THE COMMR OF INCOME TAX V. M/S PSI HYDRAULICS

ITA/252/2007

AI Insights

The case involves multiple Income Tax Appeals (ITAs) filed by the Commissioner of Income Tax and the Assistant Commissioner of Income Tax against various respondents, primarily M/S PSI Hydraulics and M/s. Hydrolines, concerning the non-inclusion of excise duty in the valuation of closing stock for the assessment years 1999 to 2005. The core legal issue was whether the excise duty paid on closing stock should be included in its valuation, impacting the taxable income. The appellants argued that Section 145A of the IT Act, 1961 mandates the inclusion of such duties, while the respondents contended that their method of accounting, which excluded these duties, was correct and did not affect the tax payable.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 729204 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 04-10-2012
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax -vs- British Paints India Ltd., P.M. Mohammed Meerakhan vs. CIT, Chainrup Sampatram vs. CIT, Patrick (Inspector of Taxes) vs. Broadstone Mills Ltd., Russel vs. Town and County Bank Ltd., Minister of National Revenue vs. Anaconda American Brass Ltd., CIT vs RANKA & RANKA, Commissioner of Income Tax vs Loknete, Commissioner of Income Tax vs Mahaveer Alluminimum Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: S PARTHASARATHI
• Assessee Lawyers: K V ARAVIND
• Keywords: Closing Stock Valuation; Excise Duty; Section 145A; Tax effect; Tax effect
• Section: 145A; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 4TH DAY OF OCTOBER 2012 PRESENT THE HON'BLE MR. JUSTICE K.SREEDHAR RAO AND THE HON'BLE MR. JUSTICE B.MANOHAR ITA Nos.252 /2007 C/w 429, 430, 431, 432, 444, 454, 455, 456, 457, 458,749, 750, 758, 766, 768 & 886/2007 And 940/2008 ITA No.252 /2007 BETWEEN : 1 The Commr of Income Tax Central Circle, C.R.Building QUEENS ROAD, BANGALORE. 2 The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. Appellants ( By Sri. K V Aravind, Adv.) AND : M/S PSI Hydraulics A 152 II C Main, II Stage Peenya Industrial Estate Bangalore-560 058. Respondent ( By Sri. S PARTHASARATHI, ADV.) R 2 ITA is filed u/S.260-A of I.T.Act, 1961 arising out of Order dated 8-09-2006 passed in ITA No.3275/Bang/2004 by the ITAT Bangalore. ITA No.429/2007 BETWEEN : 1. The Commissioner of Income tax, Central Circle C R Building, Queens Road Bangalore. 2. The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. .. Appellants ( By Sri. K V Aravind, Adv.) AND : M/s. Hydrolines, No.497 C, IV Phase Peenya Industrial Estate Bangalore – 560 058 …Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri S Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of Order dated 7-12-2006 passed in ITA No.1047/Bang/2005 by the ITAT Bangalore. ITA No.430/2007 BETWEEN : 1. The Commissioner of Income tax, Central Circle, C R Building, Queens Road , Bangalore. 3 2. The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. .. Appellants ( By Sri. K V Aravind, Adv.) AND : M/s. Hydrolines, No.497 C, IV Phase Peenya Industrial Estate Bangalore – 560 058 …Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri S Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of Order dated 7-12-2006 passed in ITA No.1049/Bang/2005 by the ITAT Bangalore. ITA No.431/2007 BETWEEN : 1. The Commissioner of Income tax, Central Circle C R Building Queens Road Bangalore. 2. The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. .. Appellants ( By Sri. K V Aravind, Adv.) 4 AND : M/s. Hydraulics No.497 C, IV Phase Peenya Industrial Area Bangalore-560 058. Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri S Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of Order dated 7-12-2006 passed in ITA No.1050/Bang/2005 by the ITAT Bangalore. ITA No.432/2007 BETWEEN : 1. The Commissioner of Income tax, Central Circle C R Building, Queens Road Bangalore. 2. The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. .. Appellants ( By Sri. K V Aravind, Adv.) AND : M/s. PSI Hydraulics, # A 152, II C Main, II Stage Peenya Industrial Estate Bangalore-560 058. Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri S Parthasarathi, Advs.) 5 ITA is filed u/S.260-A of I.T.Act, 1961 arising out of Order dated 7-12-2006 passed in ITA No.232/Bang/2006 by the ITAT Bangalore. ITA No.444/2007 BETWEEN : 1. The Commissioner of Income tax, Central Circle C R Building Queens Road Bangalore. 2. The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. .. Appellants ( By Sri. K V Aravind, Adv.) AND : M/s. Hydrolines 497-C, 5th Phase Peenya Industrial Estate Bangalore Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri S Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of Order dated 23-11-2006 passed in ITA No.126/Bang/2005 by the ITAT Bangalore. 