Ita/252/2007 Of The Commr Of Income Tax v. M/S Psi Hydraulics

IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 4TH DAY OF OCTOBER 2012. PRESENT THR HON'BLE MR. JUSTICE K.SREBDHAR RAO AND THR HON'BLE MR. JUSTICK B.MANOHAR ITA Nos.252 /2007 C/w 429, 430, 431, 432, 444, 454, 455, 456, 457, 458,749, 750, 758, 766, 768 & 8886/200And 940/2008 ITA No.252 /2007 BBRIWKBEN 1The Commr ot Income Tax Central Circle, C.R.Building QUEENS ROAD, BANGALORE. oOThe Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore.Income Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. Appellants (By Sri. K V Aravind, Adv.) | AND: M/S PSI HydraulicsA 192 II C Main, II StagePeenya Industrial EstateBangalore-560 058. Respondent ( By Sri. S PARTHASARATHI, ADV.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 8-09-2006 passed in ITA No.3275/Bang/2004by the ITAT Bangalore. ITA No.429/2007 BRITWREN : 1.The Commissioner of |Income tax, Central CircleIncome tax, Central Circle C R Building, Queens RoadBangalore.Bangalore. 2.The Assistant Commissioner of Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. .. Appellants (By Sri. K V Aravind, Adv.)| AND: M/s. Hydrolines,No.497 C, IV PhasePeenya Industrial EstateBangalore — 560 058 ...Respondent (By Sri P Dinesh and Sri Malhara Rao for Sri S$ Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 7-12-2006 passed in ITA No.1047/Bang/2005by the ITAT Bangalore. ITA No.430/2007 BEITWEEN : 1.The Commissioner of Income tax,Central Circle, C R Building, Queens Road , Bangalore. 2 |The Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. .. Appellants ( By Sri. K V Aravind, Adv.) ANIL) M/s. Hydrolines,No.497 C, IV PhasePeenya Industrial EstateBangalore — 560 058 ... Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri S—Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 7-12-2006 passed in ITA No.1049/Bang/2005by the ITAT Bangalore. ITA No.431/2007 BRITWREN : 1.The Commissioner of |Income tax, Central CircleC R BuildingQueens RoadBangalore. 2.The Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. .. Appellants ( By Sri. K V Aravind, Adv.) AND: M/s. HydraulicsNo.497 C, IV PhasePeenya Industrial AreaBangalore-560 058. Respondent, ( By Sri P Dinesh and Sri Malhara Rao for Sri 8Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 7-12-2006 passed in ITA No.1090/Bang/2005|by the ITAT Bangalore. ITA No.432/2007 BRITWREN : 1.The Commissioner ofIncome tax, Central CircleC R Building, Queens RoadBangalore. 2.The Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. .. Appellants ( By Sri. K V Aravind, Adv.) AND: M/s. PSI Hydraulics,# A 1lo2, Il C Main, II StagePeenya Industrial EstateBangalore-560 O58. Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri 8Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 7-12-2006 passed in ITA No.232/Bang/2006 bythe ITAT Bangalore. ITA No.444/2007 BRITWREN : 1.The Commissioner ofIncome tax, Central CircleC R BuildingQueens RoadBangalore.Income tax, Central CircleC R BuildingQueens RoadBangalore. 2.The Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore.Income Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. .. Appellants ( By Sri. K V Aravind, Adv.) AND: M/s. Hydrolines497-C, 5[th]PhasePeenya Industrial EstateBangalore Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri S—Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 23-11-2006 passed in ITA No.126/Bang/2005by the ITAT Bangalore. ITA No.454/2007 BRITWREN : ITA No.444/2007 BRITWREN : 1.The Commissioner ofIncome tax, Central CircleC R BuildingQueens RoadBangalore.Income tax, Central CircleC R BuildingQueens RoadBangalore. 2.The Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore.Income Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. .. Appellants ( By Sri. K V Aravind, Adv.) AND: M/s. Hydrolines497-C, 5[th]PhasePeenya Industrial EstateBangalore Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri S—Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 23-11-2006 passed in ITA No.126/Bang/2005by the ITAT Bangalore. ITA No.454/2007 BRITWREN : 1.The Commissioner of |Income tax, Central CircleC R Building, Queens RoadBangalore.Income tax, Central CircleC R Building, Queens RoadBangalore. 