BISHAN SINGH DIDAR SINGH vs COMMISSIONER OF INCOME TAX

Lahoti, J.

By this petition, u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as the Act''), the assessed seeks a mandamus to the Tribunal for drawing up a statement of case and referring to following questions of law (as arising out of the assessment year 1996-97) for the opinion of the High Court:

" 1. Whether, the Tribunal was correct and justified in law in sustaining the addition of Rs. 92,794 on the ground that the assessed had valued its closing stock, on the LIFO method of accounting, (which method of accounting though has been accepted as valid and correct method of accounting for the preceding years as well as for the later assessment years) was not the correct method of accounting and, thus, the addition made was sustainable ?

ln the alternative, and in the event, that the LIFO method of accounting adopted by the assessed could not be regarded as correct method, the Tribunal was justified and correct in law and on facts in not directing the Income Tax Officer to adopt the value of opening stock, on the same method of valuation, in order to determine the true profits of the assessee-firm for the instant year for the purpose of valuation of opening stock ?

Whether, the order of the Tribunal is not vitiated by non-consideration of material evidence furnished by the assessed and sustaining the addition on irrelevant and extraneous consideration ?"

The assessed is a dealer in gold ornaments as well as standard gold. He also manufactures own gold ornaments and sells the same. The assessed maintained stock register for gold as prescribed under the Gold Control Act. However, no quantitative details regarding the purchases of gold ornaments and their conversion into new ornaments and sale thereof have been maintained. In respect of the closing stock, no item wise inventory of gold ornaments specifying the items has been maintained. These are the findings of fact arrived at by the assessing officer and maintained in appeal by the Commissioner and the Tribunal.

The assessed claims to be following the last-in-first-out (LIFO) method of valuation of the closing stock, which has been worked out by calculating the stock by clubbing together the old gold ornaments, new gold ornaments and standard gold, etc., in the closing stock. The assessing officer asked the assessed to submit an inventory of the closing stock. The assessed was also asked to identify all the items forming part of the closing stock and asked the assessed to co-relate them with their years of purchase. The assessed did not give any response. As the assessed failed to submit the closing stock inventory of gold ornaments, the assessing officer formed a opinion that it was not possible to ascertain the true profit earned by the assessed in the assessment year under consideration.

He also found that in the absence of the stock inventory, it was not possible to find whether the sales made by him in this relevant assessment year have been from the purchase made during this year or from earlier year. The assessing officer, Therefore, rejected the LIFO system followed by the assessed and directed the stock to be valued by adopting first-in-first out (FIFO) method. This finding has also been upheld by the Tribunal.

Having heard the learned counsels for the parties, we are of the opinion that the questions suggested by the assessed do not arise as questions of law from the order of the Tribunal. That the method of valuation adopted by the assessed did not correctly enable assessment of the income is purely a finding of fact. In CIT v. British Paints India Ltd : [1991]188ITR44(SC) , the Supreme Court has held:

"Section 145 confers sufficient power upon the assessing officer-nay, it imposes a duty upon him - to make such computation in such manner as he determines for deducing the correct profits and gains. This means that where accounts are prepared without disclosing the real cost of the stock -in-trade, albeit on sound expert advice in the interest of efficient administration of the business, it is the duty of the assessing officer to determine the taxable income by making such computation as he thinks fit.

What is the profit of a trade or business is a question of fact and it must be ascertained, as all facts must be ascertained, with reference to the relevant evidence, and not on doctrines or theories." (p. 47)

In Melmould Corporation Vs. Commissioner of Income Tax, , a Division Bench of the Bombay High Court has observed that whenever there is a change in the method of valuation, there is bound to be some distortion in the calculation of profit in the year in which the change takes place. But if the change is brought about bona fide and is in accordance with the normally accepted accounting practice, there is no reason why such change should not be permitted.

It is not disputed that LIFO and FIFO are both normally accepted methods of valuation. The assessing officer further found that FIFO method of stock valuation was required to be adopted for the purpose of finding out the correct profits of the assessed as in the facts and circumstances of the case the LIFO system did not reflect the correct value of the stock.

We are of the opinion that no referable question of law arises from the order of the Tribunal and the Tribunal was right in rejecting the assessor�s petition u/s 256(1).

The petition u/s 256(2) is dismissed.