MASUD J. - This reference under section 66(2) of the Income-tax Act, 1922, relates to the assessment year 1949-50, the corresponding year being 2005 R. M. (from April 17, 1948, to 6th April, 1949). The question of law referred to us is as follows :
'Whether the Appellate Tribunal was justified in taking the view that the proper valuation of the stocks has been made by valuing both the opening and closing stocks at cost so that there should be no profit or loss in respect of the unsold shares ?'
The said question has arisen out of the following facts :
The assessee, assessed as an individual, was a holder of a large number of shares. He had been doing transactions in shares in the past, but in the relevant year of account there was neither any purchase nor sale of shares. The assessee valued the said shares at the beginning of the year of account at Rs. 1,80,589 and at the end of the year at Rs. 1,65,869. On the basis of this valuation he claimed a loss of Rs. 15,002. According to the Income-tax Officer the shares in question were held by the assessee by way of investment and not as stock-in-trade and, he, therefore, treated the loss claimed as a loss arising from revaluation of investment and disallowed the same. Thereafter, the assessee appealed to the Appellate Assistant Commissioner and the Appellate Tribunal unsuccessfully.
Mr. S. K. Banerjee, learned counsel for the assessee, has referred us to the finding of the Tribunal to the effect that the assessee was a dealer in shares and the shares held by him were a part of his stock-in-trade and has contended that the Income-tax Officer has adopted a wrong method in valuing the shares. He has cited Gemini Pictures Circuit Ltd. v. Commissioner of Income-tax in support of the proposition that the valuation of the shares should be made in such a way that the true profits or losses of the assessees business are reflected. He also relied on Chainrup Sampatram v. Commissioner of Income-tax for substantiating his contention that the closing stock is to be valued at cost price or market price, whichever is lower.
Mr. S. Mukherjee, learned counsel for the department, does not challenge the correctness of the principles enunciated in those two cases, but he has contended that those principles have no application to the instant case inasmuch as the assessee had at all material times in the past valued the shares in an arbitrary way and no consistent method of valuation was adopted by him. Relying on In the matter of Messrs. Chouthmal Golapchand and Indo-Commercial Bank Ltd. v. Commissioner of Income-tax, he has urged that there should be a definite method of valuation adopted by the assessee which should be carried through from year to year. There is great force in Mr. Mukherjees argument and, in the facts and circumstances of this case, we agree with his contention that the loss has been properly disallowed. In the instant case, there is no material to show that the assessee was following a consistent method of valuation of stocks. It is true that the assessee is a dealer in shares and the shares have been his stock-in-trace, but in order to determine the profit or loss in respect of his dealings in shares in a particular year the valuation of the shares at the beginning and at the end of the year of account have got to be found out. Admittedly, there was no transaction in sale or purchases of shares in the accounting year. The shares could be valued consistently in one of the established ways. There is no evidence that the assessee has pursued a particular method of valuation. On the contrary, it is admitted by the learned counsel for the assessee that stocks were valued in the past in an arbitrary way. As the assessee has not adopted any consistent method we cannot accept the contention of the learned counsel for the assessee that the shares at the end of the year should be valued on the basis of the cost price or market price, whichever is lower. We, therefore, hold that as no particular method of accounting or valuation has been regularly employed by the assessee, the department was justified in holding that both the opening and the closing stocks should be valued at cost; and inasmuch as there has been no sale or purchase of the shares the only conclusion we can arrive at is that there has been no profit or loss in respect of the shares in the said year of account.
In the premises, the question should be answered in the affirmative and against the assessee who will pay the costs of this reference.
MITTER J. - I agree.
Question answered in the affirmative.