TMI Blog2015 (5) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 of AO with the directions to decide the issues in dispute, in accordance with the law laid down in the case M/s. Bannari Amman Sugars Ltd(Supra) - Decided in favour of assessee for statistical purpose. - ITA No3578/Del/2011 - - - Dated:- 22-4-2015 - Shri N.K.Saini And Shri A. T. Varkey JJ. For the Appellant : Shyam Lal, Adv. For the Respondent : Gaurav Dudeja, Sr. DR ORDER Per A. T. Varkey, JUDICIAL MEMBER The Assessee has filed the present appeal against the impugned order dated 14/03/2011 passed by 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 val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee sugar following the aforesaid Incentive Scheme promulgated by the Govt. Of India. 2.2 The AO vide his order dated 5.3.2002 vide page no. 2 has discussed the issue as under:- The assessee has valued 43,627 bags of levy sugar @ ₹ 756/- per bag as against market price of sugar Rs.l,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 valued ₹ 985/- per bag. As held in the immediately preceding year the value of free sale sugar and levy sugar at the same rate, the closing stock of levy sugar was valued by the AO @ ₹ 985/- per bag. Thus the undervaluation or stock of levy sugar work out @ ₹ 229/- per bag and for 43,627 bag worked out at ₹ 99,90,583/- and this amount was included in total income of the assessee. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock 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 sale sugar and valuing the same at lower of cost or market. We do not propose to go very much in detail and in depth of this contention because we notice that the argument given by Ld. First appellate authority are tenable. The Hon'ble Supreme Court has held the view that the valuation of closing stock on the basis of cost or market whichever is lower is commercially acceptable principle and the same norms have been adopted by the Ld. First Appellate Authority we confirm his view because it is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be valued at levy price which was less than the cost. This is the basic controversy which arises for determination in these civil appeals. 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, it was found by the manufacturers that under the above price control regime the establishment of new sugar manufacturing units was not viable. It was found that even the existing sugar manufacturing units had become unviable and uneconomical. Therefore, an lncentive Scheme was framed, as suggested by the Sampat Committee, which committee was set up to examine the economic viability of establishing new sugar factories and expanding the existing factories. The Sampat Committee gave its Report. Under the Report, an Incentive Scheme was evolved. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a very important aspect of ascertainment of true profits. An proper valuation could result in rejection of books of account though all that is needed for rectifying it, is to make an addition or necessary adjustment based on proper valuation. Valuation of stock whatever be the method, should be consistently followed. Method of valuation is generally at cost or the market value whichever of the two is lower. However, it is open to the AO to probe the accounts, so as to arrive at the real income [see: Chainrup Sampatram vs. CIT, West 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 character of assets, the nature of the business the appropriate allowances permitted etc. to arrive at taxable profits. In the present case, it is the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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