- (1.) PRESENT appeal has been filed by the department under Section 260A of the Income -tax Act, 1961, against the judgment and order dated 22.08.2003, passed by the Income -tax Appellate Tribunal, Lucknow in I.T.A. No. 452/All./97, for the assessment year 1987 -88. On 16.01.2004, a coordinate Bench of this Court has admitted the appeal on the following substantial question of law: - - Whether the Income Tax Appellate Tribunal was justified in confirming the deletion of Rs. 75,84,346/ - on account of low valuation of closing stock made by the CIT (Appeals) specially when the matter is covered by the decision of Apex Court in the case of CIT v. British Paints India Ltd. : [1991] 188 ITR 44/54 Taxman 499 in favour of the appellant.
(2.) THE brief facts of the case are that the assessee is a cooperative society, who is engaged in the manufacturing and sale of sugar in its factory at Majhola in District Pilibhit. The assessee has filed the loss return subject to carry forward of unabsorbed losses and depreciation of earlier years. But the A.O. has passed an order under Section 143(3), where he made the addition pertaining to the valuation of the closing stock. The assessee has shown the value of the closing stock of sugar at Rs. 6,62,61,378/ -. But the A.O. found its too low. So, he rejected the assessee's method of valuation of closing stock and took the levy sugar and free sugar at the same price and made the addition of Rs. 75,69,142/ -. But the same was deleted by the first appellate authority as well as by the Tribunal vide its impugned order. Being aggrieved, the department has filed the present appeal. With this background, Sri Sidharth Dhaon, learned counsel for the department has justified the A.O.'s order. He submits that the assessee has valued its closing stock of sugar by bifurcating the closing stock of sugar as levy sugar and free sale sugar. The Government had earmarked 55% of this year's production to be supplied to the Government as levy sugar @ Rs. 422/ - per qtl. and the balance 45% production was allowed to be sold in the open market as free sale sugar. Absolutely, there is no difference in the quality of free sale sugar and levy sugar and the cost of production comes to Rs. 524.94 per qtl. He further submits that the procurement price fixed by the Government for levy sugar does not constitute market price. The market price should be adopted on the basis of selling rate as prevailing in the open market.
(3.) ON specific enquiry, learned counsel accepts that the assessee has to supply the quota of levy sugar below its cost price and this affect the trading result of the assessee but such loss is simultaneously compensated by release of free sale sugar which is permitted to be sold at higher price in the open market. The levy sugar and free sale sugar both should be valued by uniform method of either the cost price or the market price, which ever is lower but valuation as adopted by the assessee leads to incorrect results. For rejecting the earlier method of accounting, learned counsel relied on the ratio laid down in the case of CIT v. British Paints India Ltd. : [1991] 188 ITR 44/54 Taxman 499 (SC), where it was observed that estoppel is not applicable in the taxation matter and every assessment year is independent assessment year.;