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[2008] 303 ITR 357 (Madras) HIGH COURT OF MADRAS Commissioner of Income-tax v. George Oakes Ltd. P. D. DINAKARAN AND P. P. S. JANARTHANA RAJA, JJ. TAX CASE (APPEAL) NO. 435 OF 2007 JUNE 6, 2007 Section 145 of the Income-tax Act, 1961 - Method of accounting - Valuation of stock When change of accounting method is bona fide and also same is recognized in accounting principle resultant variation in income cannot be forced to be taxed upon assessee. [A.Y. 2001-02]. When the change of accounting method is bona fide and also the same is recognized in accounting principle, the resultant variation in income cannot be forced to be taxed upon the assessee. Where while completing the assessment, the Assessing Officer made an addition representing the reduction of profit due to the change of valuation stock. Held that the Institute of Chartered Accountants of India by its Accounting Standard (AS-2) (Valuation of inventory), has prescribed the standard for valuation of inventory. According to this standard, the inventory has to be valued at purchase cost price less commission and discount on purchase (if any) and the commission and discount on purchase in respect of the goods sold should be adjusted against cost of goods sold. Being compulsory the company had adopted the Accounting Standard (AS-2) as per the guidelines prescribed by the Institute of Chartered Accountants of India. In the instant case there was a specific finding that the change in the accounting method had not been found to have been made with a mala fide intention. Such a change in method of accounting was bona fide and the same was made mandatory by the Institute of Chartered Accountants of India to be followed in the preparation of financial accounts. Under such circumstances, in the year of change, some discrepancy was bound to happen in the profitability of the company as compared to previous year. However, in succeeding years, there would not be any discrepancy on this account. Hence, the change of accounting method of valuation of stock was bona fide and no addition could be made to the assessee's income on that account. CASE REVIEW CIT v. Carborandum Universal Ltd. [1984] 149 ITR 759 (Mad) followed…

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