Full Judgment Text
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CASE NO.:
Appeal (civil) 6735-6736 of 2003
PETITIONER:
M/S. Sanjeev Woolen Mills
RESPONDENT:
Commissioner of Income-tax, Mumbai
DATE OF JUDGMENT: 24/11/2005
BENCH:
Dr. AR. Lakshmanan & P.P. Naolekar
JUDGMENT:
J U D G M E N T
P.P. NAOLEKAR, J.
The appellant, (hereinafter to be referred to as an
’assessee’) is a firm engaged in the imports of synthetic waste
and manufacture and export of woolen blankets. Since the
assessee had been in export, the economy of the business of the
assessee worked out on the basis of U.S. $ price and for the
purpose of stock valuation, the same was recorded in Rupees
for which the prevailing exchange rate was applied. The
assessee was maintaining books of accounts on a consistent
method on mercantile basis right from the insertion of its
business and Department has accepted the same for the purpose
of income-tax except in the years in question. Since the
Account Year, 1986-87, the assessee followed the method of
accounting, and for which the stock of raw-material/semi-
finished goods were valued at cost price and finished goods at
the market price.
For the Assessment Year 1992-93 (hereinafter to
be referred to as the ’First year’), the assessee valued the
closing stock at the rate of Rs.130/- per kg. whereas the opening
stock were shown at Rs.90/- per kg. In the subsequent year
1993-94, the assessee valued the opening stock at Rs.130 per
kg. for the finished goods and there was no closing stock. The
assessee returned a loss of Rs.54,420/- for the second year. For
the First year, the assessee claimed benefit under Section 80
HHC of the Income-tax Act 1961 (hereinafter to be referred to
as an ’Act’). It is the case of the assessee that during the
Financial year 1991-92, the Rupee had undergone de-valuation
against U.S. $. The price of the U.S. $ as on 1.4.1991 was
Rs.18/- per Dollar and at the time of the closing as on
31.3.1992, it was Rs.31/- per U.S. Dollar. As per the evidence,
the assessee’s case is that at the relevant time the market price
of the blanket in the international market was U.S.$ 4.59 per kg.
and the rate of U.S. Dollar in Rupees 18.20 per Dollar. As
such, the market price was Rs.90/- per kg. as on
31.3.1991/1.4.1991 (closing stock of the previous year/opening
stock valuation for the year 1992-93). At the end of the year
1992-93, on 31.3.1992, the market price of the blanket in the
international market was U.S. $5.35 per kg. and the rate of U.S.
$ in Rupee was Rs.31/- per Dollar and the market price worked
out to be Rs.165.85 per kg. and on 31.3.1992 after deducting
the transport charges, freight, commission and other incidental
charges to the tune of Rs.35.85, price of the blanket at market
value was fixed at Rs.130 per kg. which was shown as closing
stock value of the Assessment Year 1992-93. The assessee has
taken the value of the closing stock as on 31st of March as the
opening stock on 1st of April to be the same in every year for
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the finished product at market value and the raw material at cost
price. The assessee also valued the market price of the finished
product at the rate of Rs.98/- as on 1.4.1991 as the actual
market price of Rs.130/-per kg. as on 31.3.1992 and also on
1.4.1992 the price of the finished product as opening stock
value for the Second Year.
The Assessing Officer has found that on adoption
of the aforesaid method, there is a stark contrast in the gross
profit ratio for the accounting year 1990-91, 1991-92 and 1992-
93. He concluded that the method of valuing the closing stock
at market value resulted in a distorted picture and assessee had
artificially inflated the profits in order to get benefit under
Section 80 HHC of the Act, which amounted to tax planning
with intent to defraud the Revenue. The Assessing Officer
ruled that by following the aforementioned method, the
assessee effectively showed to earn income out of itself, which
was totally against the basic principles of accountancy and law.
He further observed that by proper application of the
provisions of the Act and principles of accountancy, the
assessee had to value its closing stock at cost or market price
whichever was lower but that was not done. He further found
that in the Second Year, the assessee had valued opening stock
at Rs.130 per kg. in place of Rs.90 per kg. which had
suppressed the factum of profits. He applied the standard
prescribed for "Valuation of Inventory" at the cost price and
added an amount of Rs.2,67,38.280.00 to the total income of
the assessee for the second year.
