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2015 (5) TMI 586 - ITAT DELHI

2015 (5) TMI 586 - ITAT DELHI - TMI - Valuation of closing stock of Sugar - appellant being covered under Sampat Incentive Scheme - closing stock of levy sugar and work in progress (WIP) were directed to be taken at the same as in force for free sugar by CIT(A) - Held that:- A relying on case of CIT, Coimbatore vs. M/s Bannari Amman Sugars Ltd. [2012 (9) TMI 848 - SUPREME COURT] wherein following the judgment of this Court in Ponni Sugars & Chemicals Ltd.(2008 (9) TMI 14 - SUPREME COURT ) held t .....

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aluation of incentive sugar has a direct impact on the manufacturer's revenue or business profits. If to accept the case of the Department that the excess amount realized by the manufacturer(s) over the levy price was a revenue receipt taxable under the Act then the very purpose of the Incentive Scheme formulated by Sampat Committee would have been defeated. One cannot have a stock valuation which converts a capital receipt into revenue income - thus remit the issues in dispute to the file o .....

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the Commissioner of Income Tax (Appeals-II, Dehradun for the assessment year 1994-95, raising the following grounds:- 1. The Ld. CIT(A)-II, Dehradun has erred on facts and in law in confirming addition of ₹ 99,90,603/- in valuation of closing stock of Sugar held as on 31.3.1994 by appellant, treating the same to be valued as Free Sugar, despite the appellant being covered under Sampat Incentive Scheme. 2. That the Ld. CIT(A)-II, Dehradun has erred on facts and in law in confirming additio .....

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of this Tribunal (ITAT, Delhi Benches B Bench), New Delhi vide its order dated 10.8.2006 in ITA No. 128/Del./2003 has set aside the order of the CIT(A) dated 25.9.2002 for the asstt. Year 1994-95 restoring the matter back to him for examination of the issue properly after taking into account conditions of the concerned scheme as well as extension of the scheme to the relevant assessment year. The Ld. CIT(A) perused the said order along with the ld CIT(A) s order dated 25.9.2002 and assessment or .....

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ts and is covered under the Sampat Incentive Scheme as noted by the Ld. CIT(A) in his order dated 25.09.2002 and also by the Co-ordinate Bench of this Tribunal in its order dated 10.8.2006. The Scheme originally promulgated for sugar year 1991-92, is confirmed to be extended till the sugar year 1996-97 and in this year (i.e. 1994-95) the assessee was thus covered under the said scheme entitling and enabling it to bifurcate its production in the prescribed ratios of free sugar 55% and levy sugar .....

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,143/- per bag and adopted value of ₹ 985/- per bag for free sale sugar. As in the immediate preceding year valuation of closing stock or levy sugar/free sale sugar done at same rate, in the course of assessment proceedings the assessee was given opportunity to prove valuation of closing stock of levy sugar. The assessee stated that it adopted the valuation of closing stock of market price or cost price whichever is less. Since cost price was less than market price. Free sale sugar was val .....

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rogress was valued (@Rs. 737/- per bag by the assessee, which the AO valued 120 bag, of sugar in process @ ₹ 966/- per bag which resulted in the addition of ₹ 27,840/-. 2.3 We find that the ld. CIT(A) in the light of the grounds of appeal and past appellate orders, had noticed that in earlier appellate proceedings on the issue i.e. valuation of closing stock, the assessee has relied on the rulings of Hon'ble Courts including the one by the Hon'ble Supreme Court in the case of .....

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method adopted by the appellant by following the order of the ITAT In the case of Kisan Sahkari Chinni Mills Ltd. Pooranpur vs. DCIT rendered in ITA No. 531/Alld./94 dated 23.9.2004. Ld. CIT(A) has noted that one of the arguments of the appellant before the predecessor CIT(A) was that the Incentive Scheme had expired on 30.09.1992 and, therefore, he was required to bifurcate the closing stock of sugar between free sale quota and levy sale quota. However, as is evident from the entitlement certi .....

