TaxTMI 
TaxTMI 
2020 (2) TMI 260
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....ment dated 04.09.2019 , wherein it was held by Hon'ble Madras High Court as under: "TCA.No.1128 of 2007: 1. Whether the Appellate Tribunal was right in reversing the order of the first appellate authority and restoring that of the Assessing Officer for excluding receipts arising in the core business and not specified in Explanation (baa) to section 80 HHC? 2. Whether the Tribunal was right in directing the Assessing Officer to value the opening stock also on the basis as the closing stock in a case of change in valuation of closing stock which was accepted as bonafide and contrary to the decision of the jurisdictional High Court? 3. As far as question arising out of Section 80 HHC( baa) of IT Act, 1961 in the respective appeal is concerned, we are of the view that the issue is pending before the Special Bench of the Tribunal and therefore there is no substantial questions of law to be decided now by us for the present. We therefore, do not find any reason to answer this issue at present. 4. As far as variance in valuation of the opening stock and closing stock is concerned, the learned Standing Counsel submitted that while remanding the case back to the Assessing Officer ....
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.... have provided that if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of the expenditure, he shall determine the amount of expenditure incurred in relation to such income in accordance with such method as prescribed. We further note that in the case of Income Tax Officer vs. Daga Capital Management (P) Ltd., supra the Mumbai Special Bench of this Tribunal has held that "subsection (2) and (3) of section 14A are procedural in nature and hence retrospective. Therefore, if the Assessing Officer is not satisfied with the claim of the assessee, he has to determine the expenditure as per the rule 8D of the Income Ta Rules. Accordingly, we set aside the orders of the lower authorities, quo this issue and remit the same to the record of the Assessing Officer to ascertain the expenditure incurred in respect of the dividend income according to the Rules and decide this issue after hearing the assessee." 6. Having considered the submissions made by the learned counsel for the Revenue, we do not find any substantial questions of law arising in respect of the method of valuation and therefore all the appeals may be remanded back to the Tr....
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.... reduction profit during this year will be made good in the following year. Therefore, following the principles laid out by the Supreme Court in the case referred supra, I find that the appellant is entitled to re-compute his profit by following the changed method of valuation of closing stock. The addition of Rs. 47,45,000 is hereby deleted. This ground is allowed. 3. The Revenue being aggrieved filed appeal with the tribunal, which in the first round of litigation was allowed by the tribunal and the issue was decided in favor of the Revenue, vide order in ITA No.984/Mds/2007 dated 03.04.2009 passed by tribunal wherein it was held that change in method of valuing closing stock is to be applied both to the opening stock and also to closing stock, by holding as under: :24. After considering the rival contentions and the materials on record, we note that the assessee has changed the method of valuation of closing stock from the market price to the cost price which has reduced the value of the closing stock. As per the accounting standards, the valuation of the stock should be at the cost market price, whichever is less. Therefore, there is no dispute that by adopting the cost pr....
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....goods was changed to cost or market value whichever is lower, which method of valuing finished goods is in consistency with Accounting Standard issued by ICAI. It was submitted that auditors suggested to follow cost or market value method whichever is lower for valuing finished goods. It was submitted that the AO has accepted this change of method of valuing finished goods while framing scrutiny assessment but only that the AO held that this method of valuing finished stock is to be applied to both opening and closing stock of finished goods in the year of change which has caused prejudice to the assessee. It was submitted that the said changed method was applied to closing stock and the same was not applied to opening stock , as otherwise there would have been chain effect for earlier years also. The learned counsel for the assessee would rely on judgment of Hon'ble Madras High Court in the case of M/s Kadari Ambal Mills Limited v. JCIT in TCA no. 430 of 2005 , dated 20.06.2001 . The learned DR would rely on the assessment order passed by the AO. 4. We have considered rival contentions and perused the material on record. We have observed that assessee was earlier following the ma....
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....shed goods to opening stock of finished goods held by assessee at the beginning of previous year relevant to impugned ay: 2004-05 which can continued to be valued as per old method. The decision of Hon'ble Madras High Court in the case of Kadhuri Ambal Mills Limited v. JCIT in TCA No.430 of 2005 , judgment dated 20.06.2011 is clearly applicable. The decision of Hon'ble Madras High Court is reproduced hereunder: "5. Heard the learned counsel and perused the documents on record. During the relevant assessment year, the assessee has changed the method of valuation of stock from market price to cost price. The assesses valued the closing stock on the basis of cost price but valued the opening stock on the basis of market price. For the earlier assessment years, the assessee valued the closing stock of finished goods at market price. The Auditor of the assessee objected the same and also advised to value the closing stock at cost or market price, whichever is less. Therefore, the assessee has changed the method of accounting with regard to valuation of closing stock from market price to cost price. The Assessing Officer accepted the method of valuation of the closing stock at cost....
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....down in a series of cases-" 6. The above judgment was also considered by the Bombay High Court in the case of Melmould Corporation Vs. Commissioner of Income Tax reported in (1993) 202 ITR 789. In page Nos. 792 to 794 it was held as follows:- " We are not here concerned with whether this is the correct method or an acceptable method for determining cost price. At no stage of the proceedings was the question ever raised as to whether it was permissible for the assessee to revalue its stock by not including in the cost price overhead expenses. The Tribunal has not dealt with this aspect, viz. the manner in which the closing stock has been valued in the present case. Therefore,, the decision of the Supreme Court in the case of CIT Vs. British Paints India Ltd. (1991) 188 ITR 44 is not attracted to the question before us for consideration. The decision of the Tribunal is on the footing that since the closing stock was valued by adopting a certain method, the same method should be adopting in valuing the opening stock. In other words, the change in the method of valuation, according to the Tribunal, should commence with valuing the opening stock of any previous year by the new met....
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....value of the opening stock of the next year. The change, therefore, has to be effected by adopting the new method for valuing the closing stock which will, in its turn, become the value of the opening stock of the next year. If, instead, a procedure is adopted for changing the value of the opening stock, it will lead to a chain reaction of changes in the sense that the closing value of the stock of the year preceding will also have to change and correspondingly the value of the opening stock of that year and so on. This was pointed out by the Madras High Court in the case of C1T Vs. Carborandum Universal Ltd., (1984) 149 ITR 759. In the case before the Madras High Court also the valuation of opening stock had been done by the company on the basis of total cost i.e., cost including overheads while it changed its method of valuation for the closing stock to "direct cost" i.e. cost without overheads. This change in method was made bone fide and the assesses said that it would for adopting this method consistently in the future just as in the present case. The court in that case held; "The change was a bona fide one and was a permanent arrangement which was to foe followed year aft....