An assessee is entitled to change its method of valuation of closing stock from market value to the lower of market value or cost, provided that the change is bona fide, consistently followed, and not a casual departure.

( 1 ) IN this case, at the instance of the Revenue, the following questions of law have been referred by the Tribunal under Section 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. Following that decision the second question is answered in the affirmative and in favour of the assessee.

( 3 ) 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.

( 4 ) 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.

( 5 ) ON further appeal, the Tribunal held against the Revenue and dismissed the departmental appeal.

( 6 ) 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.

( 7 ) 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.

( 8 ) 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