JUDGMENT
Mankad, J.
1. Petitioner, a public limited company carrying on business of manufacturing of yarn and textiles, has filed d march this petition, challenging the validity of the notice, annex. I, dated March 28 1981, issued by the ITO, Companies Circle B, Ahmedabad, having jurisdiction to assessee the petitioner-company to income-tax (there respondent herein) under s. 148 read with s. 147(a) of e I. t. Act, 1961 (hereinafter referred to as “the Act”), initiating proceedings to reopen its income-tax, assessment for the assessment year, 1972-73 corresponding year of accounting being calendar year 1971.
petitioner is valuing its stock of yarn yarn in process and close at a uniform method over a number of yeas. The controversy which arose in this petition and as a result of which notice as aforesaid came to be issued by e respondents, is on account of e method of valuation followed by e petitioner in valuing the yarn for weaving process (shortly “yarn in process”). Petitioner, was valuing yarn in process at e rat of 12 paise per kilogram describing the method of valuation as cost method. This method of valuing its stock at a fixed rate is followed since last many years. this is evident form the as follows.
“The assessee is valuing the stock since years past at a fixed rate and hence it is no use disturbing the same as this method of valuing was accepted by us.”
2. The Income-tax Department (hereinafter refereed to as the “Department”) as it pointed out in the assessment order for the assessment year 1942-43, had accepted the method of valuation adopted by the petitioner. Same method which was accepted by the Department was follows by the petitioner in valuing its stock in subsequent years including the year in question, namely, assessment year 1972-73. the assessment for the assessment year 1972-73 was completed on the basis of valuation of stock disclosed by e assessee. The ITO, however, issued notice annex. I, under s. 148 read with s. 147 of the Act to reopen the assessment for the assessment year 1972-73 on the ground that the petitioner had failed to disclose full and truly all material facts necessary for its assessment for that year and as a result of such failure, the since chargeable to tax had escaped assessment for that year. petitioner has fill ground that there was no failure on its part to fully and truly disclose all material facts necessary for its assessment for that year and consequently there is no justification to reopen the assessment.
3. The respondent has placed on record the reasons order by him for responding the assessment for the year 1972-73 and they are as follows :
“During the course of assessment proceedings for A. Y. 1976-77, the assessee has furnished the working of actual cost of weaving at e end of e year. Such cost of weaving is worked out at 7.90 per kg. of yarn woven in A. Y. 1976-77. It is seen that for the purpose of valuation of stock, the assessee has been adopting the fixed rate of 12 mp. per kg. of yarn in process. Due to adoption of incorrect fixed expenses at 12 np. per kg,. there is under valuation of stoked of yarn in process by more a than Rs. 10,000 for A. Y. 1972-73. thus the assessee has furnished deliberately inaccurate particulars and thereby income of. 10,000 more has escaped assessment. I send proposal to the C. I. T. for reopening the assessment u/s. 148 of the I. T. Act.”
