Valuation of stocks must be consistent

LEGAL DIGEST

A firm may employ whatever basis of evaluation of stocks in hand for income-tax assessment but it must adhere to that consistently year after year. Casual departure of valuation of trading stocks in hand at cost or market value is not permissible, the Supreme Court said in the judgment, M/s Sanjeev Woollen Mills vs Commissioner of Income Tax, Mumbai.

The Supreme Court upheld the view of the Bombay High Court and dismissed the appeal of the firm which imports synthetic wastes and manufactures and exports woollen blankets.

The assessing officer found that the method of valuation of the closing stocks at the market value resulted in a distorted picture and the firm had artificially inflated the profits to get the benefit under Section 80HHC of the Income Tax Act. This view was accepted by the high court and the Supreme Court.

SC ruling on coal e-auction

The Supreme Court last week directed the coal consuming firms to pay part of the enhanced price to Coal India Ltd following the introduction of electronic auction while at the same time furnishing security for the balance that might become payable in case their challenge to the e-auction scheme was finally rejected by the Supreme Court.

The enhanced price is said to be 20 per cent more than the notified price. The firms will have to pay the notified price plus 33.33 per cent of the enhanced price each time they claim supply of coal based on the linkage and furnish security for the balance of the enhanced price.

Coal India and its subsidiaries have given an undertaking to the court that if the e-auction is held invalid, the enhanced price now given by the firms will be refunded with 12 per cent interest. The court will take the final hearing next month.

HC ruling on Sedco overruled

The Supreme Court has allowed the appeal of Sedco Forex International Drill Co, incorporated in Panama, which had entered into a wet lease agreement with the Oil and Natural Gas Commission for the supply of oil rigs and employees to man the rigs. The employees were residents of the United Kingdom.

The work was in the territorial waters of India, 35 days in the waters followed by 35 days of "field break" in the UK. The income tax authorities assessed the employees, including the salary paid for the field breaks as part of the total income under Section 9(1)(ii) of the Income Tax Act.

When the dispute reached the Bombay High Court, it found in favour of ONGC, treating the off periods and the on periods as integral parts of the agreement between the employer and the employee. The Supreme Court set aside this ruling and stressed that the earning to be taxed under Section 9 must be income "arising or accruing in India".

S Kumar's tax appeal to be reviewed

The Supreme Court has remanded the case, Commissioner of Central Excise vs S Kumars Ltd, for reconsideration by the Central Excise and Gold Control Appellate Tribunal (Cegat) as the vital question in the dispute was not considered by the tribunal. The company processes grey fabric.

Apart from processing its own fabric, it also processes it on job-charge basis from others. The authorities issued show cause notice to the company demanding Rs 4.84 crore.

The basis of the demand was that all firms from which grey fabric was received and sold were related to each other having a common management and control. The authorities treated the price charged by them from independent dealers as the assessable value of the processed fabric.

This was challenged in the tribunal, denying relationship between the firms. The tribunal upheld the company's argument on other points, without going into the question of the relationship. On appeal, therefore, the Supreme Court asked the tribunal to examine the relationship aspect and pass orders accordingly.