DCIT, Patiala V. M/s Sh. Vivek Jain, Patiala

ITA 124/CHANDI/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8979 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 31-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: RAKESH JAIN
• Keywords: Bogus purchase; Gross profit estimation; Rule of consistency
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.124/CHD/2015 (ASSESSMENT YEAR :2009-10 ) THE D.C.I.T., VS. SHRI VIVEK JAIN, CIRCLE PATIALA. PROP. M/S VIJAY JEWELLERS, 9, AC MARKET, ADALAT BAZAR, PATIALA. PAN: ABUPJ0709Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K. MITTAL, DR RESPONDENT BY : S/SHRI GURJEET SINGH & RAKESH JAIN DATE OF HEARING : 22.08.2016 DATE OF PRONOUNCEMENT : 17.11.2016 O R D E R PER ANNAPURNA GUPTA, A.M . : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), PATIALA DATED 26.11.2013 RELATING TO ASS ESSMENT YEAR 2009-10. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A JEWELLER. DURING THE IMPUGNED ASSESSMENT YEAR ASSESSMENT WAS FRAMED UNDER SECTION 143(3) OF THE I NCOME TAX ACT, 1961 (IN SHORT THE ACT), AFTER REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE UNDER SECTION 145(3) OF THE 2 ACT AND THEREAFTER APPLYING GP RATE OF 35% AS AGAIN ST 18.71% SHOWN BY THE ASSESSEE MADE AN ADDITION OF RS.41,35,255/- TO THE INCOME OF THE ASSESSEE. DET AILED REASONING FOR REJECTING THE BOOKS OF ACCOUNTS ARE CONTAINED IN PARA 1 OF THE ASSESSMENT ORDER, THE PR IMARY REASON BEING THAT NO ITEM-WISE DETAIL OF JEWELLERY PURCHASED AND SOLD WAS MAINTAINED AS ALSO OPENING A ND CLOSING STOCK. AS PER THE ASSESSING OFFICER, IN TH E ABSENCE OF ITEM-WISE DETAIL, THE ITEMS SOLD COULD N OT BE CORELATED TO THE CORRESPONDING PURCHASES, IT WAS NO T VERIFIABLE AS TO WHICH ITEMS CONSTITUTED CLOSING ST OCK. FURTHER, THE ADOPTION OF WEIGHTED AVERAGE COST (WAC ) METHOD FOR VALUATION OF STOCK WAS FOUND INCORRECT A ND THE FIFO METHOD WAS FOUND TO BE APPROPRIATE AS A CONSEQUENCE, THE STOCK OF GOLD WAS FOUND UNDERVALUE BY RS.13,13,487/-. SIMILARLY, SINCE THE PURITY OF DIA MOND WAS MENTIONED IN THE SALES BILLS AND NO EXPLANATION WAS GIVEN FOR ADOPTING DIFFERENT RATE FOR DIAMOND JEWEL LERY SOLD, THE HIGHEST SALE RATE OF RS.7500/- PER CARAT WAS ADOPTED AND SUPPRESSION OF SALES WORKED OUT AMOUNT ING TO RS.2,09,277/-. ALSO, WHILE THE ASSESSEE WAS FOU ND TO HAVE SHOWN GP RATE OF 18.71%, ANOTHER JEWELLER M/S WALAITI RAM MADAN LAL WHO WAS IN THE SAME BUSINESS WAS FOUND TO HAVE SHOWN GP OF 38.23% AND NO PLAUSIBLE REASON WAS FOUND TO HAVE BEEN GIVEN BY THE ASSESSEE FOR THE LOW GP RATE. THEREFORE, THE BOOKS OF THE ASSES SEE WERE REJECTED AND GP RATE OF 35% AS SHOWN BY ANOTHE R 3 JEWELLERY M/S WALAITI RAM MADAN LAL WAS APPLIED, MA KING ADDITION OF RS.41,35,255/- TO THE INCOME OF THE ASS ESSEE. 3. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE MADE DETAILED SUBMISSIONS AGAINST THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT S AS WELL AS MAKING ADDITION ON ACCOUNT OF GP RATE. THE SUBMISSIONS ARE REPRODUCED AT PARA 4.1 OF THE CIT (APPEALS)S ORDER. A REMAND REPORT WAS CALLED FOR BY THE LEARNED CIT (APPEALS) FROM THE ASSESSING OFFICER, A FTER CONSIDERING WHICH THE LEARNED CIT (APPEALS) ALLOWED THE ASSESSEES APPEAL BY HOLDING THAT THE ASSESSING OFF ICER HAS TALKED ABOUT DISCREPANCIES IN THE BOOKS OF ACCO UNTS GENERALLY BUT NOT POINTED OUT ANY SPECIFIC DISCREPA NCY WHICH GAVE ANY POSITIVE EVIDENCE OF SUPPRESSION OF SALES OR BOGUS PURCHASES. THE LEARNED CIT (APPEALS) HELD THAT, IN FACT, THERE WAS NO DISCREPANCY IN THE QUANTITY O F STOCKS. THE LEARNED CIT (APPEALS) HELD