2.The Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore.Income Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. .. Appellants (By Sri. K V Aravind, Adv.)| AND: M/s. PSI Hydraulics# A 192, II C Main, II StagePeenya Industrial EstateBangalore-560 O58. Respondent. ( By Sri P Dinesh and Sri Malhara Rao for Sri $ Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 7-12-2000 passed in ITA No.1043/Bang/2005|by the ITAT Bangalore. ITA No.455/2007 BRITWREN : 1.The Commissioner of | Income tax, Central CircleC R Building, Queens Road, Bangalore. 2 |The Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. .. Appellants ( By Sri. K V Aravind, Adv.) AND: M/s. PSI Hydraulics# A 1lo2, Il C Main, II StagePeenya Industrial EstateBangalore-560 O58. Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri 8Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 7-12-2006 passed in ITA No.1044/Bang/2005|by the ITAT Bangalore. ITA NO.456/2007 Between : 1]The Commissioner of Income TaxCentral Circle, C.R.BuildingQueens Road, Bangalore. 2The Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. Appellants ( BY SRI. K V Aravind, ADV.) AND: M/S PSI Hydraulics#A-152, II C Main, II StagePeenya Indl. AreaBangalore-58. Respondent, ( BY SRI.P.Dinesh, Malhararao for Sri 8S. Parthasarathi, Adv.) ITA is filed U/S.260-A OF I.T.Act, 1961 arising out of|Order Dated 07-12-2006 passed In ITA No.1045/Bang/2005by the ITAT Bangalore. ITA NO.457/2007 Between : 1]The Commissioner Of Income Tax.Central Circle, C.R.BuildingQueens Road, Bangalore. 2The Assistant Commissioner OfIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. Appellants ( BY SRI. K V Aravind, ADV.) AND: M/S PSI Hydraulics#A-1952, II C Main, II StagePeenya Indl. AreaBangalore-58. Respondent. ( BY SRI.P.Dinesh, Malhararao for Sri 8S. Parthasarathi, Adv.) ITA is filed u/s.260-a of I.T.Act, 1961 arising out of|order dated 07-12-2006 passed in ITA No.1046/Bang/2005by the ITAT Bangalore. ITA NO.458 /200 Between : 1]The Commissioner of Income Tax. Central Circle, C.R.BuildingQueens Road, Bangalore.Queens Road, Bangalore. p)The Assistant Commissioner ofIncome Tax, Circle-6(1)Income Tax, Circle-6(1) C.R.Building, Queens RoadBangalore.Bangalore. Appellants ( BY Sri. K V Aravind, Adv.) AND: M/S Hydrolines |No.497 C, IV Phase|Peenya Industrial AreaBangalore-560 O58. Respondent ( By Sri.P.Dinesh, Malhararao,for Sri S. Parthasarathi, Adv.) ITA is filed U/S.260-A OF I.T.Act, 1961 arising out OF|order dated 07-12-2006 passed in ITA NO.1048/BANG/2005by the ITAT Bangalore. ITA NO.749/2007 Between : 1]The Commissioner ot Income TaxCentral Circle, C.R.Building Queens Road, Bangalore. oOThe Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. Appellants ( By Sri. K V Aravind, Adv.) ANIL) M/S Hydrolines IndiaM-4, 9 Cross, I StagePeenya Industrial EstateBangalore-560 058. Respondent C.R.Building, Queens RoadBangalore.Bangalore. Appellants ( BY Sri. K V Aravind, Adv.) AND: M/S Hydrolines |No.497 C, IV Phase|Peenya Industrial AreaBangalore-560 O58. Respondent ( By Sri.P.Dinesh, Malhararao,for Sri S. Parthasarathi, Adv.) ITA is filed U/S.260-A OF I.T.Act, 1961 arising out OF|order dated 07-12-2006 passed in ITA NO.1048/BANG/2005by the ITAT Bangalore. ITA NO.749/2007 Between : 1]The Commissioner ot Income TaxCentral Circle, C.R.Building Queens Road, Bangalore. oOThe Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. Appellants ( By Sri. K V Aravind, Adv.) ANIL) M/S Hydrolines IndiaM-4, 9 Cross, I StagePeenya Industrial EstateBangalore-560 058. Respondent ( By Sri.P.Dinesh, Malhararao for Sri 8S. Parthasarathi, Adv.) ITA is filed U/S.260-A OF I.T.Act, 1961 arising out OF|order dated 04-05-2007 passed in ITA NO.1177/BANG/2005by the ITAT Bangalore. ITA No.750/2007 BEITWEEN : 1.The Commissioner ofIncome tax, Central CircleC R Building, Queens RoadBangalore.Income tax, Central CircleC R Building, Queens RoadBangalore. 