JUDGMENT Income Tax Act 1961 s. 145 Valuation of closing stock--ACCOUNTING METHOD--Method Ratio:
On the date of signing of balance sheet the realisation by way of sale should be taken into account for the valuation of closing stock of free sugar and the balance quantity, if any, be valued on the basis of cost or market price, whichever is lower.
Held:
The contention of the assessee was correct that out of free sugar, 42,704 qtls. were sold for Rs. 85,58,293 and this figure can be taken for the valuation of the closing stock of 42,704 qtls. as on 30-7-1978. The argument of the assessee for the balance stock of 28,789 qtls. was not correct that the same should be valued at the prevailing market rate as on 30-11-1978. The closing stock has to be valued on the last date of the previous year. The previous year of the assessee ended on 30-6-1978. The assessee was consistently following the cost or market rate whichever was lower and this method had been accepted by teh Tribunal. The cost on the last date of the previous year was Rs .207.86 per qtl. whereas the market rate was Rs .260 per qtl. Lower of the two being cost at Rs. 207.86 per qtl. be adopted for the valuation of the remaining free sugar of 28,789 qtls.
Application:
Also to current assessment years.
Income Tax Act 1961 s. 145 ORDER ON MISCELLANEOUS APPLICATION Per Shri Y. Upadhyay, V. P. - The assessee has moved a misc. application against the order of the Tribunal in ITA Nos. 596 (All.) of 1983 and 844 (All.) of 1983.
2. The assessee referring to paragraphs 18, 19 and 20 of the order has indicated that the principle of valuation of closing stock as urged by the assessee has been accepted in principal but the Tribunal while giving effect to the said principal has committed an error with reference to the valuation of free sugar. The assessee categorically stated that there is no dispute so far as the valuation of levy sugar is concerned. The assessee in short has indicated that the total stock of free sugar as on the closing date of the previous year was 71,439 qtls. The Tribunal accepted that on the date of signing of the Balance-sheet, i. e., 30-11-1978, the realisation by way of the sale should be taken into consideration and the balance quantity should be valued according to the method followed by the assessee in the earlier year. It has been further indicated referring to page 2 of the paper book that if the earlier method is applied, 42,704 qtls. should be valued @ Rs. 200.40 per qtl. and the balance 28,789 qtls. should be valued @ Rs. 180 which was the prevailing rate as on 30-11-1978. The assessee has stated that the mistake is apparent and glaring and, therefore, the said mistake should be corrected.
3. The Senior Departmental Representative very strongly contended that there is no mistake in the order of the Tribunal. The assessee by moving the misc. application intends to review the judgments which is not within the purview of the Tribunals power. The Senior Departmental Representative relied in CIT v. Dr. (Mrs.) Krishna Rana [1987] 167 ITR 652/33 Taxman 136 (Pat.) and ITO v. ITAT [1987] 168 ITR 809/31 Taxman 207 (Raj.) He further relying in 41 ITR 141 (SC) (sic) and T. S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 (SC) urged that a mistake which is glaring and patent can only be rectified under section 254(2) of the I. T. Act. But a mistake which could be established by long drawn process of reasoning on points on which there may be conceivably two opinions cannot be rectified under this section. He also referred to Padmavati Jaykrishna v. CWT [1976] 105 ITR 115 (Guj.). He further referred to the order of the Tribunal and indicated that the assessee valued its stock in the previous year on cost of market rate whichever was lower. During the year under appeal the assessee made a departure and valued the stock after considering the realisable value on the date of signing of the Balance-sheet and further taking the value on 30-11-78, the date of singing of the Balance-sheet though the previous year of the assessee ended on 30-6-1978. The Tribunal accepted in part the argument of the assessee. The Tribunal concluded that the realisable value of the stock on the date of the Balance-sheet may be taken into consideration. However, the Tribunal did not accept that the value prevailing on 30-11-78 should be taken in estimating the unsold stock. The Tribunal has given effect of the principle which was accepted by it and, therefore, there is no mistake in it.
4. Dr. Vaish filed a small sheet indicating as to how the closing stock of free sugar should be valued as on 30-6-78 and reiterated his arguments made earlier.
5. The assessees previous year ended on 30-6-78. The Balance-sheet was signed on 30-11-78. The assessee was having following stock as on 30-6-78 :
Levy Sugar ...
95,144 qtls.
Free Sugar ...
71,493 1,66,637 qtls."
The Tribunal accepted the argument of the assessee that the amount realised up to 30-11-78 should be taken into consideration for valuing the closing stock of the assessee. The assessee did not dispute the valuation of levy sugar by the Tribunal. The only case of the assessee is that out of free sugar 42,704 qtls. were sold and therefore, the value of this quantity should be taken at the amount realised by the assessee till 30-11-78. The assessees case for the balance quantity of 28,789 qtls. is that the same should be valued at Rs. 180 per qtl. which was the prevailing market rate as on 30-11-78.
