Law:

Section:

Section 145 of the Income-tax Act, 1961 - Method of accounting - Change of - Assessee-firm switched over to 'works cost' method for valuing its closing stock for assessment year 1979-80 - ITO, however, valued its closing stock on 'total cost' method as in past year and made an addition - Commissioner (Appeals) being satisfied that change in. method of valuation of closing stock was for bona fide purpose, directed its opening stock also to be so valued - Whether in view of clear finding that change was for bona fide purposes, and closing stock valuation was made strictly on basis of works cost method, no interference was called for, and Commissioner's direction was uncalled for - Held, yes FACTS The assessee-firm in the past was valuing its closing stocks by total cost method. For the assessment year 1979-80, however, the assessee switched on to works cost system, since it was a more scientific and recognised method of closing stock valuation. The ITO valued the closing stock on the basis adopted in the past year and made an addition of the difference in the value of the closing stock. On appeal, the Commissioner (Appeals) was satisfied that the change in the method of valuation was forbona fide purpose. He, however, wanted to know as to whether the closing stock was strictly valued on. the basis of the works cost method. On getting a reply from the ITO in the affirmative, the Commissioner (Appeals) recorded a finding that the assessee did not change its method of valuation for any ulterior purpose or for reducing income for income-tax purposes, but directed that the opening stock of the relevant accounting year should also be valued on the same 'works cost' basis and difference reckoned thereafter should be added. The assessee objected to the direction, and the Tribunal noted that any disturbance in the valuation of the opening stock would have a snow balling effect in the sense that the closing stock of the immediately preceding year would be affected and computation of profits of that year would have to undergo a change and this process would go on for a number of years. Therefore, it held that in view of the ITO's finding that the closing stock valuation was…

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