M/s Jain Udhay International Pvt. Ltd., Ludhiana V. DCIT, Ludhiana

CO 15/CHANDI/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6367 (ITAT-CHANDIGARH)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-01-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 12-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A , CHANDIGARH , ! ' # $ %! , &' BEFORE: SHRI SANJAY GARG, JM & SMT.ANNAPURNA GUPTA, AM ./ ITA NO.971/CHD/2016 / ASSESSMENT YEAR : 2011-12 THE DCIT, CENTRAL CIRCLE-III, LUDHIANA M/S JAIN UDHAY INTERNATIONAL PVT. LTD., B-XXXIII/212, G.T. ROAD(WEST) JALANDHAR BYE PASS LUDHIANA ./PAN NO: AAJCS2611R /APPELLANT /RESPONDENT & CO NO.15/CHD/2018 IN ITA NO.971/CHD/2016 ASSESSMENT YEAR: 2011-12 ./ ITA NO.971/CHD/2016 / ASSESSMENT YEAR : 2011-12 M/S JAIN UDHAY INTERNATIONAL PVT. LTD., B-XXXIII/212, G.T. ROAD(WEST) JALANDHAR BYE PASS LUDHIANA THE DCIT, CENTRAL CIRCLE-III, LUDHIANA ./PAN NO: AAJCS2611R /APPELLANT /RESPONDENT /ASSESSEE BY : DR. GULSHAN RAJ, CIT DR / REVENUE BY : SHRI. ASHWANI KUMAR, CA ! ' # /DATE OF HEARING : 10.10.2018 $%&' # /DATE OF PRONOUNCEMENT: . 08.01.2019 &( /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE A GAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) -5, LUDHIANA,(IN SHORT REFERRED TO AS CIT(A), DT. 14/06/2016, PASSED U/S 250(6) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS AC T). THE EFFECTIVE GROUNDS RAISED BY THE REVENUE READ AS UNDER: 2 1. THE LD. CLT(A)-5 HAS ERRED IN LAW & FACTS IN DELETIN G THE ADDITION MADE ON A/C OF UNDER INVOICING OF SALES AMOUNTING T O RS.42,35,448/- & RS.63,03,795/-WITHOUT APPRECIATING T HE FACTS & EVIDENCE ON RECORD. 2. THE LD. CIT(A)-5 HAS WRONGLY DELETED (PARTLY ) THE ADDITION OF RS.57,09,363/- (RS.2,69,59,335 RS.2,12,49,972/-) ON ACCOUNT OF ALLEGED OF UNDER VALUATION OF CLOSING WITHOUT CONSID ERING THE EVIDENCE ON RECORD. 3. THE DEPARTMENT CRAVES PERMISSION TO FILE /RAISE/AME ND ANY OTHER GROUND OF APPEAL AT THE TIME OF APPELLATE PROCEEDIN GS. 2. GROUND OF APPEAL NO.1 IS AGAINST THE ACTION OF THE LD.CIT(A) IN DELETING THE ADDITION OF RS.1,05,39,243/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ALLEGED UNDER INVOICING OF SALES OF K NITTED CLOTH MADE BY THE ASSESSEE DURING THE MONTH MARCH, 2011. 3. BRIEFLY STATED THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD EFFECTED SALES OF KNITTED CLOTH IN THE MONTH OF MAR CH AT AN AVERAGE RATE WHICH WAS BELOW THE AVERAGE RATE OF PURCHASES MADE IN THE SAID MONTH AND THE RATE AT WHICH STOCK OF THE SAME WAS VALUED ON THE FIRST DAY OF THE MONTH, WHEN SEARCH WAS CONDUCTED ON THE ASSESSE E. THE AO FOUND THAT THE ASSESSEE HAD SHOWN PURCHASE OF 476531 KGS OF KNITTED CLOTH FOR RS.13,29,52,149/- DURING