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JUDGMENT R. Sudhakar, J. - This Tax Case (Appeal) is filed by the Revenue as against the order of the Income Tax Appellate Tribunal for the assessment year 2005-06. 2. The respondent/assessee is engaged in the manufacturing and selling of safety relief valves. The assessee filed return of income on 26.10.2005 declaring a sum of Rs.12,64,00,710/-. During the financial year ending 31.03.2005, they sold goods to M/s. Tyco Valves and Controls, L.P. USA. In the invoice, the respondent/assessee/exporter erroneously applied surcharge for Ferry Moly in respect of certain exports, though the component did not contain Ferry Moly. In respect of other goods, higher rate of surcharge was applied erroneously. The discrepancy, on account of the erroneous levy of surcharge, amounted to Rs.1.68 crores, which was noticed by the assessee at the time of finalisation of audit for the financial year 2004-05. On noticing the discrepancy, the assessee rectified the mistake by issue of credit notes, which resulted in reinstatement of the sales and also the debtors. The error was noticed by the assessee somewhere in May, 2005 during the time of audit for the purpose of filing the returns and the correction was made in the return filed on 26.10.2005. In order to justify the rectification of the invoices on the excess of surcharge and also to comply with the requirements of Reserve Bank of India Master Circular No. C-15, the assessee obtained permission from the authorised dealer, namely, Corporation Bank for regularising the transaction, as it relates to export sales. This letter of the authorised dealer was issued on 16.11.2005. 3. The assessment in this case was completed under Section 143(3) of the Income Tax Act on 10.12.2008 and subsequently notice under Section 148 was issued on 26.3.2010 for disallowance of Rs.1.68 crores, which is relatable to the issue of excess billing made to the customer from the total sales. In response to the said notice, the assessee filed their reply. After considering the reply filed by the assessee, the Assessing Officer disallowed the claim of the assessee on the ground that under the mercantile system of accounting followed by the assessee, as and…

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