Kisan Sahkari Chini Mills Ltd., Uttrakhand V. ACIT, Nainital

ITA 3578/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90928 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 03-03-2015
• Assessment Year: 1994-1995
• Appeal Filed On: 18-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAV DUDEJA
• Assessee Lawyers: SHYAM LAL
• Keywords: Business income; Opportunity of being heard; Capital receipt
• Section: 143(3)

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO 3578 /DEL/2011 (ASSESSMENT YEAR: 1994 - 95 ) KISAN SAHKARI CHINI MILLS LTD, SITARGANJ, UDHAM SINGH NAGAR, UTTRAKHAND PAN - AAAA K0227G VS. ACIT MALLITAL, NAINITAL (APPELLANT) (RESPONDENT) APPELLANT BY : SHYAM LAL, ADV. RESPONDENT BY : GAURAV DUDEJA, SR. DR DATE OF HEARING 03.03.2015 DATE OF PRONOUNCEMENT 22 . 04 .2015 O R D E R PER A. T. VARKEY, JUDICIAL MEMBER THE ASSESSEE H AS FILED THE PRESENT APPEAL AGAINST THE IMPUGNED ORDER DATED 1 4 /03/20 11 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS - II, DEHRADUN FOR THE ASSESSMENT YEAR 1994 - 95 , RAISING THE FOLLOWING GROUNDS: - 1. TH E LD. CIT(A) - II, DEHRADUN HAS ERRED ON FACTS AND IN LAW IN CONFIRMING ADDITION OF RS. 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 I N CONFIRMING ADDITION OF A SUM OF RS. 27480.00 ON ACCOUNT OF VALUATION OF SUGAR IN PROCESS, TREATING THE SAME TO BE AS PART OF FREE SUGAR, DESPITE THE APPELLANT BEING COVERED UNDER SAMPAT INCENTIVE SCHEME. 3. THAT LD. CIT(A) - II, DEHRADUN OUGHT TO HAVE BEE N GUIDED BY AND TO H A VE FOLLOWED DECISION OF ITAT, MADRAS IN THE CASE OF DCIT VS. BANNARI AMMAN SUGAR LTD. COIMBTORE IN ITA NO. 3434/MDS/89 AND 2304/MDS/92 HAVING IDENTICAL FACTS IN THE PRESENT CASE HOLDING. 2. THE FACTS IN BRIEF ARE THAT THE CO - ORD I N ATE BENCH 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 ORDER PASSED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER THE ACT) DATED 0 5. 0 3.2002. LD. CIT(A) HAS OBSERVED THAT HIS PREDECESSOR VIDE HIS ORDER DATED 25.9.2002 HAS DISCUSSED THE REASONS BEHIND ADDITION OF RS. 99,90,603/ - ON ACCOUNT OF VALUAT ION OF CLOSING STOCK OF SUGAR AND ADDITION OF RS. 27,480/ - ON ACCOUNT OF VALUATION OF STOCK OF SUGAR IN PROCESS OR WORK IN PROGRESS (WIP). 2.1 IN THIS CASE THE ASSESSEE IS ENGAGED IN THE PRODUCTION AND MANUFACTURING OF SUGAR AND ALLIED PRODUCTS AND IS COV ERED UNDER THE SAMPAT INCENTIVE SCHEME AS NOTED BY THE LD. CIT(A) IN HIS ORDER DATED 25. 0 9.2002 AND ALSO BY THE CO - ORD INATE BENCH OF THIS TRIBUNAL IN ITS ORDER DATED 10.8.2006. THE SCHEME ORIGINALLY PROMULGATED FOR SUGAR YEAR 1991 - 92, IS CONFIRMED TO BE E XTENDED 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 45%. ACCORDING TO THE ASSESSEE IT HAS ALSO FOLLOWED THIS PROPORTION IN THE VALUATION OF UNSOLD STOCK AND WIP AND VALUED THE CLOSING STOCK OF SUGAR TO THE EXTENT OF 45% AS LEVY SUGAR AND TO THE EXTENT OF 55% AS FREE SUGAR FOLLOWING THE AFORESAID INCENTIVE SCHE ME 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 @ RS.756/ - PER BAG AS AGAINST MARKET PRICE OF SUGAR RS.L,143 / - PER BAG AND ADOPTED VALUE OF R S.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 GIV E N OPPORTUNITY TO PROVE VALUATION OF CLOSING STOCK OF LEV Y 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. F REE SALE SUGAR WAS VALUED RS.985/ - PER B A G . 