THE MONTH OF MARCH 2011 GI VING AN AVERAGE PURCHASE RATE OF RS.279/- PER KG AND FURTHER, ON TH E DATE OF SEARCH I.E. ON 01.03.2011, THE INVENTORY OF KNITTED CLOTH WEIGH ING 35592 KGS WAS VALUED AT RS.1,36,35,965/-GIVING AN AVERAGE RATE OF RS.383/- PER KG, WHILE THE ASSESSEE HAD SOLD 455845 KGS OF KNITTED C LOTH FOR RS.12,02,80,637/- GIVING AN AVERAGE SALE RATE OF RS .264/- PER KG. AS PER AO, THUS THERE WAS UNDER INVOICING OF SALE OF KNITT ED CLOTH BY RS.119/- (383-264) PER KG IN RESPECT OF STOCK OF CLOTH (3559 2 KG) FOUND ON THE DATE OF SEARCH AND UNDER INVOICING OF RS.15/-(279-2 64) PER KG IN RESPECT OF BALANCE QUANTITY OF STOCK OF 420253KG (= 455845 - 35592 KG) OF KNITTED CLOTH WHICH WAS SOLD OUT OF PURCHASES MADE DURING MARCH, 2011. AFTER CONSIDERING THE REPLY OF THE ASSESSEE A ND REJECTING THE BOOKS OF ACCOUNTS, THE A.O. MADE AN ADDITION OF RS.1,05,3 9,243/- (CALCULATED 3 AS RS.119 X 35592 = 42,35,448/- PLUS RS.15 X 420253 = 63,03,795/-) ON ACCOUNT OF UNDER INVOICING OF SALE OF KNITTED CLOTH DURING THE MONTH OF MARCH, 2011. THE MATTER WAS CARRIED IN APPEAL BEFOR E THE LD.CIT(A) WHO DELETED THE ADDITION HOLDING AT PARA 3.1 OF HIS OR DER AS UNDER: 3.1 THE FACTS OF THE CASE, THE BASIS OF ADDITION MADE BY THE A.O. AND THE SUBMISSIONS/ARGUMENTS OF THE AR DURING THE APPELLATE PROCEEDINGS HAVE BEEN CONSIDERED. THE AO HAS MADE TH E ADDITION ON THE GROUND THAT THE SALES OF KNITTED CLOTH DURING THE MARCH, 2011 HAVE BEEN SHOWN AT A RATE LOWER THAN THE PURCHASES O F KNITTED CLOTH MADE DURING MARCH, 2011. ON THE OTHER HAND THE A R HAS ARGUED THAT THERE IS NO INDEPENDENT EVIDENCE WITH TH E AO TO SUPPORT HIS PRESUMPTION THAT THE ASSESSEE HAS RESORTED TO U NDER INVOICING OF SALES. NO SUCH INSTANCE HAS COME TO NOTICE EITHER DURI NG THE SEARCH OR ANY POST SEARCH INQUIRY CONDUCTED, IF ANY, BY THE AO. THE AO HAS TOTALLY IGNORED THE FACT THAT SALES IN THE MONTH OF M ARCH 2011 HAVE BEEN MADE TO IDENTIFIABLE CUSTOMERS WHICH THE AO COU LD HAVE VERIFIED BEFORE DRAWING ANY ADVERSE INFERENCE. SECOND LY, WHILE CALCULATING THE UNDER-INVOICING THE AO IS TAKING THE QUANTITY OF KNITTED CLOTH AS ON 01.03.2011 AT 35592 KG. ONLY AND AC CORDINGLY AS PER THE PRESUMPTION OF THE AO THAT THE SALE OF 45 5845 KGS IN MARCH WAS OUT OF 35592 KG FOUND ON 01.03.2011 AND OU T OF 476531 KGS PURCHASED DURING MARCH 2011 THEN THE QUANTITY OF BALANCE KNITTED CLOTH AS ON 31.03.2011 SHOULD BE 56278 KG ONLY. O N THE ONE HAND WHILE CALCULATING THE UNDER VALUATION OF CLOS ING STOCK, THE AO IS TAKING THE QUANTITY AS 234429 KGS AS ON 31-03-20 11. THUS THERE IS A CONTRADICTION IN THE STAND OF THE AO WHILE DECIDING THE TWO ISSUES. IT WAS FURTHER SUBMITTED BY THE AR THAT CALCULA