Law:

Section:

Section 145 of the Income-tax Act, 1961 - Method of accounting - Valuation of stock - Assessment year 1984-85 - Assessee closed its accounts for relevant assessment year on 30-9-1983 but valued closing stock of sugar at rate prevailing on 25-10-1983, i.e., date on which its accounts were finalised - Assessing Officer adopted rate as on 30-9-1983 and made addition towards undervaluation of closing stock - Tribunal deleted addition on ground that assessee was following that system regularly - Whether as there was no finding of fact by Tribunal that system of accounting adopted by assessee would disclose true and correct profit of relevant assessment year, Assessing Officer was not bound to accept accounting system followed by assessee merely because it was regularly employed - Held, yes - Whether, therefore, Tribunal was not correct in directing Assessing Officer to adopt value of closing stock on date which was prevailing subsequent to end of accounting year, as market value of stock as at end of previous year - Held, yes FACTS The assessee was a wholly owned State Government undertaking. For the assessment under consideration, the relevant previous year ended on 30-9-1983. The assessee valued the closing stock of the free sugar at the rate prevailing on the date when its accounts were finalised on 25-10-1983, whereas he closed its accounts for the relevant assessment year on 30-9-1983. The Assessing Officer was of the view that the stock should be valued at Rs. 352 per qtl. which was the selling rate prevailing on 30-9-1983 and not at the rate as on 25-10-1983 which was Rs. 330 per qtl. The Assessing Officer, while completing assessment, held that there was an undervaluation of the closing stock of the free sugar at the rate of Rs. 22 per quintal and made an addition of Rs. 21,91,992 towards undervaluation of the closing stock of sugar. The Commissioner (Appeals) confirmed the addition made by the Assessing Officer. On further appeal, the Tribunal followed the decision of the Delhi High Court in the case of CIT v. Mahalakshmi Sugar Mills Co. Ltd. [1993] 200 ITR 275/ 68 Taxman 108 and held that the assessee had adopted the closing stock with reference to the…

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