KANTILAL CHANDULAL DHARIA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under S. 66(1) of the Indian IT Act, 1922, at the instance of the assessee in which the following question has been referred to us for our determination :

(2.) THE question relates to the asst. year 1959 60, the corresponding year being S. Y. 2014. The assessee is an individual doing business in hardware. He started the business in S. Y. 2011, and he was assessed for the asst. yrs. 1956 57, 1957 58 and 1958 59 in respect of the income from his said business. The assessment for the year 1959 60 was completed on 29th of July, 1961, on a sum of Rs. 26,554. It appears that in the course of the assessment proceedings for the asst. yr. 1960 61, the ITO found that the assessee had valued his stock neither at the cost nor at the market price, nor at "cost or market price whichever was lower". For that assessment year an addition of a sum of Rs. 28,239 was made to the closing stock and an addition of Rs. 10,485 to the opening stock to that the net addition made for that year was of Rs. 17,754. Obviously, the opening stock for the asst. year 1960 61 was necessarily the closing stock for the asst. year 1959 60, which in the original assessment was taken at the figure of Rs. 52,920.Since the ITO took the view that the said closing stock for the asst. year 1959 60 had been under valued, income had escaped assessment and, therefore, he issued a notice under S. 34(1)(b) and reopened the assessment and added Rs. 11,174 by way of adjustment of under valuation of the closing stock. It may be stated that in pursuance of the notice issued under S. 34 the assessee himself had submitted a return showing this addition and the ITO actually made assessment on the basis of that return.

(3.) MR . Patil for the assessee has contended before us that since the closing stock for the asst. yr. 1959 60 had been revalued by the ITO in the reassessment proceedings under S. 34 for the same year even the opening stock should have been revalued in order to arrive at a correct figure of profits made by the assessee during the said assessment year and in the absence of making necessary adjustment in the under valuation of the opening stock in the revised return that was filed by the assessee, just or proper gross profits and net profits for the said year could not have been arrived at and, therefore, the assessee's claim in this behalf should have been accepted by the taxing authorities as well as by the Tribunal. In support of his contention he relied upon a decision of the Privy Council in the case of CIT vs. Ahmedabad New Cotton Mills Co. Ltd. AIR 1930 PC 56, and pointed out that the bar of limitation, which was regarded by the Tribunal as an insuperable difficulty, did not arise at all in the instant case inasmuch as the reassessment that was made by the ITO was for the asst. year 1959 60,and it was in respect of the opening stock of that very assessment year that an adjustment on account of under valuation of the opening stock was sought by the assessee. It is not possible to accept this contention of Mr. Patil for the reasons we shall presently indicate.