- (1.) The subject matter of challenge in this appeal is a judgment and order dated 30th April, 2013 passed by the learned Income Tax Appellate Tribunal dismissing an appeal preferred by the Revenue and Cross Objection filed by the assessee. Aggrieved by the order, the Revenue has come up in appeal. The assessee has filed a Cross Objection. The facts and circumstances of the case are as follows:- The Assessing Officer in his order dated 8th March, 2000 following the judgment of various High Courts and the Supreme Court held that the closing stock could not be valued without taking into account the work in progress, the cost of labour and office expenses. Accordingly, he assessed the aforesaid cost at a sum of Rs.63,23,501/- and added back the same to the income of the assessee. Before the Assessing Officer, the assessee had raised a contention that in case the closing stock was to be revalued, the opening stock was also required to be revalued which was rejected by the Assessing Officer holding as follows: "3.5 During the course of assessment proceedings, another contention has been raised in this respect, namely, if the closing stock of this year is sought to be changed, the opening stock also should accordingly be changed and net effect should be taken into consideration to determine the profit of the year. In this respect, it may be mentioned that the assessee's contention is not acceptable because the assessee has been following wrong method of accounting in respect of closing stock and if it is allowed to adjust the difference in opening stock, the profit & loss account would not reflect the true picture of the profit during the year because all along these years the assessee has been unilaterally suppressing its value of work-in-progress and thereby the profit of the year. 3.6 As per various decision of the Superior Courts including in the case of CIT Vs. Corporation Bank Ltd., 1988 174 ITR 116, 602 (Km.) it has been held as under:- It is thus clear that irrespective of the basis adopted for valuation in the earlier year, the assessee has an option to change the method of valuation of closing stock at cost or market price whichever is lower at any time provided the change is bonafide and followed regularly thereafter. 3.7 If the assessee is free to change its method of valuation in a particular year irrespective of the method adopted in the earlier year, it is unfair to argue that while making the adjustment in the value of closing stock, the department should also make change in the opening stock accordingly. If this argument is accepted it will be a never ending process because the opening stock of one year is the closing stock of the earlier year and so on. 3.8 Since the methods of valuation adopted by the assessee has been clearly shown to be erroneous in the earlier paragraph of this order, the department has every justification to change the valuation of closing stock in accordance with the law. The assessee cannot be allowed to take advantage of its own omission/ commission by arguing that opening stock of this year should also be adjusted. Moreover, under the provisions of section 145 there is no mandate to change the method of valuation of opening stock which is obviously the closing stock of the earlier year."
(2.) The assessee preferred an appeal against the order dated 8th March, 2000 and also applied under section 154 of the Income Tax Act for rectification of the order dated 8th March, 2000. The prayer for rectification was allowed by an order dated 29th November, 2000 by which the addition made by the Assessing Officer by his order dated 8th March, 2000 was reduced to a sum of Rs.41,03,008/- from the originally added sum of Rs.63,23,501/-.
(3.) The appeal preferred by the assessee against the order dated 8th March, 2000 was allowed by CIT (Appeal) by his order dated 12th August, 2002. The CIT (Appeal) accepted the contention of the assessee that the opening stock of the assessment year 1997-98 could be revised, but he was of the opinion that a corresponding revision of the closing stock of the assessment year 1996-97 was necessary in that case. To be precise, the views expressed by the CIT (Appeal) are as follows: "12. As illustrated above, the present case is not one where the appellant has chosen to change the method of valuation and therefore, there was no question of the department having permitted the same. Accordingly, the decisions in the case of Mel Mould Corp. Vs. CIT & Trivani Engg. Works Vs. CIT, 1987 167 ITR 742 will not apply. On the other hand, the present case is more akin to the case before the Privy Council and K.G. Khosla & Co. Vs. CIT . Thus, the Assessing Officer applying the same yardstick to the opening stock of work-in-progress, will do well to revise such an opening stock also and come to the correct amount of under valuation. In doing so, he would be free to reopen the immediately preceding year since the closing stock of the preceding year would be the same as the value of opening stock of the year under consideration i.e. assessment year 1997-98. Thus, closing stock value of work in progress, will necessarily be enhanced in the preceding year i.e. assessment year 1996-97. This course of action would be in consonance with the decision rendered in the case of CIT Vs. Bengal Jute Mills Co. Ltd., 1992 107 CTR 34. The Calcutta High Court have, in this judgment held that in case of consequential adjustment made in the opening stock, if there is any escapement of income in any earlier previous year, the Assessing Officer may reopen the assessment for the purpose of bringing to the tax the income that has escaped assessment. With these observations, ground No.1.2 also stands disposed off.";