Stock valuation must follow a consistent method; without one, cost may be used for opening and closing stock.

Where an assessee has not regularly followed a consistent stock valuation method, the ordinary rule of valuing stock at cost or market price, whichever is lower, does not govern. The article explains that the true-profit principle applies only when a settled year-to-year basis has been consistently employed. In the absence of such consistency, valuation at cost for both opening and closing stock is permissible, and no profit or loss arises merely from revaluation where there were no purchases or sales during the relevant year.

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Issues: Whether the Appellate Tribunal was justified in holding that, where no consistent method of stock valuation had been regularly employed by the assessee, both the opening and closing stocks were to be valued at cost and no profit or loss could be recognised on the unsold shares.

Analysis: The assessee was a dealer in shares, but the record showed no regular or consistent method of valuation in the past. Although stock-in-trade is ordinarily valued so as to reflect true profits, and closing stock is generally valued at cost or market price, whichever is lower, that principle applies only where a settled and consistent basis of valuation is followed from year to year. In the absence of such a regular method, the department was justified in adopting cost for both the opening and closing stocks. Since there was no purchase or sale of shares during the relevant year, no profit or loss could arise merely from revaluation.

Conclusion: The question was answered in the affirmative, and the valuation adopted by the department was upheld; the assessee failed on the issue.

Final Conclusion: The reference was decided against the assessee, with the department's treatment of the shares as correctly valued at cost being sustained.

Ratio Decidendi: The usual rule of valuing stock so as to reflect true trading profits applies only where the assessee has regularly employed a consistent method of valuation; in the absence of such a method, valuation at cost may be adopted for both opening and closing stock.

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