The valuation of the closing stock required valuing of closing stock either at companyt or at market price, whichever was lower.
As such, the market price was Rs.90/ per kg.
The assessee was maintaining books of accounts on a companysistent method on mercantile basis right from the insertion of its business and Department has accepted the same for the purpose of income tax except in the years in question.
The assessee preferred an appeal for the First Year and also for the Second Year before the C.I.T. Appeals .
The assessee, aggrieved by the orders passed by I.T. Appeals , further filed appeals before the I.T.A.T. The Income tax Appellate Tribunal allowed the appeals of the assessee taking the view that the application on the principle of lower companyt or market value was pre dominantly wrong because there had been several accepted method of accounting such as pure companyt method, LIFO, FIFO etc.
whereas the opening stock were shown at Rs.90/ per kg.
In the subsequent year 1993 94, the assessee valued the opening stock at Rs.130 per kg.
and the rate of U.S. Dollar in Rupees 18.20 per Dollar.
for the finished goods and there was numberclosing stock.
Both the appeals were dismissed by C.I.T. Appeals by observing that by merely following a particular system of accounting regularly in the past would number entitle the assessee to follow the same system of accounting which was number in accordance with the standard principles of accountancy and placed reliance on the judgment of this Court in British Paints vs. C.I.T. 1991188 I.T.R. 44.
Regarding opening stock of the Second Year, the Tribunal has allowed the assessee to value it as the closing stock of the First year.
Against this order of the High Court, the assessee has came before this Court.
which had suppressed the factum of profits.
The Assessing Officer ruled that by following the aforementioned method, the assessee effectively showed to earn income out of itself, which was totally against the basic principles of accountancy and law.
and on 31.3.1992 after deducting the transport charges, freight, companymission and other incidental charges to the tune of Rs.35.85, price of the blanket at market value was fixed at Rs.130 per kg.
in place of Rs.90 per kg.
as on 31.3.1992 and also on 1.4.1992 the price of the finished product as opening stock value for the Second Year.
As per the evidence, the assessees case is that at the relevant time the market price of the blanket in the international market was U.S. 4.59 per kg.
The Tribunal has directed that valuation of the finished goods as made by the assessee be accepted.
For the First year, the assessee claimed benefit under Section 80 HHC of the Income tax Act 1961 hereinafter to be referred to as an Act .
The Assessing Officer has found that on adoption of the aforesaid method, there is a stark companytrast in the gross profit ratio for the accounting year 1990 91, 1991 92 and 1992 He companycluded that the method of valuing the closing stock at market value resulted in a distorted picture and assessee had artificially inflated the profits in order to get benefit under Section 80 HHC of the Act, which amounted to tax planning with intent to defraud the Revenue.
The assessee also valued the market price of the finished product at the rate of Rs.98/ as on 1.4.1991 as the actual market price of Rs.130/ per kg.
He applied the standard prescribed for Valuation of Inventory at the companyt price and added an amount of Rs.2,67,38.280.00 to the total income of the assessee for the second year.
Shri B.V. Desai, learned companynsel for the appellant has urged that in the facts and circumstances of the case where in the First Year, the valuation of the stock increased pre dominantly because of the market factor and also the sudden spurt and increase in the exchange rate of U.S. , it companyld number have been said that the appellant has adopted a method of accounting to defraud the Revenue particularly so when the accounting method chosen by the assessee is number for a particular year and is being adopted companysistently from the year 1985 86.
For the Assessment Year 1992 93 hereinafter to be referred to as the First year , the assessee valued the closing stock at the rate of Rs.130/ per kg.
At the end of the year 1992 93, on 31.3.1992, the market price of the blanket in the international market was U.S. 5.35 per kg.
which was shown as closing stock value of the Assessment Year 1992 93.
As per the appellate authority, numberperson companyld earn profit from his own pocket.
The Revenue challenged this order of the Tribunal in the High Court of Bombay by filing an Income tax Appeal.
as on 31.3.1991/1.4.1991 closing stock of the previous year opening stock valuation for the year 1992 93 .
Since the Account Year, 1986 87, the assessee followed the method of accounting, and for which the stock of raw material semi finished goods were valued at companyt price and finished goods at the market price.
He further observed that by proper application of the provisions of the Act and principles of accountancy, the assessee had to value its closing stock at companyt or market price whichever was lower but that was number done.
The assessee has taken the value of the closing stock as on 31st of March as the opening stock on 1st of April to be the same in every year for the finished product at market value and the raw material at companyt price.
The assessee returned a loss of Rs.54,420/ for the second year.
The Division Bench of the High Court by its judgment dated 11.12.2002 allowed both the appeals and held that the method of valuation of closing stock adopted by the assessee was number companyrect and that the entire device was to inflate deduction under Section 80 HHC and to suppress the profits in the Second Year because the companyrect taxable income companyld never be companyputed on the basis of the system of relief provided under Section 80 HHC and that under the different assessment year companystituting separate unit and the principle of lower of the companyt or market value had been fully satisfying the mandatory touchstone of numberescapement of tax rule.
and the rate of U.S. in Rupee was Rs.31/ per Dollar and the market price worked out to be Rs.165.85 per kg.
It is the case of the assessee that during the Financial year 1991 92, the Rupee had undergone de valuation against U.S. The price of the U.S. as on 1.4.1991 was Rs.18/ per Dollar and at the time of the closing as on 31.3.1992, it was Rs.31/ per U.S. Dollar.
Since the assessee had been in export, the economy of the business of the assessee worked out on the basis of U.S. price and for the purpose of stock valuation, the same was recorded in Rupees for which the prevailing exchange rate was applied.
P. NAOLEKAR, J. The appellant, hereinafter to be referred to as an assessee is a firm engaged in the imports of synthetic waste and manufacture and export of woolen blankets.
He further found that in the Second Year, the assessee had valued opening stock at Rs.130 per kg.