TION OF UNDER- INVOICING ON THE BASIS OF AVERAGE COST OF CLOTH AS ON 01.03.2011 AND AVERAGE PRICE COST IN THE MONTH OF MARCH 2011 IS TOT ALLY WRONG IN VIEW OF THE FACT ALSO THAT THE AVERAGE PER KG COST O F CLOTH PURCHASED FOR THE WHOLE YEAR INCLUDING THE OPENING STOCK OF CLOT H IS RS. 255/- PER KG. AGAINST THIS, THE AVERAGE SALE RATE OF CLOTH FO R THE YEAR IS RS. 261/- PER KG AND FOR THE MONTH OF MARCH, 2011 ALONE IT IS RS. 264/- PER KG. THUS AS PER AR, THERE IS AVERAGE PROFIT MARGI N OF RS. 6 PER KG CAICULATED FOR THE WHOLE YEAR FIGURE. THERE IS M ERIT IN THE ARGUMENT OF THE AR BECAUSE IF THE QUANTITY OF T HE CLOSING BALANCE OF THE KNITTED CLOTH IS TAKEN AT 23 4429 KGS AS ON 31-03-2011 THEN THE QUANTITY AS ON 1-3-20 11 COMES TO 213743 KG (234429 KGS CLOSING STOCK AS ON 31- 03-2011 + 455845 KGS SALES OF MARCH 2011 - 476531 K GS PURCHASES OF MARCH 2011). THUS, THE TWO CALCULATION S OF UNDER-INVOICING OF SALES AND UNDER-VALUATION OF CLO SING STOCK ADOPTED BY THE AO ARE CONTRADICTORY TO EACH O THER. 3.1 FURTHER A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE AO HAS MADE THE ADDITION ON THE PRESUMPTIO N THAT THE SALES CANNOT BE AT A RATE LESS THAN THE PU RCHASE MADE DURING MARCH, 2011. HOWEVER, NO INSTANCE OF AN Y INDEPENDENT CONFIRMATION FROM THE PARTIES WHO HAVE PURCHASED GOODS FROM THE ASSESSEE, ABOUT THE UNDER INVOICING HAS BEEN MENTIONED BY THE AO. THE AR HAS RIGHTLY MENTIONED THAT THE AO HAS NOT CARRIED OUT A NY INQUIRIES ABOUT THE RATE FROM THE PARTIES WHO PURCH ASED GOODS FROM THE ASSESSEE DURING MARCH, 2011 ABOUT TH E 4 PRICE. ALSO THERE IS NO DOCUMENT MENTIONED BY THE A O WHICH WAS FOUND DURING THE SEARCH INDICATING SUCH A PRACTICE ADOPTED BY THE ASSESSEE. THE ASSESSEE HAS 125412 KG OF OPENING STOCK WHICH WAS VALUED AT RS. 2,79,41,540/- GIVING THE AVERAGE PRICE OF RS. 222.8 /- PER KG AND MADE PURCHASES OF 1462714 KGS FOR RS. 37,70,39,644/- GIVING THE AVERAGE PURCHASE PRICE OF RS. 257.8/- PER KG. THERE IS NO BASIS FOR THE PRESUMPTI ON THAT THE SALES DURING THE MARCH, 2011 WERE MADE OUT OF T HE PURCHASES MADE DURING THE MARCH, 2011 ONLY. SINCE T HE ADDITION HAS BEEN MADE PURELY ON PRESUMPTION WITHOU T ANY BASIS, THEREFORE THE ADDITION MADE BY THE AO IS NOT FOUND SUSTAINABLE AND HENCE DELETED. 4. ACCORDINGLY THIS GROUND OF APPEAL IS ALLOWED. 