The assessee preferred an appeal for the First Year
and also for the Second Year before the C.I.T. (Appeals). Both
the appeals were dismissed by C.I.T. (Appeals) by observing
that by merely following a particular system of accounting
regularly in the past would not entitle the assessee to follow the
same system of accounting which was not in accordance with
the standard principles of accountancy and placed reliance on
the judgment of this Court in British Paints vs. C.I.T.
[1991]188 I.T.R. 44. It was held that the Assessing Officer had
rightly interfered, as duty bound under provisions of Section
145 of the Act to conclude the correct taxable income of each
year and for that purpose, there was need to change the system
of accounting regularly followed by the assessee, that must be
done. As per the appellate authority, no person could earn
profit from his own pocket. The valuation of the closing stock
required valuing of closing stock either at cost or at market
price, whichever was lower.
The assessee, aggrieved by the orders passed by
C.I.T. (Appeals), further filed appeals before the I.T.A.T. The
Income-tax Appellate Tribunal allowed the appeals of the
assessee taking the view that the application on the principle of
lower cost or market value was pre-dominantly wrong because
there had been several accepted method of accounting such as
pure cost method, LIFO, FIFO etc. and observation of the
Assessing Officer and the first appellate authority regarding a
particular method is the only correct method, was held to be
totally absurd. It was observed that lower of the cost or market
value method might certainly be considered to be a prudent
method of accounting and might be followed by the vast
majority of business enterprises but what might not be
considered prudent did not necessarily incorrect or against the
principles of accounting and hence if any firm has been
employing the market value method for a long time
consistently, it could not be considered as against the principles
of accountancy nor the method adopted for defrauding the
Revenue. The Tribunal has directed that valuation of the
finished goods as made by the assessee be accepted. Regarding
opening stock of the Second Year, the Tribunal has allowed the
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assessee to value it as the closing stock of the First year. The
Revenue challenged this order of the Tribunal in the High Court
of Bombay by filing an Income-tax Appeal.
The Division Bench of the High Court by its
judgment dated 11.12.2002 allowed both the appeals and held
that the method of valuation of closing stock adopted by the
assessee was not correct and that the entire device was to inflate
deduction under Section 80 HHC and to suppress the profits in
the Second Year because the correct taxable income could
never be computed on the basis of the system of relief provided
under Section 80 HHC and that under the different assessment
year constituting separate unit and the principle of ’lower of the
cost or market value’ had been fully satisfying the mandatory
touchstone of "no escapement of tax" rule. Against this order
of the High Court, the assessee has came before this Court.
Shri B.V. Desai, learned counsel for the appellant
has urged that in the facts and circumstances of the case where
in the First Year, the valuation of the stock increased pre-
dominantly because of the market factor and also the sudden
spurt and increase in the exchange rate of U.S. $, it could not
have been said that the appellant has adopted a method of
accounting to defraud the Revenue particularly so when the
accounting method chosen by the assessee is not for a particular
year and is being adopted consistently from the year 1985-86.
It is further urged that it is a well-settled principle of income-
tax law that the assessee is free to adopt any system of
accounting and the valuation chosen at the market rate has been
a well settled principle of accounting and therefore simply
because the assessee has claimed benefit under Section 80
HHC, in a particular year the method of accounting could not
have been found fault with. It was further urged that the
provisions of Section 145 (1) of the Act are not attracted as the
assessee had adopted the valuation of the finished goods on
market price and consistently followed the same. The
contention of the counsel proceeded on the exercise of
jurisdiction and he urged that the power under Section 145 of
the Act could only be exercised if there is material to prove that
the method in question is such that in the opinion of the
Assessing Officer, the income cannot be properly deducted.
The sine qua non for enforcing the provisions of Section 145 of
the Act is that the Assessing Officer should be of the opinion
that from the method of accounting the income cannot be
properly deducted and this opinion should be based on sound
and reasonable footing. On the other hand, Shri Rajiv Dutt, Sr.
Advocate for the respondent has urged that the established and
consistent practice of accounting which is accepted by Courts is
valuation of the closing stock either at the cost or at market
price, whichever was lower. If the established practice of
accounting is not adopted, the Assessing Officer was justified
in invoking Section 145 of the Act. The method of accounting
chosen by the assessee was merely to claim maximum
deduction under Section 80 HHC in the First Year and
suppression of the profit in the Second year. It is further urged
that each accounting year being a separate unit in itself, merely
because in the past Department accepted a method, would be no
ground to prohibit the assessing officer from exercising his
discretion and powers under Section 145 of the Act.
