Malik, C.J. - (1.) THE question referred to this Court for its decision in compliance with an order under Section 66 (2) of the Indian Income-tax Act is-- "Whether on the facts and in the circumstances of this case, the assessee was entitled to value his closing stock at market rate?"
(2.) THE assessee is a firm mainly carrying on wholesale cloth business. THE accounts produced showed a total turn-over of Rs. 12,81,375/-. THE receipts showed a balance of Rs. 9,263/- in favour of the assessee. After deducting certain expenses the assesses, however, worked out a net loss of Rs. 13,915/-. In preparing the Profit and Loss Account the assessee had valued his closing stock at the market rate at Bs. 1,64,191/-. THE cost price of the said stock was, however, Rs. 2.27,913/-. THE Income-tax Officer was of the opinion that the assessee should have valued his closing stock at the cost price as he had been doing in previous years and he added back the difference between Rs. 2,27,913/- and Rs. 1,64,191/-, i.e., Rs. 63,722/-. THE Appellate Assistant Commissioner and the Tribunal agreed with the decision of the Income-tax Officer. The assessee had pleaded that his usual method of accounting was that at the end of the year, for the purpose of the preparation of his Profit and Loss Account, he used to value the closing stock either at cost price or at market price, whichever was lower, and that he had followed the same practice in the year in question. He further pleaded that by reason of the textile control restrictions, which came into force in June 1943, there was an appreciable fall in the market price and he could not expect any relaxation of the controls and the rise in prices, so as to recover what he had paid for the stock. The Appellate Tribunal held -- and it is also stated in the Statement of the Case -- that the assessee had failed to prove that he had always valued the closing stock at the lower of the two prices -- the cost price and the market price. It is stated in the Statement of the Case that the method followed in preparing the Profit and Loss Account by the assessee was that he valued his stock at cost price and in the year in question there had been a departure from the method of valuation followed in the previous years.
(3.) WE may mention that though the assessee may not have succeeded in proving his case that he had valued his closing stock at the lower of the two figures -- the cost price and the market price -- the Department has not established that in any year the assessee had valued his stock at cost price though the market price might have been lower. The burden of proving that there has been a change in the method of accounting was on the Department and, in the absence of any evidence that the assessee had in any year valued his stock at cost price, even though the market price might have been lower, it cannot be said that the method of accounting followed by the assessee was to value his stock at cost price even though the market price might have been less. We are asked to answer the question, whether the assessee was entitled to value the closing stock at market rate, when in the previous years he had been valuing it at cost price.;