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Section 145 of the Income-tax Act, 1961 - Method of Accounting - Valuation of stock - Assessment year 1980-81 - Assessee firm, which had been valuing its closing stock at market rate, changed its method and valued closing stock by taking average cost - ITO rejected said valuation and made addition - Whether assessee having failed to show any bona fide reason for change of valuation of closing stock, ITO was correct in rejecting method of valuation adopted by assessee - Held, yes FACTS The assessee firm had been valuing its closing stock at the market rate. During the relevant accounting year, the assessee changed the method of valuation of stock by taking the average cost. On being questioned by the ITO was the assessee pointed out that he had changed this system on regular basis and following the same in the subsequent years and, it was not a casual change. The ITO on scrutiny of accounts, found that the change of the method of closing stock was not proper and it amounted to dilution of the profits of the assessee. Consequently, he rejected the said system and valuing the closing stock at market rate, made an addition in the income of the assessee. The said order was confirmed by the Commissioner (Appeals) and was also upheld by the Tribunal in second appeal. On reference : HELD There appeared to be no proper reason for the assessee to change the method of valuing the closing stock. Admittedly, in all the previous years, stock was valued at the market rate. It appeared that with intent to reduce the profit, the assessee had changed the method of valuation and adopted the average cost rate, which resulted in the reduction of income. All the authorities below found that the change in the method of valuation was not bona fide, but was only to reduce the income. The assessee was not able to show any bona fide reason for change of valuation of the closing stock in the year under consideration. In the circumstances, there was no error in the order of the Tribunal. [Para 6] Note : The case was decided in favour of the revenue. R.S. Agrawal for the Applicant. Shambhu Chopra for the Respondent. JUDGMENT Rajesh Kumar, J.- The Income-tax Appellate Tribunal has referred…

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