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 @ RS.985/ - PER BAG. THUS THE UNDERVALUATION OR STOCK OF LEVY SUGAR WORK OUT @ RS.229/ - PER BAG AN D FOR 43,627 BAG WORKED OUT AT RS.99,90,583/ - AND THIS AMOUNT WAS INCLUDED IN TOTAL INCOME OF THE ASSESSEE. SIMILARLY, 181 BAGS OF FREE SUGAR PROCESS WAS VALUED @ RS.966/ - PER BAG BUT LEVY SUGAR IN PROGRESS WAS VALUED ( @ RS. 737/ - PER BAG BY THE ASSESSEE, WHICH THE AO VALUED 120 BAG, OF SUGAR IN PROCESS @ RS. 966/ - PER BAG WHICH RESULTED IN THE ADDITION OF R S. 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 STO CK, THE ASSESSEE HAS RELIED ON THE RULINGS OF HON'BLE COURTS INCLUDING THE ONE BY THE HON'BLE SUPREME COURT IN T HE CASE OF STATE BANK OF TRAVANC OR E VS. CIT 158 ITR 102 AND THE DECISION OF MADRAS BENCH OF THE TRIBUNAL IN DC I T VS. BANNARI SUGAR LTD. COIMBATORE IN ITA N OS.3434/MDS/89 AND 2304/MDS/92. A S REGARDS THE DECISION OF HONBLE SUPREME COURT, THE ID. CIT(A) IN HIS ORDER DATED 25.0 9 .2002 DISTINGUISHED THE ISSUE INVOLVED IN THE PRESENT CASE BEING DIF FERENT FROM THE CITED CASE DEALT WITH BY THE HON'BLE APEX C O URT . IT IS ALSO TO BE NOTED THAT THE PREDECESSOR CIT(A) IN HIS ORDER DATED 25.09.2002 HAS REJECTED THE METHOD ADOPTED BY THE APPELLANT BY FOLLOWING THE ORDER OF THE ITAT IN THE CASE OF KISAN SAHK ARI 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 ARGUMENT S OF THE APPELLANT BEFORE THE PREDECESSOR CIT(A) WAS THAT THE INC ENTIVE SCHEME HAD EXPIRED ON 30.09.1992 AND, THEREFORE, HE WAS R EQUIRED TO B IFUR C ATE THE CLOSING STOCK OF SUGAR BETWEEN FREE SALE QUOTA AND LEVY SALE QUOTA. HOWEVER, AS IS EVIDENT FROM THE ENTIT LEMENT CERTIFICATE ISSUED BY TH E DIRECTORATE O F SUGAR, T HE INCENTIVE SCHEME WAS EXTENDED UP TO SUGAR YEAR 19 96 - 97 UNDER THE SCHEME. THEREFORE , THE ENTIRE STOCK OF SUGAR COULD HAVE BEEN S OLD AS FREE SUGAR ONLY. 2.4 LD. CIT(A) TENDS TO AGREE TO THE VIEW OF THE AO IN AS MUCH AS THE SAMPAT INCENTIVE SCHEME IS APPLICABLE ONLY TO SALE PROCEEDS AND NOT TO THE UNSOL D CLOSING STOCK. THE METHOD OF VALUATION OF THE CLOSING STOCK AS WELL AS WIP ADOP T ED BY THE AO HAS BEEN UPHELD BY THE ITAT, D - BENCH, ALL A HABAD IN THE CONTEXT 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, L UCKNOW, HAS HELD AS UNDER: - 6. THE THIRD GROUND OF APPEAL IS WITH REGARD TO THE ADDITION OF RS. 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 APPELLANTS CONSISTENT METHOD OF APPORTIONING THE CLOSING STOCK BETWEEN LEVY SUG A R 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 B Y L D. 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 COMMERCIAL LY 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 F OVOUR 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) WE RE DIRE CTED TO BE TAKEN AT THE SAME AS IN FORCE FOR FREE SUGAR. THEREFORE, LD. CIT(A) UPHELD THE ADDITIONS OF RS. 99,90,583/ - AND RS. 27,480/ - . 3. AGGRIEVED WI TH AFORESAID IMPUGNED ORDER ASSESSEE PREFERRED AN APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING, LD. COUNSEL OF THE ASSESSEE HAS REITERATED THE CONTENTION RAISED IN THE GROUN DS OF APPEAL AND BOTH SIDES AGRE E THAT THE ISSUES IN DISPUTE MAY BE SET ASIDE TO THE FILE OF THE AO TO CONSIDER THE SAME, IN ACCORDANCE WITH THE LAW LAID DOWN BY THE HONBLE SUPREME 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 HONBLE APEX COURT DATED 26.9.201 2. 