TaxTMI 
TaxTMI 
2005 (7) TMI 278
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....ords, found a difference of Rs. 74,12,304 in the amount of closing stock as shown in the balance sheet and as given to the bank as at the close of the relevant previous year, i.e., 31st March, 1994. He, accordingly, initiated proceedings under s. 147 of the IT Act, 1961 ("Act" hereinafter), which were complied with by the assessee disclosing the same amount of loss as originally returned. 3. During the reassessment proceedings, on being queried as to the said difference of Rs. 74,12,304, it was submitted by the assessee that there was no difference between the total quantity of sugar bags as reflected in the inventory of its closing stock as at the end of the year in its final accounts, and that as submitted to the bank, both being derived from its stock records, i.e., at 4,39,119 bags. However, the difference in valuation arises on account of the difference in the bifurcation of the sugar bags into levy and non-levy (free) sugar in the two statements. A chart, exhibiting the said position was submitted, as : -------------------------------------------------- Partic Shown in bank As per P&L a/c ulars  ....
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.... when, i.e., financial year 1992-93, the ratio stood amended to 40 : 60) to 31st March, 1996 showing the bifurcation of its stock held in the said ratio. Further, as the Government of India, is, at times, short of levy-sugar, which it requires for distribution through the Public Distribution System (PDS), it decides to loan the same by converting some of the free-sale sugar quota into levy sugar (and vice versa) on temporary basis, and the loan stock is adjusted by it in due course in one/two/three years. The banks also are accordingly instructed, through the RBI, to extend credit to the sugar mills also against this loan stock. As such, while it reflects the actual (bifurcated) position of its stock (as obtaining for the time being) to the bank, it ignores the same in its books, following the consistent practice of bifurcating the same only in the ratio to which it is subject, and which would finally prevail, i.e., ignoring the distortion caused by be loan; the loan stock being only a temporary accommodation liable to be adjusted in due course. It also filed certain documents in support of its averments, being the copy of the Government notifications, the auditors certificate in r....
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....he relevant portion(s) of the paper book. The addition of Rs. 7,042 was contended as being covered by the decision of the Hon'ble Supreme Court in the case of Siddheshwar Sahakari Sakhar Karkhana Ltd. vs. CIT (2004) 191 CTR (SC) 66 : (2004) 270 ITR 1 (SC). It also placed before us the order of the Hon'ble Tribunal (Ahmedabad Bench 'D') in appeal No. 2319/Ahd/2000, dt. 21st April, 2005, wherein, following the cited judgment of the apex Court, the like addition was directed to be deleted. 7. We have heard the parties and perused the material on record. In respect of appeal No. 191, the first ground of which relates to the addition of Rs. 7,042, we find that the AO has effected the addition solely on the basis that the same was not refundable, and which issue, again, has not been addressed by the assessee in its submissions before him as well as the learned CIT(A), who has also not dwelled into the true nature and character of the said deposits, on the basis of the general understanding that the deposits are not the assessee's receipts who is liable to expend the same for the various purposes for which these are retained. While that is true in general, the exact nature of the depos....
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....tated that the following of consistent practice would, not preclude the AO from interfering therewith if he comes to a positive finding that following the said method does not lead to the deduction of correct profits. In the present case, we observe that the assessee has been consistently following this method of bifurcating its closing stock between levy and non-levy (free) sugar in the ratio postulated by the extant Government policy, thus, ignoring the factum of the accommodation (by the sugar industry), if any, by way of loaning of the free sugar to the Government by way of its conversion into levy sugar, and vice versa, as the same would get reversed in due course. We find this method to be perfectly in order, as by doing so, it does not influence book results on the basis of the fluctuations, essentially in the Government stock, which are compensated by such 'loaning' from the individual sugar mills. Therefore, at any point of time, the stock as classified by the assessee would reflect the amount of levy and non1evy sugar that 'belongs' to it, irrespective of the said fact of a temporary accommodation through conversion aforesaid. The impact of such practice on the profits wo....
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....ock representing the stock as actually belongs to it, the difference between the levy sugar in the two sets of statement implies that it has actually loaned/transferred a net of 28,772 bags (1,75,647 - 1,46,875) of levy sugar to non-levy sugar as at 31st March, 1994. This is not readily understood as the Government would, i.e., as and when it requires the same, only take sugar on loan, so that it calls for conversion of non-levy sugar into levy sugar, and which may in due course be adjusted, so that the level of levy sugar would fall back to the prevalent prescribed ratio, being 40 per cent as at 31st March, 1994. The reverse, i.e., Government loaning sugar to the sugar mills, does not seem probable in view of the increasing demand under the PDS scheme for which the Government also occasionally is required to import sugar, as also that, if that were to be the case, i.e., the Government is in surplus of levy sugar, it would, rather than loaning out from its stocks, effect further decontrol by reducing the ratio of the levy sugar from the existing ratio of 40 per cent, as has also been done by it; the ratio falling to 30 per cent w.e.f. 1st Jan., 2000. As such, it becomes incumbent t....