To appreciate and to deal with the rival contentions
put forward by the learned counsel in the facts of the present
case, it would be appropriate to re-produce the relevant
provisions of Section 145 (1) of the Income-tax Act as was
applicable at the relevant time. Section 145 (1) of Income-tax
Act reads as under:
145. (1) Income-chargeable under the head
"Profits and gains of business or profession" or
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"Income from other sources" shall be computed in
accordance with the method of accounting
regularly employed by the assessee:
Provided that in any case where the accounts are
correct and complete to the satisfaction of the
Assessing Officer but the method employed is
such that, in the opinion of the Assessing Officer,
the income cannot be properly deduced therefrom,
then the computation shall be made upon such
basis and in such manner as the Assessing Officer
may determine:
Provided further that where no method of
accounting is regularly employed by the assessee,
any income by way of interest on securities shall
be chargeable to tax as the income of the previous
year in which such interest is due to the assessee:
Provided also that nothing contained in this sub-
section shall preclude an assessee from being
charged to income-tax in respect of any interest on
securities received by him in a previous year if
such interest had not been charged to income-tax
for any earlier previous year.
Where the Assessing Officer is not satisfied about
the correctness or the completeness of the accounts
of the assessee, the Assessing Officer may make
an assessment in the manner provided in Section
144.
Section 145 provides that in case assessing officer
is of the view that the assessee’s accounts are incomplete or
incorrect or method of accounting has not been regularly
followed by the assessee, the Assessing Officer may resort to
make best judgment assessment in the manner provided under
Section 144 of the Act instead of making assessment under
Section 145 of the Act. To attract Section 145 of the Act, it is
necessary that:
a) the assessee has computed the income in
accordance with the method of accounting
regularly employed by the assessee ; and
b) provided where the accounts are correct and
complete to the satisfaction of the assessing
officer; but
c) the method employed is such that in the opinion of
the assessing officer, the income cannot be
deduced therefrom then the assessing officer may
adopt a different method of computation of the
income as he may determine.
The assessee may employ whichever basis of
valuation of stock in hand, but it must adhere to that
consistently year after year. Casual departure of valuation of
trading stock in hand at cost or market value is not permissible.
The method adopted of maintaining the accounts should be
definite method of valuation which is carried by the assessee
from year to year. To attract the provision of Section 145 of the
Act the consistent method of maintaining accounts books is a
first condition thereafter the assessing officer should be of the
view that the accounts are correct and complete but the method
employed is such that in the opinion of the assessing officer the
income cannot properly be deduced therefrom. The choice of
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method of accounting regularly employed by the assessee lies
with the assessee but the assessee would be required to show
that he has followed the chosen method regularly. The
Department is bound by the assessee’s choice of method
regularly employed unless by this method the true income,
profit of accounts cannot be arrived at. The assessee’s regular
method would not be rejected as improper merely because it
gives him the benefit in certain years or that as per the assessing
officer the other method would have been more preferable. The
method of accounting cannot be substituted by the assessing
officer merely because it is unsatisfactory. What is material for
the purpose of Section 145 is, the method to be such that the
real income, profit and gain can be properly deduced therefrom.
If the method adopted does not afford true picture of profit, it
would be rejected, but then such rejection should be based on
cogent evidence and would be done with caution. The power
can be exercised by the assessing authority to choose the basis
and manner in computation of income but he must exercise his
discretion and judgement judicially and reasonably.
In the present case the assessee through out has
computed the income and maintained accounts on the basis of
valuation of opening stock of raw material and semi finished
goods at stock price and finished goods at the market price.
The assessee has adopted method of accounting whereby
closing stock of the year is the opening stock of the next year,
and the valuation placed by the assessee upon his closing stock
of the year as the valuation of the opening stock of the next
year. As per the assessing officer by virtue of this method in
the assessment year 1992-93 the gross profit ratio was
Rs.2054.60% for the first year which stood in stark contrast to
119.18% for the accounting year 1991-92 and 64.85% for
accounting year 1991 and, therefore, the method adopted shows
artificially inflated profit in order to get the deduction benefit
under Section 80HH (C) of the Income Tax Act. While
framing the question of law the High Court has also framed a
question whether in the facts and circumstances of the case and
in law, the ITAT was justified in holding that the higher market
rate of valuation of closing stock adopted by the assessee was
correct, without appreciating that acceptance of said method
had resulted in doctored abnormal gross profit ratio of
2054.60%, which by no yardstick of basic principle of
accountancy could be held as proper reflection of income. The
High Court has arrived at the conclusion that this gross inflation
in the profit was made merely to get the benefit of Section
80HH(C) for the first year and suppress the profit in the second
year. Thus it is apparent that the assessing officer as well as the
High Court were impressed by the factor that the method
adopted by the assessee in computing the income results in
showing of abnormally gross profit ratio and that was done for
the purposes of taking benefit under Section 80HH(C) for the
first year and for reducing the profit in the second year by
showing the value of the finished products at the market rate at
the end of the first year and in the beginning of the second year.