6 ITA No.454/2007 BETWEEN : 1. The Commissioner of Income tax, Central Circle C R Building, Queens Road Bangalore. 2. The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. .. Appellants ( By Sri. K V Aravind, Adv.) AND : M/s. PSI Hydraulics # A 152, II C Main, II Stage Peenya Industrial Estate Bangalore-560 058. Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri S Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of Order dated 7-12-2006 passed in ITA No.1043/Bang/2005 by the ITAT Bangalore. ITA No.455/2007 BETWEEN : 1. The Commissioner of Income tax, Central Circle C R Building, Queens Road, Bangalore. 7 2. The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. .. Appellants ( By Sri. K V Aravind, Adv.) AND : M/s. PSI Hydraulics # A 152, II C Main, II Stage Peenya Industrial Estate Bangalore-560 058. Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri S Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of Order dated 7-12-2006 passed in ITA No.1044/Bang/2005 by the ITAT Bangalore. ITA NO.456/2007 Between : 1 The Commissioner of Income Tax Central Circle, C.R.Building Queens Road, Bangalore. 2 The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. Appellants ( BY SRI. K V Aravind, ADV.) 8 AND : M/S PSI Hydraulics #A-152, II C Main, II Stage Peenya Indl. Area Bangalore-58. Respondent ( BY SRI.P.Dinesh, Malhararao for Sri S. Parthasarathi, Adv.) ITA is filed U/S.260-A OF I.T.Act, 1961 arising out of Order Dated 07-12-2006 passed In ITA No.1045/Bang/2005 by the ITAT Bangalore. ITA NO.457/2007 Between : 1 The Commissioner Of Income Tax Central Circle, C.R.Building Queens Road, Bangalore. 2 The Assistant Commissioner Of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. Appellants ( BY SRI. K V Aravind, ADV.) AND : M/S PSI Hydraulics #A-152, II C Main, II Stage Peenya Indl. Area Bangalore-58. Respondent ( BY SRI.P.Dinesh, Malhararao for Sri S. Parthasarathi, Adv.) 9 ITA is filed u/s.260-a of I.T.Act, 1961 arising out of order dated 07-12-2006 passed in ITA No.1046/Bang/2005 by the ITAT Bangalore. ITA NO.458/2007 Between : 1 The Commissioner of Income Tax Central Circle, C.R.Building Queens Road, Bangalore. 2 The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. Appellants ( BY Sri. K V Aravind, Adv.) AND : M/S Hydrolines No.497 C, IV Phase Peenya Industrial Area Bangalore-560 058. Respondent ( By Sri.P.Dinesh, Malhararao,for Sri S. Parthasarathi, Adv.) ITA is filed U/S.260-A OF I.T.Act, 1961 arising out OF order dated 07-12-2006 passed in ITA NO.1048/BANG/2005 by the ITAT Bangalore. ITA NO.749/2007 Between : 1 The Commissioner of Income Tax Central Circle, C.R.Building 10 Queens Road, Bangalore. 2 The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. Appellants ( By Sri. K V Aravind, Adv.) AND : M/S Hydrolines India M-4, 5TH Cross, I Stage Peenya Industrial Estate Bangalore-560 058. Respondent ( By Sri.P.Dinesh, Malhararao for Sri S. Parthasarathi, Adv.) ITA is filed U/S.260-A OF I.T.Act, 1961 arising out OF order dated 04-05-2007 passed in ITA NO.1177/BANG/2005 by the ITAT Bangalore. ITA No.750/2007 BETWEEN : 1. The Commissioner of Income tax, Central Circle C R Building, Queens Road Bangalore. 2. The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. .. Appellants ( By Sri. K V Aravind, Adv.) 11 AND : M/s. Hydrolines India M-4, 5th Cross, I stage, Peenya Industrial Estate Bangalore – 560 058 Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri S Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of Order dated 4-5-2007 passed in ITA No.1178/Bang/2005 by the ITAT Bangalore. ITA NO.758/2007 Between : 1 The Commissioner of Income Tax Central Circle, C.R.Building Queens Road, Bangalore. 2 The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. Appellants ( By Sri. K V Aravind, Adv.) AND : M/S Hydrolines India M-4, 5TH Cross, I Stage Peenya Industrial Estate Bangalore-560 058. Respondent ( By Sri. P.Dinesh, Malhararao, ADV. FOR Sri S. Parthasarathi, Adv.) 12 ITA is filed U/S.260-A OF I.T.Act, 1961 arising out of order dated 04-05-2007 passed in ITA NO.1176/BANG/2005 by the ITAT Bangalore. ITA NO.766/2007 Between : 1 The Commissioner of Income Tax Central Circle, C.R.Building Queens Road, Bangalore. 2 The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. Appellants ( By Sri. K V Aravind, Adv.) AND : M/S Hydrolines India M-4, 5TH Cross, I Stage Peenya Industrial Estate Bangalore-560 058. Respondent ( By Sri P.Dinesh, Malhararao for Sri S. Parthasarathi, ADV.) ITA is filed U/S.260-A of I.T.Act, 1961 arising out of order dated 04-05-2007 passed in ITA NO.1175/BANG/2005 by the ITAT Bangalore. ITA No.768/2007 BETWEEN : 1. The Commissioner of Income tax, Central Circle, C R Building, 13 Queens Road, Bangalore. 2. The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. .. Appellants ( By Sri. K V Aravind, Adv.) AND : M/s. Hydraulics India M-4, 5th Cross, I Stage Peenya Industrial Estate Bangalore-560 058. Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri S Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of Order dated 4-5-2007 passed in ITA No.1174/Bang/2005 by the ITAT Bangalore. ITA No.886/2007 BETWEEN : 1. The Commissioner of Income tax, Central Circle C R Building, Queens Road Bangalore. 2. The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. .. Appellants ( By Sri. K V Aravind, Adv.) 14 AND : M/s. Hydraulics No.497 C, IV Phase Peenya Industrial Area Bangalore-560 058. Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri S Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of Order dated 13-7-2007 passed in ITA No.481/Bang/2006 by the ITAT Bangalore. ITA No.940/2008 BETWEEN : 1. The Commissioner of Income tax, Central Circle C R Building, Queens Road Bangalore. 2. The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. .. Appellants ( By Sri. K V Aravind, Adv.) AND : M/s.Golden Profiles No.B-158, 4th Main Road II Stage, Peenya Indl Estate Bangalore-560 058. Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri S,.Parthasarathi, Advs.) 15 ITA is filed u/S.260-A of I.T.Act, 1961 arising out of Order dated 9-5-2008 passed in ITA No.1090/BNG/2007 by the ITAT Bangalore. These ITAs coming on for hearing this day, SREEDHAR RAO J, delivered the following: JUDGMENT The respondent/assessee in the above appeals are one and the same and the assessment year pertains to 1999 to 2005. The assessee in the accounts and in the returns filed has not included the excise duty paid on the closing stock to indicate the valuation of the closing stock. 2. The contention of the assessee is that the excise duty paid need not be included in the valuation of the closing stock and non-inclusion would be a revenue neutral and would have no impact upon the tax payable. 3. Per contra, Sri K.V. Aravind, learned Advocate for the appellant strenuously submitted that the purport of the provision of Section 145A of the IT Act does not concern with the tax effect, but it prescribes the method and 16 procedure of accounting, which assessee has to follow in terms of Sec. 145A of the Act. 4. The provision of Section 145A of the IT Act came to be incorporated by the Finance Act w.e.f. 1.4.1999. For the assessment year is concerned, Section 145A of the I.T.Act, reads as follows: “145A. Notwithstanding anything to the contrary contained in section 145.- (a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head “Profits and gains of business or profession” shall be- i. in accordance with the method of accounting regularly employed by the assessee; and ii. further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incorrect by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation.- For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment; 17 (b) interest received by an assessee on compensation or on enhanced compensation, as the case may be shall be deemed to be the income of the year in which it is received.]” 5. The following substantial question of law was formulated for consideration: “Whether the Appellate Authorities were correct in not taking into consideration the provisions of Section 145A of the Act which categorically contemplated that the inclusion of duty was mandatory for the purpose of computation of closing stock and instead relied on certain accountancy principles that there should be corresponding entry in the P & L Account read with section 45 of the Act? 6. The counsel for the appellant relied upon the decision of the Supreme Court in the case of Commissioner of Income Tax -vs- British Paints India Ltd. reported in (1991) 188 ITR 44 (SC). In the said decision, in paras 16 to 21, the following observations are made. “16. The IT Act does not contain any specific provision for the valuation of stock, income, profits and gains must, however, be computed in the manner provided by the Act. It is the duty of the officer to determine the profits and gains of a commercial venture according to the correct principle of accounting. In doing so, he might, dependent on the nature of the business and its 18 special character, allow certain adjustments but his primary purpose and duty is to deduce the correct income, profits and gains, and this he cannot do without taking into account the value of the stock-in-trade at the beginning and at the end of the year and by ascertaining the difference between them : See P.M. Mohammed Meerakhan vs. CIT (1969) 73 ITR 735 (SC). 