2.The Assistant Commissioner ofIncome Tax, Circle-6(1)Income Tax, Circle-6(1) C.R.Building, Queens RoadBangalore.Bangalore. .. Appellants ( By Sri. K V Aravind, Adv.) AND: M/s. Hydrolines IndiaM-4, 5[th]Cross, I stage,Peenya Industrial EstateBangalore — 560 058 Respondent, ( By Sri P Dinesh and Sri Malhara Rao for Sri 8Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 4-5-2007 passed in ITA No.1178/Bang/2005 by|the ITAT Bangalore. ITA NO.758/2007 Between : 1]The Commissioner ot Income TaxCentral Circle, C.R.BuildingQueens Road, Bangalore.Central Circle, C.R.BuildingQueens Road, Bangalore. 2The Assistant Commissioner ofIncome Tax, Circle-6(1)Income Tax, Circle-6(1) C.R.Building, Queens RoadBangalore. Appellants (By Sri. K V Aravind, Adv.)| AND: M/S Hydrolines IndiaM-4, 5 Cross, | StagePeenya Industrial EstateBangalore-560 058. Respondent, ( By Sri. P.Dinesh, Malhararao, ADV. FOR Sri S. Parthasarathi, Adv.)| ITA is filed U/S.260-A OF I.T.Act, 1961 arising out of|order dated 04-05-2007 passed in ITA NO.1176/BANG/2005by the ITAT Bangalore. ITA NO.766/2007 Between : 1]The Commissioner of Income Tax. Central Circle, C.R.Building Queens Road, Bangalore. p)The Assistant Commissioner ofIncome Tax, Circle-6(1)Income Tax, Circle-6(1) C.R.Building, Queens Road Bangalore. Appellants ( By Sri. K V Aravind, Adv.)AND: M/S Hydrolines IndiaM-4, 9 Cross, | StagePeenya Industrial EstateBangalore-560 058. Respondent ( By Sri P.Dinesh, Malhararao for Sri 8S. Parthasarathi, ADV.) ITA is filed U/S.260-A of I.T.Act, 1961 arising out of|order dated 04-05-2007 passed in ITA NO.1175/BANG/2005by the ITAT Bangalore. ITA No.768 /200 BEITWEEN : 1.The Commissioner of Income tax, |Central Circle, C R Building, Queens Road, Bangalore. 2 |The Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. .. Appellants. ( By Sri. K V Aravind, Adv.) AND: M/s. Hydraulics [IndiaM-4, 5[th]Cross, | StagePeenya Industrial EstateBangalore-560 058. Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri $Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 4-9-2007 passed in ITA No.1174/Bang/2005 by|the ITAT Bangalore. ITA No.886/2007 BRITWREN : 1.The Commissioner of |Income tax, Central CircleC R Building, Queens RoadBangalore. 2.The Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. .. Appellants (By Sri. K V Aravind, Adv.)| ANIL) M/s. HydraulicsNo.497 C, IV PhasePeenya Industrial AreaBangalore-560 058. Respondent, (By Sri P Dinesh and Sri Malhara Rao forsri S Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 13-7-2007 passed in ITA No.481/Bang/2006 bythe ITAT Bangalore. ITA No.940/2008 BRITWREN : Respondent ( By Sri P Dinesh and Sri Malhara Rao for Sri $Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 4-9-2007 passed in ITA No.1174/Bang/2005 by|the ITAT Bangalore. ITA No.886/2007 BRITWREN : 1.The Commissioner of |Income tax, Central CircleC R Building, Queens RoadBangalore. 2.The Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore. .. Appellants (By Sri. K V Aravind, Adv.)| ANIL) M/s. HydraulicsNo.497 C, IV PhasePeenya Industrial AreaBangalore-560 058. Respondent, (By Sri P Dinesh and Sri Malhara Rao forsri S Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 13-7-2007 passed in ITA No.481/Bang/2006 bythe ITAT Bangalore. ITA No.940/2008 BRITWREN : 1.The Commissioner ofIncome tax, Central CircleC R Building, Queens RoadBangalore. 2.The Assistant Commissioner ofIncome Tax, Circle-6(1)C.R.Building, Queens RoadBangalore.AND: .. Appellants ( By Sri. K V Aravind, Adv.) M/s.Golden ProfilesNo.B-158, 4[th]Main RoadII Stage, Peenya Indl EstateBangalore-560 058. Respondent, ( By Sri P Dinesh and Sri Malhara Rao for —sri 5,.Parthasarathi, Advs.) ITA is filed u/S.260-A of I.T.Act, 1961 arising out of|Order dated 9-5-2008 passed in ITA No.1090/BNG/2007 bythe ITAT Bangalore. TheseITAScomingOT)forhearingthisday,SREEDHAR RAO J, delivered the following: JUDGMENT The respondent/assessee in the above appeals are oneand the same and the assessment year pertains to 1999 to|2005. The assessee in the accounts and in the returns filed|has not included the excise duty paid on the closing stock toindicate the valuation of the closing stock. 2.The contention of the assessee is that the exciseduty paid need not be included in the valuation of the|closing stock and non-inclusion would be a revenue neutral|and would have no impact upon the tax payable. 3.Per contra, Sri K.V. Aravind, learned Advocate|for the appellant strenuously submitted that the purport ofthe provision of Section 145A of the IT Act does not concern|with the tax effect, but it prescribes the method and procedure of accounting, which assessee has to follow in terms of Sec. 145A of the Act. 4The provision of Section 145A of the IT Act came to be incorporated by the Finance Act w.e.f. 1.4.1999. For| the assessment year is concerned, Section 145A of the| I.T.Act, reads as follows: “145A. Notwithstanding anything to the contrarycontained in section 145.- (a) the valuation of purchase and sale of goodsand inventory for the purposes of determiningthe income chargeable under the head “Profitsand gains of business or profession” shall be- 1.in accordance with the method otfaccounting regularly employed bythe assessee; and|accounting regularly employed bythe assessee; and| 11.further adjusted to include theamount of any tax, duty, cess or fee|(by whatever name called) actually|paid or incorrect by the assessee to bring the goods to the place of its|location and condition as on thedate of valuation. Explanation.- For the purposes of this section,any tax, duty, cess or fee (by whatever name|called) under any law for the time being in force, shall include all such payment notwithstanding|any right arising aS a consequence to suchpayment; (b)interestreceivedby.a©#aSSeSSeCeOf}compensation or on enhanced compensation, as|the case may be shall be deemed to be theincome of the year in which it is received.|” 5The following substantial question of law was| formulated for consideration: “Whether the Appellate Authorities were correct|in not taking into consideration the provisions otfsection 145A of the Act which categorically|contemplated that the inclusion of duty was|mandatory for the purpose of computation ofclosing stock and instead relied on certain|accountancy principles that there should becorresponding entry in the P & L Account readwith section 45 oft the Act? (b)interestreceivedby.a©#aSSeSSeCeOf}compensation or on enhanced compensation, as|the case may be shall be deemed to be theincome of the year in which it is received.|” 5The following substantial question of law was| formulated for consideration: “Whether the Appellate Authorities were correct|in not taking into consideration the provisions otfsection 145A of the Act which categorically|contemplated that the inclusion of duty was|mandatory for the purpose of computation ofclosing stock and instead relied on certain|accountancy principles that there should becorresponding entry in the P & L Account readwith section 45 oft the Act? 6.The counsel for the appellant relied upon thedecision of the Supreme Court in the case of Commissionerof Income Tax -vs- British Paints India Ltd. reported in(1991) 183 ITR 44 (SC). In the said decision, in paras 16 to21, the following observations are made. “16. The IT Act does not contain any specific|provision for the valuation of stock, income,profits and gains must, however, be computed inthe manner provided by the Act. It is the duty ofthe officer to determine the profits and gains of acommercial venture according to the correct|principle of accounting. In doing so, he might,|dependent on the nature of the business and its special character, allow certain adjustments buthis primary purpose and duty is to deduce the|correct income, profits and gains, and this hecannot do without taking into account the valueof the stock-in-trade at the beginning and at theend of the year and by ascertaining the)difference between them : See P.M. MohammedMeerakhan vs. CIT (1969) 73 ITR 735 (SC). 17. The object of stock valuation is the correctdetermination of the profits and loss resultingfrom a year's trading. It is the true result of the|trading activity of that year that must bedisclosed by the books. “..... the profits are the profits realised in thecourse of the year. What seems an exception isrecognised where a trader purchased and still|holds goods or stocks which have fallen in value.No loss has been realised. Loss may not occur.Nevertheless, at the close of the year he ispermitted to treat these goods or stocks as oftheir market value. |Whimster and Co. vs. IRC(1917-26) 12 Tax Cases 813, 827]. As stated by Patanjali Sastri C.J. in Chainrupsampatram vs. CIT (1953) 24 ITR 481 (SC) at485-486 : TC2ZR. 124 “It is wrong to assume that the valuation of theclosing stock at market rate has, for its object,the bringing into charge any appreciation in thevalue of such stock. The true purpose ofcrediting the value of unsold stock is to balancethe cost of those goods entered on the other sideof the account at the time of their purchase, sothat the cancelling out of the entries relating tothe same stock from both sides of the accountwould leave only the transactions on which therehave been actual sales in the course of the year showing the profit or loss actually realised onthe year's trading........” In the words of Singleton L.J. In Patrick(Inspector of Taxes) vs. Broadstone Mills Ltd.(1954) 29 ITR 377 (CA) at 395. ..eeeee. (1) One cannot arrive at the profits of the|year without taking into account the value of thestock one has at the beginning of, and at the endof, the accounting year. (2) The figures for stockare just as important as any other figures.Values may have to be estimated when marketprice is taken, but any departure from accuracyis reflected in the trading account. (3) Stockshould be taken either at cost price or at marketprice, whichever is the lower...........” 18. Lord Herschell in Russel vs. Town andCounty Bank Ltd. (1888) 13 App. Cas. 418, 424:4 TLR 500 (HL) observes : “The profit of a trade or business was thesurplus by which the receipts exceeded the)expenditure necessary for the purpose of earning|those receipts ....... ..eeeee. (1) One cannot arrive at the profits of the|year without taking into account the value of thestock one has at the beginning of, and at the endof, the accounting year. (2) The figures for stockare just as important as any other figures.Values may have to be estimated when marketprice is taken, but any departure from accuracyis reflected in the trading account. (3) Stockshould be taken either at cost price or at marketprice, whichever is the lower...........” 18. Lord Herschell in Russel vs. Town andCounty Bank Ltd. (1888) 13 App. Cas. 418, 424:4 TLR 500 (HL) observes : “The profit of a trade or business was thesurplus by which the receipts exceeded the)expenditure necessary for the purpose of earning|those receipts ....... 19. What is the profit of a trade or business is aquestion of fact and it must be ascertained, asall facts must be ascertained, with reference tothe relevant evidence, and not on doctrines ortheories : “no assumption need be made unless|the facts cannot be ascertained, and then only tothe extent to which they cannot be ascertained.There is no room for theories as to flow of costs7{MinisteroT National RevenueVS.Anaconda American Brass Ltd. (1956) AC 89 :|(1956) 30 ITR 84 (PC) at 99 : TC2R.291.] 20. Sec.145 of the IT Act, 1961, conferssufficient power upon the officer — nay it imposesa duty upon him — to make such computation insuch manner as he determines for deducing the|correct profits and gains. This means that whereaccounts are prepared without disclosing thereal cost of the stock-in-trade, albeit on soundexpertadvice intheinterestotetficient|administration of the company, it is the duty ofthe ITO to determine the taxable income bymaking such computation as he thinks fit. 21. Any system of accounting which excludes,|for the valuation of the stock-in-trade, all costsother than the cost of raw materials for thesoods-in-process and finished products, is likelyto result in a distorted picture of the true state ofthe business for the purpose of computing the|chargeable income. Such a system may produce|a comparatively lower valuation of the opinionstock and the closing stock, thus showing a/comparatively low difference between the two. Ina period of rising turnover and rising prices, thesystem adopted by the assessee, as found by theTribunal, is apt to diminish the assessment ofthe taxable profit of a year. The profit of one year|is likely to be shifted to another year which is anincorrect method of computing profits and gainsfor the purpose of assessment. Each year being|a self — contained unit, and the taxes of aparticular year being payable with reference tothe income of that year, as computed in terms ofthe Act, the method adopted by the assessee hasbeen found to be such that income cannotproperly be deduced therefrom. It is, therefore,not only the right but the duty of the AssessingOfficer to act in exercise of his statutory power,as he has done in the instant case, fordetermining what, in his opinion, is the correcttaxable income.” TT.It is submitted that the ratio laid down by the|SupremeCourtintheSaiddecisionWaS priorTOincorporation of Section 145A of the Act. The assessees werebound to comply with the observations of law made by thesupreme Court. However, after incorporation of Section145A of the Act, it has now become mandatory that in theclosing stock, the excise duty paid should be reflected toshow correct valuation of the closing stock. 8. The provisions of Section 145-A of the Act)postulates the valuation tor purchase and sale of goods andinventory for the purpose of determining the incomechargeable under the head “profits and gains of business orprofession”.Theprovisionfurther|declares|thatinaccordance with the method of accounting employed by theassessee, he should include the amount of tax, duty, cess orfee actually paid or incurred by the assessee to bring thegoods to the place of its location and condition as on thedate of valuation. The above provision makes it clear that forshowing valuation of the goods, it is necessary in the case of 8. The provisions of Section 145-A of the Act)postulates the valuation tor purchase and sale of goods andinventory for the purpose of determining the incomechargeable under the head “profits and gains of business orprofession”.Theprovisionfurther|declares|thatinaccordance with the method of accounting employed by theassessee, he should include the amount of tax, duty, cess orfee actually paid or incurred by the assessee to bring thegoods to the place of its location and condition as on thedate of valuation. The above provision makes it clear that forshowing valuation of the goods, it is necessary in the case of sale or inventory (closing stock) the amount of tax or dutyetc., paid should be included. QOThere would be a situation where an AaSSeESSEmay purchase semi finished goods/raw materials which aresubject to excise duty for manufacturing finished goods. Insuch a situation, it amounts to 'purchase' and the seller ofsuch material has already paid excise duty. The assesseewould have paid excise duty along with the price to hisseller. The assessee, aiter manufacturing the finishedproduct, sells the same to third parties and he would beentitled to seek deduction of excise duty paid on the semifinished goods/raw materials under Modvat. 10..Thesecondsituation wouldbe, themanutacturer procures materials which are not subject toexcise duty and manufactures finished product and sells,which is subject to excise duty. In such a case, the assesseehas to pay the excise duty. 11.)The third situation pertains to purchase of semifinished goods/raw materials subject to excise duty. In the process of manufacturing they are in the possession of theassessee and the assessee would have manufacturedfinished product, which remains unsold and remains in hispossession. This category of goods would come within theexpression of “inventory”. 12 .The assessee has to make valuation of the goodsin his possession under the process of manufacturing and|not yet sold or clearance not done. In such cases, the|assessee does not incur the liability to pay excise duty.|However, he is obliged u/s 145-A to value the goods which|should include the excise duty paid or incurred. 