2015 (5) TMI 586 - AT - Income Tax

Tribunal remits appeal, emphasizes stock valuation alignment with Incentive Scheme

The Tribunal allowed the Assessee's appeal for statistical purposes, remitting the issues back to the Assessing Officer for reconsideration in line with ... Valuation of closing stock of Sugar - appellant being covered under Sampat Incentive Scheme - closing stock of levy sugar and work in progress (WIP) were directed to be taken at the same as in force for free sugar by CIT(A) - Held that:- A relying on case of CIT, Coimbatore vs. M/s Bannari Amman Sugars Ltd. [2012 (9) TMI 848 - SUPREME COURT] wherein following the judgment of this Court in Ponni Sugars & Chemicals Ltd.(2008 (9) TMI 14 - SUPREME COURT ) held that the closing stock of incentive sugar should be allowed 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 Ponni Sugars & Chemicals Ltd. (supra), this Court, on examination of the Scheme, held that, the excess realization was a capital receipt, not liable to be taxed and in view of the said judgment, thus the assessee is right in valuing the closing stock at levy price. The stock valuation of incentive sugar has a direct impact on the manufacturer's revenue or business profits. If 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 - thus remit the issues in dispute to the file of AO with the directions to decide the issues in dispute, in accordance with the law laid down in the case M/s. Bannari Amman Sugars Ltd(Supra) - Decided in favour of assessee for statistical purpose. Issues Involved:1. Addition in valuation of closing stock of sugar.2. Addition on account of valuation of sugar in process.3. Applicability of the Sampat Incentive Scheme.4. Relevance of past decisions and rulings by higher courts.Detailed Analysis:1. Addition in Valuation of Closing Stock of Sugar:The primary issue is the addition of Rs. 99,90,603/- to the valuation of the closing stock of sugar for the assessment year 1994-95. The Assessee contended that the stock should be valued as per the Sampat Incentive Scheme, bifurcating it into free sugar (55%) and levy sugar (45%). The Assessing Officer (AO) valued the stock uniformly at Rs. 985/- per bag, leading to the addition. The Tribunal noted that the Sampat Incentive Scheme allowed the assessee to sell 40% of its production at market price, but the AO's valuation was upheld by the CIT(A), who agreed that the scheme applied only to sale proceeds, not unsold stock. The Tribunal referred to the Supreme Court's ruling in CIT vs. Bannari Amman Sugars Ltd., which allowed valuation of closing stock at levy price, thus remitting the issue back to the AO for reconsideration.2. Addition on Account of Valuation of Sugar in Process:The second issue involved an addition of Rs. 27,480/- for the valuation of sugar in process. The AO valued the sugar in process at Rs. 966/- per bag, whereas the assessee had valued it at Rs. 737/- per bag. The CIT(A) upheld this valuation by the AO, aligning with the earlier appellate orders and the Sampat Incentive Scheme's requirements. The Tribunal, however, directed the AO to reconsider this issue in light of the Supreme Court's decision in the Bannari Amman Sugars case, which emphasized consistency in valuation methods.3. Applicability of the Sampat Incentive Scheme:The Sampat Incentive Scheme, extended till the sugar year 1996-97, allowed the assessee to bifurcate its production into free and levy sugar. The AO and CIT(A) interpreted the scheme as applicable only to sale proceeds, not to unsold stock. The Tribunal noted that the Supreme Court, in the Bannari Amman Sugars case, had adjudicated that the valuation of closing stock of incentive sugar should be at levy price, considering the scheme's purpose to support the economic viability of sugar manufacturers.4. Relevance of Past Decisions and Rulings by Higher Courts:The Tribunal considered past decisions, including the Supreme Court's ruling in State Bank of Travancore vs. CIT and the ITAT Madras decision in DCIT vs. Bannari Amman Sugar Ltd. The CIT(A) had distinguished these cases, but the Tribunal found that the principles laid down in the Bannari Amman Sugars case were directly applicable. The Supreme Court had ruled that the excess realization from incentive sugar should be treated as a capital receipt and not taxable, influencing the valuation of closing stock.Conclusion:The Tribunal set aside the impugned order and remitted the issues back to the AO, directing reconsideration in accordance with the Supreme Court's judgment in CIT vs. Bannari Amman Sugars Ltd. This judgment emphasized the valuation of closing stock at levy price, aligning with the Incentive Scheme's purpose. The appeal was allowed for statistical purposes, ensuring the assessee received an opportunity for a fair hearing.Order Pronounced:The appeal of the Assessee was allowed for statistical purposes, with directions for the AO to decide the issues in accordance with the Supreme Court's law in the Bannari Amman Sugars case, after providing an adequate opportunity for the assessee to be heard. The order was pronounced in open court on 22.04.2015.