M/s Panna Lal Roshan Lal Jewellers P. Ltd., New Delhi V. DCIT, New Delhi

ITA 1262/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3810 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 06-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 11-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KISHORE

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH F DELHI ] BEFORE SHRI RAJPAL YADAV, JM AND SHRI K. D. RAN JAN, AM I. T. APPEAL NO. 1262 (DEL) OF 2011 ASSESSMENT YEAR : 2006-07. M/S. PANNA LAL ROSHAN LAL JEWELLERS P. LTD., DY. COMMISSIONER OF INCOME-TAX, 82 / 84, TOLSTOY LANE, VS. C I R C L E : 14 (1), J A N P A T H, N E W D E L H I. N E W D E L H I. P A N / G I R NO. AAC CP 3710 F. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI SAMEER KAPOOR, C. A.; DEPARTMENT BY : SHRI B. KISHORE, SR. D. R.; O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 06-07 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)-XVII, NEW DELHI. 2. THE ONLY ISSUE FOR OUR CONSIDERATION RELATES TO CONFIRMING THE ADDITION OF RS.38,56,474/- ON ACCOUNT OF UNDISCLOSED STOCK FOUND DURING THE CO URSE OF SURVEY UNDER SECTION 133-A OF THE INCOME TAX ACT, 1961. THE RELEVANT GROUNDS OF APP EAL ARE REPRODUCED AS FOLLOWS :- 1. WHETHER THE LD. AO HAS ERRED IN LAW AND F ACTS IN MAKING AN ADDITION OF RS.61,64,507/- ON ACCOUNT OF UNDISCLOSED STOCK U NDER SECTION 69-B OF THE INCOME-TAX ACT, 1961; 2. WHETHER THE LD. AO HAS ERRED IN LAW AND FACTS OF THE CASE BY IGNORING THE STATEMENTS RECORDED DURING THE SURVEY AND ALSO IGNO RING THE FOLLOWING : 2 I. T. APPEAL NO. 1262 (DEL) OF 2011 A) THE VALUE OF THIRD PARTY STOCK FROM THE STOCK F OUND AT THE TIME OF SURVEY; B) OVER-VALUATION OF STOCK OF GOLD (18CT. & 22CT. C ATEGORIES RESPECTIVELY) MADE BY THE VALUER ON AD-HOC AND UNSCIENTIFIC BASI S; C) THE COST PRICE OF THE STOCK DECLARED IN THE BOO KS AND VALUING THE SAME AT THE RATE PREVAILING AT THE TIME OF SURVEY. 3. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT T HE SURVEY UNDER SECTION 133-A OF THE I. T. ACT, 1961 WAS CONDUCTED ON 13 TH DECEMBER, 2005 IN THE BUSINESS PREMISES OF THE ASS ESSEE. DURING THE COURSE OF SURVEY THE TOTAL STOCK OF GOLD AND DIAMOND WAS VALUED AT RS.1,95,94,828/- AS AGAINST RS.91,64,407/- RECORDED IN THE BOOKS OF ACCOUNTS. THE AO, THEREFORE, MADE ADDITION OF RS.1,04,30,431/- BEING THE DIFFERENCE BETWEEN TW O VALUES. 4. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED TH AT AT THE TIME OF SURVEY, THIRD PARTY STOCK VALUING RS.23,08,033/-; EXCESS STOCK OF GOLD WEIGHI NG 1,778.888 GMS.; DIAMONDS WEIGHING 303.73 CT.;AND SILVER WEIGHING 5.456 KG. WAS FOUND. THE VALUE OF EXCESS GOLD WAS WORKED OUT AT RS.14,05,321/- BY TAKING THE RATE OF 790 PER GM. THE VALUE OF EXCESS 303.73 CT. OF DIAMOND WAS VALUED AT THE RATE OF 9,200 PER CT. AT RS.27,94 ,316/-. THE VALUE OF SILVER WAS WORKED OUT AT RS.66,287/- BY TAKING THE VALUE AT RS.121.49 PER GM . THE TOTAL VALUE OF UNACCOUNTED STOCK FOUND AT THE TIME OF THE SURVEY WAS WORKED OUT AT RS.42,6 5,924/- [RS.14,05,321/- + RS.27,94,316/- + RS.66,287/-]. HOWEVER, THE ASSESSING OFFICER HAS A DOPTED THE VALUE OF THE