High Court upholds assessee's right to change valuation method for closing stock, reduces assessable income.

The High Court affirmed the assessee's right to change the valuation method of closing stock if done bona fide and consistently. The Court upheld the assessee's method of valuing DBM dust at nil, reducing assessable income by Rs. 70,50,677. The High Court rejected the Revenue's petition, emphasizing the importance of a bona fide and consistent approach to valuation methods.

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Issues involved:
Petition under section 256(2) of the Income-tax Act, 1961 regarding the valuation of DBM dust for the assessment year 1984-85.

Summary:

The assessee, a company engaged in the business of converting magnesite ore into dead burnt magnesite (DBM), changed its method of valuing DBM dust stock for the assessment year in question. The assessee valued the closing stock at "raw material cost plus packing charges or realisable value, whichever was lower," with the realisable value of DBM dust considered as nil due to its unsaleable nature. This change decreased the value of DBM dust by Rs. 70,50,677, reducing the assessable income by the same amount.

The Assessing Officer initially valued the closing stock at Rs. 77,50,677, adding it to the assessee's income on the grounds of consistency in valuation methods. The Commissioner of Income-tax (Appeals) reduced a portion of the addition, considering the change in valuation method as bona fide but attributing some value to the DBM dust. The Tribunal, after reviewing the facts, upheld the assessee's method of valuing the DBM dust at nil, leading to the Revenue seeking a reference to the High Court.

The High Court, after considering relevant case laws, including the decision in CIT v. British Paints India Ltd., affirmed that the assessee has the right to change the method of valuation of closing stock if done bona fide and consistently. The Court found the change adopted by the assessee to be bona fide and in line with established principles, leading to the conclusion that valuing the DBM dust at nil was a realistic approach. As the Tribunal's decision was based on factual findings and did not raise any legal question, the High Court rejected the petition.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of a bona fide and consistent approach to valuation methods, and found no error in the Tribunal's findings.

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