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TMI Blog1988 (5) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... k : Details of Valuation (A) Levy Sugar 17,236 Qtls. on the basis of actual realisation up- to 16th Aug., 1978 on which date sugar was fully decontrolled Rs. 32,21,731.88 (B) Free Sugar . (i) Sugar Season 1977-78 42,504 Qtls. on the basis of actual realisation upto the date of signing the Balance Sheet. Rs. 85,19,093.00 35,785 Qtls. of C-30 quality @ Rs. 190 being estimate of realisable value on the date of signing the Balance Sheet Rs. 64,41,300.00 68,292 Qtls. of C-30 quality @ Rs. 176 being estimate of reliable value on the date of signing the Balance Sheet Rs. 1,20,19,392.00 1,63,817 Qtls. . (ii) Sugar Season 1976-77 . 200 Qtls. on the basis of actual realisation upto the date of signing the Balance Sheet. Rs. 39,200.00 2,620 Qtls. of C-30 quality @ Rs. 180 being estimate-of realisable value on the date of signing the Balance Sheet. Rs. 4,71,600.00 2,820 . 1,66,637 Rs. 3,07,12,316.88 2. The ITO found in the Audited Balance Sheet and Profit Loss Account of the assessee, the Auditor's Report on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly he valued the total stock of 1,66,637 quintals taking the stock for 1977-78 @ Rs. 212.69 per quintal whereas the stock for the year 1976-77 was taken @ Rs. 216.60 per quintal and took the value of the closing stock at Rs. 3,56,25,350 as against Rs. 3,07,12,316 shown by the assessee. Consequently, he added the sum of Rs. 49,13,034 for the under valuation of closing stock. The difference in closing stock taken by the ITO was approved by the IAC under s. 144B of the Act. 6. The assessee before the CIT(A) contended that the levy sugar and free sugar were separate group of the same commodity and their market value could not be the same. The second argument taken by the assessee was that the assessee's method of valuation was consistent and the method adopted by it was an acceptable method. The last argument of the assessee was that the cost as worked out by the Cost Auditor should not be taken into consideration because that did not reflect the market value and the cost was determined by the Cost Auditor in a different capacity. The counsel of the assessee relied on CIT vs. M/s. Chari and Ram (1949) 17 ITR 1 (Mad) and urged that the assessee was not bound to adopt either t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the control for levy sugar was in force upto 30th June, 1978 and partial decontrol took place w.e.f. 16th Aug., 1978. Considering the decision in Chainrup Sampatram vs. CIT (1953) 24 ITR 481 (SC) and the concept of real income in CIT vs. M/s Shoorji Vallabhdas and Co. and Asher Textiles Ltd. vs. CIT, he valued the closing stock of the assessee as follows:— (i) Levy sugar 17,236 qtls. upto 16th Aug., 1978 @Rs. 186.80 Rs. 32,21,732 (ii) Free sugar 1,46,523 qtls. @Rs. 189.35 Rs. 2,77,43,788 . Rs. 3,09,65,520 (iii) Shortage 58 qtls. . (iv) Less shown Rs. 3,07,12,316 . Balance Rs. 2,53,204 The CIT(A) found that the decontrol of levy sugar was made on 16th Aug., by the time the assessee sold 17236 quintals for Rs. 32,21,732. The remaining levy sugar became free so far as the price was concerned and therefore, he valued the remaining levy sugar along with the free sugar @Rs. 189 which was the average realisable value on the date of signing of the Balance Sheet and consequently sustained the addition of Rs. 2,53,204 against the addition made by the ITO at Rs. 49,13, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the method of accounting consistently followed by the assessee should not be disturbed for temporary gain and the fifth argument of the Standing Counsel was that the assessee in the earlier year was following principle of cost or market whichever is lower for valuing the closing stock which has been disturbed for the asst. yrs. 1978-79 and 1979-80. The Standing Counsel took up the order of the ITO as well as of the CIT(A) on this issue and by referring to the Auditor's Report and the Report of the Cost Auditor indicated that the previous year of the assessee ended on 30th June, 1978. The assessee was having 71,493 quintals and 95,144 quintals of free and levy sugar, respectively in stock. The accounts of the assessee were finalised on 30th Nov., 1978. The assessee adopted the realised value of the stock sold upto 30th Nov., 1978 and estimated the value for the stock which remained unsold even as on 30th Nov., 1978. This is not the principle for valuing the closing stock. The assessee even did not adopt the net realisable value. The assessee adopted the net realisable value partially for the stock sold upto 30th Nov., 1978 whereas the estimated value was adopted for the stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal and it was not adopted to defeat the interest of the Revenue. He relied on CIT vs. Carborandum Universal Ltd. (1984) 39 CTR (Mad) 272 : (1984) 149 ITR 759 (Mad), Indo-Commercial Bank Ltd. vs. CIT (1962) 44 ITR 22 (Mad), Bank of Cochin Ltd. vs. CIT (1974) 94 ITR 93 (Ker), Ram Luxman Sugar Mills vs. CIT (1967) 63 ITR 51 (All) and Forest Industries Travancore Ltd. vs. CIT (1964) 51 ITR 329 (Ker). Dr. Vaish also relied on British Paints India Ltd. vs. CIT (1978) 111 ITR 53 (Cal) to show that the commercial principle is adopted for determining the correct income of the assessee. 13. The Standing Counsel in reply to the argument of the assessee's Counsel referred to the decision in State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290 : (1986) 158 ITR 102 (SC) and urged that the argument made by him stands and, therefore, the addition made by the ITO may be sustained. 14. Dr. Vaish arguing on the sustenance of the addition of the CIT(A) urged that the stock was properly valued by the assessee and, therefore, no addition could have been sustained. 15. The controversy in the present appeal is regarding the valuation of closing stock of sugar. The assessee is a manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation made by the ITO was not correct. He was also of the opinion that the concept of real income cannot be ignored. Having these facts in mind, he valued the stock of levy sugar @ Rs. 186.80 per quintal whereas the balance stock was valued on the average price of sale realisation at Rs. 189.35 per quintal and consequently the addition of Rs. 2,53,204 was maintained. 16. It would be relevant to mention before discussing the arguments of the respective parties that the valuation of closing stock is necessarily a question of fact based upon the principle of accountancy recognized by the learned Authors and supported by the judicial pronouncements. 17. The Department has filed a paper book which included Auditor's Reports, etc. The Auditor's Report indicated that the assessee was following the principle of cost or market whichever is lower upto the asst. yr. 1977-78 and there was a little variation during the year under appeal when the assessee took the realisable value in consideration and adopted the same which was lower than the cost or the market value. The Cost Auditor's Report was also considered. It was found that the observation made by the Cost Auditor was not favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le value will definitely show the correct figure because the sale has already been effected and the amount has been realised and that is the value for the closing stock. The Standing Counsel while arguing the case cited the examples that if the principle adopted by the assessee is followed, it would create different anomalies for different assessees. The three assessees dealing in free and levy sugar having three different previous year will value the closing stock at three different rates which will defeat the interest of the Revenue. On the other hand, Dr. Vaish in course of the argument cited an example. It was stated that a particular garment designed for a country outside India is being exported by a trader. Subsequently, export was banned. The assessee could not export the goods and a huge stock was lying with him. The price available to the assessee from importing country was fairly high. As there was a ban and the goods were not to be lifted by the importing country and it was not saleable within the country, the stock cannot be valued at the rate at which it was exported to the importing countries. The said example was cited only for the purpose of advancing the theory tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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