True stock valuation for income tax profits requires correcting both opening and closing stock figures to reflect actual year-end profit.

In computing assessable business profits, stock-in-trade must be valued at its true figure at both the beginning and the end of the year so that the year's profits reflect reality. An erroneous opening stock valuation cannot be left unchanged merely because it carried forward from the prior year and then corrected only at closing, as that would distort profits by preserving a fictitious figure. The court distinguished earlier authority on the basis that it did not require an incorrect opening balance to be maintained. It also noted that there was no proved material of fraud or dishonest manipulation, and that other statutory provisions addressed improper undervaluation.

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Issues: Whether, in computing the company's assessable profits for the relevant previous year, the stock-in-trade had to be valued at its true figure both at the beginning and at the end of the year, or whether only the closing stock could be revalued while the opening stock remained at the earlier under-valued figure.

Analysis: The assessment had to be made under the charging provisions of the Income Tax Act, 1922, so as to ascertain the true profits of the particular year. A rule of accountancy cannot be used to perpetuate an error in the opening stock merely because the same figure appeared as the closing stock of the preceding year. If the opening valuation was wrong, it could and should be corrected so that the year's profits were not distorted by a fictitious figure. The Court distinguished the earlier Madras decision on the footing that the principle there did not justify preserving an erroneous opening balance; rather, it showed that a mistaken valuation may be corrected. The Court also noted that no proved material justified treating the matter as one of fraud or dishonest manipulation, and that other statutory provisions existed to deal with improper under-valuation.

Conclusion: The question was answered in favour of the assessee. The assessment had to be varied by valuing the company's stock at its true value both at the beginning and at the end of the year, and not merely by revaluing the closing stock.

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