Suhas Chandra Sen, J.:— In this case, at the instance of the Revenue, the following questions of law have been referred by the Tribunal under s. 256(1) of the I.T Act, 1961, to this court:
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to change the method of valuation of its closing stock and in that view allowing the deduction of Rs. 2,06,452 claimed by the assessee?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the cash payments on account of reimbursement of medical expenses of the employees could not be included in the value of benefit, amenity or perquisite for the purpose of disallowance in excess of the limits laid down under section 40(c)(iii) or section 40(a)(v) of the Income-tax Act, 1961?”
2. So far as the second question is concerned, the point is concluded by the judgment of this court in the case of Indian Leaf Tobacco Development Co. Ltd. v. CIT, [1982] 137 ITR 827 (Cal). Following that decision the second question is answered in the affirmative and in favour of the assessee. So far as the first question is concerned, the facts are briefly as under:
The assessee is a scheduled bank incorporated in the United Kingdom which has its branches in India. The reference relates to the assessment year 1968-69. For this assessment year the assessee claimed before the ITO that it should be allowed to change its method of valuation of closing stock from market value to the lower of the market value or cost and on this basis the assessable profit from dealings in shares and securities should be reduced by Rs. 2,06,452. The ITO, however, did not accept this contention.
3. Against this order of the ITO, the assessee went up in appeal to the AAC. The AAC held that it was open to the assessee to value the closing stock at cost or market price, whichever was lower, and, even if the closing stock had in the earlier years been valued at cost, the assessee could change its method of accounting which was bona fide and was followed consistently in the subsequent years.
4. On further appeal, the Tribunal held against the Revenue and dismissed the departmental appeal.
5. The CIT made an application under s. 256 for reference of the case to this High Court and the two questions mentioned hereinbefore have been referred by the Tribunal to this court.
6. It has been contended on behalf of the Revenue that the Tribunal was in error in holding that there was a change in the method of accounting in this case by the assessee. The assessee's method of accounting was to show this item under the head “Capital account” year after year and, therefore, there was really no change in the system of accounting followed by the assessee. It was secondly argued that the system followed for a number of years cannot be changed except for strong reasons and there was no strong reason present in this particular case.
7. We are unable to accept these arguments. In the books of account of the assessee the shares are shown as capital assets and as such are not valued as closing stock at the end of the year. It is the common case of the assessee and the Department that these shares should be treated as on revenue account and, therefore, in spite of these shares being shown in the books of the assessee as on capital account year after year, the closing stock of the shares had been valued every year and this has been done separately by the assessee for the purpose of income-tax. What the assessee did was to value the shares at market price in the earlier years. The assessee's explanation which has been accepted by the Tribunal was that in the earlier years the market price was lower than the cost price and there was no difficulty about this. It is only in this year that the market price has risen higher than the cost price and the assessee has followed the system of valuing the closing stock at market price or cost price, whichever is lower.
8. The AAC has found that the change in the method of valuation was bona fide. The Tribunal has affirmed that finding of the AAC. The Tribunal has further stated that the system was being consistently followed by the assessee. The Tribunal has also noted that this was not a casual departure. The Tribunal has further noted that the system adopted by the assessee was a well known system of accounting. There is no challenge to the findings of fact made by the Tribunal.
9. In the context of these findings made by the Tribunal there does not appear to be any error of law committed by the Tribunal in its approach to the problem and the Tribunal was justified in coming to the conclusion that it did.
10. A number of cases were cited by both sides. Reliance was placed on the decision of the House of Lords in the case of B.S.C Footwear Ltd. v. Ridgway (Inspector of Taxes), [1972] 83 ITR 269 (HL), in the case of British Paints India Ltd. v. CIT, [1978] 111 ITR 53 at pp. 69-70 (Cal), in the matter of Chouthmal Golapchand, [1938] 6 ITR 733 (Cal) and also in the case of Reform Flour Mills P. Ltd. v. CIT, [1981] 132 ITR 184 (Cal).
11. On behalf of the assessee reliance was placed on s. 211 of the Companies Act as also on s. 29 of the Banking Regulation Act. Reliance was placed on the observations of the Madras High Court in the case of Indo-Commercial Bank Ltd. v. Commissioner Of Income-Tax, Madras., [1962] 44 ITR 22 (Mad).
12. In view of the findings of fact made by the Tribunal it is not necessary to go into the controversies involved in those cases. In that view of the matter the first question is also answered in the affirmative and in favour of the assessee. In the facts and circumstances of the case, each party will pay and bear its own costs.
Sabyasachi Mukharji, J.:— I agree.
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