TMI Blog2012 (4) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... tional basis - in favour of the respondent-assessee and against the Revenue. Reimbursement payable by the manufactures – AO stated that the respondent assessee was receiving reimbursement of the loss on export from the sugar manufacturers and losses were reimbursed, therefore, the assessee should compute the closing stock on cost basis i.e. Net realizable Value plus reimbursement – Held that:- there was no statutory or contractual obligation under which the respondent-assesses could have claimed reimbursement of export losses from the mills/manufacturers from whom it had procured/purchased sugar for export - The obligation, if any, was moral but non statutory or non contractual - against the Revenue and in favour of the respondent-assessee Depreciation on lease hold rights - The contention of the appellant-Revenue is that the assessee is not entitled to depreciation in respect of lease hold rights in office/ flat, and car parking space etc. as the respondent/assessee was not the registered owner. - held that:- this issue has to be decided against the Revenue and in favour of the respondent-assessee in view of the decision of the Supreme Court in Mysore Minerals v. CIT (1999 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the respondent-assessee and was right in not adopting the cost price for computation of the closing stock? 6. The respondent-assessee is a company and is engaged in the business of export of sugar. The respondent-assessee does not manufacture sugar but procures or purchases sugar from manufacturers. It did not engage itself in domestic sales (except sale of damaged stock) and was exporting sugar from India. 7. For the assessment year 1993-94, which is the base year and the first year in which the controversy had arisen, the Assessing Officer examined the question of valuation of closing stock and made an addition of Rs.16,00,30,000/- holding, inter alia, that the assessee in the past years had been regularly following the cost method for valuing the closing stock. The reasons given by him in the assessment order read as under:- The assessee s contention cannot be accepted for the following reasons: 1. The rationale and the basis for changing the method of valuation of closing stock is to account for the true profits of the year and to ensure that inflation or deflation of profit or loss is avoided. Ordinarily a company or assessee changes the method of valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method of valuation of stock only to reduce the profits of the year and therefore the change is not bona-fide. This being so the assessee cannot be allowed to change the method of valuation of closing stock and hence the amount of Rs.16.003 crores stands added back. 8. Similar additions have been made by the Assessing Officer in the other assessment years. 9. In assessment year 1993-94 the CIT (Appeals) confirmed the said addition and observed as under:- Regarding the contention at point number (1) the assessee has filed a chart where assessee has attempted to show that even in assessment year 1992-93 the some method of valuation of closing stock was followed. I have examined the factual position carefully. In assessment year 1990-91 there were no stocks. In assessment year 1991-92, the valuation was done at cost which was in any case lower than NRV. The auditors also stated in the balance sheet that inventory was valued at cost. In assessment year 1992-93, the assessee has given the details of valuation under three items. The first item is that of stock where assessee had received orders at the price of Rs. 10,952/- per M.T. The second type of stock is where no such order was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No ITA No. AY Assessment Order dated CIT ( Appeals) ITAT Order 1. 645/205 1993-94 31/10/1995 Addition confirmed by Order dated 08/04/1996 Deleted by Order dated 24/01/2005 2. 742/2005 1995-96 5/12/1997 Addition confirmed by Order dated 05/03/1998 Deleted by Order dated 24/01/2005 3. 796/2005 1996-97 6/12/1998 Addition confirmed by Order dated 14/03/2001 Deleted by Order dated 24/01/2005 4. 817/2005 1997-98 24/03/2000 Addition confirmed by Order dated 15/03/2001 Deleted by Order dated 24/01/2005 5. 794/2006 1998-99 29/01/2001 Addition confirmed by Order dated 30/05/2001 Deleted by Order dated 07/10/2005 6. 496/2010 2001-02 29/01/2004 Confirmed by Order dated 07/01/2005 Deleted by Order dated 05/12/2008 7. 1168/2011 2002-03 31/01/2005 Deleted by Order dated 09/11/2005 Order of CIT (A) confirmed by order dated 29/4/2011 8. 