17. The object of stock valuation is the correct determination of the profits and loss resulting from a year's trading. It is the true result of the trading activity of that year that must be disclosed by the books. “..... the profits are the profits realised in the course of the year. What seems an exception is recognised where a trader purchased and still holds goods or stocks which have fallen in value. No loss has been realised. Loss may not occur. Nevertheless, at the close of the year he is permitted to treat these goods or stocks as of their market value. [Whimster and Co. vs. IRC (1917-26) 12 Tax Cases 813, 827]. As stated by Patanjali Sastri C.J. in Chainrup Sampatram vs. CIT (1953) 24 ITR 481 (SC) at 485-486 : TC2R.124: “It is wrong to assume that the valuation of the closing stock at market rate has, for its object, the bringing into charge any appreciation in the value of such stock. The true purpose of crediting the value of unsold stock is to balance the cost of those goods entered on the other side of the account at the time of their purchase, so that the cancelling out of the entries relating to the same stock from both sides of the account would leave only the transactions on which there have been actual sales in the course of the year 19 showing the profit or loss actually realised on the year's trading........” In the words of Singleton L.J. In Patrick (Inspector of Taxes) vs. Broadstone Mills Ltd. (1954) 25 ITR 377 (CA) at 395. “......... (1) One cannot arrive at the profits of the year without taking into account the value of the stock one has at the beginning of, and at the end of, the accounting year. (2) The figures for stock are just as important as any other figures. Values may have to be estimated when market price is taken, but any departure from accuracy is reflected in the trading account. (3) Stock should be taken either at cost price or at market price, whichever is the lower...........” 18. Lord Herschell in Russel vs. Town and County Bank Ltd. (1888) 13 App. Cas. 418, 424 : 4 TLR 500 (HL) observes : “The profit of a trade or business was the surplus by which the receipts exceeded the expenditure necessary for the purpose of earning those receipts …....” 19. What is the profit of a trade or business is a question of fact and it must be ascertained, as all facts must be ascertained, with reference to the relevant evidence, and not on doctrines or theories : “no assumption need be made unless the facts cannot be ascertained, and then only to the extent to which they cannot be ascertained. There is no room for theories as to flow of costs ….....” [Minister of National Revenue vs. Anaconda American Brass Ltd. (1956) AC 85 : (1956) 30 ITR 84 (PC) at 99 : TC2R.291.] 20 20. Sec.145 of the IT Act, 1961, confers sufficient power upon the officer – nay it imposes a duty upon him – to make such computation in such manner as he determines for deducing the correct profits and gains. This means that where accounts are prepared without disclosing the real cost of the stock-in-trade, albeit on sound expert advice in the interest of efficient administration of the company, it is the duty of the ITO to determine the taxable income by making such computation as he thinks fit. 21. Any system of accounting which excludes, for the valuation of the stock-in-trade, all costs other than the cost of raw materials for the goods-in-process and finished products, is likely to result in a distorted picture of the true state of the business for the purpose of computing the chargeable income. Such a system may produce a comparatively lower valuation of the opinion stock and the closing stock, thus showing a comparatively low difference between the two. In a period of rising turnover and rising prices, the system adopted by the assessee, as found by the Tribunal, is apt to diminish the assessment of the taxable profit of a year. The profit of one year is likely to be shifted to another year which is an incorrect method of computing profits and gains for the purpose of assessment. Each year being a self – contained unit, and the taxes of a particular year being payable with reference to the income of that year, as computed in terms of the Act, the method adopted by the assessee has been found to be such that income cannot properly be deduced therefrom. It is, therefore, not only the right but the duty of the Assessing Officer to act in exercise of his statutory power, as he has done in the instant case, for determining what, in his opinion, is the correct taxable income.” 21 7. It is submitted that the ratio laid down by the Supreme Court in the said decision was prior to incorporation of Section 145A of the Act. The assessees were bound to comply with the observations of law made by the Supreme Court. However, after incorporation of Section 145A of the Act, it has now become mandatory that in the closing stock, the excise duty paid should be reflected to show correct valuation of the closing stock. 