1990 PLP (Trib (PTD)

7. The next case relied upon by Mr. Bamjee is that of CIT v. Chari & Ram (supra). In this case the assessees were dealers in dyestuffs and chemicals comprising numerous items. In valuing their opening stock and closing stock the method followed by them was to take the average cost or market value, whichever was lower, in respect of each separate article of the stock. For the relevant period the average cost of the opening stock was in respect of all the items lower than the market rate and so the assessee valued the opening stock on the average cost basis. At the time of valuing the closing stock, with regard to some of the articles the market rate was lower whereas with regard to the other articles the market rate was higher than the average cost. The assessee took the average cost as the value of the closing stock for those articles of which the cost was lower than the market rate and adopted the market value for other articles of which the market rate was lower than the average cost. The Commissioner contended before the High Court that this method was wrong and that the correct method would be to arrive at two separate valuations of the closing stock, one the aggregate of the actual average cost for each of the articles and the other the aggregate of the market value of the same articles, and to adopt the lower of two aggregates. Their Lordships of Madras High Court repelled the contention of the department because the method adopted by the assessees was in accordance with the method of accounting regularly followed by them in the past and there was nothing in law or principle which empowered the Income‑tax Officer to reject it. Thus this case appears to be an authority for the proposition that an assessee is entitled to compute the income profits and gains in accordance with the method of accounting regularly employed by him and that the accepted basis of valuation of stock is cost or market value, whichever is lower on the date the accounts for a period are made up. The case of Ram Laxman Sugar Mills (supra), however, has further elaborated the principle propounded in Chari & Ram's case (supra). Their Lordships of Allahabad High Court have reiterated in Ram Laxman Sugar Mills' case (supra) that an assessee is entitled to value the closing stock of any accounting year either at the cost or market value, whichever is lower. However, their Lordships further laid down that the value of the closing stock must be the value of opening stock in the succeeding year, though the rate to be applied need not be the same for the opening stock or closing stock of the same accounting year. On the other hand Punjab High Court has enunciated the difference between the bad debt and loss of goods. In Tulsi Ram Karamchand's case (supra) according to their Lordships the loss is to be claimed in that year in which it is caused for the reason that the value thereof does not find place in the closing stock of that year. On the other hand the bad debts were to be claimed in the year in which they are written off:

8. Now turning to the Tripty's case (supra) which has been relied upon by the Income‑tax Officer, it appears that it deals with only the notional loss. In this case the assessee‑company purchased bottles, and crates for its business of selling cold drinks at the rate of 52 paisa per bottle and Rs. 3.39 paisa per crate. However, when it made supplies to its customers it obtained security deposit, at the rate of 50 paisa per bottle and Rs. 3 per crate. Since security deposit for both bottles and crates was lesser than the cost the assessee claimed the difference as a loss which, of course, was rejected by the Income‑tax Officer. On appeal, however, the learned AAC allowed it but his decision was reversed by the Income‑tax Appellate Tribunal. On a reference their Lordships of Orissa High Court held that the claim of the assessee was based on the peculiar accounting system maintained by it of reducing the book value of the bottles and crates in its hands by 2 paisa and 39 paisa respectively, immediately after putting the same into its stock on the basis of the short security in respect of two items at the time they were put into the market. Since the bottles continued to be property of the assesses and as long as the bottles were in the process of going out of and coming into the factory in the course of assessee's business their Lordships found no rational behind its accounting practice. According to their Lordships the alleged loss was merely a self‑created notional loss for the simple reason that the bottles and the crates were neither lost nor broken hence it was not a revenue loss.

9. Now with this background let us revert to the facts of this appeal. From perusal of the assessment order it appears that the I.T.O. has not disputed any proposition of law which has been laid down by the ruling reproduced above. It further appears that though at the initial stage of the assessment proceedings he referred to Tripty's case (supra) but subsequently he does not appear to have relied upon it for valuing the stock at Rs. 427,

546. Thus I find that the Income‑tax Officer has accepted the submission of Mr. Bamjee that: (i) The appellant had the right of valuing its stock either at the cost or at the market value, whichever is lower. (ii) The appellant has the right to claim as a deduction the loss if it was caused to it because of the valuation of the stock arrived at by it by adopting either the cost price or market value whichever was lower. Let me mention here that the opening stock for the relevant assessment year was shown at Rs. 805,092 but the I.T.O. valued it at Rs. 427,546. (iii) The appellant has the right of applying different market rate to the closing stock than what it applied for working out the opening stock of a particular year, provided the opening stock was valued on the basis of the market rate of the closing stock of immediately preceding year. However, he appears to have arrived at his own valuation of the stock for the reason that he did not find the surveyor's report of any value for the purpose of valuation of the stock. From perusal of the assessment order it appears that in his both letters dated 20‑5‑1984 and 17‑6‑1984 he has insisted upon production of some other evidence in support of Surveyor's report. At page .1 of his assessment order, he has observed: "...The assessee vide this office letter dated 20th May, 1984 was told to furnish details of the stock scrapped and file original document and evidence in support of his contention " Similarly in his notice dated 17‑6‑1984 he also appears to have made the following treatment: " .You are therefore, given final opportunity to please produce documentary evidence to prove your claim solidly without solely relying on Surveyor's report. Compliance by 28‑6‑1984 ." Mr. Mino Bamjee, however, has relied upon Surveyor's report. According to him both the officers below were not justified in brushing it aside without assigning any cogent and convincing reason. In this connection he has relied upon an unreported decision of this Tribunal recorded in ITA. No. 948 of 1953‑54 dated 30‑10‑1954. Let us, therefore now turn to the Surveyor's report.

