1. Petitioner is a company register under the Indian Companies Act, 1913, carrying on the business of manufacturing of textiles, The assessment year for the purposes of this petitioner is assessment year 1973-74, the corresponding accounting year being calendar year 1972. The respondent is the ITO, having jurisdiction over the petitioner for the propose of income-tax assessment.
2. Petitioner, practically since its inception, was valuing its opening and closing stock for the propose of arriving at its profits for every year, by following a uniform method, which described as cost method. Cost of cloth as well as cloth in process and other unfinished goods was arrived at by working out cost of products in respect of such goods taking into account the stage up to which the production had reached by the end of the year or at the beginning of the year, as the case may be. As regard the cots of raw material which went initial and total quantity of such raw material, namely, cotton would be ascertained per pound or per kilogram, as the case may be,. by dividing the quantity by the total cost. Therefore, the cost of cotton so ascertained per pound or per kilogram was added to the production cost arrived at as aforesaid. The total cost of such finished goods, in process, etc., was ascertained by multiplying cost of such goods per pound or per kilogram worked out as stated above by total weights of the finished good or goods in process. Thus, the total cost of finished goods or the goods in process would be arriving at and such figure so ascertained was consistently adopted by the petitioner as its opening and closing stock year after year. This method of valuation of stock which was accepted by the income-tax authorities was followed in the assessment year 1973-74 also and the assessment was framed on the same basis as in the past. It appears that in the assessment year 1975-76, corresponding accounting year being calendar year 1974, the petitioner adopted two methods for working our costs of stock-one method for the propose of income-tax and another for the purpose of accounts under Companies Act. For the purpose of income-tax the petitioner valued its stock not the method which it was consistently following for the last several year as stated above. However, for the purpose of the Companies Act, that is, balance-sheet and profit and loss account, it adopted a new method of working out the cost of the stock. Under this new method, while valuing its stock, the petitioner took into account e fact that while converting cotton into yarn, there would be some wastage including removal of impurities, etc. In valuing the finished goods as well as goods in process, the petitioner divided the total cost of cotton, which had gone into production stream, by quantity of yarn produced, instead of quantity of cotton consumed in producing such yarn. As a result of this new method of working out cost, adopted by the petitioner, the closing stock for the propose of balance-sheet and profits and loss account was valued at an amount which was higher, by Rs. 52,44,486, than the value adopted for the purpose of income-tax. In the course of assessment proceedings, for the assessment year 1975-76, the r for the claimed deduction of RFs. 52,44,486 from the value of the closing stock shown in th4 balance-sheet claiming that for the purpose of income-tax, e stock should be valued on the same basis as in e past. The respondent, however, did not agree to make such deduction. The IAC, to whom the draft assessment order was sent for approval, also did not accepted the petitioner contention and e assessment for the assessment year 1975-76 was completed by working profit on the basis of the value of the closing stock shown in the balance-sheet and profit and loss account. It is stated that the petitioner has filed an appeal before the Commissioner (Appeals) against the assessment order, which is still pending.
3. It is on the basis of e new method valuation adopted by the petitioner for the propose of balance-sheet and profits and loss account in the assessment year 1975-76, that the respondent seek to reopen the assessment for the assessment year 1973-74. Accordingly to the respondent the new method which is adopted by the petitioner in working our the cost of closing stock for the purpose of balance-sheet and profits and loss account in e assessment year 1975-76 is the correct method and, therefore, e the valuation of closing stock worked out by e petitioner for the assessment year 1973-74 was not correct. According to the respondent, if the valuation of closing stock is made accordingly to the new method, the income of the petitioner for the assessment year 1973-74 would be much more than what had been assessed to income-tax in the regular assessment as stated above. Under these circumstances, the respondent issued, notice, annex C. dated March 30, 1978, informing the petitioner that the income charger to tax for the assessment year 1973-74 had escaped assessment and calling upon it to file its return of income within thirty days of the service of the notice. The petitioner has filed this petitioner challenging the validity of the said notice.
4. Facts and circumstances in the present are similar, though not identical with those involved in Special Civil Application No. 1940 of 1979, which we have disposed of today by a separate judgment [Aryodaya Spinning & Weaving Co. Ltd,. v. ITO : 144ITR817(Guj) ]. In Special Civil Application NO. 1940 of 1979 also, the ITO had sought to reopen the assessment for the assessment years 1970-71 and 1974-75 on the ground that valuation of stock was not correctly worked out by the assessee in that case for the propose of income-tax assessment. In that case, the assessee had adopted two different methods for valuation off stock-one for the propose of income-tax and another for the purpose of balance sheet and profit and loss account. The assessee was following a uniform or consistent method of valuing its stock of yarn in process at 12 paise per kilogram for the purpose of income-tax, but for the purpose of balance-sheet and profit and loss account, it adopted as slightly different method of valuing its stock of yarn in process. However, all the particulars regarding the two methods of valuation adopted by the assessee were placed before the ITo at the item of the regular assessments. The ITO accepted the valuation of stock shown by the assessee for the propose of income-tax assessment as in the past and proceed to frame the assessment for the assessment year 1970-71 and 1974-75. later on, these assessment were sought to be reopened on e ground that the method of valuation of stock of yarn on process adopted for th purpose of income-tax was not correct and that the said stock should have been valued on e basis of the method followed for the purpose of balance-sheet and profit and loss account. It was alleged that there was escarpment of income from assessment on account of the above method of valuation of stock of yarn in process folded by the assessee. For the reasons recorded in our judgment in the said Special Civil Application No. 1940 of 1979 [Aryodaya Spg. & Wvg Co. Ltd. v. ITO : 144ITR817(Guj) ] we have held that there was no justification to reopen the assessment for the aforesaid two assessment year and consequently notices issued by the ITO made s. 148 read with s. 147 of the Act were declared to be invalid. In the present case, so far as the assessment year under reference is concerned, the petitioner did not adopts two methods of valuation of its stock as in Special Civil Application No. 1940 of 1979 (see p. 817 supra). The stock was, however, valued on cost method. The grievance of the respondent is that the cost was worked out by the petitioner without taking in account the waste of cotton in the manufacture of yarn. These are the only feathers which, accordingly toe the respondent, distinguish the present case form the case of the assessee in Special Civil Application No. 1940 of 1979 (see p. 817 supra). However, the questions which are raised for our consideration in he present case are identical with those raised in Special Civil Application No. 1940 of 1979 (see p. 817 supra). IN our opinion our decision in Special Civil Application No, 1940 of 1979 (p. 817 supra) will govern the present case also.
5. In the result, for the reason records in our judgment in Special Civil Application NO. 1940 of 1979 [Aryodaya Spg & Wvg. Co. Ltd. v. ITO : 144ITR817(Guj) ] we hold that the impugned notice issued by the respondent under s. 148 read with s. 147 o the I. T. Act, 1961, on March 30, 1978, (annex C to petition) is invalid and we quash and set aside the said notice.
6. We accordingly allows this petition and make the rule absolute with costs.