Although it is correct to say that regular method of accounting adopted
cannot be rejected by the assessing officer merely on the basis
of profit earned or loss suffered by the assessee in particular
year but that can be certainly a reason for an assessing officer
to make deeper probe of the account to find and whether the
accounts reflects real income, profit and gains of the assessee.
It is settled law that the true trading result of
business for an accounting period cannot be ascertained without
taking into account the stock in trade at the end of the
accounting period. While considering the method of
accounting in C.I.T. vs. A. Krishnaswami Mudaliar [1964]
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53 I.T.R. 122, this Court pointed out that in the event where the
assessee is following the cash system of accounting, the
valuation of the closing stock cannot be dispensed with. The
Court quoted with approval the following observations in
Commissioner of the Inland Revenue vs. Cock, Russell and
Co. Ltd. [1949] 29 Tax Cases 387 = (1949) All E.R. 889:
"There is no word in the statutes or
rules which deals with this question of valuing
stock-in-trade. There is nothing in the relevant
legislation which indicates that in computing the
profits and gains of a commercial concern the
stock-in-trade at the start of the accounting period
should be taken in and that the amount of the
stock-in-trade at the end of the period should also
be taken in. It would be fantastic not to do it : it
would be utterly impossible accurately to assess
profits and gains merely on a statement or receipts
and payments or on the basis of turnover. It has
long been recognized that the right method of
assessing profits and gains is to take into account
the value of the stock-in-trade at the beginning and
the value of the stock-in-trade at the end as two of
the items in the computation. I need not cite for
the general proposition, which is admitted at the
Bar, that for the purposes of ascertaining profits
and gains the ordinary principles of commercial
accounting should be applied, so long as they do
not conflict with any express provision of the
relevant statutes"
The Court further observed:
"We have already said that in England
there is no provision which compels the tax officer
to adopt in the computation of income the system
of accounting regularly employed by the assessee.
But whatever may be the system, whether it is case
or mercantile, as observed by Croom-Johnson J. in
a trading venture it would be impossible accurately
to assess the true profits without taking into
account the value of the stock-in-trade at the
beginning and at the end of the year\005."
From the above it is clear that it is settled law that true profit of
business for an accounting period cannot be ascertained without
taking into account the value of the stock in trade remaining at
the end of the period and that such valuation is a necessary
element in the process of determining the trade result of the
period. The principles on which the method of valuation of
closing stock is done is also well settled. They have been set
out in Whimster and Co. vs. C.I.R. [1925] 12 Tax Cases
813 in the following words :-
"In computing the balance of profits
and gains for the purposes of income tax\005 two
general and fundamental commonplaces have
always to be kept in mind. In the first place, the
profits of any particular year or accounting period
must be taken to consist of the difference between
the receipts from the trade or business during such
year or accounting period and the expenditure laid
out to earn those receipts. In the second place, the
account of profit and loss to be made up for the
purpose of ascertaining the difference must be
framed consistently with the ordinary principles of
commercial accounting, so far as applicable, and in
conformity with the rules of the Income-tax Act, or
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of that Act as modified by the provisions and
schedules of the Acts regulating excess profits
duty, as the case may be. For example, the
ordinary principles of commercial accounting
require that in the profit and loss account of a
merchant’s or manufacturer’s business the values
of the stock-in-trade at the beginning and at the
end of the period covered by the account should be
entered at cost or market price, whichever is lower;
although there is nothing about this in the taxing
statutes."
In the words of Bose, J. in Kikabhai Premchand
vs. CIT [1953] 24 I.T.R. 506 (SC) at page 510 :-
"The appellants’s method of book-
keeping reflects the true position. As he makes his
purchases he enters his stock at the cost price on
one side of the accounts. At the close of the year
he enters the value of any unsold stock at cost on
the other side of the accounts thus canceling out
entries relating to the same unsold stock earlier in
the accounts ; and then that is carried forward as
the opening balance in the next year’s account.