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ntext of the instant assessment year. Tribunal in their decision dated 23.09.1994 in the case of Kisan Sahakari Chini Mills Ltd., Pilibhit vs. DCIT, Spl. Range-5, Lucknow, has held as under:- 6. The third ground of appeal is with regard to the addition of ₹ 1.68,80,077/- to the closing stock by treating the entire stock as that of free sale sugar and valuing the same at market price rejecting the appellant s consistent method of apportioning the closing stock between levy sugar and free sa .....

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inconsonance with the guiding principle laid down by the Hon'ble High Court in a number of cases. This point therefore, is decided in fovour of the Department and against the appellant. 2.5 Ld. CIT(A) following the above decision and considering the requirements of the Incentive Scheme which was in force during the instant assessment year and the benefits of which have also been availed of by the assessee, the closing stock of levy sugar and work in progress (WIP) were directed to be taken .....

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upreme Court in the case of CIT, Coimbatore vs. M/s Bannari Amman Sugars Ltd. Decided in Civil Appeal No.7014 of 2012 (Arising out of SLP (C) No. 9263 of 2009) vide its judgment dated 26.9.2012, as the facts and circumstances are identical to the present case. In this behalf, he also filed the copy of the aforesaid judgment of the Hon ble Apex Court dated 26.9.2012. 5. We have heard both parties and perused the relevant records and case law cites before us. We find considerable cogency in the co .....

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t. The said batch concerns assessment years 1992-93, 1993-94, 1994-95, 1996-97 and 1997-98. The following question arises for determination these civil appeals:- Whether on the facts and in the circumstances of the case, ITAT was right in holding that closing stock of incentive sugar has to be valued at levy price and not at cost price? For the sake of brevity, we have reproduced hereinbelow the facts of Civil Appeal arising out of SLP(C) No. 9263/2009. Assessee is a company engaged in the busin .....

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s. To answer the above controversy, the following facts are required to be noted. By- virtue of the provisions of the Essential Commodities Act, 1955 and the Sugar Control Order read with Notification issued thereunder, a sugar manufacturer (assessee in this case) was required to sell 40%) of his sugar production at the notified levy price to the Public Distribution System. At the relevant time, on an average, the levy price came to be less than the manufacturers cost of production. Consequently .....

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nder the Report, an Incentive Scheme was evolved. The said Incentive Scheme provided for an inducement for persons to set up new sugar factories or to expand the existing one. Under the Scheme. 40% of the total sugar production was permitted to be sold at market price ("Incentive Sugar" for short). However, the Scheme provided that excess amount realized by the manufacturer over the levy, price by sale of incentive sugar would be utilized only for repayment of loans taken from the bank .....

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ver the levy price by sale of incentive sugar should be treated as a capital receipt which was not taxable under the Income Tax Act, 1961. In that case one of the arguments advanced on be-half of the Department, as in this case, was that the excess amount realized by the manufacturer over the levy price should be treated as a revenue receipt. However, that contention of the Department in Panni Sugars and Chemicals Ltd. (supra) was negatived although in the context of another Scheme this Court af .....

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ceipt. The Court held that it would depend on the Scheme. The Court also held in Ponni Sugars and Chemicals Ltd. (supra) that the purpose test should be applied on case to case basis. The Court held that it would depend on the purpose of the Incentive Scheme. As stated, the present case, relates to the valuation of the respondent's closing stock of incentive sugar as corresponding to the assessment year 1997-98. Valuation of opening and closing stock is a very important aspect of ascertainme .....

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Bengal (24 ITR 481)] Profits of the business could only be ascertained by comparison of assets and liabilities of the business at the opening and closing of the accounting year. The method that an assessee adopts for closing is an integral part of accounting, within the meaning of Section 145. There are different methods of valuation of closing stock. The popular system is Cost or Market, whichever is lower. However, adjustments may have to be made in the principle having regard to the special c .....

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upra), this Court, on examination of the Scheme, held that, the excess realization, was a capital receipt, not liable to be taxed and in view of the said judgment, we hold, that the assessee is right in valuing the closing stock at levy price. As stated, in certain cases, adjustments may have to be made having regard to the special character of assets, the nature of the business, the appropriate allowances permitted etc. in order to arrive at taxable profits. The position would have been differe .....

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