4. BEFORE US LD.DR RELIED ON THE ORDER OF THE ASSES SING OFFICER. LD.COUNSEL FOR THE ASSESSEE ON THE OTHER HAND RELIE D ON THE ORDER OF THE CIT(A) AND FURTHER POINTED OUT THAT IDENTICAL A DDITION WAS MADE IN A RELATED CONCERN OF THE ASSESSEE M/S JAIN UDHAY FABRICS PVT. LTD., HAD BEEN DELETED BY THE ITAT VIDE ITS ORDER I N ITA NO.551/CHD/2015 DATED 17-10-2017 AND ALSO IN THE CA SE OF M/S JAIN UDHAY APPARELS PVT. LTD. IN ITA NO. 111/CHD/20 17 DATED 24- 01-18.COPIES OF BOTH THE ORDERS WERE PLACED BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF AUTHORITIES BELOW. WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD.CIT(A). AS RIGHTLY POINTED OUT BY T HE LD.CIT(A), THE ADDITION IN THE PRESENT CASE ON ACCOUNT OF UNDER IN VOICING OF SALE OF KNITTED CLOTH TO THE EXTENT OF RS.1,05,39,243/- IS ENTIRELY BASED ON PRESUMPTION AND SURMISES AND CONJECTURES AND THE RE IS ABSOLUTE LACK OF ANY DIRECT EVIDENCE OF ANY UNDER I NVOICING. ALSO THE PRESUMPTIONS ON WHICH THE A.O. HAS BASED HIS FI NDINGS OF UNDER INVOICING HAVE BEEN REASONABLY CONTROVERTED B Y THE ASSESSEE, AS RIGHTLY NOTED BY THE LD.CIT(A). 6. AS IS EVIDENT FROM THE FACTS, AS REPRODUCED ABOV E, THE A.O. ARRIVED AT THE CONCLUSION THAT THE ASSESSEE HAD UND ER INVOICED HIS SALES, BY FINDING THAT THE AVERAGE RATE AT WHIC H SALES WERE 5 MADE IN THE MONTH OF MARCH WAS LESS THAN THE AVERAG E RATE AT WHICH THE PURCHASES WERE MADE IN THE SAID MONTH AND THE AVERAGE RATE OF THE VALUE OF THE OPENING STOCK OF T HAT MONTH. 7. THUS THE ENTIRE ACT OF HOLDING THAT THERE WAS UN DER INVOICING OF SALE IS NOT BASED ON ANY DIRECT EVIDENCE, WHEN T HE FACT OF THE MATTER IS THAT THE SALES WERE MADE TO PARTY WHICH C OULD HAVE BEEN EASILY VERIFIED, AS RIGHTLY POINTED OUT BY THE LD.CIT(A). THE FINDING OF THE LD.CIT(A) THAT THE ADDITION HAS BEEN MADE ON PRESUMPTIONS & WITHOUT ANY BASIS IS, THEREFORE, WHO LLY JUSTIFIED. 8. EVEN OTHERWISE THE CIT(A) HAS POINTED OUT THAT T HE AO HAD INCORRECTLY CALCULATED THE AVERAGE RATE OF OPENING STOCK OF KNITTED CLOTH, TAKING CONTRADICTORY STAND VIS A VIS STOCK O F KNITTED CLOTH AS AT THE END OF THE YEAR . THE LD.CIT(A) HAS NOTE D THAT WHILE THE AO HAS TAKEN THE CLOSING STOCK ,AS AT THE END OF TH E YEAR, OF KNITTED CLOTH AT 234429 KGS, FOR THE PURPOSE OF VAL UING THE SAME, THE QUANTUM OF THIS STOCK COMES TO 56278 KGS IF THE OPENING STOCK AT THE BEGINNING OF THE MONTH OF MARCH IS TAK EN AT 35592 KGS, WHICH THE A.O. HAS TAKEN FOR VALUING THE AVERA GE RATE OF OPENING STOCK OF THE MONTH WHILE MAKING ADDITION ON ACCOUNT OF UNDERINVOICING OF SALE OF KNITTED CLOTH. THE LD. DR HAS BEEN UNABLE TO CONTROVERT THIS FACTUAL FINDING OF THE CI T(A). 9. FURTHER THE CIT(A) HAS NOTED THAT BASED ON THE AVERAGE PRICE OF OPENING STOCK OF KNITTED CLOTH AND THE AV ERAGE PRICE OF PURCHASES MADE OF THE SAME DURING THE YEAR, THERE W AS NO UNDERINVOICING OF SALE, SINCE AS NOTED BY THE CIT(A ), THE AVERAGE PRICE OF THE OPENING STOCK FOR THE YEAR WAS AT RS.2 22.8 PER KG. AND OF THE PURCHASES MADE DURING THE ENTIRE YEAR W AS RS.257.8 PER KG., WHICH WAS BELOW THE AVERAGE