THAT THE ON LY ISSUE WAS VIS--VIS VALUATION OF STOCK, WHICH METHOD SINC E THE ASSESSEE HAD BEEN FOLLOWING CONSISTENTLY SINCE INCE PTION AND HAD BEEN ACCEPTED IN ASSESSMENT YEAR 2005-06 UN DER SECTION 143(3) OF THE ACT, THE SAME COULD NOT BE DISTURBED. RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF ACIT VS. JAGDISH CHAND, 90 TTJ (CHD) 943, ITO VS. CHOKSHI HIRACHAND & BROS. AND 27 TTJ 415, SHANT ILAL NAGARDAS & SON (ITA NO.3362/AHD/2009). FURTHER, TH E LEARNED CIT (APPEALS) HELD THAT THERE WAS NO DISCRE PANCY VIS--VIS GROSS PROFIT RATE OF THE ASSESSEE SINCE I T WAS 4 COMPARABLE TO THE PREVIOUS YEAR AND THE NP WAS MORE THAN THE PREVIOUS YEAR AS ALSO THE ASSESSEE HAD DUL Y EXPLAINED THE REASON FOR DIFFERENCE IN GP RATE OF T HE ASSESSEE AS COMPARED TO M/S WALAITI RAM MADAN LAL. THE RELEVANT FINDING OF THE LEARNED CIT (APPEALS) AT PA RAS 4.5 TO 4.8 OF HIS ORDER IS AS FOLLOWS : 4.5 I HAVE CONSIDERED THE SUBMISSIONS MADE. THE BA SIC OBJECTION OF THE A.O. IS THAT THE ASSESSEE IS NOT MAINTAINING AN Y ITEM WISE INVENTORY SO AS TO CO-RELATE THE PURCHASE AND SALES .THE A.O. CONTENDED THAT THE ENTIRE JEWELLERY IS BEING SOLD O UT OF THE OPENING STOCK FIRST AND ONLY THEREAFTER THE BALANCE JEWELLE RY ARE SOLD. IN THIS CASE, THE APPELLANT HAS SUBMITTED THAT IF THIS PRES UMPTION IS MADE THEN THE OPENING STOCK WILL RISE IN VALUE THEREBY R EDUCING THE PROFIT. IT IS FURTHER SUBMITTED THAT THE APPELLANT IS CARRY ING ON THE BUSINESS SINCE LAST MANY YEARS AND HAS BEEN CONSISTENTLY FOL LOWING THE SYSTEM OF AMOUNTING. THE ASSESSEE'S FIRM IS IN EXISTENCE IN SEVERAL YEAR S AND ENGAGED IN THE BUSINESS OF JEWELLERY. THE RETURN OF INCOME WAS DU LY SUPPORTED BY AUDITED ANNUAL ACCOUNT AND ACCOMPANYING DOCUMENTS. THE VALUATION OF CLOSING STOCK IS DONE ON THE BASIS OF WEIGHTED A VERAGE COST METHOD. THE APPELLANT HAS SUBMITTED THAT THIS METHOD HAS BE EN CONSTANTLY FOLLOWED SINCE LAST MANY YEARS AND RATHER SINCE INC EPTION AND SUCH PRACTICE HAS BEEN ACCEPTED BY THE A.O. IN VARIOUS Y EARS INCLUDING UNDER ORDER PASSED U/S 143(3) IN A.Y. 2005-06. FURT HER THE A.O. HAS TALKED ABOUT THE DISCREPANCIES GENERALLY BUT HAS NO T POINTED OUT ANY SPECIFIC DISCREPANCY IN THE ACCOUNTS GIVING ANY POS ITIVE EVIDENCE OF SUPPRESSION OF SALES OR BOGUS PURCHASE ETC. THERE I S NO DISCREPANCY IN QUANTITY OF PURCHASE AND SALE AND THE ISSUE IS THAT INSTEAD OF WEIGHTED AVERAGE METHOD APPLIED BY THE APPELLANT, F IFO METHOD SHOULD BE APPLIED AND BY WAY OF APPLICATION OF FIFO METHOD, THE A.O. HAS CONTENDED THAT CLOSING STOCK IS NOT CORRECTLY S HOWN AND THEREFORE BOOKS OF ACCOUNTS SHOULD BE REJECTED. 5 4.6 IN THE CASE OF ACIT VS. JAGDISH CHAND 90 TTJ (CHD) 943, THE APPELLANT WAS JEWELLER. THE ID. CIT(A) HELD THAT TH E VALUATION WORKED OUT ON THE BASIS OF AVERAGE OF OPENING STOCK AND PURCHASES WAS CONSISTENTLY FOLLOWED BY THE APPELLANT OVER A NUMBE R OF YEARS. HE, THEREFORE, DELETED THE ADDITION MADE BY THE A.O. ON THE BASIS OF AVERAGE RATE OF PURCHASES. THIS VIEW WAS CONFIRMED BY HON'BLE ITAT. IN THIS CONNECTION, RELIANCE MAY BE MADE TO THE DEC ISION OF ITAT AHMEDABAD IN THE CASE OF INCOME TAX OFFICER VS CHOKSHI HIRACHAND & BROS. (57 TTJ, 415) WHEREIN IT HAS BEEN HELD THAT, 'WHEN THE VALUATION OF CLOSING STOCK ACCORDING TO T HE ACCOUNTING SYSTEM CONSISTENTLY FOLLOWED WAS ACCEPTED BY THE RE VENUE IN EARLIER AS WELL AS SUBSEQUENT ASSESSMENT YEAR, ITO WAS NOT JUS TIFIED IN MAKING ADDITIONS BY ADOPTING A DIFFERENT METHOD FOR ASSESS MENT YEAR IN QUESTION.' SIMILARLY IN THE CASE OF SAHNTILAL NAGARDAS & SO. (ITA NO.3362/AHD/2OO9) ITAT B-BENCH