TaxTMI 
TaxTMI 
2016 (9) TMI 1047
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....sue? (b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in rejecting the change in the method of valuation of closing stock? (c) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that packing expenses did not qualify for export market development allowance under Section 35B? 2. The Assessment Years involved in the present Reference are 1976-77 and 1977-78. Regarding Questions (a) and (b) :3. Up to the end of the accounting year relevant to Assessment Year 1975-76, the assessee, who is a manufacturer of scooters, three wheelers and their parts, had been valuing its closing stock of stores, spares, tools and materials and workinprogress on the basis of cost or market value whichever was lower. For determining the cost for the purposes of such valuation, the assessee had adopted the basis of "lowest purchase price during the year". Whilst determining the closing stock as on 30th June, 1976, though the stock was valued on the basis of "cost or market value whichever is lower", the cost itself was considered on "weighted average cost" basis. This was on the footing that aft....
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....see, the Officer was empowered to make an assessment in the manner provided under Section 144 of the Act. The assessee's case is that the Assessing Officer could not have rejected the method of accounting employed by the assessee without having found under the proviso to Subsection (1) of Section 145 that income cannot be properly deduced from the method employed or without being satisfied under Subsection (2) that no method of accounting has been regularly employed by the assessee. It is submitted that it is for the assessee to employ any particular method of accounting and the Assessing Officer is not empowered to reject the method employed except in cases covered by the proviso to subsection (1) or subsection (2) of Section 145 of the Act. 6. In the first place, it is important to note that what the assessee has changed in the present case is the method of ascertaining the cost for the purpose of stock valuation and not the method of accounting employed by the assessee for the purpose of stock valuation as such. The method, as before, continues to be "cost or market value whichever is lower". It is only for determining the cost for the purpose of this method that inste....
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....f Income Tax, :" Sarupchand's case (supra) is a clear authority for the proposition that it is open to an assessee to make a clean change of the regular method adopted by him up to that time, provided, he satisfied the department on proper evidence that he has in fact changed the regular basis of accounting and has not merely abandoned or changed it for a casual period to suit his own purposes. A bona fide change of the regular basis of accounting must be accepted by the department and may be given effect to on such terms as may be necessary for preventing escape from taxation or double taxation. But even bona fide changes, if too frequent, would disentitle the assessee to have his yearly income computed in accordance with his own changing methods and would justify an assessment under the proviso; for under this section the assessee's method of accounting prevails only if it has been regularly employed. The intention of the legislature in enacting section 13 was that for income tax purposes the assessee should be entitled to make use of any method of accounting that he chooses to adopt, but he must follow the selected method 'regularly' and is not to be allowed t....
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....al does not dispute that the new system of accounting was followed by the assessee in the subsequent assessment years as well. This clearly supports the assessee's case that the method was meant to be adopted as a regular method for the future. The Tribunal appears to have been swayed by the fact that by means of this new method of determining the cost, the assessee was having the benefit of taking the cost of items remaining in the closing stock on the basis of the lowest purchase price during the year with further reduction in the cost by following the weighted average cost formula. The method of determining the cost of items remaining in the closing stock is a part of a system of valuation of closing stock and if this method is changed, it would automatically lead to a change in the valuation of the closing stock. This is inevitable for the first year of change. What we need to consider in every such case is whether the exercise carried by the assessee is bona fide and is a permanent arrangement which is to be followed year after year, and not what immediate benefit accrues to the assessee for the particular year in which the change is introduced. 11. A Division Bench of ....