Law: Income Tax Act, 1961

Section: 256,256(2)

Income-tax ----Reference---Question of law ---Assessee engaged in manufacturing different kinds of sugar---Different method adopted for valuing each variety of closing stock of sugar---Return filed disclosing loss---Assessment completed after making addition on account of under valuation of closing stock of sugar ---C.I.T. (Appeals) upholding addition only to a certain extent---Tribunal deleting addition on ground that assessee followed regular and accepted method of valuation of closing stock over a number of years--- Tribunal not giving cogent reasons for accepting method of valuation--- Question of law arises for reference---Indian Income Tax Act, 1961. S.256(2). The assessee, a sugar mill, manufactured three types of sugar (i) crystal sugar, (ii) raw brown sugar and (iii) sugar in process, and for each variety of sugar different method was adopted for valuing the same on the last day of the accounting year. In its return filed for the relevant assessment year the assessee declared a loss of Rs.91,77,270. The assessment was completed by the Inspecting Assistant Commissioner of Income-tax on a net loss of Rs.50,73,792 after making an addition of Rs.14,91,430 on account of under valuation of closing stock of sugar. On appeal, the Commissioner of Income-tax (Appeals) upheld the addition to the extent of Rs.12,31,658. The Commissioner of Income-tax (Appeals) further held that the assessee was entitled to the benefit of carry forward of losses of the earlier years. On further appeals, the Tribunal deleted the addition of Rs.12,31,658 on the ground that the assessee had followed a regular and accepted method of valuation of closing stock over a number of years. The Tribunal rejected the application of the Revenue under section 256(1) of the Income Tax Act, 1961, for referring a question of law. On an application filed under section 256(2) to the High Court for directing the Tribunal to refer a question of law, the Revenue contended that an arbitrary method had been adopted by the Tribunal in valuing the two types of sugar, i.e., raw brown sugar and sugar in process: Held, that the Tribunal had not given any cogent reasons for accepting the method of valuation in…

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