AJIT K.SENGUPTA, J. - (1.) IN this reference made at the instance of the Revenue, the following question has been referred by the Tribunal for the opinion of this Court under s. 256(2) of the IT Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the addition of Rs. 4,46,180 on account of undervaluation of closing stock was not warranted and in that view deleting the addition of the said amount ?"
(2.) THIS reference arises out of the income-tax assessment of M/s Delta Plantation Ltd., which was formerly known as M/s Khari Katia Tea Estates (P) Ltd. for the asst. yr. 1982-83 corresponding to the previous year being calendar year 1981. The main source of income of the assessee-company during the relevant previous year was cultivation, manufacture and sale of tea. The assessee- company used to value its closing stock of tea at the end of each year at selling price. From the calendar year 1981, the assessee-company decided to change its basis of valuation of stock of tea and start valuing it at "since realised"or the "estimated realisable value". It was explained to the ITO in the course of assessment proceedings that it was a normal practice in tea industry to value the closing stock of tea at the end of each year at "since realised"and/or "estimated realisable value". It was also explained that in the earlier method of valuing the tea at selling expenses, expenses like excise duty, packaging, freight and other selling expenses were not being considered. The Assessing Officer found that in view of the change in the method of stock valuation, the accounts of the assessee-company showed a loss of Rs. 4,46,180. The ITO, therefore, did not allow the change in the method of valuation of stock of tea at the end of the previous year and added back the resultant loss of Rs. 4,46,180 to the total income of the assessee-company for the asst. yr. 1982-83. Before the CIT(A), it was, inter alia, contended on behalf of the assessee-company that the new method of stock valuation adopted by the assessee-company was a normal practice followed in the entire tea industry for valuation of stock of tea at the end of the accounting year and there was no reason why the Assessing Officer should refuse to accept the change in the method of stock valuation followed by the assessee-company consistently year after year. The CIT(A), however, held that, while the assessee was at liberty to change the method of valuation of closing stock, it cannot be allowed to do so if it results in loss of Revenue. He, therefore, upheld the order of the ITO and confirmed the disallowance of Rs. 4,46,180 added by the ITO.
(3.) ON further appeal before the Tribunal, it was, inter alia, contended that the change in the method of stock valuation cannot be disallowed merely because it results in loss to the Revenue. The Tribunal found that there could be no effective loss of revenue on account of change in the system of stock valuation since the closing stock of one year is necessarily the opening stock of another year. The Tribunal also found that this system of valuing the closing stock of tea is a recognised practice followed in the tea industry and accepted by the Tribunal in a number of cases. The Tribunal, therefore, reversed the order of the ITO as well as of the CIT(A) and deleted the disallowance of Rs. 4,46,180 made on this count.;