5. W E HAVE HEARD BOTH PARTIES AND PERUSED THE RELEVANT RECORD S AND CASE LAW CITES BEFORE US. WE FIND CONSIDERABLE COGENCY IN THE CONTENTION OF THE ASSESSEES COUNSEL THAT THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS AND CIRCUMSTANCES OF THE CASE DEALT BY THE HONBLE SUPREME COURT IN THE CASE OF CIT, COIMBATORE VS. M/S BANNARI AMMAN SUGARS LTD. D ECIDED IN CIVIL APPEAL NOL. 7014 OF 2012 (ARISING OUT OF SLP (C) NO. 9263 OF 2009) VIDE ITS JUDGMENT DATED 26.9.2012 WHEREIN THE HONBLE APEX COURT HAS ADJUDICATED THE MATTER AS UNDER: - LEAVE GRANTED. THIS BATCH OF CIVIL APPEALS IS FILED BY THE DEPARTMENT. 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 CIRC UMSTANCES 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 BUSINESS OF MANUFACTURE AND SALE OF SUGAR. ASSESSEE FILEO ITS RETURN OF INCOME FOR ASSESSMENT YEAR 1997 - 98, IN ITS RETURN OF INCOME, CONFINED TO ITS KARNATAKA UNIT, ASSESSEE VALUED THE CLOSING STOCK OF INCENTIVE SUGAR (FREE SUGAR) AT LEVY PRICE. THE DEPARTMENT V ALUED THE CLOSING STOCK OF INCENTIVE SUGAR AT COST WHEREAS THE ASSESSEE CLAIMED THAT THE SAID STOCK SHOULD 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 PRO VISIONS OF THE ESSENTIAL COMMODITIES ACT, 1955 AND THE SU GAR CONTROL ORDER READ WITH NOTIFICATION ISSUED THEREUN DER, A SUGAR MANUFACTURER (ASSESSEE IN THIS CASE) WAS REQUIRED TO S ELL 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 COS T 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 L N CENTIVE 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. 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 PER MITTED TO BE SOLD AT MARKET PRICE ('INCENTIVE SUGAR' FOR SHORT). HOWEVER, THE SCHEME PROVIDED THAT EXCESS AMOUNT REALIZED BY THE MANUFACTURER OVER THE LEV Y , PRICE BY SALE OF INCENTIVE SUGAR WOULD BE UTILIZED ONLY FOR REPAYMENT OF LOANS TAKEN FROM THE BANK S FINANCIAL INSTITUTIONS FOR ESTABLISHIN G THE NEW UNIT(S). IN RE GARD TO UTILIZATION OF EXCESS REALIZATION TOWARDS REPAYMENT OF LOANS, THE SUGAR MILLS WERE DIRECTED TO FILE CERTIFICATE OF CHARTERED ACCOUNTANT SUBJECT TO WHICH FURTHER RELEASE ORDERS WOULD BE ISSUED BY THE DIRECTORATE OF SUGAR. T H US SCHEME CARNE UP FOR CONSIDERATION BEFORE THIS COURT IN ME VASE OF C.I.T. VS. PONNI SUGARS AND CHEMICALS LTD. [306 ITR 392] IN WHICH THIS COURT HELD THAT THE: EXCESS AMOUNT REALIZED BY THE MANUFACTURER OVER THE LE VY 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. (SU P RA) WAS NEGATIVED ALTHOUGH IN THE CONTEXT OF ANOTHER SCHEME THIS COURT AFTER EXAMINING THE SCHEME IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. VS. CIT [228 ITR 253] HELD THAT THE EXCESS AMOUNT REALIZED WAS A REVENUE RECEIPT. THE JUDGMENT IN SAHNEY STEEL AND PRESS WORKS L TD SUPRA: WAS CONSIDERED IN P O NNI SUGARS AN D CHEMICALS LTD . (SUPRA). APPLYING THE 'PURPOSE TEST THIS COURT HELD IN P O NNI SUGARS AND CHEMICALS LTD. (SUPRA) THAT THERE IS NO STRAITJACKET PRINCIPLE FOR COMING TO THE CONCLUSION AS TO WHETHER THE EXCESS AMOUNT WAS A REVENUE RECEIPT OR A CAPITAL RECEIPT. THE COURT HE LD THAT IT WOULD DEPEND ON THE SCHEME. THE COURT ALSO HELD IN P O NNI SUGARS AND