This canceling out of the unsold stock from both
sides of the accounts leaves only the transactions
on which there have been actual sales and gives a
true and actual profit or loss on his year’s
dealings."
The rationale behind valuation of the stock at
"cost" or "market", whichever is lower is explained by
Patanjali Sastri, CJ in
Chainrup Sampatram vs. C.I.T. [1953] 24 I.T.R. 481 (S.C.)
at Page 485:-
"Mt is wrong to assume that the
valuation of the closing stock at market rate has,
for its object, the bringing into charge any
appreciation in the value of such stock. The true
purpose of crediting the value of unsold stock is to
balance the cost of those goods entered on the
other side of the account at the time of their
purchase, so that the canceling out of the entries
relating to the same stock from both sides of the
account would leave only the transactions on
which there have been actual sales in the course of
the year showing the profit or loss actually realized
on the year’s trading. As pointed out in paragraph
8 of the Report of the Committee on Financial
Risks attaching to the holding of Trading Stocks,
1919, "As the entry for stock which appears in the
trading account is merely intended to cancel the
charge for the goods purchased which have not
been sold, it should necessarily represent the cost
of the goods. If it is more or less than the cost,
then the effect is to state the profit on the goods
which actually have been sold at the incorrect
figure\005 From this rigid doctrine one exception is
very generally recognized on prudential grounds
and is now fully sanctioned by custom, viz., the
adoption of market value at the date of making up
accounts, if that value is less, than cost. It is of
course an anticipation of the loss that may be made
on those goods in the following year, and may
even have the effect, if prices rise again, of
attributing to the following year’s results a greater
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amount of profit than the difference between the
actual sale price and the actual cost price of the
goods in question" (extracted in paragraph 281 of
the Report of the Committee on the Taxation of
Trading Profits presented to British Parliament in
April 1951). While anticipated loss is thus taken
into account, anticipated profits in the shape of
appreciated value of the closing stock is not
brought into account, as no prudent trader would
care to show increased profit before its actual
realization. This is the theory underlying the rule
that the closing stock is to be valued at cost or
market price whichever is the lower, and it is now
generally accepted as an established rule of
commercial practice and accountancy."
In A.L.A. Firm vs. C.I.T. [1991] Vol.189 I.T.R.
(S.C.) page 285, the Court said that as against the valuation of
the stock at cost or market whichever is lower, valuation of the
closing stock at the market value will invariably create problem.
For, if the market value is higher than the cost then the accounts
will reflect notional profits not actually realized. On the other
hand, if the market value is less, the assessee will get the
benefit of the notional loss which he has not incurred.
Nevertheless, as mentioned earlier, the ordinary principle of
commercial accounting permit valuation at cost or market
whichever is lower. The proper practice is to value the closing
stock at cost. That will eliminate entries relating to the same
stock from both sides of the account. To this Rule, custom
recognized only one exception and that is to value the stock at
market value that is lower. But on no principle can one justify
the valuation of the closing stock at a market value higher than
the cost as that will result in taxation of the notional profits the
assessee has not realized. In Shakti Trading Co. vs. C.I.T.,
Coimbatore , (2001) 6 S.C.C. 455, this Court had held that the
proper practice is to value the closing stock at cost. To this
Rule, the custom recognized only one exception and that is to
value the stock at market value if it is lower. But on no
principle can one justify the valuation of the closing stock at
market value higher than the cost as that will result in taxation
of notional profits which the assessee has not realized. The
aforesaid catena of decision recognized in the accounting
practice, of valuation of closing stock and permissible limit
thereof of showing the stock at cost or at market value
whichever is lower. Permissibility of value of the stock at a
market value would be only if the valuation of the market value
of the stock is lower than the cost of the stock.
In C.I.T. vs. A.Krishnaswami Mudaliar [1964] 53
I.T.R. 122, at page 128:-
"Again as observed by this Court in
C.I.T. vs. McMillan and Co. [1958] 33 I.T.R.
182, the expression ’in the opinion of the Income-
tax Officer’ in the proviso to Section 13 of the
Indian Income-tax Act, 1922 does not confer a
mere discretionary power ; in the context it
imposes a statutory duty on the Income-tax Officer
to examine in every case the method of accounting
employed by the assessee and to see whether or
not it has been regularly employed and to
determine whether the income, profits and gains of
the assessee could properly be deduced
therefrom."
