JUDGMENT
S.H. Kapadia, J.
1. M/s J.N. Marshal & Co. is the assessee-appellant before us. In this appeal we are concerned with financial year ending 31st Dec., 1986, relevant to asst. yr. 1987-88.
Facts
2. Assessee is a trader of ingot steel, grinding wheels, cutting tools, etc. Assessee filed its return of income for the impugned assessment year on 30th June, 1987, declaring the total income at Rs. 23,353. In the impugned assessment year, the assessee employed the method of valuation of closing stock, consistently adopted by it from asst. yr. 1965-66. Under this assessment, goods lying in the closing stock, which are less than one year were valued at cost; those lying in closing stock for a period of one to two years, were valued at cost less 25 per cent; goods lying in closing stock for a period between two to three years were valued at cost less 50 per cent, and those which were lying in stock for a period between three to four years, were valued at cost, less 75 per cent. Lastly, goods which were lying in stock for more than four years were valued at cost less 100 per cent The assessee used to maintain a stock card/register for each item of the closing stock giving full details on the basis of which valuation was done from year to year. Suffice it to state that this method of valuation came to be adopted principally on the ground that the items in the closing stock had a limited life; secondly these items were of small value; thirdly, the assessee followed the above method of valuation in view of the judgment of the Madras High Court in the case of India Motor Parts & Accessories (P) Ltd. v. CIT (1966) 60 ITR 531 (Mad). To complete the chronology of events, it may be mentioned that the Department had impugned this method of valuation as far back as asst. yr. 1965-66. However, even in that year, the method was approved by CIT(A) and the Department’s contention came to be rejected. In fact, the Department did not carry the matter to the Tribunal. Thereafter, the AO accepted the method of valuation of the assessee right upto asst. yr. 1983-84. Suddenly in the asst. yr. 1983-84, once again, the Department challenged the method of valuation. However, the assessee succeeded before the Tribunal, which upheld the method of valuation of the assessee. Once again, in the next asst, yr. 1984-85, the same position recurred. In the next asst. yr. 1985-86, the AO accepted the method of valuation of the assessee. However, it is ultimately the subject-matter of a pending Ref. Appln. No. 1784/M/1998 before the Tribunal. In this case, as stated above, we are concerned with asst. yr. 1987-88. To complete, the chronology, we may mention that even for asst. yr. 1988-89, the AO once again accepted the method of valuation of closing stock adopted by the assessee and ultimately from asst. yr. 1990-91 all along, the assessee’s method of valuation has been followed and accepted by the Department. In short, out of almost 45 years, the method of valuation of the assessee has been accepted by the Department for 43 years.
Now, in the present case, we are concerned with asst. yr. 1987-88. The AO passed an order and made an addition of Rs. 3,61,500 on account of under valuation of the closing stock by rejecting the method of valuation of the closing stock consistently followed by the assessee and accepted by the Department. Therefore, the assessee carried the matter in appeal to the CIT(A). The above facts were also brought to the notice of the appellate authority regarding the consistent method of valuation followed by the assessee from 1965-66 onwards as accepted by the Department. Consequently, the CIT(A) remanded the matter for reconsideration by the AO. Being aggrieved, the Department carried the matter in appeal to the Tribunal. The Tribunal followed its order for the earlier asst. yr. 1986-87 and came to the conclusion that the real issue was validity of the method of valuation adopted by the assessee. That, since the assessee had failed to produce evidence showing the age of various stocks, the Department’s appeal, on facts, was allowed by the Tribunal. At this stage it may be mentioned that in the present case, the Tribunal has given reasons in para 5 for allowing the appeal. Those reasons are copied from the decision of the Tribunal in the Department’s appeal for asst. yr. 1986-87. Therefore, in substance, for the impugned assessment year, the Tribunal had merely copied its earlier decision and it has applied that decision to the facts of this case.
Arguments
3. Mr. Porus Kaka, learned counsel appearing on behalf of the assessee, submitted that if a method of stock valuation has been accepted by the Department after being challenged, for a number of years, then the same method should be continued. That, to interfere with the method of valuation after it was allowed to be followed for 43 years and particularly in this case, where we are concerned with 1987-88, would cause immense practical difficulties not only for the assessee but also for the Department, because if the contention of the Department was to be accepted, it would require rewriting of the opening stock for all these years, which would result in greater injustice to both the parties. In the alternative, he contended that in this matter, on facts, the method of valuation of closing stock followed by the assessee cannot be said to be unscientific or incorrect. That, the method followed by the assessee does indicate correct profits for the assessment year in question. That this method was correct as the assessee was a trader in small items like steel ingots bearing 12 inches cut-size and these items have a small value. Therefore, the assessee was right in writing down value of these small stocks periodically as stated above. In this connection, he also placed reliance on the judgment of the Madras High Court (2966) 60 ITR 531 (Mad) (supra). Mr. Kaka gave detailed facts and figures, on the basis of which the assessee has calculated the opening stock and the closing stock as on 1st Jan., 1985, and 31st Dec., 1985, to illustrate the point which he canvassed. For the reasons given hereinafter, we do not wish to go into those details.
4. Mr. R.V. Desai, learned senior counsel appearing on behalf of the Department, contended that no interference was called for in this matter. That the real issue was about the validity of the method of closing stock adopted by the assessee. He contended that there is no evidence whatsoever to show that the method adopted by the assessee indicated correct profits. Mr. Desai contended that the method of valuation was unscientific. That, it was neither based on cost or market value, whichever is lower, nor was it based on cost. He contended that such method of valuation should not be permitted as it would result in a distorted figure of profits.
Findings
5. In this case, we do not wish to pronounce our views on the merits/demerits of the method of valuation adopted by the assessee for three reasons. Firstly, we are confining our judgment to the facts of this case and it will not be cited as a precedent in any other matter, Secondly, on facts, it cannot be disputed that out of last 45 years, the assessee has been following this method for about 43 years to the knowledge of the Department, That, out of these 43 years also, the Department has accepted this method of valuation in large number of years and to accept the Department’s contention at this stage and that too, for asst. yr. 1987-88, may result in practical difficulties, not only for the assessee, but also for the Department. The Department has not suggested any alternate method. However, if we would accept any of the methods submitted by the learned counsel for the Department at this stage, and that too, for asst. yr. 1987-88, then even the AO would have to undertake an impossible task of rewriting the opening stock right from asst. yrs, 1986-87, 1987-88 and 1989-90, which would ultimately result in an exercise in futility. Secondly, Mr. Kaka, with his usual fairness, has taken instructions from his clients that the method of valuation of the closing stock employed by the assessee consistently in the past, as indicated above, shall not be employed in future on and from asst. yr. 2003-04 and subsequent assessment years thereto. In fact, an affidavit is filed by the assessee to that effect dt. 12th Dec., 2002, which the office is ordered to take on record and mark “X”.
6. In the circumstances, without going into the merits/demerits, if any, of the method of valuation of the closing stock, we allow the appeal and we set aside the order of the Tribunal with no order as to costs.