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Facts
The appeals concerned the addition made by the Assessing Officer (AO) on account of closing stock, which was confirmed by the CIT(A). The assessee's method of valuing closing stock by deducting income from various sources from the cost of production was challenged.
Held
The Tribunal held that income from sources other than business cannot be considered as a component of the cost of production for determining the value of closing stock. Each assessment year is independent, and a wrong accounting method cannot be appropriated.
Key Issues
Whether income from sources other than business can be deducted from the cost of production for valuing closing stock, and the principle of consistency in accounting methods.
Sections Cited
147, 148, 143(3)
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI SS VISWANETHRA RAVI & SHRI AMITABH SHUKLA
The below mentioned appeals have been filed by the appellant assessee for AY-2017-18, 2018-19 & 2020-21 contesting the order of Ld. First Appellate Authority indicated Column-E, herein below:- S. Appeal Nos. AYs Appellant CIT(A) Order Details Respondent No. A B C D E F DIN & Order No.ITBA / NFAC / S / 250 / 2025- 1 2017-18 / Chny / 2025 26 / 1077154831(1) Kallakurichi II Co- dated 18.06.2025 Operative Sugar Mills, Assistant Unit-II, CS-11, DIN & Order No.ITBA / Commissioner of Kachirapalayam, NFAC / S / 250 / 2025- / Chny / 2025 Income Tax, 2 2018-19 Kallakurichi, 26 / 1077156116(1) Villupuram, Circle-1 dated 18.06.2025 Tamil Nadu-606 207. Cuddalore. [PAN: AAAAK0655Q] DIN & Order No.ITBA / NFAC / S / 250 / 2025- / Chny / 2025 3 2020-21 26 / 1077156645(1) dated 18.06.2025d 2.0 At the outset, the Ld.Counsel for the assessee confirmed that the facts of all the three appeals are common. Accordingly, as all the three above appeals are centering around a common issue and hence for the purposes of convenience were heard and are being adjudicated together by this common order. For the purposes of this adjudication the facts and figures for AY-2017-18 have been taken. The decision for AY-2017- 18 shall apply mutatis mutandis for appeal AYs-2018-19 & 2020-21 also. 3.0 The Ld.Counsel for the assessee submitted that the issue at hand involves the addition of Rs.1,61,55,945/- made by the Ld.AO on account of closing stock and its confirmation by the Ld.CIT(A). The Ld.AO has discussed the impugned addition on pages 3 to 9 of his order. It was observed that in assessee’s own case for AY-2011-12 this tribunal had confirmed the action of Ld.AO. Consequently, the Ld.AO proceeded to repeat the addition as in the past. The Ld.CIT(A) has examined the issue on page 9 to 10 of his order. The addition was confirmed again relying upon the decision of this tribunal in assessee’s own case for AY- 2011-12. 4.0 The Ld.DR relied upon the order of lower authorities. It was contended that all along this tribunal in assessee’s own case for AY-
Page - 2 - of 5 , 2294 & 2295/Chny/2025 2011-12, 2015-16 etc has confirmed the order of lower authorities qua disturbance made to assessee’s income on account of closing stock. 5.0 We have heard rival submissions in the light of material available on records. We have noted that in assessee’s own case for AY-2011-12 vide this tribunal have confirmed the findings of Ld.CIT(A) by observing as under: “……2. The ground raised by the assessee in this appeal is with regard to valuation of closing stock in respect of molasses without reducing the income from sale of scrap, interest on FD,dividend, others and unwanted items from the cost of production.
3. The facts of the case are that the assessee is mainly engaged in manufacture and sale of sugar and by-products. The Assessing Officer while determining the value of closing stock not considered the income from sale of scrap, interest on FD, dividend, others and unwanted items from the cost of production, thereby made an addition of 74,80,84,109/- on account of understatement of value of closing stock of free sugar and 7 94,73,234/- on account of understatement of value of closing stock of molasses. The assessee carried the matter before the CIT(Appeals), who confirmed the order of the AO. Against this, the assessee is in appeal before us.
4. We have heard both the sides and perused the material on record. The Id. AR submitted that method of closing stock valuation of cost of production after deducting the income from the above components has been considered by the assessee for the past several years and the Department cannot disturb in the middle. In our opinion, the assessee has been following the system of accounting by deducting the income from power, scrap, interest on FD, dividend and others from the cost of production. First of all to arrive at the cost of value of closing stock, these components are not the income generated from the business activity carried on by the assessee. In other words, the income from the above components are not assessed under the head income from business and it is assessed as income from other sources. When it is assessed as income from other sources, it cannot be considered as component of cost of production for determining the value of closing stock. The Id.AR relied on the following judgments for the proposition that consistency to be followed in income-tax proceedings :
1. United Commercial Bank v. CIT (240 ITR 355)(SC) 2. CIT v. Woodward Governor India P. Ltd. (312 ITR 254)(SC) 3. Merck Ltd. v. DCIT (2 ITR (Trib)-OL 629 (Mumbai) 4. CIT v. Dhampur Sugar Mills Ltd. (360 ITR 82) (Allahabad)
Page - 3 - of 5 , 2294 & 2295/Chny/2025 In our opinion, each assessment year is an independent assessment of unit and the wrong method of accounting followed by the assessee cannot be appropriated. In our opinion, the above components are not income from the business of the assessee, the same cannot be considered for the purpose of valuing the closing stock by deducting from cost of production. 5. In the result, the appeal of the assessee is dismissed….”
6.0 We have noted that both the parties have concurred that the facts for AY-2017-18, 2018-19 & 2020-21 are identical to those as in assessee’s case for AY-2011-12 supra. We have also noted that the Ld.Counsel for the assessee fairly conceded that the assessee has hitherto not succeeded, on identical facts, before this tribunal in the past. Accordingly we are of the considered view that for the principles of consistency as also in respectful compliance to the decision of this tribunal in assessee’s case for AY-2011-12 supra, no case of any intervention is made out in favour of the assessee, at this stage. Accordingly, we confirm the order of Ld.CIT(A) and dismiss all the grounds of appeal raised by the assessee. 7.0 In the result, the appeal of the assessee in AY-2017-18 is dismissed. 8.0 As the facts of assessee’s appeal in & 2295 / Chny / 2025 for AY-2018-19 and 2020-21 are identical to those in AY-2017-18 supra, the appeals of the assessee for AY- 2018-19 and 2020-21 is also dismissed.
Page - 4 - of 5 , 2294 & 2295/Chny/2025 9.0 In the result, the appeals of the assessee are decided as under:-
Order pronounced on 13th , November-2025 at Chennai.