4. In e affidavit-in-reply the respondent has submitted that to value of 12 np. per kg,. adopted by e petitioner for valuing its stock of yarn in process, was too low having regard to the increases in the court. It is submitted that though such valuation was acceptor by the DEpartment in accounting adopted by the assessee revealed the correct position about the financial affairs of the petitioner. if the value adopted its of low notwithstanding the increase in cost, the petitioner would be in a position to suppress profits. if is submitted that the petitioner had not filed the correct valuation of the closing stock and, therefor at the time of passing of e original assessment order dated December 16, 1974, the Income-tax officer assessing the petitioner could not have looked ito the matter and decided the correct profit. According to the respondent, the petitioner had wrongly estimated the value go the yarn in process at 12 np. per kg. without furnishing a detailed working of the closing stock which resulted in a suppression of profits. it was in these circumstances,. says the respondents, that the proceeding in question were initiated by issued in notice at annex. ‘I’
5. Question similar to shoe raised in this petition were raised in. the case of Aryodaya Spg. & Wvg Co. Ltd. v. ITO [Special Civil Application No, 1940 of 1979, decided on January 17, 1983 ([1983] 144 ITR 817 (supra)] and, in our opinion, our decision in said case would govern the present petition also. The learned counsel for the respondent, however, sought to distinguish he aforesaid case of Aryodaya Spg. & Wvg Co. on the ground that in that case complete details of the working of the valuation of stock were stated in the statement filed along with the return, when as in e instant case, the petitioner, had not furnished any such details. All that was stated in. he balance-sheet of the petitioner was that the stock was valued at cost, which statement, having regard to the method followed by the petitioner, was not correct. It was submitted that the petitioner had nowhere stated that is had valued its stock of yarn in process at 12 p per kg. Therefore, the ITo who assessed its, could not have known that though thee petitioner had stated that its stock was valued at cost, in fact is was not so done. The learned counsel for the respondent submitted that the fact that petitioner was valuing its the absence of e details showing the working of valuation or the method followed for valuation, e petitioner could not be said to have dully and truly disclosed all material facts necessary for its assessment. it was submitted that it was the duty of the petitioner to state that it has valued its stock of yarn in process at 12 p per kg. and if it did not do so, the ITo was justified in initiating the proceedings for responding its assessment for e year in question.
6. We are unable to accede to the submission made by e learned counsel for the respondents. petitioner has been consistently following the method of valuation its stock of yarn in process at e fixed rate of 12 p. for the last several year. This method of valuing follows by e petitioner has been accepted by e Department and the petitioner assessable income has bene computed on the basis of the valuation worked out by this method. if we considers the reasons record by the respondent for reopening the assessment and the statement made in his affidavit-in-reply, the conclusion that the above method of valuation followed by the petitioner over a number of year was known to e respondent or the ITO assessing it, is inescapable. But apart from that, it s now well settled that which ever basis of valuation of stock in hand is adopted, it must be adhered to consistently; casual departure from the regular basis of valuation cannot be permitted. It is undoubtedly open to an assessee to make a clear change of the regular method of valuation, but if he does so, it is his duty to bring this changes to the notice of the Department. However, if no change in e method of valuation is made. the question of drawing the attention of the taxing authorities, to the method consistently followed by it, does not arise. Unless it is stated by the assessee that he was made a change or departure in the method of valuation followed by him, it would be presumed that be had not made any change in the method of valuation which he had hitherto been following. In the instant case, e petitioner, while submitting its return for the assessment year in question did not notify any change of departure made by tit in th method hitherto followed by it in valuing it stock,. Therefore, is, therefore, a presumption that the petitioner had to departed from fist past practice in valuing its stock. In other words, the respondent had to presume that the petitioner had valued its stock of yarn in process at 12 p per kg, as in the past.
7. Petitioner had, in our opinion, disclosed all e primary acts necessary for its assessment. it was not necessary for the petitioner to disclose somethings which was know to the Department. As pointed out above, the method followed by e petitioner in valuing its stock at 12 p. per kg. by calling it s method of cost was known to the Department. This, as pointed out above, is evident from the reasons recorded by the ITO for reopening the assessment and the statement made in. e affidavit-in-reply. Since the method of valuation consistently adopted by the petitioner was already known to the respondent the Department, the petitioner cannot be found guilty of having failed to disclose this fact.
8. It was, however, urged that at item 6 of sub-part ‘A’ of Part I of annex ‘C’ of the return of income relating to the profits and gains of business or profession, the petitioner, was required to state the method of stock valuation. It was urged that all that the petitioner stated in the said item 6 was “vide balance-sheet”. In Sch. 7 of the balance-sheet for the year 1971, the petitioner stated the value of the year in process as follows :
“Process Stock (at cost) Rs. 13,16,690.”