SALE RATE IN T HE MONTH OF 6 MARCH OF RS.264 PER KG. THE LD. DR HAS BEEN UNABLE TO CONTROVERT THESE FACTUAL FINDINGS OF THE LD.CIT(A) 10. IT IS EVIDENT FROM THE ABOVE THEREFORE THAT THE ENTIRE PREMISES ON WHICH THE AO HAD BASED HIS FINDING OF U NDERINVOICING OF SALE IN THE MONTH OF MARCH STOOD DEMOLISHED .WE THEREFORE AGREE WITH THE LD.CIT(A) THAT THERE WAS NO REASON A T ALL TO UPHOLD THE ADDITION. THE ORDER OF THE LD.CIT(A) IS, THEREF ORE, UPHELD. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS, THE REFORE, DISMISSED. 11. GROUND OF APPEAL NO. 2 PERTAINS TO THE ADDITION O F RS. 2,69,59,335/- ON ACCOUNT OF ALLEGED UNDER VALUATION OF CLOSING STOCK OF KNITTED CLOTH AS ON 31.03.2011. 12. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE AO FOUND THAT WHILE THE ASSESSEE HAD PURCHASED KNITTED CLOTH IN T HE MONTH OF MARCH 2011 AT AN AVERAGE RATE OF RS.279/-,IT HAD VA LUED CLOSING STOCK OF THE SAME AT RS.164/- PER KG .AS PER AO, T HUS THERE WAS UNDER VALUATION OF STOCK BY RS.115/- PER KG WHICH C AME TO A TOTAL FIGURE OF UNDER VALUATION AT RS.2,69,59,335/-,CONSI DERING THE QUANTITY OF THE SAME OF 234429 KGS. AFTER GIVING A SHOW-CAUSE TO THE ASSESSEE AND AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE A.O. MADE AN ADDITION OF RS.2,69,59,335/- (CALCULAT ED AS RS.115 X 234429 KGS). 13. THE LD.CIT(A) DELETED PART OF THE ADDITION HOLD ING AS UNDER: THE FACTS OF THE CASE, THE BASIS OF ADDITION MADE BY T HE A.O. AND THE SUBMISSIONS/ARGUMENTS OF THE AR DURING THE APPELLATE PROCEEDINGS HAVE BEEN CONSIDERED. THE AO HAS MADE TH E ADDITION BY TAKING THE AVERAGE PRICE OF RS. 279/-PER KG FOR V ALUING THE CLOSING STOCK OF KNITTED CLOTH OF 234429 KGS AS AGAIN ST THE AVERAGE VALUE OF RS. 164/- PER KG ADOPTED BY THE ASSESSEE. THE FIGURE OF RS. 279/-WAS TAKEN ON THE BASIS OF THE AVERAGE PURCHASE PRICE OF KNITTED CLOTH PAID BY THE ASSESSEE DURING MARCH, 2011 . ON THE OTHER HAND THE AR HAS ARGUED THAT THERE IS NO BASIS WITH T HE AO FOR 7 ADOPTING ONLY THE COST PRICE OF MARCH 2011 AND APPL YING THE SAME TO THE WHOLE OF THE BALANCE/CLOSING STOCK AS ON 31.03.2011 WHICH INCLUDED THE STOCK PURCHASED DURING WHOLE OF THE YEAR AND ALSO THE STOCK BROUGHT FORWARD AS ON 01.04.2010. THE AR HAS ARG UED THAT THE STOCK OF CLOTH BROUGHT FORWARD AS ON 01.04.2010 WA S 125412 KGS VALUED AT RS. 2,79,41,540/- (GIVING AN AVERAGE RATE OF RS. 222.80/- PER KG) AND THE PURCHASES DURING THE YEAR WA S 1462714 KG AT RS. 37,70,39,644/- GIVING AN AVERAGE PURCHASE PRIC E OF RS. 257.76/-PER KG. THE AVERAGE SALE PRICE OF CLOTH DURING F.Y. 2010-11 WAS RS. 261.25/- KG. 7. THE AR HAS FURTHER ARGUED THAT ASSESSEE PURCHASE S LARGE VARIETY OF CLOTH OF DIFFERENT