M/S IZHAR INTERNATIONAL,VARANASI vs. DY. C. I. T., CIRCLE -1, VARANASI

IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH, VARANASI BEFORE SH. SUDHANSHU SRIVASATVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.43/VNS/2025 A.Y.-2010-11 M/s Izhar International, Barhi Newada, vs. Dy. CIT, Distt. Varanasi, Uttar Pradesh Circle-1, Varanasi PAN: AAAF15991A (Appellant) (Respondent) Assessee by: Sh. RKN Jayaswal, Adv Revenue by: Sh. Deepak Yadav, Sr. DR Date of hearing: 04.08.2026 Date of pronouncement: 16.10.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the order of the ld. CIT(A), NFAC dated 28.01.2025, wherein the ld. CIT(A) has partly allowed the assessee against the order passed by the ld. Assessing Officer under section 143(3) of the Income Tax Act, 1961 on 4.02.2013. The grounds of appeal are as under: - “1. Because, the learned CIT Appeal (NFAC) misconstrued the order dated 13.04.2018 of the Hon'ble Bench respecting ITA No.-345/Alld/2013 while restoring back the file to him (CIT Appeal) to adjudicate de-novo, the issues raised by the appellant in the Grounds of Appeal along with the resultant additional (as per Para-6) pertaining to the corresponding valuation of opening stock. 2. Because, the learned CIT Appeals (NFAC) avoided taking cognizance of the issues raised before him by other Grounds of Appeals which were not rejected by the Hon'ble Bench, in its order while restoring back to decide de-novo, after opportunity, which is highly unjust. 3. Because, the order is bad in law and against the facts of the case.”

ITA No.43/VNS/2025 M/s Izhar International A.Y. 2010-11 2. The facts of the case are that the appeal was originally instituted before the ld. CIT(A) on 14.03.2013 against the order passed by the ld. Assessing Officer under section 143(3) of the Income Tax Act, 1961 on 4.02.2013. The ld. CIT(A) partially allowed the assessee’s appeal against which the assessee filed an appeal before the ITAT. The ITAT, Allahabad Bench, vide its order dated 13.04.2018, restored the matter back to the file of the ld. CIT(A). Subsequently, the appeal was migrated to the National Faceless Appeal Center and taken up for adjudication by the ld. CIT(A) in faceless appeal proceedings. The assessee made submissions to the ld. CIT(A) on all the grounds of appeal that had been preferred against the original assessment orders i.e. on the enhancement of turnover from Rs. 11,28,85,319/- to Rs. 11,26,86,000/-; on the adoption of G.P. of 14.06% against the offered G.P. of 13.03%, and the addition of Rs. 17,71,972/- on this account and on disallowance of claim of bad debt amounting to Rs. 6,41,285/- and a further addition of Rs. 14,64,210/- on account of excess claim of duty drawback made by the assessee. The assessee made detailed submissions regarding all these issues but the ld. CIT(A) noted that the ld. Assessing Officer had rejected the books of account on account of the fact that the raw materials lying with the weavers was not accounted for by the assessee and the day-to-day stock register had not been produced by the assessee during the course of the assessment proceedings. Furthermore, the ld. CIT(A), NFAC noted that the ld. CIT(A), Varanasi had in his order dated 27.08.2013 directed that the G.P. rate should be applied at 14.1% (in accordance with the previous assessment year) instead of 14.6% and to recompute the amount of extra profit addition. The assessee had preferred further appeal before the ITAT and the cases of assessment years 2009-10 and 2010-11 were heard together by the ITAT and disposed off by way of a common order. The ITAT discussed the facts as appearing in ITA No. 2

ITA No.43/VNS/2025 M/s Izhar International A.Y. 2010-11 145/ALLD/2013 pertaining to the A.Y. 2009-10, and considered the issue of valuation of closing stock which had been varied by the ld. Assessing Officer. After considering the arguments of the assessee’s AR, the ITAT restored the matter back to the file of the ld. CIT(A) to decide the issue by taking into account various accounting policies and standards adopted by the assessee as appearing in the audit report and also to consider the various case laws relied upon by the assessee and then to decide the matter afresh after affording reasonable opportunity of hearing to the assessee. The appeal in ITA No. 345/ALLD/2013 against the ld. CIT(Appeal’s) order in respect of assessment year 2010-11, was also restored back to the file of the ld. CIT(A) for fresh adjudication. The ld. CIT(A) considered the grounds of appeal filed by the assessee and pointed out that the Tribunal had adopted the assessment order for A.Y. 2009-10 as the basis for adjudicating both the appeals, for the assessment year 2009-10 and the assessment year 2010-11. He held that the matter had only been restored for the valuation of closing stock. Noticing that the ld. Assessing Officer had adopted the market rate for the valuation of closing stock as mentioned in export invoices, he pointed out that in the case of M/S. Sanjeev Woolen Mills vs Commissioner Of Income- Tax, Mumbai (2005) 279 ITR 434, the Hon’ble Supreme Court had held that the stock could only be valued at market value if it was lower than the cost of the stock and therefore the approach of the ld. Assessing Officer was wrong. He further held that even while adopting market rate as mentioned in export invoices, the ld. Assessing Officer had made addition only on one side of the profit and loss account i.e. re-valued the closing stock without making corresponding changes in the opening stock. Thereafter, relying upon the decision of the Hon’ble Supreme Court in the case of CIT v. Dynavision Ltd., (2012) 26 taxman.com 40, the ld. CIT(A) held that on the issue of closing stock valuation, set aside by the ITAT, the matter was being 3

