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Deputy Commissioner of Income-Tax Versus Sri Chamundeshwari Sugar Ltd.

Adoption of method for valuation of stock - Held that:- The assessee was justified in adopting a new method for valuation of stock, we are of the opinion that the matter requires a fresh look by the Assessing Officer for verifying the correctness of the value arrived at by the assessee. We, therefore, set aside the orders of the authorities below and remit it to the file of the Assessing Officer for consideration afresh. The Assessing Officer shall also consider the view taken by him for the ass .....

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e Revenue, grounds 1, 3 and 4 are general needing no specific adjudication. Effective ground 2 is reproduced hereunder : "2. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in law in directing the Assessing Officer to accept the value of closing stock at the value adopted by the assessee for the assessment year 1990-91 without appreciating the fact that in spite of the directions of the hon'ble High Court of Karnataka to the asse .....

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ugar, had during the previous year relevant to the assessment year 1989-90 made a change in the method of valuation of stock. Change was from the net realisable value to the cost or market price, whichever was lower. The Assessing Officer refused to accept the change in method of valuation in the assessment done for the assessment year 1989-90 and made an addition for suppression in valuation of stock. Since the assessee had followed the new method for impugned assessment year also, the Assessin .....

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which the change was made for the first time, their Lordships in their judgment dated November 26, 2007, in ITRC No. 2 of 2003, held as under at paragraphs 3 to 7 : "3. We have heard Sri M. V. Seshachala, learned counsel appearing for the Revenue and Sri Thiruvengadam, learned counsel for the assessee. During the relevant year, the board of directors of the asses see-company passed the resolution, which reads thus : 'Resolved that the closing stock of sugar for the accounting year endin .....

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ture of his profits and gains.' 4. In the case on hand, apart from the resolution which has been extracted above, the assessee has not disclosed a true picture of its profits and gains before the Assessing Officer to adopt the cost price to evaluate the stock-in-trade for the accounting year ending March 31, 1989. 5. The first Appellate Commissioner has taken into consideration the fluctuation in the sugar prices during the relevant period to reverse the order of the Assessing Officer. The f .....

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ssessee is at liberty to produce additional material, so also the Revenue. Copy of this order shall be sent to the Tribunal as required under section 269 of the Act." 7. For the impugned assessment year directions given in ITA No. 184 of 2001, dated November 26, 2001, by the hon'ble jurisdictional High Court were as under : "In ITRC No. 2 of 2003, which relates to the very assessee, we have remanded the matter to the Assessing Officer to decide the legality or otherwise of the meth .....

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tion in terms of orders passed in ITRC No. 2 of 2003 according to law." 8. Accordingly, the matter was considered once again by the Assessing Officer. As per the Assessing Officer, despite a number of opportunities given, the assessee did not furnish any details in support of the change of method of accounting. He held that the assessee had nothing to say with regard to the change in the method of valuation of stock and made a similar addition of ₹ 61,55,000 once again. 9. Aggrieved t .....

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s of the opinion that the change in method of valuation of stock from net realisable value to cost or market value, whichever was lower, was to be accepted since the assessee had followed the new method consistently thereafter. As per the Commissioner of Income-tax (Appeals) by virtue of the judgment of the hon'ble apex court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44 (SC), valuation of stock at cost or market price, whichever was lower, was an accepted method of valua .....

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since the issues arising for the impugned assessment year also was emanating from the change in the method of valuation effected for the first time by the assessee in the immediately preceding assessment year, the learned Commissioner of Income-tax (Appeals) fell in error in deleting the addition for the impugned assessment year. As per the learned Departmental representative, the assessee despite giving adequate opportunities by the lower authorities failed to justify its new method of account .....

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Bank Ltd. [1988] 174 ITR 616 (Karn). Further, according to him, similar view was also taken by the hon'ble Delhi High Court in the case of CIT v. Indian Sugar and Gen. Industry Export Import [2012] 349 ITR 38 (Delhi). As per the learned authorised representative, this method was consistently followed by the assessee in the subsequent years and accepted by the Department. As per the learned authorised representative, earlier to the assessment year 1989-90, the assessee was following 30th Sep .....

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proceedings. Hence, as per the learned authorised representative, the Commissioner of Income-tax (Appeals) was justified in deleting the addition. 12. We have perused the orders and heard the rival contentions. The hon'ble jurisdictional High Court had followed its own judgment for the assessment year 1989-90 while remitting the matter back to the Assessing Officer, in its judgment. For the assessment year 1989-90, the hon'ble jurisdictional High Court had held that the lower authoritie .....

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ket price, whichever is lower, is one of the methods accepted for valuation of closing stock as held by the hon'ble jurisdictional High Court in the case of Corporation Bank Ltd. (supra). The same principle emanates from the hon'ble apex court decision in the case of British Paints India Ltd. (supra) also. As per the assessee, it was consistently following the new method since the assessment year 1989-90 and in the subsequent years, the Department had accepted the changed method of stock .....

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