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Income Tax Appellate Tribunal, LUCKNOW BENCH ‘B’ LUCKNOW
Before: SHRI A.D JAIN & SHRI T.S. KAPOOR
IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH ‘B’ LUCKNOW BEFORE SHRI A.D JAIN, VICE PRESIDENT AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER ITA No.774 & 775 /Lkw/2016 A.Y. 2006-07, 2007-08 Kisan Sahkari Chini Mills Ltd. Vs. DCIT, Puranpur (Pilibhit) Circle II, Bareilly PAN AACCK3995M (Appellant) (Respondent) ITA No.776 /Lkw/2016 A.Y. 2008-09 Kisan Sahkari Chini Mills Ltd. Vs. DCIT, Puranpur (Pilibhit) Circle II, Bareilly PAN AABAT6173F (Appellant) (Respondent) Appellant by Shri Shyam Lall, CA Respondent by Smt. Sheela Chopra And Shri Harish Gidwani, DR Date of hearing 28/03/2022 07/04/2022 Date of pronouncement
O R D E R PER T.S. KAPOOR, A.M.:
These three appeals have been filed by the assessee against separate order of ld. CIT(A) dated 29.09.2016. The grounds of appeal taken by the assessee in these appeals are reproduced below: ITA No. 774/Lkw/2016 “1. The Learned Commissioner of Income tax (Appeals) Bareilly (hereinafter called CIT) has erred on facts and in law in confirming addition of Rs. 6432270.00 towards alleged suppressed production & sale of
Baggasse, without giving proper decision on Page No. 3 of Appellate Order, which has no connection with Section 145A of IT Act, 1961. 2. The Learned CIT erred on facts and in law in confirming addition of Rs.23891246.00 representing Excise Duty in valuation of Closing Stock in the present case. 3. The Learned CIT has erred on facts and in law in confirming addition of Rs. 23891075.00 on account of alleged variation in yield of sugar in the present case. ITA No. 775/Lkw/2016 1. The Learned Commissioner of Income tax (Appeals) Bareilly (hereinafter called CIT) has erred on facts and in law in confirming addition of Rs.6215510.00 towards alleged suppression of production of Baggasse in the present case. 2. The Learned CIT erred on facts and in law in confirming addition of Rs.9895280.00 in valuation of closing stock in the present case. 3. The Learned CIT has erred on facts and in law in confirming addition of Rs. 643193.00 representing Excise duty in valuation of closing stock in the present case. ITA No. 776/Lkw/2016 1. The Learned Commissioner of Income tax (Appeals) Bareilly (hereinafter called CIT) has erred on facts and in law in confirming addition of Rs.26324837.00 for alleged suppression of production & in valuation of Baggasse in the present case. 2. The Learned CIT erred on facts and in law in confirming addition of Rs.35374719.00 on account of valuation in yield of sugar in the present case.” 2. The ld. AR at the outset submitted that assessee is a Sahkari Mill which is engaged in the production of sugar from sugarcane. The Assessing Officer during these three years had made certain additions on account of variation in valuation of sugar as well as variation in the valuation of bagasse. It was submitted that one of addition towards valuation of stock of sugar was made by holding that assessee had not included excise duty in the valuation of closing stock as per Section 145A of the Act. It was submitted that since assessee had
not debited excise duty to P&L account or trading account therefore excise duty was not included rightly. The ld. AR submitted that the appeals before ld. CIT(A) were also not accepted and therefore appeals were filed before ITAT which had set aside the orders to ld. CIT(A) for re-adjudication. It was submitted that the ld. CIT(A) has again passed the orders on the set aside issues and has again sustained the addition without considering the merits in a proper manner. The ld. AR submitted that on the issue of inclusion of excise duty in the valuation of sugar the ld. AR had relied on certain case laws which has been noted by ld. CIT(A) at pg.4 in ITA No. 774 but ld. CIT(A) without appreciating such judgment has again sustained the addition by holding that Section 145A was amended w.e.f. 1.4.1999 which required that excise duty should be included in the valuation of closing stock. It was submitted that the decision of the Hon'ble Supreme Court in the case of CIT vs. Dynavision Ltd. [2012] 348 ITR 380 (SC) has clearly held that excise duty in the closing stock can be taken into account if the same has been debited in the trading or P&L account. The ld. AR submitted that it is a fact that assessee has not debited the excise duty in the trading of P&L account therefore ld. CIT(A) has wrongly sustained the addition and it was prayed that the same may be deleted. 3. Arguing that issue of production of bagasse, the ld.AR submitted that Assessing Officer had made addition on account of low production of bagasse by comparing the production of bagasse in another mill which though is a sister concern of assessee but the Assessing Officer had made the comparison with the production yield of bagasse for AY 1992-93 which is not correct as the assessee is maintaining complete quantity details and for which the necessary details are also there in the audit report. It was submitted that if the authorities below has estimated the production of bagasse on a higher side the consequent decrease should have been made in the production of sugar. Therefore it was argued that ld. CIT(A) has wrongly sustained the addition by comparing the results with another company which were not comparable.