It is said in S.N. Namasivayam Chettiar vs.
C.I.T. [1960] 38 I.T.R. 579 (S.C.), it is for the officer to
consider the material placed before him and, if, upon such
consideration, he is of the opinion that correct profits and gains
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could not be deduced from the accounts, he would then be
obliged to have recourse to the proviso to section 13 of 1922
Act which corresponds to Section 145 of the Act
In C.I.T. vs. Sarangpur Cotton Mfg. Ltd.
,(1938) 6 ITR 36, Lord Thankerton stated that section 13 of the
Indian Income-tax Act, 1922, related to a method of accounting
regularly employed by the assessee. The section postulated that
such a method of accounting was the necessary basis of
computation, unless in the opinion of the Income-tax Officer,
the income, profits and gains could not properly be deduced
from such method. But it could very well be that, "though the
profit brought out in the accounts is not the true figure for
income-tax purposes the true figure can be accurately deduced
therefrom . . ." But it was not a correct view that the Income-
tax Officer was "prima facie entitled" to accept the profits
mentioned in the accounts where there was a method of
accounting regularly employed by the assessee. "It is the duty
of the Income-tax Officer, where there is such a method of
accounting to consider whether income, profits and gains can
properly be deduced therefrom, and the proceed according to
his judgment on this question. From the aforesaid decision one
can easily deduce the principle that it is the duty of the
assessing officer to examine in every case the method of
accounting adopted by the assessee and to see whether the
income, profit and gains of the assessee could properly be
assessed therefrom. If the assessing officer is of the view that
the profit could not be properly deduced from the accounts
maintained he can apply the provisions of Section 145 of the
Act. In the present case, the method adopted by the assessee is
to value the closing stock at the market value irrespective of the
fact whether the market value of the stock at the relevant time
is more than the cost value of the stock, which necessarily
results in an imaginary or notional profits to the assessee which
he has not actually received. In fact such a notional imaginary
profit cannot be taxed. It is well settled principle as held in
Kikabhai Premchand vs. C.I.T. [1953] 24 I.T.R. 506 (S.C.)
Constitution Bench judgment that the firm cannot make profit
out of itself. The transaction which is not business transaction
and does not derive immediate pecuniary gain is not subjected
to tax In the present case by showing the market value of the
closing stock the assessee has earned potential profit out
of itself in as much as the stock in trade remained with the
assessee at the closing of the accounting year. Secondly,
putting the stock at the market value does not and cannot bring
in any real profit which is necessary for taxing the income
under the Act as is held in Chainrup Sampatram vs. C.I.T.
[1953] 24 I.T.R. 481 (S.C.) and CIT vs. Hind Construction
Ltd.. (1972) 83 ITR 211. Thirdly, it is settled principle of
Income-tax Law that it is the real income, which is taxable
under the Act. This proposition was enunciated in C.I.T. vs.
Birla Gwalior (P.) Ltd., [1973] 89 I.T.R.266 (S.C.), which was
pronounced in C.I.T., Bombay City I vs. Messrs. Shoorji
Vallabhdas and Co. [1962] 46 I.T.R. 144 (S.C.).
Under Section 145 of the Act chargeable income
has to be deduced from the accounts regularly employed by the
assessee, if in the opinion of the assessing officer the accounts
are correct and complete. The assessing officer can apply a
different method of accounts to deduce the income chargeable
if in his opinion the method employed by the assessee the
chargeable income cannot properly be deduced. The
recognized and settled accounting practice of accounting with
the closing stock in the accounts has to be valued on the cost
basis or at the market value basis if the market value of the
stock is less than the cost value. In the present case the
assessee has not adopted the established and settled practice.
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The market value of the stock has been taken into consideration
while arriving at chargeable income although the market value
of the stock is more than the cost value of the stock. The profit
earned is only notional. There is no transfer of the goods and
the closing stock remains the opening stock of the next
accounting year. The income which has not been derived at by
the assessee cannot be said to be the income chargeable for
income and, therefore, the rejection of the accounts maintained
by the assessee for the valuation of the closing stock by the
assessing officer and confirmed by the High Court is in
accordance with law. The power exercised by the assessing
officer under Section 145 is as per the principles enunciated by
various authorities and the courts. We do not find any good or
sufficient reason to interfere with the order passed by the High
Court. The appeal is dismissed with no order as to costs.