D.K. JAIN, J.
In this reference under section 256(1) of the Income Tax Act, 1961 (for short 'the Act), at the instance of the Revenue, in respect of the assessment year 1973-74, the Tribunal, Delhi has referred the following questions for the opinion of this Court :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal had erred in law in not entertaining and disposing of no merits the additional ground sought to be raised by the assessed that the surtax payable was an allowable deduction in the computation of income for the purposes of income-tax
2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing the assessor's claim of loss of Rs. 5,28,475 arising out of revaluation of slow-moving raw material at estimated realisable value
3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that in computing the capital under r. 19A of the IT Rules, 1962, borrowed capital was not excludable for the purpose of relief under section 80J of the Income Tax Act, 1961
2. Since, indisputably, the issues, subject-matter of question No. 1, on merits, and question No. 3, wholly stand covered by the decisions of the Supreme Court, we may first dispose of these two questions.
3. In Smith Kline & French (India) Ltd. & Ors. v. C1T : [1996]219ITR581(SC) , it has been held by the Supreme Court that surtax levied under the Companies (Profits) Surtax Act, 1964, squarely falls within the mischief of sub-cl. (ii) of cl. (a) of s. 40 of the Act and, thereforee, cannot be allowed as deduction while computing the business income of the assessed under the provisions of the Act. In view of this authoritative pronouncement, the first question is rendered academic and is, thereforee, returned unanswered.
4. Similarly in Lchia Machines Ltd. & Anr. v. Union of India & Ors. : [1985]152ITR308(SC) , the apex Court has been pleased to hold that for computing the capital employed under r. 19A of the IT Rules, 1962, the borrowed capital has to be excluded. Following the said decision, with respect, we answer question No. 3 in the negative, i.e., in favor of the Revenue and against the assessee.
5. The second question relates to the valuation of stock in trade held by the assessee. To appreciate the controversy, a few facts may be noticed.
The assessed was having some items of slow-moving raw material of polyester fibre and nylon fibre in its Nagda and Kiran units. Finding that these were old items and may not even fetch the cost price, the assessed valued these items at estimated realisable value, thereby claiming a trading loss of Rs. 5,28,475 in this process. The said claim was, however disallowed by the assessing officer on two grounds namely, (i) that there was no scientific basis adopted for the revaluation of the good in question, and (ii) the assessed having followed the method of valuation at cost or market value, whichever was lower, it could not be permitted to change it on its sweet will, as the method once chosen should have been followed consistently. Being aggrieved, the assessed preferred an appeal to the Appellate Assistant Commissioner. Relying on certain instances, it was pleaded by the assessed before the Appellate Assistant Commissioner that the goods valued at estimated realisable value did not have any ready market even at their cost and further even if there had been a change in the method of valuation in respect of certain items of slow-moving raw materials, it had been adopted for bona fide reasons and the method was being followed in the subsequent years. The Appellate Assistant Commissioner accepted the plea of the assessed and accordingly allowed the said loss.
The Revenue carried the matter in further appeal to the Tribunal. While upholding the decision of the Appellate Assistant Commissioner, the Tribunal held as follows :
'On the material submitted before the Appellate Assistant Commissioner and that submitted before us, we agree with him that the revaluation was done on the basis of specific instances of fall in value and proper reasoning. We find little substance in the submission of the learned departmental Representative that the instance of sale on 21st Sept., 1973, could not be relied upon for such revaluation. The assessed has cited several other instances before the Appellate Assistant Commissioner. The instance of 21st Sept., 1973, was cited only to show the trend of the market even in the subsequent years. We also agree with the Appellate Assistant Commissioner that there was nothing wrong in valuing the slow moving stocks on estimated realisable value in the light of the authorities cited before us by the learned counsel for the assessee. The Madras High Court in the case K. Mohammed Adam Sahib v. CIT : [1965]56ITR360(Mad) laid down that the assessed has a right to value his closing stock at cost price or market price, whichever is lower. The Court further held that where the goods are saleable only in certain foreign markets, the assessed is entitled to value them at 'nil' and that he is not bound to show that he had made efforts to sell the goods in other foreign markets or in the local market, before valuing the stock at 'nil'. The same principle applies to the present case also. The assessed found that certain goods could not be sold even at the cost price- It, thereforee, valued them at their estimated realisable value obviously because there was no market for them and the market quotations were also not available. We also agree with the Appellate Assistant Commissioner that if this involved any change in the method of valuation, that was permissible as it was bona fide and had been followed subsequently. This contention of the department, also thereforee, fails.'
(Emphasis, italicised in print, supplied)
Thus, the Tribunal has held that : (a) the assessed had resorted to revaluation of the said items on the basis of specific instances of fall in value of the goods when it discovered the certain goods could not be sold even at the cost price, (b) there was nothing wrong in following the same at estimated resalable value in the absence of any market for these items, and (c) a change in the method of valuation was permissible as it was bona fide and was being followed in subsequent years. Aggrieved by this order, as noted above, the Revenue has brought up this reference on the questions set forth above.
6. We have heard Ms. Prem Lata Bansal, learned counsel for the Revenue and Mr. Satyen Sethi, learned counsel for the assessee. We do not find any infirmity in the conclusion reached by the Tribunal.
An assessed is free to adopt a particular method of valuation of its closing stock which it has to follow regularly from year to year. At the same time it is well settled that irrespective of the basis adopted for valuation for earlier years, the assessed has an option to change the method of valuation of closing stock, provided the change is bona fide and followed regularly thereafter.
In the instant case, according to the statement of the case drawn up on the basis of the appellate order of the Tribunal, extracted above, it has been found by the Tribunal that the change in the method of valuation adopted by the assessed was bona fide and the same method was followed by it subsequently. The Tribunal being the final fact-finding authority under the Act, this Court in the exercise of its advisory jurisdiction can neither go behind the facts stated by the Tribunal nor can disturb the same unless a challenge in provided specifically by a question framed in a reference against the validity of the impugned findings of fact on the ground that there is no evidence to support them or they are the result of a misdirection in law Patnaik & Co. Ltd. v. CIT : [1986]161ITR365(SC) which is not the case here. From the format of the question it is evident that it does not lay specific challenge to the correctness of the afore noted findings arrived at by the Tribunal. Thus, in view of the undisputed findings of fact recorded by the Tribunal, namely, the method of valuation adopted by the assessed was bona fide and it was being followed subsequently, we have no hesitation in holding that the view taken by the Tribunal in allowing the assessor's claim of loss of Rs. 5,28,475, arising out of revaluation of slow moving items of raw material was correct in law. Accordingly, we answer the second question in the affirmative i.e. in favor of the assessed and against the Revenue.
The reference is answered in the afore noted terms. There will, however, be no order as to costs.