The ld. CIT (DR), on the other hand, heavily placed reliance on the order of ld. CIT(A) and submitted that ld. CIT(A) has held that stock register were not produced. The ld. AR in this respect filed a copy of letter addressed to ACIT Bareilly placed in P.B. pgs. 3 to 4 where the assessee vide letter dated 06.07.2010 had submitted that assessee was maintaining day to day stock register under Excise Act and therefore it was submitted that it is wrong on the part of ld. CIT(A) to state that stock register were not produced. 5. We have heard the rival parties and have gone through the material placed on record. We find that the common issue involved in two out of three appeals which has been taken as Ground No.2 in ITA No. 774 and Ground No.3 in ITA No. 775 is that the ld. CIT(A) has sustained the addition by holding that there was an amendment in Section 145A w.e.f. 1.4.1999 and therefore excise duty should have been included in the valuation of sugar stock. While holding so he has ignored the various judgments relied on by the assessee which he has taken note of in his order. The judgment of Hon'ble Supreme Court in the case of CIT vs. Dynavision Ltd. [2012] 348 ITR 380 (SC) has though been reproduced by him in his order yet he has relied only on the amendment in Section 145A w.e.f. 1.4.1999. The addition of excise duty in the closing stock can only be made if the assessee had claimed the payment of excise duty in the P&L account or trading account which needs to be verified and therefore we deem it appropriate to set aside this issue to the office of ld. CIT(A) who should re-adjudicate the issue after giving adequate opportunity to the assessee of being heard. 6. In view of above, Ground No.2 in ITA No. 774 and Ground No.3 in ITA No. 775 are allowed for statistical purposes. 7. Now coming to the issue of bagasse which is Ground No.1 in all the appeals, we find that assessee during the proceedings before ld. CIT(A) for AY 2006-07 had made certain submissions which ld. CIT(A) has noted in his order at pgs. 2 and 3 which for the sake of completeness are reproduced below:
“1. That appellant has furnished quantitative particulars of bagasse produced, consumed & closing stock as given in annexure 9 of Tax Audit report (copy enclosed). That baggasse is used by appellant as a fuel for running turbine which makes saving of Expenditure under power & fuel. 3. That closing stock of baggasse is determined at year end valued as per method of valuation of closing stock followed by appellant. 4. The valuation of closing stock of baggasse has been done at market value (As given annexure no. 2 of Tax Audit report annexure enclosed). 5. The Learned Assessing Officer has compared the production of baggasse with that of Kisan Sahkari Chini Mills Ltd. Powayan of 1994- 95 where as the AY involved in the case of appellant 2006-07 (much after 1994-95) which is beyond compare. 6. The yield of baggasse would depend on quality of cane consumed. If baggasse is more the yield of sugar will reduce, which would result in loss greater that value of baggasse terminated is excess than actual quantity of baggasse. 7. The learned AO has not pinpointed any defect in books of account, accepting the trading result as the accounts being audited. 8. That there was no occasion by AO have made any addition on account of alleged increased production of baggasse. Without prejudice to the above 9. If the addition, in quantity of baggasse to the extent of 3.07% is made, the Learned AO should have reduced the yield of finished sugar by equivalent percentage, the said action would resulted in reduction of closing stock of sugar, which incidentally has not been done by Learned AO. In view of the above, the additions to made deserve to be deleted.”
