U.T. Shah, J.

1. The assessee is a company and is engaged in the sugar industry. The assessment year is 1974-75 and the relevant previous year ended on September 30, 1973.

2. The facts leading to the stage of the Tribunal could be gathered from paragraph 9 of the order of the Tribunal under reference which reads as under :

"The assessee is a limited company manufacturing sugar. In the past, closing stock was being valued at market rate. This year, however, it valued the closing stock after bifurcating the stock into levy sugar and free sugar. Under Government regulations, a part of the sugar produced by the assessee, as may be prescribed from time to time, has to be surrendered in levy, while the assessee is free to sell the balance in open market. Payment for sugar acquired as levy was Rs. 167 per bag, while the ruling rate for free sugar in the open market was Rs. 270 per bag. The cost price was worked out at Rs. 177.90 per bag. This year, the assessee noted that out of the stock of about 40,557 bags, 28,217 bags were to be surrendered against levy, while the balance 12,340 bags were available to it for sale in the free market. The assessee valued the closing stock of levy sugar at Rs. 167 per bag, while free sugar was valued at Rs. 177.90 per bag, i.e., the cost price. The Income Tax Officer, on the other hand, retained the value of Rs. 167 per bag for levy sugar, but worked out the closing stock value of sugar available for sale in the free market at Rs. 270, i.e., the ruling market price. In appeal, the learned Appellate Assistant Commissioner held that the assessee was entitled to value the stock at cost or market price, whichever was lower, and this was what the assessee had done.

Aggrieved by the order of the Appellate Assistant Commissioner, the Revenue came up in appeal before the Tribunal and strongly urged that the Appellate Assistant Commissioner was not justified in accepting the assessees stand to value the closing stock of sugar produced by it by applying different rates bifurcating the closing stock without any basis. It was also submitted that, since there was no difference in the quality of sugar produced by the assessee, there was no justification in bifurcating the closing stock as was done by the assessee and accepted by the Appellate Assistant Commissioner. It was, therefore, urged that the value of the closing stock made by the Income Tax Officer based on the past practice of the assessee should be restored. In this connection, it was stated that all along in the past, the assessee was valuing the entire closing stock at market price. On the other hand, the assessee simply submitted that it was entitled to value the sugar at cost or market price whichever was lower.

In its order under reference, the Tribunal did not accept the submissions made on behalf of the assessee. However, it gave certain reliefs to the assessee in valuing the closing stock in the following manner.

"No doubt, an assessee can value closing stock at cost or market price, whichever is lower. But, in our view, it has first to determine how it proposes to value the stock. At the stage of valuation of closing stock, 28,217 bags were not surrendered as levy. As pointed out by the learned Departmental representative, the policy of the Government for levy was determined from time to time. In our view, therefore, no part of the stock could be earmarked for levy to be valued at the rate which the assessee expected to get on surrendering the sugar. The market price of sugar was Rs. 270 per bag and the cost price was Rs. 177.90 per bag. In our view, the assessee is entitled to value the closing stock at cost, which is lower, but that has to be applied to the entire closing stock and we see no justification for bifurcating the closing stock on the presumption that some of this would have to be surrendered as levy. If the assessee wants to take the sale price for a part of the stock, then the entire stock will have to be worked out on the basis of the sale price as done by the Income Tax Officer.

In these circumstances, we direct that the closing stock should be valued at cost without making any bifurcation."

3. Having been dissatisfied with the aforesaid decision of the Tribunal, the assessee made an application under section 256(1) of the Income Tax Act, 1961, and the Tribunal has referred the following question for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in taking the view that there can be no bifurcation of sugar stock for valuing the same at different values for levy sugar and free sugar stock and the valuation is to be done to the entire closing stock at one value "

4. Learned counsel for the assessee strongly argued that the Tribunal ought to have upheld the order of the Appellate Commissioner wherein the Appellate Assistant Commissioner has accepted the assessees stand that it can bifurcate its closing stock into two categories and value them separately in determining its income for the year. In this connection, she invited our attention to pages 15 and 16 of the paper book containing the order of the Appellate Assistant Commissioner wherein the Appellate Assistant Commissioner has bifurcated the closing stock into the two categories, one of 28,217 bags classified as "levy sugar" and the other 12,340 bags classified as "free sugar". The former was valued at Rs. 167 per bag, while the latter was valued at Rs. 177.90 per bag. Again, it is pertinent to note that the former was valued at the selling rate while the latter was valued at cost. On a query made by the court as to how the bifurcation was made, learned counsel for the assessee wanted to rely on a certain Government notification issued during the relevant previous year with a view to impress upon the court that bifurcation of the closing stock cannot be said to be arbitrary. However, these documents were not relied upon or produced at any stage, either before the Income Tax authorities or before the Tribunal. We indicated that, at the stage of reference, it is not possible for us to look into the same. Thereafter, learned counsel for the assessee relied on the decision of the Madras High Court in CIT v. Chari and Ram : [1949]17ITR1(Mad) , and submitted that the assessee had an option to value the closing stock and in the manner it wants. She, therefore, submitted that the Tribunal ought to have accepted the stand taken on behalf of the assessee and should have confirmed the order of the Appellate Assistant Commissioner. Learned counsel for the Department, on the other hand, supported the action of the Tribunal. According to him, the closing stock was one and, therefore, there was no question of bifurcating it into two categories as was done by the assessee. Again it is pertinent to note that no part of the closing stock was surrendered as "levy" portion. According to him, the Tribunal has given certain reliefs to the assessee even though the same was not called for. However, since the Revenue has not come up in reference, there is no justification for interfering with the order of the Tribunal holding that the closing stock should be valued without making any bifurcation.

5. On a due consideration of the submissions made by the parties and after perusing the material already brought on record, we are not inclined to interfere with the decision of the Tribunal. It is pertinent to note that, all along in the past, the assessee was valuing its closing stock at market rate. However, it was only in the year under reference that the assessee found that if it values the closing stock by bifurcating the stock into "levy sugar" and "free sugar", it would be able to reduce it tax burden. We are making this observation as no material has been brought on record to show the circumstances under which the assessee was obliged to bifurcate the closing stock in the manner it did.

6. In view of the aforesaid discussion, we answer the question referred to us in the affirmative, that is in favour of the Revenue and against the assessee.

7. We make no order as to costs.