10. It appears that the Surveyor's report has been prepared by Messrs Bhombal & Co. on 6‑5‑1981. It has been prepared on the printed form of Survey Report of aforesaid firm. From its perusal it appears that aforesaid Surveyor's firm have described themselves as Nautical Consultants, Marine Surveyor's, Bulk Liquid and Preshipment Inspectors. There is no indication anywhere in their Report that they are also expert in valuing stock of motor vehicles or their spare -parts. Thus, it appears to be obvious that they do not enjoy specialization of experience as valuer of motor vehicle spare‑parts. As such their Survey Report No. 183 dated 6‑5‑1981 cannot be designated as an Expert Report. Let me mention here at this juncture that expert's evidence is nothing but an opinion evidence and its evidentiary value is not placed by law on higher pedestal than that of any other type of evidence. On the other hand it is taken to be a weak type of evidence. Let me also mention here that an opinion evidence in order to command respect of Court should be based on training, special knowledge and long experience as an Expert. Their Lordships of Indian Supreme Court have elaborately dealt with this aspect in a case reported as AIR 1964 SC

529. The value of expert evidence has also been examined at length by their Lordships of our own Supreme Court in a case reported as P L D 1987 SC (sic) and that too in income tax proceedings. Let me mention here that every judicial and quash judicial authority has got power to discard any opinion evidence if it is not supported by reasons for the simple reason that it is a weak type of evidence. For this proposition of law reliance can be placed on P L D 1968 Kar.

263. Thus Surveyor's Report of M/s. Bhombal & Co. does not appear to be of any value because they have not‑mentioned in their report that they have any qualifications, training or experience of determining the value of motor vehicle spare‑parts.

11. From its perusal it also appears to me that it has been prepared at the instance of the Managing partner of the appellant. In its preamble the surveyors have observed as follows: " ....This report is based on the statement made by Mr. Ardeshir Cowasjee Managing Partner, Messrs International Automobiles 1961, and our assessment and knowledge of the import of motor cars:" In my opinion such Survey Report which is based on the statement of managing partner is not expert's report coming out of his own opinion formed on the basis of some objective material hence is absolutely a valueless report. It is pertinent to keep in mind that an expert's evidence is always looked at with caution as it has tendency of being biased in favour of the party at whose instance it is prepared but in this case it is the most biased expert evidence as it appears to have been based on the statement of managing partner.

12. From its perusal it further appears to me that it has not discussed any material on which a judicial or quasi‑judicial authority may come to its own conclusion or may find support for the conclusion arrived at by such expert. Let me mention here that the Court is said to be expert of all experts and expert's report which is devoid of any material on which it is based does not deserve an3 consideration whatsoever.

13. Moreover, the so‑called expert's report has given the book value of the stock but no break‑up of spare‑parts has been given together with respective value of each spare‑part of each make of motor vehicle. Similarly, the figures of sales from assessment years 1976‑77 to 1979‑80 have been given but again without any break‑up of sales of spare‑parts. As such, I am not in a position to find out a to whether the appellant had any spare‑parts of Lancaster, Daimler, and Fargo Diesel Motor vehicles. Similarly, I am not in a position to find out as to how man spare‑parts, they had for Plymouth, Chrysler and Skoda. I am also unable to Gnu out what spare‑parts of what make of cars were sold in four years. Moreover, the Surveyors have also not given any basis for valuing the stock at Rs. 50,

000. Lastly the Survey Report has also denuded itself of its value by making the following observation: " .This report is based upon the finding at the time and place of our attendance only and is issued without prejudice to the rights of whomsoever concerned." Thus, from whatever angle it is looked at, the Surveyor's report appears to be a crude attempt of taking refuge in so‑called expert evidence for the purposes of valuing stock‑in‑trade.

14. I, therefore, with due respect to the learned AR find no force in this appeal regarding valuation of stock and I am of the view that both the officers below have rightly rejected the so‑called survey report.

15. Now from perusal of the assessment order it also appears that the I.T.O. estimated the value of stock at Rs. 427,546 which on appeal has been reduced to Rs. 300,

000. However, unfortunately both the officers below have fallen in error as they have not given any basis in support of their valuation. From perusal of the assessment order it appears that the appellant did not furnish the I.T.O. with the evidence which he called upon them to be adduced before him. Thus, I do not know on what basis they have valued the stock with such accuracy. On the other hand the value assigned by the learned CIT(A) to the stock of spare‑part appears to be on the estimate basis. However, since it is also without any basis, it is not sustainable. Thus I am left with no alternative but to send the matter back to the I.T.O. with direction that he should estimate the value of stock‑in‑trade on some basis. He is further directed to specifically record the finding as to whether he had accepted the value of the scrap spare‑parts or he had estimated the value of spare‑parts not taking them to be obsolete. Presently from perusal of his order it appears that he has raised the value of Rs. 50,000 to Rs. 427,546 after accepting the scrap of spare‑parts of Rs. 755,092.

14. Now as far as the appeal against the addback from P&L account is concerned Mr. Bamjee has relied upon the past history on the basis of the treatment given to the appellant by this Tribunal in assessment year 1977‑78 in its order recorded in I.T.A. No. 970/KB of 1982‑83 dated 24‑9‑1987. Since disallowance of 1/3rd out of travelling and vehicle expenses was maintained by this Tribunal in assessment year 1977‑78 I direct the Income‑tax Officer to give the same treatment to the appellant regarding both the expenses during the relevant assessment year. However, it appears that 1/2 of the addback was confirmed by this Tribunal regarding telephone expenses. The treatment given by the I.T.O. is therefore confirmed. Mr. Mino Bamjee the learned AR has not pressed the addbacks made out of salary expenses hence the appeal stands disposed of to the extent and in the manner indicated above. M.B.A./894/T Order accordingly.