QUALITY, DESIGNS, COLOURS AT DIFFERENT RATES FOR EACH PURCHASE MADE DURING THE YEAR. SIMILARLY, TH E SALES ARE ALSO MADE AT DIFFERENT RATES. IN SUPPORT OF THE SAME THE AR ENCLOSED COPIES OF SOME SALES AND PURCHASE ACCOUNTS TO SHOW T HE VARIATION IN THE RATES DURING THE MONTH OF MARCH, 2011 BOTH IN RE SPECT OF SALES AND PURCHASES. ON THIS BASIS THE AR ARGUED THAT THE MONTHLY AVERAGE PURCHASE COST CANNOT BE COMPARED WITH THE MO NTHLY AVERAGE SALE RATE TO COMPUTE PROFITABILITY OR VALUATIO N ON MONTH TO MONTH BASIS. IT IS SO BECAUSE THE CLOTH SOLD MAY BE OUT OF CURRENT PURCHASES OR OUT OF OLD PURCHASES OR OUT OF OLD BROUG HT FORWARD STOCKS AND THUS THE STOCK AT THE END OF THE YEAR HAS A M IX OF BROUGHT FORWARD STOCK AND CURRENT PURCHASES. ACCORDINGLY, AS PER AR THE BEST METHOD OF VALUATION OF STOCKS IN THIS HOSIERY IN DUSTRY, HAVING VARIED PURCHASES, IS 'WEIGHTED AVERAGE METHOD' WHICH WILL COVER AND ABSORB BOTH LOW AND HIGH PRICE PURCHASES. THE WE IGHTED AVERAGE COST OF KNITTED CLOTH WAS WORKED OUT AT RS. 2 55/- PER KG IN THIS CASE FOR THE YEAR UNDER CONSIDERATION. 7.1 FURTHER, IT WAS ARGUED THAT THE ASSESSEE HAS VALUED THE KNITTED CLOTH STOCKS ON 31.03.2011 AT NET REALISED PRI CE FOLLOWING THE ACCOUNTING STANDARD 2 (REVISED) OF VALUATION OF I NVENTORIES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) WHICH VIDE PARA 5 AND 22 STATES FOR VALUATION AT LOWE R OF COST OR NET REALISABLE VALUE. FURTHER THE STANDARDS GIVEN BY THE A CCOUNTING BODY OF ICAI HAVE BINDING FORCE IN VIEW OF THE JUDG EMENT OF THE HON'BLE SUPREME COURT IN THE CASE CIT VS. PUNJAB STAI NLESS STEEL INDUSTRIES (2014) 364 ITR 144 (SC). FOR THIS THE ASSESSEE FILED COPY OF SALES MADE DURING APRIL, 2011 TO JULY, 2011 WHERE MA JORITY OF THE OLD STOCK WAS SOLD AT THE RATE OF RS. 55 PER KG, RS. 62.61 PER KG , RS. 40 PER KG AND RS. 50 PER KG RESPECTIVELY. REGARDING T HE JUSTIFICATION OF SALES AT LOW RATES IN THE NEXT YEAR, IT WAS SUBMITTED THAT THE ASSESSEE FIRST DECIDED TO CLEAR THE OLD STOCKS OF CLOT H AT WHATEVER POSSIBLE RATES IT COULD SELL BECAUSE WITH THE PASSAGE OF TIME, THE STOCKS GO OBSOLETE IN DESIGNS WITH FADED COLOURS. SUCH S TOCKS ARE SOLD IN LOTS AT MUCH BELOW THE COST AND THE ASSESSING OFFI CER HAS NOT DOUBTED THESE SALES MADE IN NEXT A.Y. 2012-13. THE TOTA L SALES SHOWN IN THE MONTH OF APRIL, 2011 ARE OF 50711.5 KGS A T A RATE OF RS. 50.18 PER KG. IT IS ARGUED THAT THE AO ALSO DID NOT ALTER THE VALUE OF OPENING STOCK OF CLOTH ON THE BASIS OF UNDER VALUA TION OF CLOSING STOCK OF CLOTH AS ON 31.03.2011 IN THE NEXT YEAR BY RS. 2,69,59,335/-. AS PER AR AO IS OTHERWISE DUTY BOUND TO T AKE THE VALUE OF CLOSING STOCKS OF A YEAR AS THE VALUE OF OPEN ING STOCK IN THE NEXT YEAR BUT IN THE ASSESSEE'S CASE THE AO DID NOT MAKE ANY ADJUSTMENTS WHICH CLEARLY SHOWS THAT AO DID ACCEPT T HE VALUE OF OPENING STOCK AS SUCH IN THE NEXT YEAR WHICH IS THE VALUE OF CLOSING STOCK OF THE YEAR UNDER CONSIDERATION AS PER ASSESSEE'S VERSION. 8 8. THERE APPEARS TO BE MERIT IN THE ARGUMENT OF THE AR THAT THE ASSESSEE HAS NO PURPOSE TO UNDER VALUE THE CLOSING ST OCKS IN THIS YEAR TO AVOID PAYMENT OF TAX AS ANY INCREASE IN VALU ATION OF CLOSING STOCK WILL INCREASE THE LOSS IN THE NEXT YEAR AS THIS YEAR'S CLOSING STOCK WILL BE THE OPENING STOCK FOR NEXT YEAR. FOR TH IS THE AR HAS GIVEN A CHART SHOWING THE VALUE OF RETURNED INCOME/LO SSES AND THE ASSESSED INCOME/LOSSES. AFTER GOING THROUGH THE TOTAL ITY OF THE FACTS SUBMITTED DURING THE APPELLATE PROCEEDINGS IT IS FOUN D THAT THE TOTAL STOCK OF KNITTED CLOTH WITH THE ASSESSEE DURING THE Y EAR WAS AS UDER:- THE STOCK AT THE END OF THE YEAR IS OUT OF EITHER T HE OPENING STOCK OR OUT OF THE PURCHASES MADE DURING THE YEAR. SINCE THE EXACT BIFURCATION/DETAILS OF STOCK AS ON 31 . 03.2011 IS NOT AVAILABLE, THEN IN THE CIRCUMSTANCES OF THE CASE THE BEST SUITED AND APPROPRIATE METHOD FOR VALUATION OF THE STOCK IS THE 'WEIGHTED A VERAGE COST AS MENTIONED BY THE AR ALSO IN THE WRITTEN SUBMISSION'. T HE WEIGHTED AVERAGE COST AS PER THE TABLE ABOVE COMES TO RS. 255/ - PER KG. AND ACCORDINGLY THE VALUE OF 234429 KG OF KNITTED CLOTH AS ON 31.03.2011 COMES TO RS.5,97,79,395/- (234429 X 255) AS AGA INST RS. 3,85,29,423/- DECLARED BY THE ASSESSEE (AND RS. 6,54,05 ,691/- TAKEN BY THE AO). 9. THEREFORE, THE VALUE OF CLOSING STOCK OF 234429 KGS OF KNITTED CLOTH AS ON 31.03.2011 SHOULD BE TAKEN AT RS.5,97,79,395/- A S AGAINST RS.3,85,29,423/-DECLARED BY THE ASSESSEE. ACCORDI NGLY, THE ADDITION TO THE EXTENT OF RS.2,12,49,972/- (RS.5,97,79,395 - RS.3,85,29,423) ONLY IS SUSTAINED AND THE ASSESSEE GETS A RELIEF OF THE BALANCE AMOUNT OF RS.57,09,363/- (RS.2,69,59,335 RS.2,12,49,972). 10. ACCORDINGLY THIS GROUND OF APPEAL IS PARTLY ALLOWED. 14. BEFORE US LD.DR RELIED ON THE ORDER OF THE ASSE SSING OFFICER. LD.COUNSEL FOR THE ASSESSEE ON THE OTHER HAND RELIE D ON THE ORDER OF THE CIT(A) 15. WE HAVE HEARD THE RIVAL CONTENTIONS, AND GONE T HROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHICH WE FI ND IS WELL- REASONED AND BASED ON FACTUAL FINDINGS WHICH HAVE R EMAINED UNCONTROVERTED BEFORE US. SR. NO. DESCRIPTION QUANTITY AMOUNT (RS.) 1. OPENING STOCK AS ON 01.04.2010 125412 KG 2,79,41,540/- 2. PURCHASES DURING THE YEAR ENDING 31.03.2011 1462714 KG 37,70,39,644/- 3. TOTAL 1588126 KG 40,49,81,184/- AVERAGE COST RS. 255 PER KG 9 16. THE A.O., WE FIND, HAD MADE THE ADDITION OF PUR PORTEDLY UNDER VALUATION OF CLOSING STOCK BY THE ASSESSEE SI NCE AS PER THE A.O., THE STOCK OUGHT TO HAVE BEEN VALUED AT THE AV ERAGE PURCHASE RATE FOR THE MONTH OF MARCH OF RS.279 PER KG. AS AG AINST THE VALUATION DONE BY THE ASSESSEE AT RS.164 PER KG. RE SULTING IN UNDER VALUATION BY RS.115 PER KG. THE LD.CIT(A), IN TURN, CALCULATED THE WEIGHTED AVERAGE COST OF THE KNITTED CLOTH FOR THE ENTIRE YEAR AT RS.255 PER KG. AND ACCORDINGLY, VALU ED THE CLOSING STOCK AT THE SAID RATE. THE LD.CIT(A) ADOPTED THIS METHOD OF VALUATION AGREEING WITH THE ASSESSEE THAT SINCE IT DEALT WITH IN A VARIETY OF CLOTHS, PURCHASING AND SELLING DIFFERENT QUALITY, DESIGNS, COLOURS AT DIFFERENT RATES, THIS WAS THE B EST METHOD TO COVER BOTH LOW AND HIGH PRICE PURCHASES. THE LD. DR HAS BEEN UNABLE TO CONVINCE US AS TO WHY THE METHOD OF VALUA TION ADOPTED BY THE LD.CIT(A) WAS WRONG. IT IS NOT DISPUTED THA T THE ASSESSEE PURCHASED LARGE VARIETY OF CLOTH OF DIFFERENT QUALI TY, DESIGN AND COLOUR AT DIFFERENT RATE DURING THE YEAR AND THE ST OCK AT THE END OF THE YEAR WAS A MIX OF BROUGHT FORWARD STOCK AND CURRENT PURCHASES. IN SUCH CIRCUMSTANCES, THE WEIGHTED AVER AGE METHOD, WE AGREE, IS THE BEST METHOD FOR VALUATION OF STOCK SINCE IT WOULD COVER AND OBSERVE BOTH THE LAW AND HIGH PURCHASE PR ICE. THE CONTENTION OF THE REVENUE THAT THE VALUATION SHOULD HAVE BEEN DONE ON THE BASIS OF THE AVERAGE PURCHASE PRICE FOR THE MONTH OF MARCH IS NOT TENABLE, SINCE SUCH BASIS OF VALUATION WOULD HAVE BEEN APPROPRIATE ONLY WHEN THE ASSESSEE WAS DEALING IN ONE TYPE AND QUALITY OF ITEM SELLING THEM ON FIRST IN FIRST OUT BASIS, WHICH IS NOT THE FACT IN THE PRESENT CASE. THE SAME IS TH EREFORE DISMISSED. 10 17. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF TH E LD.CIT(A) IN DELETING THE ADDITION TO THE EXTENT OF RS.57,09,363 /- AND SUSTAINING THE BALANCE OF RS.2,12,49,972/-. THE GR OUND OF APPEAL FILED BY THE REVENUE IS DISMISSED. 18. IN EFFECT THE APPEAL OF THE REVENUE IS DISMISSE D. 19. THE CROSS OBJECTION FILED BY THE ASSESSEE WAS T IME BARRED BY 529 DAYS. NO APPLICATION FOR CONDONATION OF THE DEL AY WAS FILED BEFORE US. FURTHER THE SAME WAS ALSO NOT PRESSED BE FORE US. THEREFORE, THE CROSS OBJECTION FILED BY THE ASSESSE E IS, THEREFORE, DISMISSED. 20. IN THE RESULT, THE APPEAL OF THE REVENUE AND TH E CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- ' # $ %! (SANJAY GARG ) (ANNAPURNA GUPTA) / JUDICIAL MEMBER &' / ACCOUNTANT MEMBER )' /DATED: 08 TH JANUARY, 2019 AG (%) *+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ( ! - / CIT 4. ( ( ! - ( )/ THE CIT(A) 5. +./ 0 , ( # (0 , 123/4 / DR, ITAT, CHANDIGARH 6. /3 5' / GUARD FILE P (%) ! / BY ORDER, 6 / ASSISTANT REGISTRAR