AHMADABAD, THE APPELLANT, A JEWELER WAS MAINTAINING VALUATION OF STOCK AS AVERAGE RATE OF THREE YEARS' MARKET PRICE CONSISTENTLY SINCE LAST MANY YE ARS. DURING THE INSTANT YEAR THE A.O. SOUGHT TO ADOPT THE COST OR M ARKET PRICE WHICHEVER IS LOWER AS ON 31.03.2006 FOR VALUATION O F CLOSING STOCK. IN THIS CASE, THE ID. CIT(A) HAS HELD THAT 'THE ISSUE OF DISTURBING THE VALUATION OF CLOSING STOCK CAN ALSO BE SEEN FROM TH E CONTEXT OF THE RULE OF CONSISTENCY. IT IS A MATTER OF FACT THAT THE APPELLANT IS A PARTNERSHIP FIRM CARRYING ON THIS BUSINESS FOR THE LAST SEVERAL YEARS. A NUMBER OF SCRUTINY ASSESSMENTS HAVE ALSO BEEN COM PLETED BY THE DEPT. IN THE PAST IN ALL THESE YEARS. THE A.O HAS P OINTED OUT THAT THE FIRM HAD VALUED THE STOCK BY ADOPTING THE SAME FORM ULA AND SAME HAS NEVER BEEN DISTURBED OR CHALLENGED BY THE DEPT. IN THE PART. THE A.O. IS, THEREFORE, NOT JUSTIFIED IN ADOPTING SUDDENLY A CHANGED METHOD REPLACING THE STANDARD AND ACCEPTED METHOD OF VALUA TION OF STOCK (WEIGHTED AVERAGE METHOD) TO MARKET PRICE. THE CONT ENTION OF THE APPELLANT THAT THE ISSUE ALSO GETS COVERED BY ACCOU NTING STANDARD- 2 (REVISED) ISSUED BY THE INSTITUTE OF CHARTERED ACCO UNTANT OF INDIA IS ALSO CORRECT. THE A.O. HAS, HOWEVER, PROCEEDED TO D ISTURB THE METHOD UNDER AS-2 PARA 14 AND NOT BY PARA. 16, AS MADE OUT BY THE 6 APPELLANT TO BE. THE PARA 14, IN TURN, PROVIDES THA T THE COST OF INVENTORIES OF ITEMS THAT ARE NOT ORDINARILY INTERC HANGEABLE AND GOODS OR SERVICES PRODUCED AND SEGREGATED FOR SPECI FIC PROJECTS SHOULD BE ASSIGNED BY SPECIFIC IDENTIFICATION OF TH EIR INDIVIDUAL COSTS, HAS CLEARLY NO APPLICATION IN THE CASE OF THE APPEL LANT, BEING A JEWELER HAVING HUNDRED AND THOUSANDS OF ITEMS IN STOCK WITH THERE CLEARLY BEING NO SPECIFIC IDENTIFICATION OF THE STOCK WITH REFERENCE TO THE SPECIFIC COST ASSIGNED TO IT. THE PARAGRAPH 14 OF A S-2 (REVISED) WILL APPLY ONLY TO SPECIFIC KIND OF INDUSTRIES AND CANNO T HAVE GENERAL OR BLANKET APPLICATION. FOR EXAMPLE, A DEALER OF CARS CAN SEPARATELY IDENTIFY EACH AND EVERY CAR LYING IN STOCK WITH REF ERENCE TO THE SPECIFIC COST ATTACHED TO IT. THIS IS BECAUSE THE C ARS ARE NOT INTERCHANGEABLE AND ARE SEPARATELY IDENTIFIABLE WIT H REFERENCE TO THE CHASSIS NUMBER ASSIGNED WHICH IS ALSO CLEARLY MENTI ONED ON THE FACE OF THE INVOICE AND OTHER DOCUMENTS. THE CAR DE ALER CANNOT, THUS, GO BY AVERAGE COST METHOD OF VALUATION OF STOCK AND HAS TO GO BY DETERMINING THE PRODUCT SPECIFIC COST AT THE END OF THE YEAR. EVEN IN THIS SITUATION, IT IS NOT OPEN FOR THE A.O. TO REPL ACE THIS VALUATION BY THE MARKET PRICE, AS DONE BY THE A.O. SINCE THE CAS E OF THE APPELLANT IS CLEARLY NOT COVERED UNDER PARA 14 OF AS-2 (REVISED) , IT WILL UNDOUBTEDLY BE COVERED BY PARA.16 WHICH CLEARLY PROVIDES THAT THE COST OF INVENTORIES OTHER THAN THOSE DEALT WITH IN PARA.14, SHOULD BE ASSIGNED BY WEIGHTED AVERAGE COS T FORMULA. THE HON'BLE ITAT, 'C BENCH, AHEMEDABAD, HAS DELIVER ED A JUDGMENT IN REGARD TO METHOD OF ACCOUNTING IN THE CASE OF ACIT VS. SHRI VIJAY M. PAREKH IN ITAS NO.1994 TO 1999/AHD/20 09 VIDE THEIR ORDER DATED 25 TH SEPTEMBER, 2009 WHEREIN THE HON'BLE ITAT HAS OBSERVED THAT THE ASSESSEE HAD BEEN REGULARLY FOLLO WING THE VERY SAME METHOD OF ACCOUNTING CONSISTENTLY WHICH HAS BE EN ACCEPTED BY THE DEPARTMENT EVEN IN THE PAST IN THE ORDERS PASSE D UNDER SECTION 143(3) OF THE ACT. IT IS FURTHER OBSERVED THEREIN T HAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY CAUSE OR EVIDENCE IN RE JECTING THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE BU T ON THE OTHER HAND, THE ASSESSING OFFICER HAS APPLIED ANOTHER SYS TEM OF ACCOUNTING AGAINST THE SPIRIT OF APPLICABLE SECTION I.E. SECTI ON 145 OF THE ACT THOUGH HE HAS NOT CATEGORICALLY REJECTED THE BOOKS OF THE APPELLANT. IT IS FURTHER HELD THAT THE DEPARTMENT CANNOT COMPEL T HE ASSESSEE TO 7 ADOPT A PARTICULAR SYSTEM OF ACCOUNTING. THE HON'BL E.TRIBUNAL HAS ALSO OBSERVED THAT THERE IS NO COGENT AND VALID REA SON FOR DISTURBING THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE APPELLANT.' THE HON'BLE ITAT THEREAFTER OBSERVED THAT 'WE FIND THAT IN BOTH THE AUDIT REPORTS THE ASSESSEE HAS ADOPTED THE SAME METHOD OF VALUATION OF THE CLOSING STOCK WHICH IS ADOPTED IN THE ASSESSMENT YE AR UNDER APPEAL AND FOLLOWED IN THE PRECEDING ASSESSMENT YEAR. IN THE A SSESSMENT YEAR 2005-06, THE A.O. ACCEPTED THE SAME METHOD OF VALUA TION OF THE CLOSING STOCK IN THE SCRUTINY ASSESSMENT U/S 143(3) OF THE IT ACT. IT IS, THEREFORE, PROVED ON RECORD THAT THE REVENUE DEPART MENT ACCEPTED THE SAME METHOD OF VALUATION OF CLOSING STOCK IN THE EA RLIER YEARS ON THE SAME SET OF FACTS AND CIRCUMSTANCES OF THE CASE OF THE BUSINESS OF THE ASSESSEE. IT IS WELL SETTLED LAW THAT THOUGH THE PR INCIPLE OF RES-JUDICATA DOES NOT APPLY TO THE INCOME TAX PROCEEDINGS, BUT P RINCIPLE OF THE CONSISTENCY SHALL HAVE TO BE FOLLOWED BY THE REVENU E DEPARTMENT WHILE MAKING THE ASSESSMENT. WE RELY UPON THE DECISION OF THE HON'BLE M.P. HIGH COURT IN THE CASE OFGODAVARI CORPORATION LTD., 156ITR 835, DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F BERGER PAINTS (INDIA) LTD., 266 ITR 99, AND THE DECISION OF THE H ON'BLE SUPREME COURT IN THE CASE OF RADHASWAMY SATSANG, 193 ITR 32 1. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF VIKASH C HEMI GUM, 276 ITR 32 HELD THAT 'SOURCE OF INCOME IN EARLIER YEAR NOT CHALLENGED BY THE REVENUE DEPARTMENT, IT IS NOT OPEN TO CHALLENGE D BY THE REVENUE DEPARTMENT, IT IS NOT OPEN TO CHALLENGE THE SAME S OURCE OF INCOME IN SUBSEQUENT ASSESSMENT YEAR. 'THE HON'BLE SUPREME CO URT IN THE CASE OF SATISH PANNALA SHAH, 249 ITR 221 DEPRECATED THE PRA CTICE OF THE DEPARTMENT IN ACCEPTING THE CORRECTNESS OF THE JUDG MENT IN PARTICULAR CASE AND IN THE CHALLENGING ITS QUESTION IN ANOTHER CASE. THE ID. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE ASSESSMENT ORDER IN THE CASE OF THE ASSESSEE U/S 143(3) DATED 16.12.200 9 (PB-106) FOR ASSESSMENT YEAR 2007-08 IN WHICH ALSO THE A.O. ACCE PTED SAME METHOD OF VALUATION OF CLOSING STOCK. THIS ORDER IS PASSED BY SHRI RAVI PRAKASH, ACIT, CIRCLE-2, BHAVNAGAR, WHO HAS FILED T HE PRESENT DEPARTMENTAL APPEAL BEFORE THE TRIBUNAL ON 22.12.20 09. IT IS, THEREFORE, CLEAR THAT REVENUE DEPARTMENT NOT ONLY I N PAST BUT IN SUBSEQUENT YEARS ALSO ACCEPTED THE CLAIM OF THE ASS ESSEE. THIS STAND 8 OF THE A.O. WOULD DEMOLISH ALL ARGUMENTS OF THE ID. DR. THE FINDINGS OF THE ID. CIT(A)ON CORRECT METHOD OF VALUATION ORD ERS OF THE TRIBUNAL INCLUDING THE ORDERS OF JURISDICTIONAL ITAT AHMEDAB AD BENCH IN ARRIVING AT THE JUST DECISION IN THE MATTER. WE, TH EREFORE, DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF TH E ID.CIT(A). CONSIDERING THE ABOVE DISCUSSION, WE DO NOT FIND AN Y MERIT IN THE APPEAL OF THE REVENUE.' 47. FURTHER THE CASE OF DCIT AMBALA VS SH. VIPIN AG GARWAL AMBALA PROP. M/S MASEDI LAL HARI KISHAN DASS AMBALA (ITA NO. 450/CHD/2010) IS RELEVANT. IN THIS CASE, THE APPELL ANT JEWELER WAS VALUING THE STOCK UNDER LAST IN FIRST OUT METHOD WH ILE THE A.O. CONTENDED THAT IT SHOULD BE VALUE UNDER AS-2 ACCOUN TING STANDARD EMPLOYING WEIGHTED AVERAGE COST METHOD. IN THIS CAS E THE A.O. HELD THAT @ THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE THAT THE OLD JEWELLERY REMAINED WITH THE ASSESSEE THROUGHOUT THE YEAR (B) NO STOCK REGISTER OR ITEM WISE STOCK INVENTORY BEING MAINTAI NED OR PRODUCED BY THE ASSESSEE (C) EVEN IT WAS OLD JEWELLERY THE SAME COULD BE CONVERTED INTO LATEST DESIGN. THE A.O. ON THIS GROUND REJECTE D THE COMPUTATION OF THE APPELLANT. THE APPELLANT SUBMITTED THAT THE ASS ESSEE WAS VALUING ITS STOCK AT COST FOLLOWING LIFO METHOD WHICH WAS B EING FOLLOWED REGULARLY FROM YEAR TO YEAR. IT WAS FURTHER POINTED OUT THAT AS-2 THE ACCOUNTING STANDARD WAS NOT BINDING ON THE ASSESSEE . IN THIS CASE THE HON'BLE TRIBUNAL ACCEPTED THE METHOD ADOPTED BY THE APPELLANT. IT HAS BEEN OBSERVED THEREIN THAT 'THE A.O. WHILE RE-COMPU TING THE VALUE OF STOCK HAS ACCEPTED THE WEIGHTS IN GRAMS OF STOCKS B UT HAD ONLY REVALUED THE STOCK BY ADOPTING A FIGURE HIGHER THAN RATE DISCLOSED BY THE ASSESSED. WE FIND NO MERIT IN THE SAID ADDITION BEING MADE BY THE A.O. WHERE THE VALUATION OF CLOSING STOCK HAS BEEN CHANGED VIS-A VIS ITS VALUE AND NOT BECAUSE OF ANY DIFFERENCE IN THE QUANTITY OF STOCK. THE ASSESSEE WAS CONSISTENTLY FOLLOWING A PARTICULAR ME THOD OF ACCOUNTING WHICH IS BEING ACCEPTED FROM YEAR TO YEAR AND IN TH E ABSENCE OF ANY CONTRARY FINDINGS BY THE A.O. , THERE IS NO MERIT I N NOT ADOPTING THE METHOD OF VALUATION OF STOCK BEING CONSISTENTLY FOL LOWED BY THE ASSESSEE. FURTHER WE FIND SUPPORT FROM THE RATIO LA ID DOWN BY THE HON'BLE SUPREME COURT IN CHAINRUP SAMPAT RAM VS CIT (SUPRA) WHEREIN IT HAS BEEN HELD THAT THE VALUE OF STOCK CA NNOT BE APPRECIATED 9 HIGH THAN THE COST BECAUSE THE CLOSING STOCK IS NOT THE SOURCE OF PROFIT FOR THE ASSESSEE. IT HAS ALSO BEEN HELD BY THE HON' BLE SUPREME COURT THAT THE CLOSING STOCK IS TO BE VALUED EITHER AT CO ST OR MARKET VALUE, WHICHEVER IS LOW. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE IN CONFORMITY WITH THE ORDER OF CIT(A) AND U PHOLD THE SAME. ' 4.8 CONSIDERING THE SUBMISSIONS ,IN THIS CASE FIRST LY IT IS OBSERVED THAT THE METHOD OF ACCOUNTING HAS BEEN ACCEPTED IN SCRUTINY ORDER FOR A.Y. 2005-06 .THE CLOSING STOCK IN A.Y. 2005-06 HAS A BEARING IN THE FOLLOWING ASSESSMENT YEARS SECONDLY, THERE IS NO DISCREPANCY IN THE QUANTITY O F STOCK. THE STOCK HAS ONLY BEEN REVALUED BY ADOPTING A HIGHER F IGURE THAN THE RATE DISCLOSED BY THE APPELLANT ON THE ASSUMPTION THAT O NLY OLD JEWELLERY HAS BEEN SOLD AND FRESH JEWELLERY HAS REMAINED IN S TOCK UNTIL THE OLD JEWELLERY IS EXHAUSTED AND ON THAT BASIS BOOKS OF A CCOUNTS WERE REJECTED. THIS PRESUMPTION THAT THE JEWELLER HAS KE PT ON PURCHASING JEWELLERY IN THE YEARS BUT HAS NOT SOLD TILL THE OL D JEWELLERY IS EXHAUSTED HAS NO BASIS AND WITHOUT ANY EVIDENCE BROUGHT ON RE CORD. SALES AND PURCHASE AND STOCK TALLY IN WEIGHT . THERE IS NOTHI NG ON RECORD TO SHOW ANY QUANTITATIVE DISCREPANCY IN THE QUANTITATIVE TA LLY OF ITEMS IN PURCHASE, SALE OR STOCK ACCOUNT. THIRDLY, THE GROSS PROFIT IS COMPARABLE TO PREVIOUS YEAR AND N.P. IS MORE VIS-A-VIS PREVIOUS YEAR. THE APPELLANT HAS ALSO EXPLAINED THAT THE COST OF SALE IN HIS CASE IS RS. 1062.92 PE R UNIT COMPARED TO RS. 861.65 PER UNIT IN CASE OF M/S WALATI RAM MADAN LAI AND THEREFORE THE G.P. IN HIS CASE IS LESSER THAN THAT OF M/S WALATI RAM. THIS ARGUMENT OF THE APPELLANT IS NOT REBUTTED. THU S ON FACTS THE CASE OF MADAN LAI WALAITY RAM IS NOT A GOOD COMPARABLE. THE SALE PRICE PER GM. IS ALMOST SAME AS THAT OF THE COMPA RABLE CASE. UNDER SUCH CIRCUMSTANCES THE PAST PERFORMANCE OF T HE APPELLANT ITSELF DULY ACCEPTED IN SCRUTINY PROCEEDING IS A GO OD COMPARABLE. IN THIS CASE GROSS PROFIT OF 17.1% HAS BEEN ACCEPTE D IN A.Y 2005- 06 IN SCRUTINY PROCEEDING. IN THIS YEAR GP IS 18.1% .THERE IS NOTHING ON RECORD TO SHOW ANY DISCREPANCY IN QUANTI TY OF PURCHASE, SALE OR STOCK ACCOUNT OR ANY TRANSACTION OUTSIDE TH E BOOKS OF ACCOUNT. 10 FURTHER AS REGARDS CASH SALES, IN THE CASE OF R.B.JESSARAM FATEHCHAND VS CIT ' 75 ITR 33(BOM) ,IT IS HELD THAT NON-INCLUSION OF ADDRESSES OF CUSTOMERS IN RESPECT OF CASH TRANSACTION CAN NOT BE BASIS FOR REJECTION OF BOOKS OF ACCOUNT. THE FIXATION OF AN ARBITRARY RATE BY THE A.O FOR THE STONES, IN MY OPI NION IS NOT CORRECT. THE APPELLANT HAS SHOWN GROSS PROFIT ON SALE OF ART ICLES. THE SALE OF ARTICLES BEING SOLD IS AS PER MARKET AND CUSTOMER P REFERENCE IN THE TYPE OF BUSINESS OF THE APPELLANT. THEREFORE, LOOKI NG INTO THE NATURE OF BUSINESS AND TRADING OF ITEMS AS PER CUSTOMERS PREF ERENCE, IT DOES NOT LEAVE ANY POSSIBILITY OF FIFO TO BE APPLIE D IN THE MANNER SUGGESTED BY THE A.O HENCE, THE VERY PRESUMP TION OF THE A.O IS NOT IN TERMS OF BUSINESS REALITY OF APPELLAN TS TRADE. THEREFORE, RELAYING ON THE FACTS OF THE CASE CONSIS TENCY OF METHOD OF VALUATIONS AND JUDICIAL DECISION, I AM OF THE OPINION THAT THE REJECTION OF BOOKS OF ACCOUNT AND THE VALU ATION OF JEWELLERY BY THE A.O. IS NOT CORRECT AND THE ADDITI ON MADE BY THE A.O IS UNSUSTAINABLE IN LAW AND ON FACTS. 4. AGGRIEVED BY THE SAME, THE DEPARTMENT HAS COME UP IN APPEAL, RAISING THE FOLLOWING GROUNDS : 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN NOT SUSTAINING THE ACTION OF THE AO REGARD ING REJECTION OF BOOKS OF ACCOUNTU/S145(3) AND THEREBY DELETING THE ADDITION OF RS.41,35,255/-,IGNORING THE FACT TH AT NO QUANTITATIVE AND QUALITATIVE DETAILS OF OPENING STO CK AS WELL AS CLOSING STOCK WAS MAINTAINED OR PRODUCED BY THE ASSESSEE. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN NOT CONFIRMING THE ACTION OF THE AO IN APP LYING FIFO METHOD FOR VALUATION OF THE CLOSING STOCK IGNO RING THE FACT THAT ASSESSEE'S CLAIM THAT SALES MADE WERE OUT OF CURRENT YEAR'S PURCHASES REMAINS UNPROVED AND UNSUBSTANTIATED. FURTHER, THE ASSESSEE HAD NOT MAINTAINED ANY STOCK REGISTER ON DAY TO DAY BASIS W HICH 11 RENDERS THE IDENTIFICATION OF PURCHASES IMPOSSIBLE AND SINCE THE ASSESSEE WAS DEALING IN SO MANY ITEMS DIFFER IN WEIGHT, PURITY, DESIGN, SPECIFICATION, MATERIAL & BRAND, TH E APPLICATION OF WAC METHOD WAS NOT POSSIBLE AS EVEN THE AS- 2 PRESCRIBED WAC METHOD FOR INVENTORY VALUATION IN CASES INVOLVING IDENTICAL GOODS OR ITEMS. 3. IT IS PRAYED THAT THE ORDER OF LD. CIT(A) BE SET ASIDE AND THAT OF THE AO RESTORED. 5. BEFORE US, THE LEARNED D.R. VEHEMENTLY ARGUED THE CASE OF THE REVENUE RELYING ON THE ORDER OF THE ASSESSING OFFICER AND FURTHER STATED THAT THE ASSES SING OFFICER HAS VERY METICULOUS BEING ABLE TO BRING ON RECORD THE FACT THAT THERE ARE SO MANY DISCREPANCIES IN TH E BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE AND ONLY AFTE R THAT HE HAS REJECTED THE BOOKS OF ACCOUNT AND MADE THE ADDITION. 6. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND,, POINTED OUT THAT ON IDENTICAL FACTS, T HE I.T.A.T., CHANDIGARH BENCH HAD UPHELD THE ORDER OF THE LEARNED CIT (APPEALS) DELETING THE ADDITION MADE, I N THE CASE OF ITO VS. M/S SUNNY JEWELLERY HOUSE, IN ITA NO.196/CHD/2014 DATED 3.5.2016. 7. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE ORDERS OF THE AUTHORITIES B ELOW AS ALSO THE DOCUMENTS PLACED BEFORE US. 8. ON PERUSING THE ORDER OF THE I.T.A.T. IN THE CA SE OF M/S SUNNY JEWELLERY HOUSE (SUPRA), WE FIND THAT THE 12 FACTS IN THAT CASE WERE IDENTICAL TO THAT IN THE PR ESENT CASE, WHERE THE BOOKS OF ACCOUNTS OF THE ASSESSEE, A JEWELER, WERE REJECTED FOR IDENTICAL REASONS AS STA TED IN THE ASSESSEES CASE BEING NON-MAINTENANCE OF ITEM-W ISE DETAIL OF JEWELLERY PURCHASED AND SOLD AND STOCK OF THE SAME AS ALSO INCORRECT METHOD OF VALUATION OF STOCK ADOPTED BEING WAC AS AGAINST FIFO ADOPTED BY THE ASSESSING OFFICER. THE HON'BLE I.T.A.T., IN THAT C ASE, AFTER RELYING ON THE ORDER OF THE I.T.A.T., CHANDIGARH BE NCH IN THE CASE OF JAGDISH CHAND (SUPRA) HAD HELD THAT THE RE WAS NO INFIRMITY IN THE ORDER OF THE CIT (APPEALS) IN D ELETING THE ADDITION MADE. THE RELEVANT FINDING OF THE I.T .A.T. ARE REPRODUCED HEREUNDER : 6. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED BEFORE US A COPY OF THE ORDER OF THE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF JAGDISH CHAND (SUPRA) STATING THAT THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS OF THAT CASE. THEREFORE, THE LEARNED CIT (APPEALS) WAS RIGHT IN DELETING THE ADDITION. AFTER PERUSING TH E ORDER OF THE LEARNED CIT (APPEALS), WE SEE THAT RELEVANT FINDINGS ARE RECORDED AT PAGES 4.5 AND 4.6 OF HIS ORDER, WHICH READ AS UNDER : 4.5 I HAVE CONSIDERED THE SUBMISSIONS. IN THE CASE OF ACIT VS. JAGDISH CHAND 90 TTJ (CHD) 943, THE APPELLANT WAS JEWELLER. THE ID. CIT(A ) HELD THAT THE VALUATION WORKED OUT ON THE BASIS OF AVERAGE OF OPENING STOCK AND PURCHASES WAS CONSISTENTLY FOLLOWED BY THE APPELLANT OVER A NUMBE R OF YEARS. HE, THEREFORE, DELETED THE ADDITION MADE BY THE A.O. ON THE BASIS OF AVERAGE RATE OF PURCHASES. 13 THIS VIEW WAS CONFIRMED BY HON'BLE ITAT. IT IS HELD THEREIN THAT 'IT IS CLEAR FROM ABOVE THAT THE ASSES SEE COULD NOT SELL EVEN THE ENTIRE STOCK OF GOLD ORNAMENTS LY ING WITH THE ASSESSEE IN THE OPENING STOCK. A PART OF IT WAS CARRIED TO THE CLOSING STOCK OF THE YEAR UNDER CONSIDERATIO N. THERE IS NO JUSTIFICATION FOR APPLYING PURCHASE RATE TO AB OVE STOCK, AS THE ASSESSEE COULD NOT BE SAID TO HAVE EARNED AN Y PROFIT FROM THE ABOVE CARRY FORWARD STOCK. BUT, IF AVERAGE RATE OF PURCHASES OF THIS YEAR IS APPLIED EVEN TO ABOVE STOC K, THEN SOME ADDITION AUTOMATICALLY FOLLOWS IN THE INCOME O F THE ASSESSEE. IT IS NOT PERMISSIBLE AND IS CONTRARY TO THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF C HAINRUP SAMPATRAM VS. CIT (1953) 24ITR 481 (SC). THE AVERAG E COST OF OPENING AND PURCHASES IS ALSO AN ACCEPTED METHOD OF VALUATION AT COST APPROVED BY THE ACCOUNTING STANDA RDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA. IN THE PRESENT CASE, IT IS FURTHER NOT CONTESTED BY TH E REVENUE THAT SIMILAR METHOD OF ACCOUNTING WAS FOLLOWED BY T HE ASSESSEE IN EARLIER YEAR. FOR ALL THE ABOVE REASONS , WE ARE OF THE VIEW THAT THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE WAS CORRECT AND ADDITION MADE ON ACCOUNT OF ENHANCEMENT OF VALUE OF STOCK IS NO JUSTIFIED. THE I D. CIT(A) RIGHTLY DELETED THE ADDITION. HIS ACTION IS HEREB Y CONFIRMED. ' IN THIS CONNECTION, RELIANCE MAY BE MADE ON THE DECISION OF ITAT AHMEDABAD IN THE CASE OF INCOME TAX OFFICER VS CHOKSHI HIRACHAND & BROS. (37 TTJ, 415) WHEREIN IT HAS BEEN HELD THAT 'WHEN THE VALUATION OF CLOSING STOCK ACCORDING TO TH E ACCOUNTING SYSTEM CONSISTENTLY FOLLOWED WAS ACCEPTED BY THE REVENUE IN EARLIER AS WELL AS SUBSEQUENT ASSESSMENT YEAR, ITO WAS NOT JUSTIFIED IN MAKING ADDITIONS BY ADOPTING A DIFFERENT METHOD FOR ASSESSMENT YEAR IN QUESTION.' 14 SIMILAR VIEW IS TAKEN AS IN THE OTHER CASES E.G. IN THE CASE OF SHANTILAL NAGARDAS & CO. (ITA NO.3362/AHD/2009) I.T.A.T. B-BENCH AHMADABAD. 