Thommen, J. - (1.) These appeals by certificate arise from the judgment dated August 22, 1974 of the Calcutta High Court in I.T. R. No. 9 of 1970 (reported in 1976 (1) Cal LJ 102) concerning the assessment years 1963-64 and 1964-65, relevant to the accounting years ended 31-12-1962 and 31-12-1963. Answering the question referred to it in the negative and against the Revenue, the High Court stated that the Income-tax Appellate Tribunal was not justified in rejecting the method of valuation of the goods in process and the finished products on the basis of the cost of raw material after excludi altogether t e overhead expenditure. The Tribunal had by its .Order dated 27-2-1969 upheld the findings of the Income-tax Officer, as confirmed by the Appellate Assistant Commissioner, that the assessee's goods in process and finished products were liable to be valued at 100 percent of the cost which included the overhead expenditure and not at 84.49 per cent. as claimed by the assessee.
(2.) The assessee is a limited liability company engaged in the business of manufacture and sale of paints. It contended before the authorities that it had been its consistent practice to value. the goods in process and finished products exclusively at cost of raw materials and totally excluding overhead expenditure. The justification for this practice, according to the assessee, was that the goos being paints had limited storage life and, if not quickly disposed of, they were liable to loose their market value. This contention of the assessee was rejected by the Income-tax Officer observing that at no time had the assessee claimed any deduction on account of deterioration or damage to goods. The Officer held that there was no justification to recognise.a practice, as claimed by the assessee, of valuing its stock otherwise than in accordance with the well-recognised principle of accounting which required the stock to be valued at either cost (raw material + expenditure) or market price, whichever was the lower. Recalculating the value of the opening and closing stocks by adding the overhead expenditure, the Officer made an addition of Rs. 1,04,417/- for the assessment year 1963-64 and allowed a deduction of Rs. 3,338/- for the assessment year 1964-65. These orders, as stated above, were confirmed by the Assistant Appellate Commissioner and by the Tribunal.
(3.) The Tribunal held that there was no evidence to show that the goods in stock deteriorated in value and there was no justification for excluding the overhead expenditure in valuing the stock. If it was in the interest of the business to value stock solely' with reference'to the cost of raw materials and w,ithout including the overhead expenditure, such valuation was not appropriate to the computation of income chargeable under the Income-tax Act. The High Court noticed that there was no evidence of deterioration of the goods in stock. But after an exhaustive review of the case law on the question, the learned julges came to the conclusion that, having regard to the consistent practice of the assessee, the Tribunal was not justified in rejecting the assessee's method of valuation of its stock-in-trade.;