CHEMICALS LTD. (SUPRA) THAT THE PURPOSE TEST SHOULD BE APPLIED ON CASE TO CASE BAS IS. THE COURT HELD THAT IT WOULD DEPEND ON THE PURPOSE OF THE INCENTIVE SCHEME. AS STATED, THE PRE SENT 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 C L OSING STOCK IS A V E RY IMPORTANT ASPECT OF ASCERTAINMENT OF TRUE PROFITS. AN PROPER V ALUATION 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 BUSINE SS 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. THE RE 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 AP PROPRIATE ALLOWANCES PERMITTED ETC. TO ARRIVE AT TAXABLE PROFITS. IN THE PRESENT CASE, IT IS THE CASE OF THE ASSESSEE, THAT FOLLOWING THE JUDGMENT OF THIS COURT IN PANNI SUGARS AND CHEMICALS LTD. (SUPRA) THE CLOSING STOCK OF INCENTIVE S UGAR , SHOULD BE ALLO WED TO BE VALUED AT LEVY PRICE, WHICH ON FACTS, IS FOUND TO BE LESS THAN THE COST OF MANUFACTURE OF SUGAR (COST PRICE). WE FIND MERIT IN THIS CONTENTION. IN PANNI SUGARS AND CHEMICALS LTD. (SUPRA), THIS COURT, ON EXAMINATION OF THE SCHEME, HELD THAT, THE E XCESS REALIZATION , WAS A CAPITAL RECEIPT, NOT LIABLE TO BE T AXED AND IN VIEW OF THE SAID JUDGMENT, WE HOLD, THAT T HE 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 DIFFERENT, IF AS IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. ( SUPRA) THIS COURT ON EXAMINATION OF THE RELEVANT SCHEME IN QUESTION HELD THAT SUCH EXCESS AMOUNT WAS A REVENUE RECEIPT. THIS JUDGMENT, THEREFORE, IS CONFINED TO THE SAMPAT COMMITTEE REPORT WHICH HAS PROVIDED INCENTIVES IN THE FORM OF PRICE AND DUTY DIFFERENTIALS [SEE PARA 13 OF THE JUDGMENT IN P O NNI SUGARS AND CHEMICALS LTD. (SUPRA)]. IN THE PRESENT CASE, IF THE CLOSING STOCK OF INC ENTIVE SUGAR WAS TO BE VALUED AT ANY FIGURE, ABOVE THE LEVY PRICE, THE DIRECT CONS E Q UENCE OF SUCH A VALUATION WOULD HAVE BEEN THAT THE EXCESS AMOUNT OVER THE LEVY PRICE WOULD BE REFLECTED AS PART OF BUSINESS INCOME W HICH WOULD RUN COUNTER TO THE JUDGMENT OF THIS COURT IN PONNI SUGARS AND CHEMICALS LTD. (SUPRA. ) WE MUST KEEP IN MIND THAT THE STOCK VALUATION OF INCENTIVE SUGAR HAS A DIRECT IMPACT ON THE MANUFACTURERS REVENUE OR BUSINESS PROFITS. IF WE WERE 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. FOR THE ABOVE REASONS, THE CIVIL APPEALS FILED B Y THE DEPARTMENT ARE HEREBY DISMISSED WITH NO COSTS. 6 . AFTER GOING THROUGH THE AFORESAID JUDGMENT OF THE HONBLE SUPREME COURT, WE ARE OF THE VIEW THAT THE IMPUGNED ORDER IS NOT SUSTAINABLE IN THE EYE S OF LAW , HENCE, WE SET ASIDE THE SAME AND IN THE INTEREST OF JUSTICE, WE REMIT THE ISSUE S IN DISPUTE TO THE FILE OF AO WITH THE DIRECTIONS TO DECIDE THE ISSUES IN DISPUTE, IN ACCORDANCE WITH THE LAW L AID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT, COIMBATORE VS. M /S . BANNARI AMMAN SUGARS LTD, DECIDED IN CIVIL APPEAL NO.7014 OF 2012 (ARIS ING OUT OF SLP (C) NO. 9263 OF 2009) VI DE ITS JUDGMENT DATED 26. 0 9.2012 ( SUPRA) AFTER GIVING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7 . IN THE RESULT, THE APPEAL O F THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOU NCED IN THE OPEN COURT ON 22 .04 .2015. - SD/ - SD/ - ( N.K.SAINI) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22 /04 /2015 *A K KEOT (D.O.C) COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI