Indian Sugar Exim Corpotation Ltd., New ... vs Department Of Income Tax

DCIT, vs M/s Indian Sugar Exim Corporation Ltd., Circle-11(1), Room No.-312, C-Block, 2nd Floor, Ansal Plaza, C.R. Building, New Delhi August Kranti Marg, New Delhi-110049 PAN-AAACI1163M (APPELLANT) (RESPONDENT)

I.T.A .No.-2042/Del/2013 (ASSESSMENT YEAR- 2009-10)

M/s Indian Sugar Exim Corporation Ltd., vs DCIT, C-Block, 2nd Floor, Ansal Plaza, Circle-11(1), Room No.-312, August Kranti Marg, New Delhi-110049 C.R. Building, New Delhi PAN-AAACI1163M (APPELLANT) (RESPONDENT)

Appellant by Sh.J.P.Chandrakar, Sr. DR Respondent by Sh.Ashwini Taneja, Adv. & Sh.Sumit Jain, CA

Date of Hearing:-19.02.2015 Date of Pronouncement:- 25.03.2015

ORDER PER DIVA SINGH, JM

These are cross appeals filed by the assessee and the Revenue against the order dated 25.03.2013 of CIT(A)-XV, New Delhi pertaining to 2009-10 assessment year. The Revenue before us has come up in the following grounds:-

1. "On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.29,14,126/- on account of contribution towards provident fund.

2 I.T.A .No.-2859 & 2042/Del/2013 2. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.5,19,84,295/- made under section 14A read with Rule 80 of Income Tax Rules, 1962.

3. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.3,59,33,848/- on account of valuation of closing stock of sugar.

4. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.

It is prayed that the order of the Ld. CIT(A)-XV, being contrary to the facts on record and the settled position of law, be set aside and that of the Assessing Officer be restored."

2. The assessee's grounds in the CO filed read as under:-

1(a). "That the learned CIT(A) erred, both on facts and in law in sustaining a disallowance of Rs.21,15,126/- towards interest u/s 14A of Income tax Act read with Rule 8D of the Income Tax Rules.

1(b) That on the facts and circumstances of the case, the Ld. CIT(A) has erred in applying Rule 8D in assessee's case.

1(c) The ld. CIT(A) failed to appreciate that the assessee had made investments of Rs.10.75 crores from the redemption proceeds of earlier investments/ Realization from Debtors and / or interest free funds available with the assessee and as such disallowance u/s 14A with respect to interest of Rs.21,15,126/- deserves to be deleted. 1(d) That the ld. CIT(A) further erred in considering that the investments of Rs.10.75 crores were capable of earning exempt income and had been made out of borrowed funds in total disregard of the facts and evidences on record.

1(e) That the ld. CIT(A) has erred in holding that the appellant has not raised any objection on invoking of Rule8D.

2. Tha the ld. CIT(A) has erred in sustaining disallowance of Rs.11,321/-

towards interest on late payment of TDS without appreciating that it an allowable expenditure.

3. That the appellant craves leave to add, amend, alter any grounds of appeal of appeal."

2.1. The ld. AR has stated that the Ground No.-2 raised in the CO is not being pressed, the same is accordingly dismissed.

3. Addressing the facts relatable to Ground No.-1 of the Revenue it is stated that the issue is coming from the earlier years and the facts are found addressed in the assessment order at page 3 para 5. For ready-reference, the same is reproduced hereunder:-

"During the course of assessment proceedings, it was observed that the assessee has made employers contribution to provident fund trust to the extent of Rs.29, 14, 126/- From the records, it is observed that the Provident Fund Trust of the assessee company namely "INDIAN SUGAR GENERAL 3 I.T.A .No.-2859 & 2042/Del/2013

INDUSTRY EXPORT IMPORT CORPORATION L TO DELHI PROVIDENT FUND" has not invested the funds as per prescribed rules during AY 2003-04 . Since the PF Trust has not invested the funds as per Rule 67 of the Income Tax Rules, it was not entitled to be considered as "Recognized Provident Fund Trust" In view of the past history, the employers contribution deposited in assessee's own provident fund trust totaling to Rs.29,14,126/- is being disallowed and added back to the total income of the assessee u/s 43B of the Income Tax Act. Penalty proceedings u/s 271 (1)(c ) of the Income Tax Act is initiated on this point for furnishing of inaccurate particulars of income.

3.1. In appeal before the First Appellate Authority, the CIT(A) considering the past history of the assessee which had been confirmed by the Hon'ble High Court in 2003-04 assessment year decided the issue in the following manner:-

5.5 "Regarding the Ground No. 5 relating the disallowance out of employees' contribution to Provident Fund, the AO was of the view that since registered PF Trust of the Appellant has not invested the funds as per Rule 67 of the IT Rules, it was not entitled to be considered as recognized Provident Fund Trust. The fact that the PF Trust of the Appellant has been approved as the registered Trust by the competent authority, i.e. CIT, which has not revoked the decision, the AO could not have usurped the jurisdiction of the CIT and have held the Trust as not registered. The matter had been decided in favour of the Appellant by the ITAT for AY 2003-04 to AY 2007-08, and the Appeal of the revenue against the same was dismissed by the hon'ble Delhi High Court for AY 2003-04. Keeping in view the above, the disallowance cannot be sustained. Accordingly, the Appellant gets full relief in this regard."

4. Aggrieved by this the Revenue is in appeal before the Tribunal.

5. Ld. Sr. DR inviting attention to the proviso to section 3 para (A) of the Fourth Schedule of the Income Tax Act, 1961 submitted that the assessee has not filed a fresh application before the concerned authority stating that it satisfies the conditions set out in clause (ea) of Rule 4. Accordingly it was his submission that following the past history the claim cannot be allowed. Ld. AR on the other hand inviting attention to the assessment order and the impugned order submitted that no such case has been made out by the AO who has specifically taken cognizance only of the fact that the assessee according to the AO was not found to have invested the funds as per the prescribed Rules in a recognized Provident Fund during 2003-04 assessment year and consistently over the years this issue right upto 2007-08 assessment year has been decided in favour of the assessee 4 I.T.A .No.-2859 & 2042/Del/2013

and was not raised by the Revenue in its appeal filed before the ITAT in 2008-09 assessment year. Referring to the record it was pointed out that the issue was taken up by the Revenue and the order of the Tribunal was specifically challenged. Referring to the copy of the judgement dated 15.02.2011 filed it was pointed out that the Hon'ble High Court decided the issue in assessee's favour and cognizance of this judgement has been taken note of by the CIT(A). Accordingly on facts it was his submission the issue is fully covered in assessee's favour.

5.1. In support of the impugned order the Ld. AR has also assailed the departmental attempt to make out a new case which was not that of the AO. It was his submission that consistently over the years the assessee in compliance with the requirements has been making appropriate applications as per law and no order has been passed till date holding that the recognition of the trust fund has been withdrawn. It was also submitted that even the Ld. Sr. DR placed no such evidence on record. The Revenue it was his submission should not be allowed to expand the scope and should confine its arguments to the grounds raised and the facts on record and in the absence of any facts to the contrary the arguments should not be allowed to be advanced frivolously.

6. We have heard the rival submissions and perused the material available on record. As would be seen from the reproduction of the relevant extract from the assessment order the AO has specifically made out a case that the investment in 2003-04 assessment year was not made as per the prescribed Rules in a Recognized Provident Fund Trust which has been held to be a reason to deny relief in the year under consideration also. The issue in 2003-04 assessment year the record shows has been decided in favour of the assessee by the Tribunal and this order had been challenged before the Hon'ble High Court by Revenue wherein the following question was considered by the Hon'ble High Court :-

1. "Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal was correct in law and on facts in deleting the addition made by Assessing Officer of Rs.15,22,234/- on account of disallowance of contribution to employees provident fund? "

5 I.T.A .No.-2859 & 2042/Del/2013 6.1. Considering the facts the Hon'ble High Court decide the issue in favour of the assessee on the following reasoning:-

"In so far as question no.1 is concerned, the addition made by the Assessing Officer on account of contribution to the Employees Provident Fund was not recognized. The Tribunal reversed this order of the Assessing Officer and deleted the addition finding that the contribution was made to a duly recognized Provident Fund.

Dr. Gupta, learned counsel appearing for the respondent/assessee has produced before us a copy of the order of CIT (A) in respect of assessment year 2003-04 which clearly demonstrate that it was a duly recognized fund inasmuch as order of the Assessing Officer on this account was reversed by the CIT(A). He further informs that no appeal is preferred by the Department against the aforesaid order. On this basis it is clear that no question of law arises in so far as proposed question no.1 is concerned."

6.2. In view of the above where admittedly no contrary evidence has been placed by the Revenue except half heated arguments devoid of facts, we find no infirmity in the impugned order where considering the past history the AO rejected the assessee's claim and the CIT(A), considering the facts on record relying upon the High Court's decision upto which stage the issue was settled allowed the claim of the assessee by rejecting the departmental plea. It is a matter of record that consistently the view on the issue has not been varied either by the Tribunal or by any Higher Forum in the intervening years. Accordingly being satisfied by the finding in the absence of any fact to the contrary the Ground raised is dismissed.

7. The facts relatable to the second issue are found discussed in paras 6 to 6.7 of the assessment order wherein considering the facts that the assessee had shown income of Rs.2,12,35,847/- by way of interest on UTI Bonds and Rs.1,33,219/- as dividend on Mutual Funds which were claimed to be exempted, the AO require the assessee to explain why disallowance u/s 14A may not be made. In reply the assessee is found to have stated that the assessee had huge surplus and interest free funds available at its disposal which were more than the investment made and interest expenditure was stated to be incurred in relation to business of the assessee and not in relation to investment activities. Not accepting the 6 I.T.A .No.-2859 & 2042/Del/2013

explanation offered and relying upon the decisions of the Bombay High Court in Godrej & Boyce Ltd. vs. DCIT & decision of the Special Bench in the case Cheminvest Ltd. vs ITO 317 ITR 86 (SB) (Del.) the AO made disallowance of Rs.5,40,99,521/- applying Rule 8D.

8. Aggrieved by this the assessee went in appeal before the First Appellate Authority who considering the submissions granted part relief and restricted the disallowance to Rs.48,31,968/- and considering the fact that the assessee had itself made disallowance of Rs.27,60,841/- computed the disallowance of Rs.21,15,126/-. Aggrieved by this both the assessee and the Revenue are in appeal before the Tribunal whereas the Ld. AR inviting attention to the order of the Co-ordinate Bench in 2008-09 assessment year in ITA No.-2103/Del/2012 & ITA No.-1671/Del/2012 dated 15.09.2013 submitted that the Co-ordinate Bench has restored the issue back to the file of the AO. It was his submission that in judicial propriety similar direction may be given herein also. The Ld. Sr. DR on the other hand initially objected that the issue need not be restored as Rule 8D is fully applicable and the disallowance made by the assessee of Rs.27,60,841/- was found to be not adequate and satisfaction to this effect has been arrived at by the AO. However on going through the detailed order of the Tribunal at pages 25 to 29 in para 7 to 7.1 it was submitted that he would have no objection if for computational purposes in judicial propriety the issue is restored to the AO with the direction to apply Rule 8D.

9. We have heard the rival submissions and perused the material available on record. On a consideration of the submission of the parties, we hold that the issue necessarily has to be restored in judicial propriety as the CIT(A) in the impugned order specifically at page 20 & 21 takes note of the fact that certain specific investments of Rs.35 crores are brought forward investments of Rs.10.75 crores as on 01.04.2003 and the balance of Rs.24.25 crores had been redeemed in the last year.

7 I.T.A .No.-2859 & 2042/Del/2013 9.1. A perusal of pages 15 to 21 of the Co-ordinate Bench would show that the following fact referred to by the CIT(A) in the impugned order have been taken into consideration:-

"I also find that the appellant had brought forward investments of Rs.251,24,16,625 as on 1.4.2008. My Ld. Predecessor, while deciding the appeal for AY 2008-09, had held that, the following investments worth Rs.35 crores were made in FY 2007-08 through mixed funds:-

Date of Investment Amount of Investment (In Investment Name as per Bank Rs.) Statement 21.6.2007 14,00,00,000 Birla Mutual Fund 12.07.2007 14,00,00,000 J M Mutual Fund 20.07.2007 1,00,00,000 Optimix Mutual Fund 31.7.2007 3,00,00,000 (Out of 6.25 Optimix Mutual Fund crores invested) 30.10.2007 2,00,00,000 SBI Mutual Fund 19.12.2007 1,00,00,000 (Out of 2 crores Prudential ICICI invested) Mutual Fund 35,00,00,000 I find that out of the above investments of Rs.35 crores, the assessee has brought forward investments of Rs.10.75 crores as at 1.4.2008 and the balance Rs.24.25 crores had already been redeemed in the last year. Further, these investments of Rs.10.75 crores remained throughout the year and were also held by the assessee as at 31/3/2009. In view of the same, for working out disallowance under Rule 8D(2)(ii), average investments of Rs.10.75 crores alone are being taken, since use of mixed funds could be held only to that extent. The remaining investments made during the year, taxable or tax exempt, were made out of redemption proceeds of investments made in earlier years and thus held to be not from interest bearing funds."

9.2. It is a matter of record that the issue in 2008-09 Assessment year has been restored to the AO by the Co-ordinate Bench with following direction:-

7. "We have heard both the sides on the issue. For the year under consideration, the assessee has made investment to the tune of Rs.2,18,16,75,912/-. It is claimed that Rs.2,16,09,61,251/- was received from redemption of investments. The assessee's claim that investments were from the proceeds of redemption of old investments and cash surplus generated by way of interest income on UTI Bonds and dividend income on mutual funds investment. It was also claimed that the interest expenditure debited in the profit & loss account was with respect to export and import of sugar alone and it was not at all related to any investment activity and it was claimed that no interest was incurred towards the investment activity. The assessee has also relied on the decision of Hon'ble Delhi High Court in the case of assessee's own case for Assessment Year 2001-02 wherein the ITAT's view that no interest has been incurred towards investment activity has been accrued. On this, we hold that the Rule 8D is applicable for Assessment Year 8 I.T.A .No.-2859 & 2042/Del/2013

2008-09 and earlier decision on the disallowance u/s 14A shall not have impact for applicability of Rule 8D for the year under consideration. We would also like to state that Rule 8D of the Income-tax Rules, 1962 is mandatory by using the word "shall" in section 14A(2), the legislature made it mandatory for the Assessing Officer to determine the amount of expenditure incurred in relation to exempt income according to the prescribed method.

Prior to insertion of Rule 8D of the Rules, the Assessing Officers were having discretion to determine expenditure on a reasonable and acceptable method of apportionment of expenditure between the exempt taxable income and exempt income. Now, the legislature has provided in Rules the method of apportionment of expenditure between the exempt income and taxable income, the Assessing Officer as well as the other statutory authorities under the Act are required to determine the amount of expenditure in relation to exempt income according to method prescribed in the Rules. However, the Assessing Officer can embark upon determination of amount of expenditure incurred in relation to the exempt income only if he records the finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. In the instant case, the Assessing Officer has worked out the disallowance by holding as under :-

"9. During the instant year, the assessee has shown income of Rs.2,37,46,339 by way of Interest on UTI Bonds and Rs.55,23,351 as dividend on mutual funds which was claimed as exempt under Section 10 of the Income Tax Act. Vide Questionnaire dated 31/8/2010, the assessee was required to explain why disallowance u/s 14A may not be made.

10. The assessee has mainly submitted that the assessee has hugs surplus and interest free funds available at its disposal which are more than the investments made by the assessee. It has also been submitted by the assessee that interest expenditure is incurred in relation to business of the assessee and not in relation to investment activity. The submissions of the assessee have been considered. However, the same is not acceptable. If the assessee had surplus funds then it should not make borrowings for working capital purposes.

Therefore expenses attributable to earning of exempt income are worked out as under :

I. Expenditure directly relating to NIL Income which does not form part of total Income 9 I.T.A .No.-2859 & 2042/Del/2013

II. In case where the assessee has AXB incurred expenditure by way of C interest during the previous year which is not directly attributable to any particular income or = Rs receipt an amount computed in 7,68,45,729 x accordance with the formula, 250,20,59,294 A: Amount of Interest Expenditure other than included In clause (I) 498,23,64,227 B: Average Value of Investment , = 385,90,629 Income from which does not or shall not form part of the total Income as appearing in the Balance Sheet of the assessee on first and last date of the assessment year. C: Average Total Assets as appearing in the balance sheet of the assessee on A = Interest Rs.7,68,45,729 B = Average Investments = 31.3.2007 : 49,17,01,962 31.3.2008 : 51,24,16,625 B = Average Investments = 250,20,59,294 C = Average Total Assets =31.3.2007 total assets 322,43,39,582 31.3.2008 total assets 674,03,88,872 Average Total Assets = 498,23,64,227 III. 0.5% percent of the average value 0.5% X of investment, income from which 250,20, does not or shall not form part of 59,294 the total income, as appearing in = 1,25,10,296 the balance sheet of the assessee, on 1/4/2007 and 31/3/2008 Average Investments as calculated above : 250,20,59,294 Total 5,11,00,925

The total disallowance on this account comes to Rs.5,11,00,925/-. The same is therefore, being disallowed and added to the total income."

From the submissions of assessee and from the orders of the revenue authorities, we find that the Assessing Officer has not considered all relevant 10 I.T.A .No.-2859 & 2042/Del/2013

facts on record and has also not verified the claim of the assessee with regard to the source of investment. To reach at the conclusion that he was not satisfied with the claim of assessee with regard to expenses incurred to earn exempted income, then only he can invoke Rule 8D for working out the disallowance. Therefore, in our considered view, this issue requires a relook at the level of Assessing Officer. The same is restored to the file of the Assessing Officer for deciding de novo after providing an opportunity of being heard to the assessee.

7.1 Similarly, in the case of disallowance with regard to the administrative and other expenses being 0.5% of average value of investment, the assessee's claim is that average value of investment taken by the Assessing Officer was Rs.2,50,20,59,294/- instead of Rs.41,88,44,725/- which is only 16.94% of the average value of investment taken by the Assessing Officer. Therefore, for this aspect also, we set aside the issue to the file of the Assessing Officer. The Assessing Officer shall decide both these disallowances after providing an opportunity of being heard to the assessee and considering the legal position on these issues.

9.3. In the light of the above peculiar facts and submissions on record where we find that the AO has not even cared to set out the reasons as to why the disallowance computed by the assessee is found to be incorrect. Accordingly in the light of the prayer advanced by the parties and considering the facts on record we deem it appropriate to remand the issue back to the AO to first set out his satisfaction addressing the disallowance computed by the assessee and thereafter pass a speaking order in the light of the direction given by the ITAT in 2008-09 assessment year applying Rule 8D as per law. Needless to say that the assessee shall be given a reasonable opportunity of being heard. Accordingly Ground No.- 2 of the Revenue and Ground No.1 to 1(e) of the assessee are restored back to the file of the AO.