ENTIRE STOCK AVAILABLE WITH THE ASSESSEE INCLUDING THE UNACCOUNTED STOCK O F GOLD, DIAMOND AND SILVER AT THE MARKET RATES AT RS.1,95,94,828/- AS AGAINST RS.91,64,407/- RECOR DED IN THE BOOKS OF ACCOUNTS WHICH RESULTED IN AN ADDITION OF RS.1,04,30,435/-. THE LD. CIT (APPE ALS) ALLOWED THE CLAIM OF THE ASSESSEE IN RESPECT OF THIRD PARTY STOCK AMOUNTING TO RS.23,08, 033/-. HOWEVER, AS REGARDS THE VALUATION OF THE STOCK BOTH THE UNACCOUNTED STOCK AS WELL AS THE STOCK AS PER BOOKS OF ACCOUNTS WAS TAKEN AS PER MARKET VALUE. THE LD. CIT (APPEALS) OBSERVED T HAT THE VALUATION OF THE STOCK WAS MADE AT THE TIME OF SURVEY IN THE PRESENCE OF THE ASSESSEE. TH E VALUATION WAS NOT DISPUTED BY THE ASSESSEE AT THE TIME OF SURVEY. THERE WAS ALSO NO DISPUTE THAT THE VALUATION DONE AT THE TIME OF SURVEY WAS BASED ON THE RELEVANT GOLD / DIAMOND RATES. THE CO NTENTION OF THE ASSESSEE THAT THE VALUE OF THE 3 I. T. APPEAL NO. 1262 (DEL) OF 2011 STOCK FOUND AS PER TRADING ACCOUNT WAS OF LOWER V ALUE. THIS CONTENTION OF THE ASSESSEE WAS REJECTED ON THE GROUND THAT THE ASSESSEE FAILED TO RECONCILE THE ITEMS OF THE CLOSING STOCK, AS PER THE TRADING ACCOUNT AND THE STOCK FOUND DURING THE TIME OF SURVEY. THEREFORE, THERE COULD BE NO BASIS IN APPLYING THE AVERAGE RATE. HE ALSO NOTED THAT THE RATE / VALUE OF DIAMOND WAS NOT THAT EASY OR SIMPLE TO BE IDENTIFIED / VALUED BY ANY PER SON. THE VALUATION AT THE TIME OF SURVEY HAS BEEN DONE BY THE APPROVED VALUER. THE ASSESSEE HAD NOT POINTED OUT ANY DISCREPANCY IN THE RATE OF ANY OF THE ITEMS OF GOLD AND DIAMOND. IT WAS AL SO NOT THE CASE OF THE ASSESSEE THAT THE VALUATION DONE BY THE VALUATION OFFICER WAS NOT AT THE PREVAILING RATES. THE ASSESSEE HAD NOT GIVEN ANY BASIS FOR THE CLOSING STOCK VALUATION. T HEREFORE, EVEN IF THE RATES AS PER THE VALUER WERE ADOPTED FOR VALUATION OF THE STOCK, THE BOOK V ALUE / DECLARED STOCK WILL NO DOUBT BECOME HIGHER RESULTING INTO LOWER DIFFERENCE BETWEEN THE STOCK ACTUALLY FOUND AT THE TIME OF SURVEY AND THE STOCK APPEARING IN THE BOOKS OF ACCOUNTS AT THE TIME OF SURVEY. HOWEVER, IT WOULD AUTOMATICALLY RESULT IN HIGHER PROFITS AS PER BOOKS OF ACCOUNTS WITHOUT CONSIDERING THE EXCESS STOCK FOUND AT THE TIME OF SURVEY. THIS WAS BECAUS E IF THE CLOSING STOCK AS USED IN THE TRADING ACCOUNT PREPARED AT THE TIME OF SURVEY WAS INCREASE D BY ADOPTING THE VALUE USED BY THE VALUER, IT WOULD RESULT IN HIGHER GROSS PROFIT AND CONSEQUENTL Y HIGHER NET PROFIT. THEREFORE, THE CONTENTION OF THE ASSESSEE WITH REGARD TO THE VALUATION OF STO CK BY THE VALUER WAS NOT TENABLE AND WAS OF NO HELP BECAUSE NO DISCREPANCY / ERROR IN THE VALUATIO N HAD BEEN POINTED OUT. HE ACCORDINGLY UPHELD THE ADDITION ON ACCOUNT OF VALUATION OF THE CLOSING STOCK. 5. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT THE ASSESSEE HAD OFFERED IN THE RETURN OF INCOME EXCESS STOCK FOUND AT THE TIME OF SURVEY. THE GOLD RATE OF THE EXCESS STOCK WAS TAKEN AT THE RATE OF RS.790/- PER GM. THE APPROVED VALUE R HAD TAKEN THE VALUATION OF DIAMONDS AT RATES OF RS.9,171.38 PER CT. AS AGAINST THIS, THE ASSESSE E HAD TAKEN THE RATE OF RS.9,200/- PER CT. THEREFORE, THE ASSESSEE WAS FAIR IN VALUING THE EXC ESS STOCK AND HAD SURRENDERED THE VALUE OF EXCESS STOCK FOUND IN THE RETURN OF INCOME AT MARKE T RATES. HE FURTHER SUBMITTED THAT THE APPROVED VALUER HAD VALUED THE STOCK AS PER BOOKS O F ACCOUNTS AT THE MARKET RATE, WHICH CANNOT BE DONE. THIS HAS RESULTED IN EXCESS VALUATION OF T HE STOCK. HE, THEREFORE, SUBMITTED THAT THE ASSESSEE IS LIABLE FOR ADDITION ON ACCOUNT OF EXCES S STOCK FOUND VIS--VIS STOCK DECLARED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS. ON THE OTHER HA ND, THE LD. SR. DR STRONGLY SUPPORTED THE ORDER 4 I. T. APPEAL NO. 1262 (DEL) OF 2011 OF THE LD. CIT (A). HE SUBMITTED THAT FIFO METHOD CANNOT BE APPLIED IN CASE OF JEWELERS. THE ASSESSEE HAD NOT POINTED OUT ANY DEFECT IN THE VALU ATION OF THE CLOSING STOCK AS ON THE DATE OF SURVEY. THEREFORE, THE LD. CIT (A) WAS JUSTIFIED I N UPHOLDING THE ADDITION BASED ON THE VALUATION OF STOCK FOUND AT THE TIME OF SURVEY AT MARKET RATE S. 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE ABOUT THE VALUATION OF THE EXCESS STO CK OF GOLD, DIAMOND & SILVER FOUND AT THE TIME OF SURVEY, WHICH HAS BEEN OFFERED BY THE ASSESSEE I N THE RETURN OF INCOME AT RS.42,65,924/-. THE APPROVED VALUER HAD VALUED THE STOCK OF GOLD, DIAMO NDS & SILVER AS PER BOOKS OF ACCOUNTS ON MARKET RATES. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND VALUING THE STOCK UNDER FIFO METHOD. THE DIFFERENCE IN THE VALUE OF THE STOCK AS PER BOOKS OF ACCOUNTS AND THE MARKET RATE WAS EXPLAINED DUE TO INCREASE IN RATES OF THE GOLD AND DIAMONDS DURING THE RELEVANT PERIOD. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, THE CLOSING STOCK IS TO BE VALUED AT THE MARKET PRICE OR COST PRICE, WHICHEVER IS LOWER. THE ASSES SEE HAD VALUED THE STOCK AS PER BOOKS OF ACCOUNTS AT COST PRICE. IT IS ALSO A SETTLED LAW T HAT NO PROFIT CAN BE EARNED UNLESS GOODS ARE SOLD THOUGH THERE MAY BE DIFFERENCE IN THE PURCHASE PRIC E AND THE MARKET PRICE ON A PARTICULAR DATE. THEREFORE, THE VALUE OF THE CLOSING STOCK AS PER BO OKS OF ACCOUNTS FOR THE PURPOSE OF COMPUTATION OF INCOME CANNOT BE VALUED AT THE MARKET RATE WHEN THE PURCHASE RATE OF SUCH STOCK IS LOWER THAN THE MARKET RATE. AT THE TIME OF SURVEY, EXCESS STO CK WAS FOUND, WHICH HAS BEEN VALUED AT THE MARKET RATE AND THE ASSESSEE HAD ADMITTED THE SALE IN THE RETURN OF INCOME. THEREFORE, IN OUR CONSIDERED OPINION, THE VALUE OF THE CLOSING STOCK APPEARING IN THE BOOKS OF ACCOUNTS CANNOT BE VALUED AT THE MARKET RATE, AS ON THE DATE OF SURVEY , IN ORDER TO WORK OUT THE PROFITS AS ON THAT DATE. THEREFORE, THE LD. CIT (A) WAS NOT JUSTIFIED IN UPH OLDING THE ADDITION OF RS.38,56,474/-, WHICH IS ON ACCOUNT OF DIFFERENCE IN THE VALUATION AS BOOKS OF ACCOUNTS AND THE MARKET PRICE OF GOLD, DIAMONDS AND SILVER ITEMS. WE, THEREFORE, SET ASIDE THE ORDER LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 5 I. T. APPEAL NO. 1262 (DEL) OF 2011 THE ORDER PRONOUNCED IN THE OPEN COURT ON : 17 TH JUNE, 2011. SD/- SD/- [ RAJPAL YADAV ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 17 TH JUNE, 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.