71/20141 2003-04 29/11/2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lower and not cost. It appears that the reasons given by the learned CIT (A) to draw such inference were quite filmsy and irrelevant because having accepted that the valuation of stock items was done by the assessee at NRV wherever it was lower that cost. There was no justification in saying that such items being in damaged conditions, valuation of the same at NRV was in consistent with the method of valuation adopted by the assessee. i.e. cost. In our opinion, the observations recorded by the learned CIT (A) in this context were self-contradictory and his action in rejecting the contention of the assessee that stock was being valued at cost even in the earlier year was not well founded. It is also pertinent to note here that the issue relation to change in method of valuation of stock by the assessee in the year under consideration was raised by the Assessing Officer on the basis of comments made by the Auditors in their report whereas the Auditor themselves vide their certificate dated 30/10/95 ( copy placed at page no. 52 of assessee s paper book ) clarified subsequently that these comments were based on misconception/mis-understating and that the method of valuation of stock fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t basis with regard to the balance stock, the order of the CIT (Appeals) is vague and hazy. Similarly it has been accepted that there was no document or material to contradict that prior to 1989-90 the State Trading Corporation was the canalizing agency for export of sugar and that the respondent/assessee were merely handling agents of State Corporation Trading. All sales, purchases and exports were accounted for by the State Trading Corporation. The respondent-assessee started export of sugar on their own in 1990-91. In the said year there was no closing stock and therefore valuation of closing stock did not arise. 16. Before us the Revenue has not been able to demonstrate and show that in the earlier Assessment Years, the respondent had valued the closing stock at cost and not on Net Realizable Value basis. No accounts have been filed by the Revenue before us and the Revenue has not shown or established that what is stated and averred in the impugned order passed by the tribunal is factually incorrect. In view of above factual position, it is not possible to hold that the order of the Tribunal is perverse. The Revenue has not placed evidence or material before us to justify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Report of the Committee on the Taxation of Trading Profits presented to British Parliament in April 1951). While anticipated loss is thus taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into the account, as no prudent trader would care to show increased profit before its actual realisation. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever is the lower, and it is now generally accepted as an established rule of commercial practice and accountancy. As profits for income-tax purposes are to be computed in conformity with the ordinary principles of commercial accounting, unless of course, such principles have been superseded or modified by legislative enactments, unrealised profits in the shape of appreciated value of goods remaining unsold at the end of an accounting year and carried over to the following year's account in a business that is continuing are not brought into the charge as a matter of practice, though, as already stated, loss due to a fall in price below cost is allowed even if such loss has not been actually realised. As truly observed by one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturers and losses were reimbursed. Therefore, the respondent/assessee should compute the closing stock on cost basis i.e. Net realizable Value plus reimbursement, which is nothing but the cost price. 20. We have considered the said contention of the Revenue but are unable to agree with them for several reasons. 21. The Tribunal in the order for the assessment year 1993-94 has specifically recorded as under:- However, as explained by the learned counsel for the assessee before us, such loss in export of sugar was not fully and necessarily recoverable from the sugar mills which is evident from fact that was decided in the general meeting held on 26/3/93 that no export loss be recovered by the assessee from the sugar mills. This make it abundantly clear that the basis given by the Revenue to hold that the method of valuation of stock i.e. cost or market price whichever is lower adopted by the assessee was not proper in its case was factually incorrect. (emphasis supplied) 22. In the assessment order for the year 1993-94, the Assessing Officer had made an addition of Rs.71.80 lakhs on the ground that the assessee had wrongly not included reimbursements that had not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92. Out of this, Rs. 11.40 crores was shown in assessment year 1992-93 on receipt basis, Rs.7.21 crores in assessment year 1993-94 again on receipt basis and Rs. 19.83 lakhs in assessment year 1995-96 and the balance amount of Rs.71.80 lakhs is yet to be received. It is submitted that except in quota year 1991-92 which mostly related to assessment year 1992-93 where there was a loss in exports, in no other quota year there has been in loss to the assessee. From this facts it approve that it is loss of quota year 1991-92 which is being recovered and being shown as and when received. I accordingly accept the contention of the assessee that this refund has to be taxed only on the receipt basis. 24. The Tribunal dismissed the appeal of the Revenue on the said aspect. The Revenue thereafter had preferred an appeal before this Court which has been dismissed vide order dated 12.10.2004 in ITA No.121/2003. It is clear from the aforesaid orders that there was no statutory or contractual obligation under which the respondent-assessee could have claimed reimbursement of export losses from the mills/manufacturers from whom it had procured/purchased sugar for export. The obligation, if any, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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