COMMISSIONER OF INCOME TAX Vs. CARBORANDUM UNIVERSAL LIMITED

JUDGEMENT

(1.) THE assessee in this case is a company registered under the Indian Companies Act. For the assessment year 1971-72, corresponding to the accounting year ending August 31, 1970, the assessee filed its return to income of Rs. 1,66,00,810. In the statement accompanying the said return, the assessee has valued the stock-in-trade as on August 31, 1970, as follows. <FRM>JUDGEMENT_759_ITR149_1984Html1.htm</FRM>

(2.) HOWEVER, the assessee filed a revised return on July 25, 1972, showing the total income at Rs. 1,48,20,481. Along with its return, the assessee appended a latter to the effect that Rs. 17,80,329, the difference between Rs. 1,66,00,810 and Rs. 1,48,20,481, did not represent the profits of the assessee for the year ending August 31, 1970, as that sum represented part of the value of the closing stock of finished goods as on August 31, 1970. The ITO required the assessee to furnish information about the basis of the valuation of the closing stock. The assessee by its letter dated December 22, 1973, had stated that the basis of the valuation of the closing stock was as follows : <FRM>JUDGEMENT_759_ITR149_1984Html2.htm</FRM>

(3.) THUS, the ITO has proceeded on the basis that it is not open to the assessee to change the method of valuation for closing stock alone and, therefore, the closing stock should be valued at the same method as was applied to the opening stock. He, therefore, held that since the opening stock has been valued as per the total cost method, the same method should be adopted for closing stock also. The AAC, however, held that the assessee is entitled to change the method of valuation from "total cost" to "direct cost" but that he must adopt that valuation even for the opening stock. The Tribunal has held that this being the first year in which the method of valuation of the stock is changed from "total cost" to "direct cost", the assessee is entitled to value the closing alone on "direct cost" method. THUS, the authorities below have taken three different views.