8. The provisions of Section 145-A of the Act postulates the valuation for purchase and sale of goods and inventory for the purpose of determining the income chargeable under the head “profits and gains of business or profession”. The provision further declares that in accordance with the method of accounting employed by the assessee, he should include the amount of tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. The above provision makes it clear that for showing valuation of the goods, it is necessary in the case of 22 sale or inventory (closing stock) the amount of tax or duty etc., paid should be included. 9. There would be a situation where an assessee may purchase semi finished goods/raw materials which are subject to excise duty for manufacturing finished goods. In such a situation, it amounts to 'purchase' and the seller of such material has already paid excise duty. The assessee would have paid excise duty along with the price to his seller. The assessee, after manufacturing the finished product, sells the same to third parties and he would be entitled to seek deduction of excise duty paid on the semi finished goods/raw materials under Modvat. 10. The second situation would be, the manufacturer procures materials which are not subject to excise duty and manufactures finished product and sells, which is subject to excise duty. In such a case, the assessee has to pay the excise duty. 11. The third situation pertains to purchase of semi finished goods/raw materials subject to excise duty. In the 23 process of manufacturing they are in the possession of the assessee and the assessee would have manufactured finished product, which remains unsold and remains in his possession. This category of goods would come within the expression of “inventory”. 12. The assessee has to make valuation of the goods in his possession under the process of manufacturing and not yet sold or clearance not done. In such cases, the assessee does not incur the liability to pay excise duty. However, he is obliged u/s 145-A to value the goods which should include the excise duty paid or incurred. 13. The Bombay High Court, in the case of Commissioner of Income Tax vs Loknete (2011) 339 ITR 288 in paras 9 to 12 has interpreted Section 145A and made the following observations:- “9. The expression 'incurred by the assessee' in S.145A(b) is followed by the words 'tobring the goods to the place of its location and condition as on the date of valuation'. Thus, the expression 'incurred by the assessee' relates to the liability determined as tax, duty, cess or fee payable in bringing the goods to the place of its location and condition of the goods. Explanation 24 to S.145A(b) makes it further clear that the income chargeable under the head 'profits and gains of business' shall be adjusted by the amount paid as tax, duty, cess or fee. Therefore, the expression 'incurred' in S.145A(b) must be construed to mean the liability actually incurred by the assessee. 10. Where the excisable goods are manufactured and are lying in stock on the last day of the accounting year, whether the manufacturer has incurred liability to pay excise duty on the manufactured goods is the question. 11. The apex Court in the case of CCE vs Polyset Corporation & Anr. 1999 (115) ELT 41 (SC) has held that the dutiability of excisable goods is determined with reference to the date of manufacture and the rate of excise duty payable has to be determined with reference to the date of clearance of the goods. Therefore, though the date of manufacture is the relevant date for dutiability, the relevant date for the duty liability is the date on which the goods are cleared. In other words, in respect of excisable goods manufactured and lying in stock, the excise duty liability would get crystalised on the date of clearance of goods and not on the date of manufacture. Therefore, till the date of clearance of the excisable goods the excise duty payable on the said goods does not get crystalised and consequently the assessee cannot be said to have incurred the excise duty liability. In respect of the excisable goods lying in stock, no liability is determined as payable and consequently, there would be no question of incurring excise duty liability. 12. In the present case, it is not in dispute that the manufactured sugar was lying in stock 25 and the same were not cleared from the factory. Therefore, in the facts of the present case, the Tribunal was justified in holding that in respect of unsold sugar lying in stock, central excise liability was not incurred and consequently the addition of excise duty made by the AO to the value of the excisable goods was liable to be deleted”. 14. In the said case, the decision of the Apex Court in CCE vs POLYSET CORPORATION 1999(115) 41 ELT 41 is referred to. 15. The decision of the Delhi High Court in Commissioner of Income Tax vs Mahaveer Alluminimum Ltd 297 ITR 77 has held that the inclusion of excise duty or tax paid for valuation at the time of inventory is necessary not only for the closing stock but also for the opening stock. 