2017 (3) TMI 256 - HC - Income Tax

Addition on account of valuation of stock of levy sugar at the rates applied for valuation of levy free sugar - Held that - This stock of levy sugar could then not have been valued at free sale sugar price in view of the fact that there was a legal obligation on the assessee to supply the such stock of sugar at the controlled levy price through the Public Distribution System. For the purpose of valuation of the stock it was relevant to examine whether the assessee was under an obligation to provide for levy sugar. This fact has been duly established by the assessee through evidence led both before the CIT appeals as also tribunal that has specifically referred to such evidence. In view of the above, the questions of law raised in the memo of appeal are answered, against the revenue and in favour of the assessee i.e. in absence of any dispute as to the total stock of sugar and the closing stock of sugar the tribunal was not in error in accepting the value of closing stock of levy sugar in view of the assessee being under an obligation to supply levy sugar.

Issues Involved:
1. Justification of ITAT in deleting the addition on account of valuation of closing stock of sugar.
2. Legality of ITAT's decision to ignore the production of the stock register and supporting evidence.

Detailed Analysis:

Issue 1: Justification of ITAT in deleting the addition on account of valuation of closing stock of sugar

The central issue revolves around whether the ITAT was justified in deleting the addition of ?1,84,00,096/- made by the Assessing Officer (AO) on account of the valuation of closing stock of sugar. The AO had valued the closing stock of sugar at the rate applicable to free sale sugar, while the assessee had valued it at the lower rate applicable to levy sugar. The Tribunal accepted the assessee's valuation, which was based on the argument that the stock in question was levy sugar, not free sale sugar.

The Tribunal noted that the assessee had consistently followed a method of valuing closing stock by differentiating between free sugar and levy sugar, with the latter being valued at the levy rate fixed by the government. The Tribunal found that the AO had not pinpointed any defects in the books of account and records maintained by the assessee, which were duly audited and complete. The Tribunal also observed that the AO had not disputed the correctness of the levy sugar price disclosed by the assessee.

The Tribunal's decision was influenced by the fact that the assessee was under a legal obligation to supply levy sugar at a controlled price through the Public Distribution System, as evidenced by communications from the Ministry of Consumer Affairs and Public Distribution. This obligation justified the lower valuation of the levy sugar stock.

The Tribunal further distinguished the current case from an earlier order for the assessment year 1990-91, where the entire stock was free sale sugar, and no levy sugar was involved. This distinction was crucial as it underscored that the circumstances in the current assessment year were different due to the legal obligation to supply levy sugar.

Issue 2: Legality of ITAT's decision to ignore the production of the stock register and supporting evidence

The second issue concerns the legality of the ITAT's decision to ignore the non-production of the stock register and supporting evidence by the assessee. The AO had made the addition primarily because the assessee did not produce the stock register despite being given the opportunity. However, the Tribunal noted that the AO did not dispute the correctness of the total sugar stock or the closing stock figures provided by the assessee.

The Tribunal found that the AO had not made any adverse comments or raised doubts about the correctness of the stock register during the hearing. The Commissioner of Income Tax (Appeals) also noted that the AO had not pinpointed any defects in the books of account and records maintained by the assessee.

The Tribunal concluded that the non-production of the stock register was of little consequence since the AO had accepted the total sugar stock figures and had not found any defects in the assessee's books of account. The Tribunal emphasized that the key issue was whether the assessee was under an obligation to provide levy sugar, which had been established through evidence presented before both the CIT (Appeals) and the Tribunal.

Conclusion:

The High Court upheld the Tribunal's decision, concluding that the Tribunal was justified in deleting the addition made by the AO. The Court found that the valuation of the closing stock at the levy sugar price was appropriate given the legal obligation on the assessee to supply levy sugar. The Court also held that the non-production of the stock register did not affect the correctness of the total sugar stock figures, which were undisputed. The appeal by the Revenue was dismissed, and the questions of law were answered in favor of the assessee.

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