Law:

Section:

Section 145 of the Income-tax Act, 1961 [Corresponding to section 13 of Indian Income-tax Act, 1922] - Method of Accounting - Valuation of stock - Assessment year 1958-59 - Assessee-company took over spare part of cars of a foreign company which was giving up it Indian business - It found a part of its stock as obsolete and a part as slow-moving because of ban on import and assembly of these cars in India - Assessee, therefore, valued them notionally at lower value which was less than cost price - ITO make addition on ground that assessee, while applying for an overdraft, declared value of these spare parts at higher price and also insured those stocks for such higher value - Though AAC deleted addition Tribunal held that show moving parts were later sold on profit - Whether cause for obsolescence or inactivity of said spare parts besides being ban on import and assembly of those cars, there was a gradual of market for spares, and as such it was difficult to postulate that value put by assessee on this stock was arbitrary or that it could be regarded as an under-valuation - Held, yes - Whether mere fact that occasionally a solitary item was sold for a price higher than cost price would not detract from nature of system of accounting adopted year after year - Held, yes - Whether mere because different method of valuation of stocks was adopted for obtaining overdraft facility, would not justify rejection of method followed by assessee for ascertainment of his income under Act - Held, yes FACTS The assessee company took over share parts of cars from a foreign company which was giving up its Indian branches. The assessee-company while valuing the stock of those spare parts treated a part of it as obsolete and some other stock as show moving and valued them notionally at much lesser amount than that of their cost price for the reason that import and assembly of particular makes of cars were banned, their demand had begun to decline year after year. The ITO, however, added this under-pricing back on the ground that the assessee had declared higher value of these goods while applying for overdraft and for getting them insured. On appeal, the AAC deleted this addition…

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