16. Per contra, Sri K.V.Aravind, learned counsel for the Appellants refers to para 5 of Circular No.3/2011, which reads thus:- “5. The Assessing Officer shall calculate the tax effect separately for every assessment year in respect of the disputed issues in the case of every assessee. If, in the case of an assessee, the disputed issues arise in more than one assessment year, appeal, can be filed in respect 26 of such assessment year or years in which the tax effect in respect of the disputed issues exceeds the monetary limit specified in para 3. No appeal shall be filed in respect of assessment year or years in which the tax effect is less than the monetary limit specified in para 3. In other words, henceforth, appeals can be filed only with reference to the tax effect in the relevant assessment year. However, in case of a composite order of any High Court or appellate authority, which involves more than one assessment year and common issues in more than one assessment year, appeal shall be filed in respect of all such assessment years even if the “tax effect” is less than the prescribed of the year(s) in which the “tax effect” exceeds the monetary limit prescribed. In case where a composite order/judgment involves more than one assessee, each assessee shall be dealt with separately.” 17. In case of an assessee, where common order is passed in respect of more than one assessment year, which involves common issues even if in one of the assessment years the tax effect is more than 10 lakhs, irrespective of the fact that in respect of other assessment years which is part of the common order, the tax effect is less than 10 lakhs, the revenue is entitled to file appeal even in respect such assessment years where the tax effect is less than Rs.10 lakhs. However, in case where there is no common order and 27 an order is passed only in respect of an assessment year and the tax effect therein is less than 10 lakhs, the revenue cannot file the appeal. 18. On thorough scrutiny of para 5 of the Circular No.3/2011, we find that there appears to be a glaring discrimination offending the sprit of Article 14 of the Constitution. In the case of a common order passed in respect of one or more assessment year/years, if the tax effect is less than 10 lakhs, the assessee is not entitled to benefit of exemption and the revenue is not debarred from filing an appeal, even though the tax effect in respect of one or more assessment years is less than 10 lakhs. In other words, the revenue can file an appeal against all the assessment orders which is a part of the common order, irrespective of the fact, whether for one of the assessment year/years, the tax effect is less than 10 lakhs. However, if it is a solitary order and tax effect is less than 10 lakhs, the assessee is entitled to the benefit of exemption and the revenue cannot file the appeal. 28 19. The para-5 of the circular is highly discriminatory. After all the bunching and clubbing of cases and passing common orders is a procedure adopted for convenient disposal of the cases by the court or quasi judicial authority. The assessee has no say in the matter of clubbing of cases and passing of common orders. Merely because the authority concerned for judicial convenience, clubs the cases and pass common order, the assessee should not be denied of the benefit of circular-3/2011 when the tax effect for the assessment year/years the tax effect is less than 10 lakhs. Therefore, it is to be held that whether it is a solitary order or common order, the assessee should have the benefit of the tax effect less than 10 lakhs and in all such cases whether it is a part of the common order or a solitary order , the revenue will not be entitled to file an appeal. 20. In the instant case, only in respect of ITA No.750/07, the tax effect is more than 10 lakhs and in all other cases the tax effect is less than 10 lakhs. Therefore, 29 only in ITA No.750/07 the question of law is answered in favour of revenue. 21. This Court, in CIT vs RANKA & RANKA – (2012) 72 DTR 270 has held that Circular No.3/2011, not merely has prospective effect, but also applies to pending cases. The Revenue has filed SLP No.27468/2012 before the Supreme Court challenging the judgment of this court. If the Supreme Court holds that Circular No.3/2011 has only prospective effect and does not apply to the pending cases, the Revenue can make application for revival of the appeals for fresh disposal on the aspect of tax effect. As of now, the decision of this court in the case of RANKA and RANKA holds the field,. Therefore, the appeals are disposed of accordingly with liberty to the revenue to make an application for revival in the event they succeed in SLP No. 27468/2012. Sd/- JUDGE Sd/- JUDGE BKM/MP "