Heard learned counsel for the parties.
This writ petition arises out of an order passed by the Commissioner of Income Tax-I, Kanpur, whereby the revision application under Section 264 of the Income Tax Act, filed by the assessee, has been dismissed.
Challenging the order of the Tribunal, counsel for the assessee contended that it is well settled by the Hon'ble Supreme Court of India in the case of Investment Ltd. v. Commissioner of Income-Tax, Calcutta, reported in 1970 (Vol.77) ITR page 533 (at page 537) as well as in the case of United Commercial Bank v. Commissioner of Income-Tax, reported in 1999 (Vol. 240) ITR page 355 (at page 367) that it is always open to an assessee to adopt any method of keeping accounts for the purpose to value his stock-in-trade either at cost price or market price. It has been held that the method of accounting regularly employed can be discarded by the department only if, in the opinion of the taxing authorities, income of the trade cannot be properly deduced therefrom. Similarly, it has been held that if the department has accepted the practice so adopted for previous years, then there must be justifiable reason for not accepting the same in a particular year.
In the facts of the case the Commissioner under the order impugned has noticed that it was open to the assessee to adopt the method of valuation of the stock, as has been done by the assessee. However, he proceeded to hold that in the facts of the case the valuation of closing stock on the basis of the average price for the entire year (as has been done by the assessee) will not reflect the correct valuation of closing stocks. He thereafter proceeded to hold that if the stock is valued by proceeding backwards from the end of the year to the extent of the closing stock, one should be able to compute the profits correctly, and on that basis the method adopted by the assessee has been faulted with.
Counsel for the petitioner submits that there is absolutely no finding by the appellate authority to the effect that the method adopted by the assessee has not been followed regularly or that there was any incorrect calculation which did not reflect the true value of the closing stock. He submits that the Commissioner has failed to appreciate that in last so many years same method has been adopted by the assessee for valuing the closing stock and during all the previous years such method had been accepted by the tax authorities.
Counsel for the department however submits that in the facts of the case the entire opening stock of perfumery stood consumed and the closing stock of the perfumery was stated to be out of purchased during the year. Therefore, the method of working out the valuation of the stock at the end of the year on the basis of price calculated backwards was correct method. Therefore, this Court may not interfere with the order.
Having heard counsel for the parties and having gone through the records, I am of the considered opinion that it has not been found by the appellate authority that the method adopted by the assessee in the present year had not been so followed in the previous years nor there is any mistake in the calculation of the valuation of the closing stock, as done by the assessee. Merely because some other method could have been adopted, as has been suggested under the order impugned before the Tribunal, it will not mean that the assessee has committed an error in working out the valuation of the closing stock.
Counsel for the respondent has, however, placed reliance upon the judgment in the case of 188 ITR 44.
As already noticed above, the Supreme Court has specifically held that it is open to an assessee to adopt any of the method for computation of the value of the stock and interference in such method, adopted by the assessee, can only be made if it is found that the income of the trade cannot be properly deduced therefrom. In the opinion of the Court the judgment relied upon by the department is clearly distinguishable on the facts of this case.
In the facts of the case having regard to the law laid down by the Hon'ble Supreme Court in the case of Investment Limited (supra) and in the case of United Commercial Bank (supra), the order of the appellate authority to that extent cannot be legally sustained.
So far as the second issued decided by the Commissioner is concerned, this Court finds that absolutely no reasons have been recorded as to why the revisional authority did not find it proper to accept the challenge made to the order of the assessing authority.
Reasons are link between the facts and the findings recorded. In absence of the reasons being recorded, the order cannot be legally sustained.
The Delhi High Court in the case of Aparna Ashram vs. Director of Income Tax (Exemptions) and Another; 2002 ITR (Vol.258) page 401, while considering the scope of Section 264 of the Income Tax Act has held as follows:
"Having perused the impugned order, we feel that it cannot be sustained. It is a non-speaking order. The revisional power of the Commissioner or the Director, as the case may be, under section 264 of the Act may not be as wide as that conferred on an appellate authority but it has all the trappings of a judicial power. It could perhaps be argued that having regard to the language of section 264 of the Act, the order of the Commissioner is an administrative act. We feel that even if that be so, an administrative body, in ascertaining facts and law, is also obliged to act judicially notwithstanding that its proceedings are not in accordance with the practice of a court of law. The revisional power has to be exercised on an objective consideration of the facts and circumstances of the case. The power is coupled with a duty to be exercised in the interest of doing real justice between the parties, particularly when under the Act the order passed under section 264 is final.
In Dwarka Nath v. ITO (1965) 57 ITR 249 (SC), while dealing with the question whether the order of Commissioner under section 33A of the Indian Income-tax Act, 1922, in pari materia with section 264 of the Act, is judicial or quasi-judicial, the Supreme Court observed that prima facie, the jurisdiction conferred under the section is a judicial one. It was said that the nature of the jurisdiction and the rights decided carry with them necessarily the duty to act judicially in disposing of the revision."
In view of the aforesaid, the least required from the revisional authority was to record reasons for disagreeing with the contention raised on behalf of the assessee challenging the correctness of the findings recorded by the assessing authority. In absence of reasons the decision on second issue is also rendered illegal.
The order of the appellate authority on issue no. 1 and issue no. 2 are set aside. Let the revisional authority decide the same afresh by means of a reasoned speaking order.
So far as the third issue is concerned, there is no challenge to the findings recorded and to that extent the order is affirmed.
Writ petition is partly allowed.
Order Date :- 20.9.2011 Pkb/