TMI Blog1998 (7) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... on expenses and plantation expenses is the same as that of cane development expenses and the reasons given by the AO for disallowance and the CIT(A) for confirmation of the same are the same as in the case of cane development expenses. Accordingly, following the aforesaid order of the Tribunal, we set aside this part of the learned CIT(A) s order and send the issue back to the AO with the direction to make full investigation/enquiry in the matter and pass fresh order on the issue in accordance with law as per the directions given by this Tribunal in para 6 of its order in the case of Madhukar SSK Ltd. 3. The ground No. 2 raised by the assessee reads as under: "In view of the facts and circumstances of the case, the AO has erred in disallowing Rs. 3,64,567 contribution to DSI on the ground that the same was not paid during the year." It is the common contention of both the sides that the issue stands covered in favour of the assessee and against the Revenue by the order of this Tribunal in the case of Shri Panchganga S.S.K. Ltd., Ganganagar in ITA Nos. 491 1365/Pn/91. Following the aforesaid order of the Tribunal, we delete the addition of Rs. 3,64,567. The ground raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses incurred on Sabha Samarambha and annual general meeting expenses were not for business purpose in toto, but in our opinion, the disallowance made by him at 50 per cent is rather excessive. After taking into consideration the facts and circumstances of the case, we direct the AO to restrict the disallowance to 25 per cent. As regards the disallowance out of vehicle expenses, in our opinion, the direction of the CIT(A) to restrict the same to 20 per cent is fair and reasonable and no further interference is called for. This ground accordingly succeeds in part. 8. The ground No. 4 raised by the assessee reads as under: "In view of the facts and circumstances of the case, the AO has erred in adding an amount of Rs. 24,33,760 on account of estimated closing stock of bagasse." During the course of assessment proceedings, on verification of the manufacturing account, the AO noted that the assessee society had not shown any stock of bagasse. The AO required the assessee to explain this discrepancy. It was explained that the bagasse was used as fuel and had to be disposed of by making sales and by burning it. It was sold only when somebody was interested in purchasing the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. He further submitted that the entire expenditure incurred on producing sugar has gone into the cost of production of sugar. In other words, any cost attributable to bagasse has been borne by the finished product, namely, the sugar and, therefore, again to value the bagasse would mean duplication. According to the learned counsel, the fact that other sugar factories value the closing stock of bagasse is irrelevant as long as the assessee s method of accounting with respect to valuation of bagasse is regular, consistent and not false. In support of his contentions he drew our attention to the method of accounting of scrap (i.e., bagasse) given in the book "Cost Accounting" by Mr. M.L. Agarwal. He also relied upon the decision in CIT vs. Chari Ram (1949) 17 ITR 1 (Mad), CIT vs. A. Krishnaswami Mudaliar Ors. (1964) 53 ITR 122 (SC) and A.L.A. Firm vs. CIT (1991) 93 CTR (SC) 133 : (1991) 189 ITR 285 (SC). 11. Hari Krishan, the learned Departmental Representative strongly supported the orders of the authorities below. He submitted that the assessee has itself sold during the accounting period some quantity of bagasse which shows that the bagasse has a certain sale value. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting should be applied, so long as they do not conflict with any express provision of the relevant statutes. It is an admitted fact that bagasse is a by-product anything of minor importance and a thing not directly aimed at. The Concise Oxford Dictionary, 9th Edn. edited by Della Thompson at p. 179 defines a "by-product" as under: "An incidental or secondary product in the manufacture of something else. A secondary result." The learned author K.C. Parikh in the Dictionary of Business Management edited by him defines a "byproduct" at p. 39 as follows: "The less valuable product emerged in the process of producing the main product e.g. sulpher, bitumen etc., emerged in the process of producing refined oil as the main product from crude oil." It is also an admitted fact that the assessee has been consistently and regularly valuing the closing stock of its products at cost or sale price, whichever, is lower. There is no denial of the fact that bagasse has realisable value and it is precisely for this purpose that the assessee maintains day-to-day stock register so as to have adequate control over the stock of bagasse. However, it does not mean that bagasse has any cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at market value if that is lower. On no principle can one justify the valuation of the closing stock at a market value higher than cost as that will result in the taxation of notional profits the assessee has not realised". 13. The reliance placed by the learned Departmental Representative on the judgment of the Hon ble Supreme Court in the case of British Paints India Ltd. is misplaced, because the ratio laid down by the Hon ble Supreme Court in that case will not apply to the facts of the present case because in that case the system of accounting adopted was such which excluded, for the valuation of stock-in-trade, all costs other than cost of raw materials for the goods-in-progress and finished products and such system resulted in a distorted picture of the true state of business for the purpose of computing the chargeable income. In the case before us, as stated in the preceding paragraphs, the assessee has been consistently and regularly valuing the bagasse which is a by-product at Nil as per the accepted principles of commercial accounting and as and when bagasse is sold its sale price is duly credited to the P L a/c. The method of accounting thus adopted by the assessee ..... 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