The ld. CIT(A) instead of dealing with the submissions filed by the assessee passed the following order for confirmation of the addition:
“The submissions of the AR for the appellant have been taken into consideration. I have also perused the order of the Hon'ble ITAT. It is a fact that by an amendment in section 145A of the IT Act, w.e.f. 1.4.1999 closing
stock valuation should be inclusive of Excise Duty. The appellant has not added the excise duty in the closing stock. In this proceeding also the appellant has not produced any evidence to establish that excise duty was a part of closing stock. That AO has made a categorical finding that excise duty is not a part of closing stock. Therefore the AO was justified in making the addition. The same is hereby confirmed.” 8.1 We find that in the decision for sustenance of addition of bagasse in the AY 2006-07, the ld. CIT(A) has not considered the submission of assessee at all and has confirmed the addition by holding that excise duty was to be included therein which is against the facts. Therefore, we deem it appropriate to remit the issue of valuation of bagasse in ITA No. 774 to ld. CIT(A) for his re-adjudication.
As regards ITA No. 775 and 776, the ld. CIT(A) has confirmed the disallowance on account of bagasse by holding as under:
“The submission of the appellant and the assessment order has been considered. It is seen that in the reply filed before the AO the assessee disclosed " the assesses disclosed production of bagasses @ 32.90%. As regards the production of bagasse it was also required to explain the low production disclosed in comparison of certificate produced by the Chief Engineer of Kisan Sahakari Chini Mil, Powanya. This mill is sister concern of the assessee and situated in the adjoining area of the assessee mill. In this regard the assessee has stated that the production cannot be compared with the production disclosed by Kissan Sahkari Chini Mill, Pcwanya during the Asstt. Year 1992-93. The submission of the assessee does not appear to be acceptable and the same is liable to be rejected. Therefore, the production of bagasse is taken @ 36% as against @ 32.90% disclosed by the assessee. The re computation of production is as under:-
Production of Bagasse = 28,64,300/-X 36 = 10,31,148 Quintals 100 Less Shown = 28,64,300/-X 33.90 = 9.42.355 Quintals 100 88,793 Quintals
In view of above computation, it is clear that the assessee has suppressed the production bagasse of 88,793/- quintals and the same has been sold without recording entry in the books of account. As regard the value of sale proceeds as proposed of Rs. 200/- per qtl as against the assessee disclosed Rs. 70/- per quintal, however, the same is determined Rs. 70/- per qtl for the period under consideration. By applying the rate of Rs. 70/- per qtl against the
suppressed production of bagasse of 88,793/- quintals the sale proceeds come to Rs. 62,15,510/- (88,793/- X 70). In view of above the ground No. 1 is decided against the appellant.” 10. In ITA No. 776 ld. CIT(A) has sustained this addition by holding as under: “I have considered the issue and perused the reply of the appellant. The claim of the appellant is that the assessing officer has Quantitative details which were furnished and are also in Tax Audit Report. The other claim is that there is Strict Physical control on Baggasse in factory is exercised. Be that as it may the appellant’s AR has not produced any cogent material on record to justify the claim made by the appellant. As such the addition as made by the AO is confirmed,” 11. Therefore we deem it appropriate to remit this issue also to ld. CIT(A) who should give opportunity to the assessee and after hearing the same should re- adjudicate the issue in a proper and judicious manner. 12. Ground No.3 in ITA 774, Ground No.2 in ITA No. 775 and Ground No.2 in ITA 776 relate to the sustenance of addition on account of variance in valuation of stock of sugar which the ld. CIT(A) has upheld by holding that assessee had not produced stock register before the Assessing Officer. In this respect we find that assessee vide letter dated 6.7.2010 placed in P.B. pgs. 3 and 4 has written to Assessing Officer that it was maintaining stock register and moreover we find that assessee is manufacturing excisable goods for which maintenance of stock registers is compulsory under the Excise Act therefore this finding of ld. CIT(A) is not correct. In view of above we remit this issue also to the office of ld. CIT(A) who should re-adjudicate the issue in proper and judicious manner. 13. In the result, all the appeals are allowed for statistical purposes.
(Order pronounced in the open court on 07/04/2022) Sd/- Sd/- (A.D. Jain) (T.S. Kapoor) Vice President Accountant Member Aks/– Dtd. 07/04/2022
Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar