As the assessee's cost method of valuation was also followed by the officer, the claim that opening stock was ignored was unsupported. No question of law arose for reference, and the application was dismissed.

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Issues: Whether, in the facts of the case, the Assessing Officer had ignored the opening stock while making additions on account of undervaluation of closing stock so as to give rise to a question of law warranting reference under section 256(2) of the Income-tax Act, 1961.

Analysis: The assessment orders showed that the Assessing Officer started with the profit and loss account, accepted the opening balance as reflected therein, and made additions only for the discrepancy found in the valuation of closing stock. For the subsequent year, the enhancement made in the earlier year was given effect to in the opening balance. The method adopted by the assessee for valuation was the cost method, and the Assessing Officer followed the same approach. On these facts, the contention that the opening balance had been ignored was not borne out.

Conclusion: No question of law arose for reference under section 256(2), and the application was dismissed in favour of the Revenue.

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