Law:

Section:

Section 145 of the Income-tax Act, 1961 - Method of accounting - Valuation of stock - Assessment years 1972-73 to 1974-75 and 1976-77 - Whether where an assessee regularly employs a method of accounting, its income has to be computed in accordance with such regular method - Held, yes - Whether, however, an assessee is entitled to change his regular method of accounting by another regular method, but there cannot be any casual departure in regard to method of accounting adopted by assessee - Held, yes - Whether, therefore, where assessee changed regular method of valuation of closing stock only for a few years which was again discontinued in later years, Tribunal was justified in rejecting new method of valuation adopted by assessee - Held, yes FACTS-I The assessee-company was engaged in the business manufacture and sale of ball bearings. It was found by the ITO that, for and up to the assessment year 1971-72, the assessee valued its closing stock of finished goods, on the basis of listed selling price less expenses to the extent of 26 per cent. But, during the previous years relevant to the assessment years under reference, it adopted a new method of valuation of finished goods. In these years, the closing stock of finished goods was valued at the listed selling price less 30 per cent to 32 per cent on account of selling expenses and a further reduction of 20 per cent on account of unrealised profits. The ITO did not accept the new method. He rejected the disclosed trading results and, after applying the earlier method of valuation of stock as was followed by the assessee-company year after year, he made certain additions to the trading account of the assessee. On appeal, the Commissioner (Appeals) initially deleted the addition but subsequently, on remand by Tribunal confirmed the action of the ITO. On second appeal, the Tribunal, inter alia, held and observed that as assessee was not allowed to arbitrarily change the method of valuation of closing stock to suit his purpose. The valuation of closing stock was no doubt a part of the method of accounting. The Tribunal noted that in the instant case, the assessee-company did not follow a uniform method of…

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