ITA No.43/VNS/2025 M/s Izhar International A.Y. 2010-11 decided in favour of the assessee. He further pointed out that since the matter had only been sent back to him on the issue of valuation of closing stock as per the facts in A.Y. 2009-10, even though additions had been made on other issues in A.Y. 2010-11, the same were not being taken up for adjudication. 3. The assessee is aggrieved at the failure of the ld. CIT(A) to adjudicate his grounds of appeal on this logic and has accordingly come before us. Sh. RKN Jayaswal, Advocate (hereinafter referred to as the ld. AR) submitted that the Tribunal had not discussed the facts of the case of A.Y. 2010-11 in its order. It had only discussed the facts of A.Y. 2009-10. However, it had restored the matter back to the file of the ld. CIT(A) for fresh adjudication. It was submitted that this fresh adjudication was not confined to the issue of valuation because the issue of valuation of closing stock was not an issue for consideration in the A.Y. 2010-11. In the circumstances, the ld. CIT(A) had misconstrued the orders of the ITAT and refused to adjudicate the grounds of appeal raised before him on an erroneous understanding of the order of the Tribunal. It was therefore, requested that the matter may be restored back to the file of the ld. CIT(A), NFAC for consideration of all the issues and passing of order with regard to them. 4. On the other hand, Sh. Deepak Yadav, Sr. DR (hereinafter referred to as the ld. DR) pointed out that the matter had been restored back by the ITAT only on the issue of closing stock valuation. He submitted that the Hon’ble ITAT had not discussed other issues before remanding the matter back and had used the conjunctive word, “similarly” while restoring the appeal of the assessee back in A.Y. 2010-11 also to the file of the ld. CIT(A). Therefore, it had to be understood to mean that the ITAT had restored the matter back to the file of the ld. CIT(A) only on the issue of valuation of closing stock.

ITA No.43/VNS/2025 M/s Izhar International A.Y. 2010-11 Therefore, the ld. CIT(A) was justified in refusing to decide the remaining grounds of appeal and refusing to render the decision on the matter. 5. We have duly considered the facts and circumstances of the case and the arguments advanced by both the parties. We note that during the assessment year in question, the ld. Assessing Officer made additions to the income of the assessee on account of the fall in the gross profit rate, the finding that the assessee had paid weaving charges of 4.69 Crores during the year in cash to various persons whose complete addresses had not been submitted and no day to day stock register had been produced by the assessee from which the ld. Assessing Officer could determine what raw material was lying with weavers, what co-relation could be established between raw material consumed and carpet manufactured and from which manufacturing expenses of each carpet and drugget could be worked out. We also note that the ld. Assessing Officer had made additions on account of disallowance of bad debts that had been written off on account of the failure of the assessee to produce any evidence in support of its contention that it was engaged in the business of sales and purchases of woollen yarn and the failure to locate how the debts of Rs. 6,41,285/- was being shown in income of earlier years. The ld. Assessing Officer had also disallowed a sum of Rs. 14,64,210/-under the head, “interest on return of duty drawback” holding that the same were on account of an infringement of law due to excess claim of duty drawback and the expenses had not been incurred wholly and exclusively for the purposes of business. The method of valuation of closing stock was not an issue under consideration in the A.Y. 2010-11. Therefore, the ld. CIT(A) was incorrect in construing the order of the ITAT to mean that the appeal of 2010-11 was also restored to his file for the purpose of deciding that issue only. While the order of the ITAT in respect of assessment year 2010-11 may not have been a speaking order and may not have recorded the 5

ITA No.43/VNS/2025 M/s Izhar International A.Y. 2010-11 reasons for restoring the matter back to the file of the ld. CIT(A), in view of the fact that the issue involved in A.Y. 2009-10 was completely different from the issues involved in A.Y. 2010-11, it could not be held that the matter had been restored back to the ld. CIT(A) only for looking into the method of valuation of closing stock. Rather, it is quite clear from a perusal of the order of the ITAT that the matter has been restored to the file of the ld. CIT(A) for fresh adjudication and the use of the word, “similarly” is only for recording the similar approach of the ITAT in restoring the matter back to the file of the ld. CIT(A). That being the case, the ld. CIT(A) was obliged to consider all the issues raised by the assessee in the grounds of appeal. In view of the fact that he had failed to do so, the matter is restored back to his file for deciding on the grounds of appeal preferred by the assessee afresh and in accordance with law. 6. In the result, the appeal of the assessee is allowed. Order pronounced on 16.10.2026 in the Open Court. Sd/- Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16/10/2026 Sh SHAMSH Copy forwarded to: Digitally signed 1. Appellant – by SHAMSHAD AD HUSAIN 2. Respondent – Date: 2026.10.22 3. CIT DR, ITAT HUSAIN 12:01:13 +05'30' 4. CIT, 5. The CIT(A) By order Sr. P.S.