Commissioner of Income Tax vs Indo Rama Synthetic Ltd.

Two questions A and B have been proposed.

So far as the second proposed question is concerned, it stands covered against the revenue by virtue of the decision of this Court in Commissioner of Income Tax Vs. Woodward Governor India Pvt. Ltd., .

In regard to the first question, the Assessing Officer has observed that the assessee was following a different method for valuing inventory up to the last year. The assessee has changed the method of valuation of inventory, which has resulted in the inventory being shown at a lower value. It is not in dispute that the change is a result of the recommendation of the Institute of Chartered Accountants of India and in consonance with Accounting Standard-2 (AS-2) on ''Valuation of inventories''.

We do not go further than the decision of Commissioner of Income Tax, Tamil Nadu Vs. Carborundum Universal Ltd., against which a SLP was preferred which was dismissed. In the said case of Carborundum Universal Ltd. (supra), the Division Bench of Madras High Court observed as follows:

...merely because the new method adopted by the assessee was detrimental to the revenue, that alone can never be the basis, for denying the right to change the method. Further, even though the change of the method has resulted in a detriment to the Revenue in the year in question, since the method is to be followed consistently year after year in future, this apparent detriment to the revenue will get adjusted and disappear. Therefore, in view of the findings of the Tribunal that the change of the method is bona fide and is intended to be followed in future, year after year, the change has to be accepted by the revenue, notwithstanding the fact that during assessment year which is the first year when the change of method is brought about it has resulted in a prejudice or detriment to the revenue. So long as the method of valuation adopted by the assessee gets recognition from the practicing accountants and the commercial world for valuation of stock-in-trade, the adoption of that method cannot be questioned by the revenue unless the adoption of that method is found to be not bona fide or restricted for a particular year. (p. 770)

We are in respectful agreement with the aforementioned decision of the Madras High Court.

The Tribunal affirmed the order of the CIT(A) and has observed that the choice of the method of valuation of inventories rests with the assessee.

A Furthermore, it has been followed consistently by the assessee in subsequent year.

No substantial question of law arises for our consideration. The appeal is dismissed.