13.The Bombay High Court, in the case of|Commissioner of Income Tax vs Loknete(2011) 339 ITR 288|in paras 9 to 12 has interpreted Section 145A and made thefollowing observations:- “Q, The expression ‘incurred by _ thassessee’ in 8.145A(b) is followed by the words|‘'tobring the goods to the place of its location andcondition as on the date of valuation’. Thus, the|expression ‘incurred by the assessee’ relates to|the liability determined as tax, duty, cess or fee|payable in bringing the goods to the place of its|location and condition of the goods. Explanation| to S.145A(b) makes it further clear that the|income chargeable under the head ‘profits andgains of business’ shall be adjusted by theamount paid as tax, duty, cess or fee. Therefore,the expression ‘incurred’ in $.145A(b) must beconstrued to mean the lability actually incurredby the assessee. 10.|Wherethe|excisable|goods|aTe€manufactured and are lying in stock on the last!dayOT|theaccountingyCa lrwhetherthemanufacturer has incurred liability to pay exciseduty on the manufactured goods is the question. to S.145A(b) makes it further clear that the|income chargeable under the head ‘profits andgains of business’ shall be adjusted by theamount paid as tax, duty, cess or fee. Therefore,the expression ‘incurred’ in $.145A(b) must beconstrued to mean the lability actually incurredby the assessee. 10.|Wherethe|excisable|goods|aTe€manufactured and are lying in stock on the last!dayOT|theaccountingyCa lrwhetherthemanufacturer has incurred liability to pay exciseduty on the manufactured goods is the question. 11. The apex Court in the case of CCE vs Polyset Corporation ®& Anr. 1999 (115) ELT 41(SC) has held that the dutiability of excisable|goods is determined with reference to the date ofmanufacture and the rate of excise duty payable|has to be determined with reference to the date otclearance of the goods. Therefore, though the|date oft manutacture is the relevant date fordutiability, the relevant date for the duty lability|is the date on which the goods are cleared. In|other words, in respect of excisable goods)manufactured and lying in stock, the excise duty|liability would get crystallised on the date ofclearance of goods and not on the date of|manufacture. Therefore, till the date of clearanceof the excisable goods the excise duty payable onthe said goods does not get crystalised and|consequently the assessee cannot be said to haveincurred the excise duty liability. In respect of theexcisable goods lying in stock, no liability is)determined as payable and consequently, there|would be no question of incurring excise duty)liability. 12. In the present case, it is not in disputethat the manufactured sugar was lying in stock| and the same were not cleared from the factory.Therefore, in the facts of the present case, the)Tribunal was justified in holding that in respectof unsold sugar lying in stock, central excise)hability was not incurred and consequently the|addition of excise duty made by the AO to the)value of the excisable goods was liable to be)deleted”. 14..In the said case, the decision of the Apex Court+%CCE vs POLYSET CORPORATION 1999(115) 41 ELT 4]iSreferred to. 15.|The decision of the Delhi High Court in|Commissioner of Income Tax vs Mahaveer Alluminimum LtdIQ ITR 77has held that the inclusion of excise duty or taxpaid for valuation at the time of inventory is necessary notonly for the closing stock but also for the opening stock. 16.