10. The facts relatable to the third issue agitated by the Revenue are found discussed at page 8 & 9 of the assessment order. The same are extracted hereunder as heavy reliance has been placed by the Sr. DR thereon:-

8. VALUATION OF CLOSING STOCK OF SUGAR During the course of assessment proceedings, it has been observed that the assessee shown the valuation of closing stock of sugar at Rs.3,59,33,484/-.

The assessee was asked to file the details of closing stock. In response to that the assessee has submitted year wise position of closing stock of sugar as follows:

11 I.T.A .No.-2859 & 2042/Del/2013 AY Qty Rate Method Amount adopted Amount at Difference by assessee being cost lower of cost or net realizable value 2009- 11962 14371 Realization 17,12,59,954 20,71,93,802 3,59,33,848 10 White

Total 3,59,33,848 Further, the assessee has submitted that the value of closing stock has been taken as per cost or net realizable value whichever is lower. However, the valuation of closing stock on the basis of cost price amount to Rs.3,59,33,484/-. After examining the facts of the case, it is observed that the assessee has changed its method of valuation of closing stock from "Cost"

basis to "Cost or net realizable price" whichever is low. This change of accounting policy reduces the profitability of the assessee. This arbitrary change of method of valuation cannot be accepted on account of accounting norms.

Besides, the Department is in appeal in the Delhi High Court in this matter. In view of above, the difference of Rs.3,59,33,848/- is disallowed and added back to the total income of the assessee company. Penalty Proceedings u/s 271(1)(c ) of the I.T. Act are initiated on this point for furnishing inaccurate particulars of income."

(emphasis in the present proceedings)

11. In appeal before the First Appellate Authority the issue it is seen is decided in assessee's favour in the following manner:-

5.7. "Regarding Ground No.7 of the Appeal relating to valuation of closing stock of sugar, I find that the Ld. AD has rejected the claim of the Appellant that valuation of closing stock may be made at cost or net realizable value whichever is less by observing that the Appellant has changed its earlier method of valuation of closing stock on cost basis. As per accounting principle, closing stock could be valued at cost or market value whichever less is and any change in the method may have the implication in the year in which such method was changed. In the Appellant's case, such change took place in respect of previous year relating to AY 1993-94, in respect of which the hon'ble ITAT on the facts of the case held that such change was bona fide and is being consistently followed in the subsequent years. The Appeal of the Department in this regard was rejected by the hon'ble Delhi High Court for AY 1993-94 to AY 2003-04. Keeping in view the above, disallowance was not called for and accordingly the addition made in this regard is deleted."

12. The ld.AR has contended that the issue is covered in assessee's favour by consistent orders of the Tribunal over the years on identical issue. In support of the same attention was invited to specific paras 13 to 14 of the order dated 15.09.2013 of the Tribunal passed by a Co-ordinate Bench in the immediately 12 I.T.A .No.-2859 & 2042/Del/2013

preceding assessment year 2008-09 (cited supra) on which heavy reliance was placed by the Ld. AR. The Ld. Sr. DR on the other hand inviting attention to page 15 of the impugned order submitted that the assessee had made the following prayer before the CIT(A) as such it should be verified whether it has been accepted or not:-

"In the alternative, without prejudice to the aforesaid, it was submitted that a direction may be given to the AO to recomputed the Opening Stock for AY 2009-10 as per the valuation adopted by the department in AY 2008-09."

12.1. The Ld. AR submitted that this was only a without prejudice prayer i.e. the alternate prayer in the eventuality the assessee did not succeed before the CIT(A) on its main ground as such the argument of the Sr. DR on facts is irrelevant in view of the specific departmental ground raised.