9. In Schedule 8 relating to stocks of e said balance-sheet the petitioner stated the value of the yarn in process as follows :
“Stock-in-process-Rs. 8,68,829.”
10. It was urged that the above valuation given in e balance-sheet did not disclose that the stock of yarn in process was valued at 12 nP. per kh. Petitioner, therefore, could not be said to have disclose primary acts necessary for assessment for that year. As discussed above, as the method of valuation adopted by e petitioner over a number of year was known to the Department. Since no departure was made, it should have been at cost,. it had valued stock at 12 nP per kg. as in the past. It could not, therefore, be said that the petitioner had not disclosed the primary facts. But apart form that, the petitioner was required to file the balance-sheet along with the return by virtue of the relevant provisions of the rules framed under the Act and that would mean that the balance-sheet so filed was part of the return itself. When the petitioner stated in the balance-sheet that the stock of yarn in process was valued at case, the ITO should have been pure on inquiry and it was his duty to find out what method the petitioner had followed in working out the cost of stock. As held by the House of Lords in Duple Motor Bodies Ltd. v. Ostime [1961] 39 TC 537, it is permissible to value stock at a figure higher or even lower than what is arrived at by showing cost method. Therefore, if, as urged on behalf of the Revenue, the method of valuation followed by the petitioner was not known to the ITO, assessing the petitioner to income-tax for the year under the reference, it was his duty to investigate into the facts and find out what exactly was th method which was followed by e petitioner in valuing the stock and en to draw the correct inference on the basis of the fact found. On the facts and in there circumstances of the case, prima faces, the appendage of label which the petitioner gave to the method of valuation of stock of yarn, namely valuation of stock at cost, its not by itself a primary fact. But even assuming that the description accordingly given by the petitioner about the method of valuation constitute a primary fact, it was the duty of the ITO to make an investigation into the facts and draw a correct inference from the facts found by him and to decide, inter alia, whether or not the stock can be said to have been valued at cost, as claimed by the petitioner having regard to the method adopted. it was not part of the duty or responsibility of the petitioner to advise the ITO with regard to the true and correct infernos which should be drawn form the primary facts as regard the method of valuation.
11. Section 147(a) empowers the ITO, subject to the provisions of ss. 148 to 153, to assessee or reassess income or recomputed the loss or depreciation allowance, as the case may be, in any assessment year, if he has reason to believe that by reasons of omission or failure on the part of the assessee to make a return under s. 139, for any assessment year to the ITO or to disclose fully and truly all material fact necessary for assessment for that year, the income chargeable to tax has escaped assessment for that year. This provisions operates to disturb the finality of the assessment already made and to reassess the income, etc., which has been received by or has accrued to an assessee in the previous year, relating to he assessment year in question. Such action is bound to result in considerable hardship to the assessee. The Legislature has, therefore, impose two conditions, under which alone the ITo can reopen an assessment which is already completed, namely, (1) that the ITo must have reasons to believe that income chargeable to tax has escaped assessment, and (2) that he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee, (a) to make a ratio under s. 139 for the assessment year to the ITO, or (b) to disclose fully and truly all material facts necessary for the assessment for that year.
12. In our opinion, having regard to what is discussed above, the present case would be directly covered by our decision in Aryodaya Sp.’s case decided on January 17, 1983 ([1983] 144 ITR 817 (supra)), wherein we have dealt with in detail the various contentions raised on behalf of the Department. In our opinion, there are no features which distinguish the present case from the said case. In our opinion, the reasons record by us in Aryodaya Spg’s case would govern the present case also. Therefore, for the reasons discussed above and the reasons recorded in our decision in Aryuodaya Spg’s case (Special Civil Application No. 1940 of 1979, decide on January 17, 1983-[1983] 144 ITR 817 (supra), this petition must succeed.
13. In the rest, we allows this petition and quash and set aside the notice, annex. ‘I’. dated March 28, 1982.
14. Rule made absolute with costs.