|Per contra, Sri K.V.Aravind, learned counsel for the Appellants refers to para 5 of Circular No.3/2011, whichreads thus:-| aoeeThe AssessingOfficer shall&'*&-*') the tax effect separately for every assessment|year in respect of the disputed issues in the caseof every assessee. If, in the case of an assessee,the disputed issues arise in more than one|assessment year, appeal, can be filed in respect| of such assessment year or years in which the|tax effect in respect of the disputed issues|exceeds the monetary limit specified in para 3.No appeal shall be filed in respect of assessmentyear or years in which the tax effect is less thanthe monetary limit specified in para 3. In other|words, henceforth, appeals can be filed only withreference to the tax effect in the relevant(assessmentYCal. However,1n CaseOT acomposite order of any High Court or appellate|authority,whichinvolvesInNnothanOneassessment year and common issues in morethan one assessment year, appeal shall be filed|in respect of all such assessment years even ifthe “tax effect” is less than the prescribed of theyear(s) in which the “tax effect” exceeds the.monetary limit prescribed. In case where a|composite order/judgment involves more thanone assessee, each assessee shall be dealt with|separately.” 17.|In case of an assessee, where common order is passed in respect of more than one assessment year, whichinvolves common issues even if in one ot the assessmentyears the tax effect is more than 10 lakhs, irrespective of thefact that in respect of other assessment years which is partof the common order, the tax effect is less than 10 lakhs, therevenue is entitled to file appeal even in respect suchassessment years where the tax effect is less than Rs.10lakhs. However, in case where there is no common order and an order is passed only in respect of an assessment year andthe tax effect therein is less than 10 lakhs, the revenuecannot file the appeal. 18.On thorough scrutiny of para 5 of the CircularNo.3/2011, we find that there appears to be a glaringdiscrimination offending the sprit of Article 14 of theConstitution. In the case of a common order passed inrespect of one or more assessment year/years, if the taxeffect is less than 10 lakhs, the assessee is not entitled tobenefit of exemption and the revenue is not debarred fromfiling an appeal, even though the tax effect in respect of oneor more assessment years is less than 10 lakhs. In otherwords, the revenue can file an appeal against all theassessment orders which is a part of the common order,irrespective of the fact, whether for one of the assessmentyear/years, the tax effect is less than 10 lakhs. However, ititis a solitary order and tax effect is less than 10 lakhs, theassessee is entitled to the benefit of exemption and therevenue cannot file the appeal. 19..Thepara-ooT thecircular|1S highlydiscriminatory. After all the bunching and clubbing of casesand passing common orders is a procedure adopted forconvenient disposal of the cases by the court or quasijudicial authority. The assessee has no say in the matter ofclubbing of cases and passing of common orders. Merelybecause the authority concerned for judicial convenience,clubs the cases and pass common order, the assesseeshould not be denied of the benefit of circular-3/2011 whenthe tax effect for the assessment year/years the tax effect isless than 10 lakhs. Therefore, it is to be held that whetherit |is a solitary order or common order, the assessee shouldhave the benefit of the tax effect less than 10 lakhs and inall such cases whether it is a part of the common order orasolitary order , the revenue will not be entitled to file anappeal. 2Q,In the instant case, only in respect of ITA|No.750/07, the tax effect is more than 10 lakhs and in all|other cases the tax effect is less than 10 lakhs. Therefore, only in ITA No.750/07 the question of law is answered infavour of revenue. D1 «This Court, in CIT vs RANKA & RANKA -—- (201272 DTR 270 has held that Circular No.3/2011, not merelyhas prospective effect, but also applies to pending cases.The Revenue has filed SLP No.27468/2012 before the|Supreme Court challenging the judgment of this court. If thesupreme Court holds that Circular No.3/2011 has onlyprospective effect and does not apply to the pending cases,the Revenue can make application for revival of the appealsfor fresh disposal on the aspect of tax effect. As of now, the|decision of this court in the case of RANKA and RANKA holdsthe field,. Therefore, the appeals are disposed of accordinglywith liberty to the revenue to make an application for revival|in the event they succeed in SLP No. 27468/2012. BKM/MP| od/-.JUDGE od/-|JUDGE