TaxTMI 
TaxTMI 
1999 (9) TMI 143
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....lued the closing stock of finished goods on a more scientific basis by eliminating selling and administration overheads hitherto included. As a result, the value of closing stock and consequently profit is lower by Rs. 8,51,815." The AO rejected the new method and made the impugned addition of Rs. 5,29,700 observing as under: "Change in accounting method: The assessee during the previous year has changed its accounting method of valuing closing stock. This has resulted in profits being lower by Rs. 5,29,700. The assessee was therefore, asked why this difference should not be brought to tax. The assessee had initially replied that only Rs. 5,29,700 would be taxed but subsequently withdrew this claim. Following the Supreme Court decision in the case of CIT vs. British Paints Ltd. (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC) to which the facts of this case squarely apply, I hold that Rs. 5,29,700 which is the reduction in the value of closing stock as a result in the change of accounting method has to be taxed." 3. On appeal, the CIT(A) confirmed the action of the AO again relying on the Supreme Court decision in the case of CIT vs. British Paints Ltd. (1991) 91 CTR (SC) 108 : ....
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....ry on total cost absorption basis is a recognised system of accounting. According to the learned counsel, refining the system resorted to at the end of the year does not compel the assessee to apply refined system for valuing the opening stock. He therefore, submitted that there is no justification for the impugned addition of Rs. 5,29,700. 5. Shri Naresh Kumar, the learned Senior Departmental Representative, strongly supported the orders of the authorities below. 6. We have considered the rival submissions and perused the facts on record. The method of valuation of stock is a part of assessee's method of accounting. Thus, an assessee's method of valuation of stock would be binding on the ITO under s. 145(1) of the Act. It is well accepted that it is open to an assessee to change his method of accounting and to decide what method of accounting he/she will follow. The assessee has to establish that he has, in fact, changed his regular method of accounting and that such change is on regular or permanent basis. If the altered method is an acceptable method of accounting, it would normally follow that the profits can be properly ascertained therefrom. Hitherto, the assessee was valui....
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....), it has been held that where method of valuing closing stock on total cost is found unscientific and is changed to works cost, and the change is found to be bona fide and not for reducing income for income-tax purposes, the changed method was found reasonable. The Calcutta High Court in Snow White Food Products Co. Ltd. vs. CIT (1982) 29 CTR (Cal) 8 : (1983) 141 ITR 861 (Cal), has held that the year where a change in the method of accounting is introduced for the first time it is to be examined by the Revenue authorities whether the change introduced is meant to be regularly followed or not. Where it is found that the assessee has changed his regular method of accounting by another recognised method and has followed the latter method regularly it is not open to the Revenue authorities to go into the question of bona fide of the introduction and continuation of the change. 8. From the above legal discussion, it may be noted that the Courts have gone to the extent of saying that an assessee is free to change its method of accounting provided the change is a bona fide one. It is evident from the facts of the case as discussed supra that the assessee has changed from total cost meth....
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....he Bombay High Court in the case of CIT vs. Allana Sons (P) Ltd. (1993) 114 CTR (Bom) 448 : (1995) 216 ITR 690 (Bom). The addition of Rs. 8,753 is accordingly deleted. 13. Ground Nos. 3, 4 and 5 read as under: "3. In view of the facts and circumstances of the case the lower authorities have erred both on facts as well as in law in treating a sum of Rs. 7,04,849 as assistance as revenue receipt. Company submits that the amendment being retrospective not applicable for the asst. yr. 1989-90. 4. In view of the facts and the circumstances of the case the AO has erred both on facts as well as in law in disallowing assessee company's claim of Rs 12,69,750 out of the Revenue expenditure in connection with the increase in authorised capital of the company. Company submits that claim is allowable as revenue expenditure. Same may please be allowed. If it is ultimately decided claim is not allowable revenue expenditure, deduction may please be allowed under s. 35D of the IT Act. 5. In view of the facts and the circumstances of the case assessee-company is submits that deduction under s. 80HHC calculated on deemed exports also Assessee-company's claim may please be allowed." At the time o....
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....record. This Bench in the case of Dy. CIT vs. Jagdish Electronics (P) Ltd. (1998) ITD 542 (Pune) has held that incomes by way of accumulation of surplus funds which have direct nexus with the industrial activity of the assessee have to be considered while computing deduction under s. 80-I of the Act. Keeping in view the ratio laid down by this Bench in the aforesaid decision, we direct as follows: (1) Interest on deposit with banks-Rs. 0.52 lakhs This issue is restored to the file of the AO with a direction that he should verify whether the funds were used for opening letter of credit and for other allied activities pertaining to the industrial undertaking in the light of the above mentioned decision of this Bench in the case of Jagdish Electronics (P) Ltd. (2) Interest on intercorporate deposits-Rs. 39,53 lakhs On the face of it, these deposits do not have any nexus with the industrial undertaking of the assessee-company. Accordingly, the assessee is not entitled to any relief under s. 80-I in respect of this item. (3) Interest on bills : Rs. 0.13 lakhs This income arises out of industrial undertaking of the assessee. The AO is directed to take into consideration the amount ....