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Issues Involved:
1. Addition of Rs. 1,16,79,98,000 on account of interest and litigation costs. 2. Addition of Rs. 24,43,49,000 on account of the valuation of closing stock. 3. Disallowance of Rs. 40,43,000 on account of writing off loose tools. Issue-wise Detailed Analysis: 1. Addition of Rs. 1,16,79,98,000 on account of interest and litigation costs: The primary contention was whether the interest and litigation costs accrued to the assessee in the year under consideration. The assessee argued that the arbitration award had not become final as it was under further challenge, and the litigation ended only on 14-12-2006. The CIT(A) held that the income accrued when the Dutch High Court rejected the appeal on 22-1-2004, as the right to receive the income got vested in the assessee at that time. However, the Tribunal found that the arbitration award had not become enforceable as it was not made a rule of the court and the litigation continued beyond the year in question. The Tribunal concluded that no enforceable right was vested in the assessee in the year under consideration, and thus, the interest and litigation costs did not accrue to the assessee. Consequently, the addition of Rs. 1,16,79,98,000 was deleted. 2. Addition of Rs. 24,43,49,000 on account of the valuation of closing stock: The assessee valued the closing stock of urea (produced beyond 100% capacity) at Import Parity Price (IPP) instead of Group Concession Rate (GCR) due to revised government policy. The Assessing Officer added Rs. 24,43,49,000 to the closing stock value, arguing that the change in valuation method was not justified without prior approval from the Department of Fertilizers. The Tribunal found that the assessee's valuation method was in line with the policy guidelines and the expectation of subsidy from the government. Therefore, the Tribunal held that the CIT(A) erred in upholding the addition, and the addition of Rs. 24,43,49,000 was deleted. 3. Disallowance of Rs. 40,43,000 on account of writing off loose tools: The assessee changed its accounting policy to write off loose tools in one year instead of three years, resulting in a charge of Rs. 40,43,000 to the revenue account. The Assessing Officer and CIT(A) held that loose tools should be treated as part of fixed assets and written off over their useful life as per AS-10, not AS-2. The Tribunal upheld the CIT(A)'s decision, stating that the change in accounting policy was not justified as the useful life of the tools had not been shown to have changed. Therefore, the disallowance of Rs. 40,43,000 was confirmed. Conclusion: The Tribunal allowed the appeal partly by deleting the additions related to interest and litigation costs and the valuation of closing stock, but upheld the disallowance related to the writing off of loose tools.
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