6. The assessee in the course of arguments has referred to page no 2 of the paper book. But page no. 1 is equally important which contains particulars of closing stock disclosed by the assessee itself. The same has been incorporated in para 1 of the Tribunals order. Therefore, it is clear that the contention of the assessee is correct that out of free sugar 42,704 qtls. were sold for Rs. 85,58,293 and this figure can be taken for the valuation of the closing stock of 42,704 qtls. as on 30-6-78. The argument of the assessee for the balance stock of 28,789 qtls. is not correct that the same should be valued at the prevailing market rate as on 30-11-78. The closing stock has to be valued on the last date of the previous year. The previous year of the assessee ended on 30-6-78. The assessee consistently was following the cost or market rate whichever was lower and this method had been accepted by the Tribunal. According to page 2 of the paper book, the cost on the last date of the previous year was Rs. 207.86 per qtl. whereas the market rate was Rs. 260 per qtl. The lower if the two being cost at Rs. 207.86 per qtl. may be adopted for the valuation of the remaining free sugar of 28,789 qtls. The mistake is apparent because the said fact has been recorded by the Tribunal in page 2 of the order which has also been given in page 1 of the paper book of the assessee. However, the assessee incidentally did not dispute the value of levy sugar. The assessee was having the levy sugar of 95,144 qtls. on the closing date. Out of the said quantity, 17,236 qtls. were sold for Rs. 32,21,732. The balance quantity of 77,908 qtls. remained unsold even on the date of Balance-sheet. The decontrol was effected from 17-8-78. Therefore, after this date, there was no difference between levy sugar and free sugar. The assessee has given before the CIT (A) particulars of sale effected even after 30-11-78 and the quantity and amount have been given as follows :
Free sugar 1,46,523 qtls. for Rs. 2,77,43,788. The average price comes to Rs. 189.34 per qtl. This has been incorporated in para 2.48 in the CIT (A)s order and the CIT (A) after considering this sustained an addition of Rs. 2,53,204. The Tribunal after considering this fact and having in mind that the sugar was decontrolled from 17-8-78 valued the entire quantity of levy sugar of 95,144 qtls. at Rs. 186.60 per qtl. which was lower than the levy price quoted by the assessee in page 2 of the order and realised valued after the close of the previous year. Therefore, the Tribunal has given the effect of sale for free sugar in levy sugar itself. However, this cannot be corrected firstly because the assessee has not made any application for rectification of mistake on decontrol of levy sugar. Secondly, it may not be apparent though the relief has been given on this ground to the assessee because it requires investigation and long drawn process of reasoning.
7. The mistake pointed out by the assessee is partly apparent from the record recording the valuation of free sugar in para 22 of the order and therefore the quantity and the rate should be substituted for free sugar as follows :
Free Sugar 42,704 qtls. (sold up to 30-11-78 ... Rs. 85,58,293) 28,789 qtls. @ Rs. 207.86 per qtl ... (at cost)
8. The other point taken by the assessee in the misc. application is that the Tribunal has not given any finding on the second alternative ground of the assessee. The second alternative ground of the assessee as recorded in para 12 of the order was that even otherwise the method adopted by the assessee was bona fide, if no change was made during the year under appeal and it was not adopted to defeat the interest of the revenue. The Tribunal has not given any finding on this ground of the assessee and, therefore, the Tribunal must record its argument on the second alternative ground of the assessee. The Senior Departmental Representative Shri Narain urged that the Tribunal has indirectly also given finding on this argument of the assessee and, therefore, there is no mistake so far as the second alternative ground of the assessee is concerned.
9. It cannot be correct to say that Tribunal has not given any finding on the second alternative ground of the assessee. The assessee made some departure in the method of valuation of closing stock during the year under appeal. The assessee was valuing its stock on cost or market rate whichever is lower in the preceding year. During the year under appeal, the assessee valued the stock on the basis of the sales made till the date of signing of the balance-sheet and further valued the unsold stock on the date of signing of the balance-sheet, i. e., 30-11-78.
10. The Tribunal after considering various principles argued by the assessee accepted a part of the system of method of valuation adopted by the assessee. The Tribunal indicated that the value of the stock which has been sold and realised up to 30-11-78 can be taken as the value of the stock in hand on the last date of the preceding year. However, the Tribunal did not accept that the unsold stock should be valued on the prevailing rate as on 30-11-78. The Tribunal valued the unsold stock following the method of cost or market rate whichever is lower as on 30-6-78. In the said circumstances, the change made by the assessee in valuation of stock during the year under appeal was not found bona fide completely. A part of the system has already been accepted and, therefore, the Tribunal has given its finding on the alternative argument of the assessee which is evident from para 22 of the Tribulas order where direction has been given to the ITO to value the closing stock.
11. In the result, the misc. application filed by the assessee is partly allowed.