4.6 THEREFORE, IN THIS CASE FIRSTLY, IT IS CONTENDE D THAT SAME METHOD OF ACCOUNTING IS BEING CONSISTENTLY FOLLOWED. SECONDLY, THE REASON FOR VARIANCE OF NET PROFIT VIS A VIS THE CASE OF M/S MADAN LAL IS DULY EXPLAINED BY THE APPELLANT WHICH IS NOT REBUTTED BY THE A.O FURTHER THERE IS NO CASE OF ANY DISCREPANCY IN THE PURCHASE O R SALE ACCOUNT. THIRDLY, THE A.O. IN THIS CASE HAS ONLY REVALUED THE STOCK BY ADOPTING A HIGHER FIGURE THAN THE RATE DISCLOSED BY THE APPELLANT ON THE ASSUMPTION THAT ON LY OLD JEWELLERY HAS BEEN SOLD FIRST AND FRESH JEWELLER Y HAS REMAINED IN STOCK UNTIL THE OLD JEWELLERY IS EXHAUSTED. HE HAS NOT DISPUTED THE QUANTITY OF STOC K OR PURCHASE/SALE AT ANY POINT. THUS THE STOCK IN WEIGHT HAS BEEN ACCEPTED BY THE A.O. THE PRESUMPTION THAT THE JEWELLER HAS KEPT ON PURCHASING JEWELLERY IN THE YEARS BUT HAVE NOT SOLD TILL THE OL D JEWELLERY IS EXHAUSTED IS A MERE PRESUMPTION WITHOU T ANY EVIDENCE ON RECORD. THE ONLY CONTENTION OF THE A.O. IS THAT IN PLACE OF WAC METHOD FIFO METHOD SHOULD BE ADOPTED. AS REGARDS CASH SALES, IN THE CASE OF R.B.JESSARAM FATEHCHAND VS. CIT 75 ITR 33(BOM) ,IT IS HELD THAT NON-INCLUSION OF ADDRESSES OF CUSTOMERS IN RESPECT O F CASH TRANSACTION CAN NOT BE BASIS FOR REJECTION OF BOOKS OF ACCOUNT. THE FIXATION OF AN ARBITRARY RATE BY T HE A.O FOR THE STONES/DIAMOND AND FURTHER ADDING 10% OF GOLD IN DIAMOND JEWELLERY WITHOUT ANY EVIDENCE, IN MY OPINION IS NOT CORRECT. THE APPELLANT IS VALUING THE CLOSING STOCK ON THE BASIS OF WEIGHTED AVERAGE COST 15 METHOD CONSISTENTLY. FURTHER, THE SALE OF ARTICLES B EING SOLD IS AS PER MARKET AND CUSTOMER PREFERENCE IN TH E TYPE OF BUSINESS OF THE APPELLANT. THEREFORE IN VIE W OF NATURE OF BUSINESS AND TRADING OF ITEMS AS PER CUSTOMERS PREFERENCE DOES NOT LEAVE ANY POSSIBILITY O F FIFO TO BE APPLIED IN THE MANNER SUGGESTED BY THE A. O HENCE, THE VERY PRESUMPTION OF THE A.O IS NOT IN TERM S OF BUSINESS REALITY OF APPELLANT'S TRADE. THEREFORE, RELYING ON THE FACTS OF THE CASE, CONSISTENCY OF METHOD OF VALUATIONS AND JUDICIAL DECISION THE REJECTION OF BOOKS OF ACCOUNT AND THE VALUATION OF JEWELLERY BY THE A.O. IS HELD AS NOT C ORRECT AND THE ADDITION MADE BY THE AO IS UNSUSTAINABLE IN LAW AND ON FACTS. THEREFORE, GROUND NO.1 TO 4 AND IS ALLOWED 5. GROUND NO. 5 AND 6(II) ARE CONSEQUENTIAL IN NATURE AND A.O. IS DIRECTED TO CHARGE INTEREST AS P ER LAW. GROUND NO. 7 IS GENERAL IN NATURE AND, THERE FORE, NO COMMENTS ARE MADE. 6. IN THE RESULT, APPEAL IS ALLOWED. 7. ON PERUSAL OF THE SAME, WE DO NOT FIND ANY INFIRMITY AS THE RELIANCE HAS BEEN PLACED ON THE ORDER OF THE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF JAGDISH CHAND (SUPRA), A COPY OF WHICH WAS ALSO PLACED ON RECORD BEFORE US. AFTER GOING THROUGH THE SAME, WE SEE THAT THE FACTS AND CIRCUMSTANCES OF THAT CASE ARE IDENTICAL TO THE FACTS OF THE PRESENT CASE AND NO DISTINGUISHING FACTORS BEING BROUGHT TO OUR NOTICE, RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCH WE ARE INCLINED TO DISMISS THE APPEAL OF THE REVENUE. 16 9. SINCE THE FACTS IN THE PRESENT CASE ARE IDENTIC AL TO THAT IN THE CASE OF M/S SUNNY JEWELLERY HOUSE (S UPRA), THE ORDER SQUARELY APPLIES IN THE PRESENT CASE AND RESPECTFULLY FOLLOWING THE SAME WE HOLD THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LEARNED CIT (APPEALS) AND, THEREFORE, DISMISS THE APPEAL OF THE REVENUE. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 17 TH NOVEMBER, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE D R. ASSISTANT REGISTRAR, ITAT, CHANDIGARH