Madhya Pradesh H.C : Whether, on the facts and in the circumstances of the case prevalent in the asst. yr. 1991-92, the Tribunal was right in holding that the method of valuation of closing stock followed by the assessee was justified ?Whether, on the facts and in the circumstances of the case prevalent in the asst. yr. 1991-92, the Tribunal was right in holding that the method of valuation of closing stock followed by the assessee was justified ?

High Court Of Madhya Pradesh

CIT vs. J.P. Patel (Bombay) (P) Ltd.

Sections 256(2)

Asst. Year 1991-92

Dipak Misra & A.K. Shrivastava, JJ.

IT Ref. No. 81 of 1999

21st April, 2003

Counsel Appeared

Rohit Arya, for the Revenue : A.P. Shrivastava, for the Assessee

JUDGMENT

Dipak Misra, J. :

This is an application under s. 256(2) of the IT Act, 1961, at the instance of the Revenue. The question which is proposed for the purpose of calling of the statement of the case from the Tribunal is as under : “Whether, on the facts and in the circumstances of the case prevalent in the asst. yr. 1991-92, the Tribunal was right in holding that the method of valuation of closing stock followed by the assessee was justified ?” The facts which have given rise to this application are that the assessee was assessed for the year 1991-92. During the assessment year the assessee had consumed 66,14,484 pudas of “tendu” leaves valued at Rs. 62,47,554. The cost price per thousand bundles for the opening stock was Rs. 64,429. The purchase during the assessment year in respect of one thousand bundles amounted to higher than the price which was reflected in the opening stock. The assessee adopted the average method by taking out the mean and showed Rs. 891.33 in respect of Mehdiwala branch and Rs. 951.54 in respect of Sihora branch and similarly the mean was shown in respect of other branches. The AO placed reliance on the decision rendered by the apex Court in the case of CIT vs. British Paints India Ltd. (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC) : AIR 1991 SC 1338, and came to hold that it was obligatory on the part of the AO to take recourse to s. 145 of the IT Act to compute in such a manner so that the interest of the administration is saved. The AO rejected the method adopted by the assessee. The said order was assailed in an appeal before the CIT(A) who in para 4 of the order expressed the view that the AO had only relied upon the decision and referred to the provision but not been able to determine the correct profit by adopting the scientific method. Being of this view the appellate authority deleted the addition amounting to Rs. 5,74,100 by the AO. The Revenue being aggrieved by the order passed by the appellate authority preferred an appeal. The Tribunal referred to the material brought on record and expressed the view that when the opening stock and the purchases are mixed together and it is not possible to identify, which item in the closing stock is out of the opening stock and which item is out of purchase to ascertain the cost of the closing stock to adopt the average rate of opening stock and purchases is the proper method. The Tribunal gave its stamp of approval to the order passed by the CIT(A) who had accepted the mean adopted by the assessee. Thereafter an application was preferred under s. 256(1) of the Act for referring the question to this Court. However, the Tribunal expressed the view that no referable question of law did arise and accordingly it declined to refer the same.

We have heard Mr. Rohit Arya, learned counsel for the petitioner, and Mr. A.P. Shrivastava, learned counsel for the assessee. Mr. Arya has placed reliance on the decision rendered in the case of British Paints India Ltd. (supra) and referred to paras 21 and 22 of the said judgment. The submission of Mr. Arya is that the method adopted by the AO is absolutely sound for the purpose of assessment. It is also put forth by him that the assessee could have kept the opening stock in a different manner and the purchase in an acceptable manner and in that event there would have been no confusion and the identification would not have been difficult. Mr. A.P. Shrivastava, learned counsel appearing for the assessee, sounding a contra note, has contended that in the earlier years assessment had been done by this method and the Revenue has accepted the same. While so submitting, learned counsel has fairly stated though each year is an independent unit by the order passed by the authority for the subsequent year, yet if the accountancy was done by a recognised method and the same was accepted there is no reason or justification to deviate from the same. It is urged by him that the method adopted in the assessment is known as “last in and first out” and, therefore, the mean has to be accepted. To bolster his submission he has placed reliance on a Division Bench decision rendered in the case of CIT vs. Bindal Jewellers (2002) 257 ITR 777 (Raj).

To appreciate the rival submissions raised at the Bar, we have studiedly scrutinised the order passed by the AO as that was the trump card of the Revenue. We have also dissected the order passed by the appellate authority. On a scrutiny of both the orders it is perceivable that the first appellate authority had not accepted the method adopted by the AO as that was not a scientific method. The Tribunal has placed reliance on the earlier orders and ascribing reasons accepted the method adopted by the assessee. In the case of Bindal Jewellers (supra), the Division Bench was in seisin of the question. The Bench while dealing with similar question expressed the view that on the basis of the material brought on record the value may differ from place to place with different person and the value of the closing stock cannot be mathematically calculated. The money value attributed to the stock should be decided and estimated by the concerned authority in a reasonable and judicial manner on the basis of the facts and circumstances of the case available before him. If the aforesaid decision is appreciated it is crystal clear that a reasonable view has to be given acceptance. It is not disputed that the method adopted last in and first out is a recognised method of accountancy. Once a recognised method of accountancy has been taken recourse to and the method has been adopted and the same has been computed on the basis of average, in our considered opinion, no question of law arises for calling for the statement of the case from the Tribunal. Accordingly, the IT reference stands rejected without any order as to costs.

[Citation : 263 ITR 421]

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