Speculation loss set-off and first-time market valuation of stock upheld where no regular method had been adopted.

Speculation loss incurred in Bombay was held set off against business income earned in Hyderabad, following prior authority that treated such loss as admissible against business profits. Where no regular method of stock valuation had previously been adopted, the assessee was permitted to value opening and closing cotton stock at market price even though it exceeded cost, because a valuation method is only required to be followed consistently once regularly chosen. Both questions were answered in favour of the assessee, and costs were awarded accordingly.

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Issues: (i) whether a speculation loss incurred at Bombay could be set off against income from business in Hyderabad; (ii) whether, where no regular method of stock valuation had previously been adopted, the assessee could value opening and closing cotton stock at market price though it exceeded cost price.

Issue (i): Whether a speculation loss incurred at Bombay could be set off against income from business in Hyderabad.

Analysis: The loss arose in speculative business, and the Tribunal had allowed the set-off following prior authority on the same point. The reasoning accepted that such loss was admissible against business profits earned in the State and that the earlier decision governed the reference.

Conclusion: The issue was answered in the affirmative and in favour of the assessee.

Issue (ii): Whether, where no regular method of stock valuation had previously been adopted, the assessee could value opening and closing cotton stock at market price though it exceeded cost price.

Analysis: The governing principle is that trading stock may be valued at cost or market price, but once a regular method is adopted it must be followed consistently. As the assessee had not previously employed any regular method of stock valuation, the choice of market value for the first assessment was held to be permissible. The book balances shown earlier did not amount to a settled valuation method at cost.

Conclusion: The issue was answered in the affirmative and in favour of the assessee.

Final Conclusion: The reference was disposed of by accepting both questions in favour of the assessee, with costs awarded accordingly.

Ratio Decidendi: In the absence of a regularly employed method of stock valuation, an assessee may adopt a lawful basis of valuation for the first assessment, but once a method is chosen it must be followed consistently.

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