TaxTMI 
TaxTMI 
1998 (1) TMI 68
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....nt year 1976-77 up to the assessment year 1979-80, before seeking change in the method of valuation of closing stock for the first time in the assessment year 1980-81 and later on in the assessment year 1981-82 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the learned Commissioner of Income-tax (Appeals) was entitled to entertain this additional ground of appeal while hearing the appeal filed by the assessee for the assessment year 1976-77 ?" ITC No. 48 of 1995 (assessment year 1981-82) : "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the guarantee commission paid to the bank was a revenue expenditure ? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the change in the method of valuation of closing stock as adopted by the assessee-company for the assessment year 1981-82 should be allowed to have retrospective effect right from the assessment year 1976-77 onwards ignoring the material facts that the assessee-company had already followed certain consis....
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....and spares--at cost, actual or weighted average ; B. Goods in process--at cost ; C. Finished goods--at realisable value. The assessee-company changed this method of valuation of closing stock of finished goods during the period relevant to the assessment year 1980-81 by shifting to the lower of cost or realisable value (as against at realisable value), followed up to the assessment year 1979-80. This change effected by the assessee in the method of valuation was rejected by the Assessing Officer. However, the Commissioner of Income-tax (Appeals) allowed the appeal of the assessee against which the Department went in appeal to the Income-tax Appellate Tribunal. For the assessment year 1981-82, the assessee effected yet another change in the method of valuation of the closing stock which is as under : A. Raw material, stores and spares--cost, periodic LIFO basis, (LIFO last in first out). B. Goods in process--direct cost. C. Finished goods--direct cost. This change in the method of valuation of closing stock was also rejected by the Assessing Officer. However, the Commissioner of Income-tax (Appeals) allowed the change against which order again an appeal was pending before t....
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....ion of inventories published by the Institute of Chartered Accountants of India, copy whereof was made available for the perusal of the Tribunal by the assessee. The Tribunal also considered whether the method adopted by the assessee was proper. The Tribunal arrived at the following finding : "Thus, it is seen that the method adopted by the assessee for valuation of closing stock is one of the recommended methods by the Institute of Chartered Accountants of India, New Delhi. The assessment year before us is the first accounting year of the business of the assessee, i.e., assessment year 1976-77. If the system of accounting is regularly followed in the subsequent assessment years there would not, in our view, be any loss to the Revenue. Once a uniform system of accounting is adopted the determination of the correct profit by such method would be fair and reasonable. Since the appeals for subsequent years are also pending at one stage or the other, we approve the method of accounting adopted by the assessee so that the method is consistently followed in the subsequent assessment years. We, therefore, confirm the decision of the Commissioner of Income-tax (Appeals) in allowing the c....
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....ffect. On the other hand, learned senior counsel for the assessee submitted that there was no change effected retrospectively ; in reality it was prospective. It was further submitted by learned counsel for the assessee that it was a misnomer to use the terms like retrospectivity and "change in the accounting method". In fact the accounting method remained the same ; what was sought to be changed was the mode of valuing the closing stock so as to bring it in conformity with a recognised method of valuation which was more scientific in nature and having been allowed for the basic year 1976-77, it was allowed for the succeeding years as well so as to make it consistent, inasmuch as, what would be the closing stock for any year, would be the opening stock for the succeeding year and, therefore, the change was effected for all the succeeding years leading up to the years 1981-82, but it would be prospective merely. Learned counsel for the Department cited a number of decisions taking the view that the accounts--closed or settled--cannot be allowed by the Assessing Officer to be reopened at the instance of the assessee, nor can a change in the method of accounting be permitted. Without....
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....uthorities on the view that he should have adopted a different method of keeping account or of valuation. The method of accounting regularly employed may be discarded only if in the opinion of the taxing authorities the income of the trade cannot be properly deduced therefrom. Valuation of the stock at cost is one of the recognised methods : Investment Ltd. v. CIT [1970] 77 ITR 533 (SC). Whether income, profits and gains can or cannot be properly deduced from the method of accounting regularly adopted by the assessee, is a question of fact (Chhabildas Tribhuvandas Shah v. CIT [1966] 59 ITR 733 (SC) ; India Machinery Stores (P.) Ltd. v. CIT [1970] 78 ITR 50.(SC)). To permit a change was not without jurisdiction or illegal ; it was a matter of discretion. We are, therefore, of the opinion that question No. 1 in ITC No. 40 of 1995 (assessment year 1976-77), question No. 2 in ITC No. 48 of 1995 (assessment year 1981-82) and question No. 2 in ITC No. 57 of 1995 (assessment year 1981-82) do not arise as questions of law from the order of the Tribunal and no mandamus can, therefore, issue to the Tribunal for drawing up a statement of case as to those questions. As to question No. 2--ITC....