In  Sanjeev Woollen Mills v CIT, the question before the Supreme Court of India was whether, in a case in which the taxpayer had valued its closing stock of finished goods at market value, the Assessing Officer had jurisdiction to invoke and apply the first proviso to Section 145(1) of the (Indian) Income-tax Act, 1961 [ i.e., Section 145(1) as it stood prior to its amendment with effect from April 1, 1997 by the Finance Act, 1995 ], on the ground that, in the opinion of the Assessing Officer, the income of the taxpayer could not properly be deduced from such method of valuation.

2.          By a judgment dated November 24, 2005, P P Naolekar, J, speaking for the Court, held as follows :

(i)     The recognized and settled accounting practice is that closing stock "..... has to be valued on the cost basis or at the market value basis if the market value of the stock is less than the cost value.".

(ii)     In the instant case, the taxpayer had not adopted the "established and settled practice" (i.e., the accounting practice aforesaid), inasmuch as the market value of the closing stock had been taken into consideration while arriving at the chargeable income although such market value was greater than the cost thereof.

(iii)     Since there was no transfer of the goods constituting the closing stock, having regard to the fact that such closing stock constituted the opening stock of the succeeding year, the "..... profit earned is only notional.".

(iv)     Income (i.e., the "notional" profit aforesaid) which has not been "derived at by the assessee" cannot be said to be income chargeable to tax.

(v)     Consequently, the "..... rejection of the accounts maintained by the assessee for the valuation of the closing stock by the assessing officer and confirmed by the High Court ....." was in accordance with law.

(vi)     Accordingly, the "..... power exercised by the assessing officer under Section 145 (being) as per the principles enunciated by various authorities and the courts .....", there was no good or sufficient reason to interfere with the order passed by the High Court.

3.          The Court, therefore, dismissed the taxpayer's appeal.