JUDGMENT
Madan B. Lokur, J.
1. Relevant to the Assessment Year 1979-80, the following question has been referred for our opinion by the Income Tax Appellate Tribunal [‘Tribunal’] under Section 256(1) of the Income Tax Act, 1961 [‘Act’]:
Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the change in the method of valuation adopted by the assessed was neither for any valid reasons nor bona fide and in consequentially sustaining an addition of Rs. 51,136/- to the total income?
2. Till the assessment year 1978-79, the assessed was valuing its closing stock at ‘estimated realisable value’ or at market value of the stocks. Even on 31st March, 1978, the assessed had valued its closing stock at the market value. The opening stock was again valued on 1st April, 1978 at the market value.
3. The assessed initially filed its return for the year ending 31st March, 1979 valuing the closing stock at the market value. Subsequently, the assessed filed a revised return. The explanation given by the assessed for filing the revised return has been set out in the order passed by the Commissioner of Income Tax, Appeals [‘CIT(A)’]. The explanation that the assessed passed a Resolution on 13th August, 1979 prior to finalising the annual accounts for the previous year that the earlier method adopted for valuing the closing stock was defective as it did not correctly reflect the profit and loss for each accounting year. It was felt that the new method of valuing the closing stock at cost price adequately reflected the profit and loss position in regard to the previous year’s operations. On this basis the closing stock as on 31st March, 1979 was valued at the cost price and not at the market value. The revised return on the basis of the changed valuation showed a loss of Rs. 4,01, 290/-.
4. However, the Assessing Officer, while dealing with the revised return, rejected the valuation of the closing stock at cost price and therefore, made an addition of Rs. 51,136/- to the income of the assessed.
5. The assessed, feeling aggrieved by this order, preferred an appeal which was allowed by the CIT(A) following the judgment of the Allahabad High Court in Ram Luxman Sugar Mills Ltd. v. Commissioner of Income Tax .
6. Feeling aggrieved, the Revenue preferred an appeal before the Tribunal which allowed the appeal and set aside the order passed by the Commissioner of Income Tax (Appeals) in view of the decision rendered by this Court in K.G. Khosla and Company Private Limited v. Commissioner of Income-tax, Delhi .
7. Thereafter, the assessed preferred an application under Section 256(1) of the Act praying that the question of law set out above be referred to this Court for its opinion. That is how the matter is now before us.
8. We have heard learned Counsel for the parties and have gone through the decisions that have been referred to above.
9. Section 139(5) of the Act reads as follows:
139. Return of income.
(1) to (4) xxx xxx xxx
(5) If any person, having furnished a return under Sub-section (1), or in pursuance of a notice issued under Sub-section (1) of Section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier:
Provided that where the return relates to the previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, the reference to one year aforesaid shall be construed as a reference to two years from the end of the relevant assessment year.
10. A bare reading of the aforesaid Section makes it clear that the assessed may file a revised return if it discovers any omission or any wrong statement therein. Insofar as the present case is concerned, there is no omission or wrong statement which required the assessed to file a revised return. The reason for filing the revised return was only that the company had passed a resolution to change its method of valuation of the closing stock because it did not correctly show the profit or loss for each accounting year, and that the new method adequately reflected the position in regard to the previous year’s operations. This meant that the assessed would show a loss of Rs. 4,01,290/- instead of Rs. 3,00,369/- declared with the return filed initially.
11. In Ram Luxman Sugar Mills Ltd. (supra), the Allahabad High Court accepted the contention of the assessed that there could be a change in the method of valuing the opening stock and the closing stock in the same financial year provided there was a good enough reason for it. However, the Allahabad High Court was not dealing with a case of a revised return. Under these circumstances, we are of the view that the decision of Ram Luxman Sugar Mills Ltd. (supra) is not applicable to the facts of the present case.
12. Insofar as the decision in K.G. Khosla and Company Private Limited (supra) is concerned, this Court concluded that there was no question of law that had arisen because of the change in the method of valuation of the opening stock as well as the closing stock. Again, this was not a case concerning a revised return having been filed by the assessed.
13. Insofar as the decision in Commissioner of Income-tax, Tamil Nadu v. Carborandum Universal Limited is concerned, that was a case where a revised return was filed, but the Madras High Court does not appear to have considered the effect of Section 139(5) of the Act.
14. Insofar as the present case is concerned, we find that the provision of Section 139(5) of the Act clearly sets out the two conditions under which the revised return can be filed and none of these are applicable to the facts of the assessed’s case. It is for this reason that the revised return showing the changed calculation of the closing stock ought not to have been accepted by the Assessing Officer. The only reason for the change in the method of valuation of the closing stock was, as explained by the assessed, that is, the method adopted did not reflect the correct state of affairs. The result of change in the method of valuation was that the assessed showed a loss of Rs. 4,01,290/- which is an increase from the original loss shown as Rs. 3,00,369/-. This was clearly not a legally valid reason nor was it bona fide. In the facts of the present case, the change was not justified or legally permissible.
15. Under these circumstances, we answer the question referred to us in the affirmative, in favor of the Revenue and against the assessed.
16. The reference is disposed of accordingly.