13. We have heard the rival submissions and perused the material available on record. The relevant observation recorded in the assessment order on which the Ld. Sr. DR placed heavy reliance has already been extracted herein above. Considering the same it is seen that the addition was made only to keep the issue alive as is borne out from the last para which takes cognizance of the fact that the AO made the addition as the issue was before the Hon'ble High Court. In the light of this fact considering the finding of the CIT(A) which has also been extracted in the earlier part of this order as the Hon'ble High Court's decision was available by then which view the record shows was followed by the Co- ordinate Bench in 2008-09 assessment year. We find the arguments of the Ld. Sr. DR as not maintainable on facts. For ready-reference the relevant extract from the said order of the Co-ordinate Bench with which we find ourselves in agreement is reproduced hereunder:-

13. "In the ground no.3, the revenue has raised the deletion of addition of Rs.10,79,68,722/- made on account of valuation of closing stock.

14. This issue has been decided by the CIT (A) in para 11 which read as under :-

"11. Ground no 9 relates to addition of Rs.10,79,68,722 to the value of closing stock of the appellant. During the course of appellant proceedings, the appellant stated that the Hon'ble ITAT in AY 1993-94 has decided this issue in favour of the appellant.

13 I.T.A .No.-2859 & 2042/Del/2013 The issue is that the appellant valued the closing stock on cost or net realizable value whichever is lower. This method of valuation of closing stock was followed by the appellant in Assessment Year 1993-94 and had been accepted by the Tribunal. Since the facts of the case are identical to the facts of earlier years and since the appellant is following the method of valuation consistently on cost or net realizable value whichever is lower, which is a prescribed method under AS -2 issued by the Institute of Chartered Accountants of India, the addition on account of Closing Stock of Rs.10,79,68,722 is hereby deleted."

The assessee is valuing closing stock on cost or net realizable value whichever is lower since 1993. The issue was contested in Assessment Year 1993-94 up to the Hon'ble Delhi High Court wherein the contention of the assessee has been accepted. Ld. AR has submitted a copy of the order of the Hon'ble Delhi High Court in ITA No.645/2005 & Ors. wherein the controversy has been decided in favour of the assessee. The question of law framed by Hon'ble High Court vide order dated 30.01.2012 is as under :-

"Whether Income Tax Appellate Tribunal was correct in law in deleting the addition of Rs.3,64,584/- made by the Assessing Officer to the income of assessee on account of under valuation of closing stock by rejecting the change made by the assessee in the method of valuation of closing stock?"

This question has been answered by Hon'ble High Court in paras 19 & 20 which read as under :-

"19. The third common question raises a separate issue. The question is whether the reimbursement payable by the manufactures should be included in the Net Realizable Value. This is a different aspect and relates to computation of Net Realizable Value. We have quoted the reasoning given by the Assessing Officer in the assessment order in the assessment year 1993-94. He has stated that the international price of sugar was lower than the domestic price and therefore when the respondent/assessee had incurred losses on exports. The Assessing Officer has not disputed or stated that the international price cannot be the criteria to compute or calculate the market value. International price is not disputed. This is not the contention of the Revenue. The Assessing Officer in his reasoning has mentioned that the respondent assessee was receiving reimbursement of the loss on export from the sugar manufacturers and losses were reimbursed. Therefore, the respondent/assessee should compute the closing stock on cost basis i.e. Net realizable Value plus reimbursement, which is nothing but the cost price.

20. We have considered the said contention of the Revenue but are unable to agree with them for several reasons.

The CIT (A) has granted the relief by relying on the decision of ITAT which has been confirmed by Hon'ble High Court. Therefore, in our considered view, there is no fault in the order of the CIT (A) and the same is sustained on this issue. This ground of revenue's appeal is dismissed."

14 I.T.A .No.-2859 & 2042/Del/2013 13.1. In view of the above, we find no merit in the departmental ground. Respectfully following the Co-ordinate Bench on identical facts the departmental appeal is dismissed as the issue is fully covered in favour of the assessee.

14. In the result the appeal of the Revenue is partly allowed for statistical purposes and the assessee appeal of the assessee is allowed as Ground No.-2 is not pressed by the Ld. AR.

The order is pronounced in the open court on 25th of March 2015.

Sd/- Sd/- (J.S.REDDY) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 25/03/2015 *Amit Kumar/AKS*

Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI