Dy. CIT, Central Circle 1(2), Pune V. Shri Vastupal Ranka, Pune

ITA 1376/PUN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79784 (ITAT-PUNE)
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 01-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Keywords: Block assessment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 1376/PN/2013 (BLOCK PERIOD 01-04-1996 TO 24-10-2002) DY.CIT CENTRAL CIRCLE-1(2), PUNE .. APPELLANT VS. SHRI VASTUPAL RANKA, PROP. M/S. RANKA JEWELLERS, KARVE ROAD, PUNE-411018 PAN NO.ADFPR5204F .. RESPONDENT ASSESSEE BY : SHRI SUHAS BORA REVENUE BY : SHRI M.K. SINGH DATE OF HEARING : 30-04-2014 DATE OF PRONOUNCEMENT : 30-04-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 12-04-2013 OF THE CIT(A), I, PUNE RELATING TO THE BLOCK PERIOD 01- 04-1996 TO 24-10-2002. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE READS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT( A) HAS ERRED IN DELETING THE ADDITION OF RS.12,37,818/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDER VALUATION OF STOCK BY ADOPTING FIFO METHOD, AS CLINCHING EVIDENCES REGARDING UNACCOUNTED PURCHASES WE RE FOUND DURING THE COURSE OF SEARCH ACTION. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS PROPRIETOR OF M/S. RANKA JEWELLERS, KARVE ROAD AND M/S. VASTU EXP ORTS ENGAGED IN THE BUSINESS OF MANUFACTURE AND TRADING IN GOLD AND SILVER ORNAMENTS, BULLIONS AND DIAMOND JEWELLERY. A SEARCH ACTION U/ S.132 OF THE INCOME TAX ACT WAS CARRIED OUT IN THE BUSINESS PREMISES OF THE ASSESSEE AND THE 2 RESIDENTIAL PREMISES OF THE DIRECTORS AND VARIOUS O THER PERSONS FORMING PART OF RANKA GROUP FROM 24-10-2002 ONWARDS. IN RE SPONSE TO THE NOTICE U/S.158BC THE ASSESSEE FILED RETURN OF INCOME ON 30 -09-2003 DECLARING UNDISCLOSED INCOME OF RS.25 LAKHS. 2.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE THAT THE ASSESSEE OF RANKA GROUP, I.E. M/S. RANKA JEWELL ERS, RAVIWARPETH, RANKA JEWELLERS PVT. LTD., RANKA JEWELLERS, KARVE R OAD ARE FOLLOWING AVERAGE SYSTEM OF ACCOUNTING FOR VALUATION OF CLOSI NG STOCK. THE AVERAGE SYSTEM MEANS THAT THE ASSESSEES ARE TAKING THE QUANTITY AND VALUE OF OPENING STOCK AS WELL AS PURCHASES MADE DU RING THE YEAR. IN THIS QUANTITY AND VALUE, QUANTITY AND VALUE OF MIXI NG, I.E. COPPER AND SILVER ETC. IS ADDED AND BURNING LOSS IS REDUCED. FROM THE VALUE ARRIVED IN THIS MANNER OF THE OPENING STOCK AND PURCHASES I S ADDED AND SIMILARLY THE QUANTITY IS ALSO ADDED. THE VALUE IS DIVIDED B Y THE QUANTITY TO ARRIVE AT AN AVERAGE PRICE. ACCORDING TO THE ASSESSING OF FICER, THIS METHOD OF VALUATION HOLDS GOOD IF THERE ARE NO UNACCOUNTED PU RCHASES AND SALES. HOWEVER, DURING THE COURSE OF SEARCH EVIDENCES WERE FOUND THAT THE ASSESSEES OF RANKA GROUP WERE INDULGING IN MAKING U NACCOUNTED PURCHASES AND SALES. IF THE UNACCOUNTED PURCHASES ARE ALSO TAKEN INTO CONSIDERATION FOR THE PURPOSE OF DETERMINING THE AV ERAGE PRICE, THE AVERAGE PRICE IS INCREASED IN COMPARISON TO THE AVE RAGE PRICE DETERMINED BY THE ASSESSEE, FOR THE PURPOSE OF VALUATION OF CL OSING STOCK IN THE BOOKS. 3 2.3 THE ASSESSING OFFICER, THEREFORE, ASKED THE ASS ESSEE TO EXPLAIN THE UNDER VALUATION AS DETERMINED BY HIM AND ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE VALUE OF CLOSING STOCK AS PER BOOKS S HOULD NOT BE ENHANCED BY FOLLOWING THE FIFO METHOD. THE ASSESSEE SUBMITTE D THAT IT IS FOLLOWING AVERAGE COST METHOD REGULARLY WHICH HAS B EEN ACCEPTED BY THE DEPARTMENT. IT WAS ARGUED THAT THE METHOD OF VALUA TION HAS ALREADY BEEN DISCLOSED TO THE DEPARTMENT IN THE REGULAR RETURNS AND HENCE THE ISSUE IS OUT OF THE PURVIEW OF CHAPTER XIVB. IT WAS FURTHER CONTENDED THAT BOTH THE CLOSING STOCK AND OPENING STOCK SHOULD BE VALUE D ON THE SAME LINE AND HENCE EFFECT WILL BE NEGLIGIBLE. 3. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THA T DURING THE COURSE OF SEARCH AT THE BUSINESS PREMISES OF RANKA JEWELLERS, KARVE ROAD GOLD JEWELLERY WEIGHING 87913.24 GMS WAS FOUND AND VALUE D IN THE BOOKS AT RS.4,18,42,303/- WHICH WORKS OUT TO RS.476/- PER GR AM. HOWEVER, THE MINIMUM VALUE OF ACQUISITION AFTER CONSIDERING CURR ENT YEARS PURCHASES AND IGNORING THE OPENING STOCK COMES AT RS.490.08 P ER GRAM. THE CLOSING STOCK AS ON THE DATE OF SEARCH WAS 87913.24 GMS. THUS, THE ASSESSEE HAS UNDER VALUED THE STOCK BY RS.12,37,818 /- WHICH HE ADDED TO THE INCOME OF THE ASSESSEE FOR THE BLOCK PERIOD. 3.1 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE AND FOLLOWING THE ORDER OF HER PREDECESSOR IN THE CASE OF M/S. R ANKA JEWELLERS, RAVIWARPETH WHICH HAS SUBSEQUENTLY BEEN UPHELD BY T HE PUNE BENCH OF THE TRIBUNAL VIDE ITA NOS. 801, 820 AND 994/PN/2006 ORDER DATED 06- 06-2011 THE LD.CIT(A) DELETED THE ADDITION OF RS.12 ,37,818/-. 4 3.2 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 4. AFTER HEARING BOTH THE SIDES, WE FIND AN IDENTIC AL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF M/S. RANKA J EWELLERS VS. ADDL.CIT VIDE ITA NOS. 801, 820 AND 984/PN/2006 ORDER DATED 06-06-2011 FOR THE BLOCK PERIOD 01-04-1996 TO 24-10-2002. WE FIND THE TRIBUNAL WHILE DECIDING IDENTICAL ISSUE HAS DISMISSED THE APPEAL F ILED BY THE REVENUE BY OBSERVING AS UNDER : 30. GROUND NO.3 THE RELEVANT FACTS ARE THAT THE ASSESSEE FIRM ENGAGED I N JEWELLERY BUSINESS AND FOLLOWING AVERAGE COST METHOD FOR VALUING THE STOCK IN THE BOOKS I.E. IT TAKES AVERAGE OF OPENING STOCK AND PURCH ASES DURING THE YEAR AND VALUES THE CLOSING STOCK AT THAT RATE. THIS ME THOD WAS BEING FOLLOWED REGULARLY AND THE SAME WAS BEING ACCEPTED BY THE DEPARTMENT IN THE PAST. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. HELD THAT THE AVERAGE COST METHOD FOLLOWED BY THE ASSESSEE IS NOT CORRECT AND THE ASSESSEE SHOULD HAVE FOLLOWED THE FIFO METHOD FOR VA LUING THE STOCK. THE A.O. WAS THUS OF THE VIEW THAT THE CLOSING ST OCK SHOULD BE VALUED AS PER THE CLOSING PURCHASE RATE IN THE MONTH O F MARCH BY ADOPTING THE FIFO METHOD. ACCORDINGLY HE HELD THAT THERE WAS UNDER VALUE OF STOCK AS PER BOOKS BY RS.22,06,664/-. ACCEPTIN G THE MAIN SUBMISSION OF THE ASSESSEE THAT ADDITION IS MADE BEYOND TH E SCOPE OF BLOCK ASSESSMENT, THE LEARNED CIT(A) HAS DELETED THE ADD ITION. 31. IN SUPPORT OF THE GROUND THE LEARNED DR HAS PLAC ED RELIANCE ON THE VIEW TAKEN BY THE A.O. AS DISCUSSED ABOVE. THE LEAR NED AR ON THE OTHER HAND TRIED TO JUSTIFY THE FIRST APPELLATE ORDE R. HE REITERATED THE SUBMISSIONS MADE BEFORE THE FIRST APPELLATE AUTHORITY. 32. CONSIDERING THE ABOVE SUBMISSIONS WE FIND THAT THE ADDITION MADE BY THE A.O. WAS OBJECTED BY THE ASSESSEE BEFORE TH E LEARNED CIT(A) WITH THIS CONTENTION, THAT THERE WAS NO INCRIM INATING EVIDENCE FOUND DURING THE COURSE SEARCH RELATING TO STOCK VALUE . HENCE, THE ADDITION SHOULD NOT HAVE BEEN MADE IN THE BLOCK ASSESSME NT. THE ASSESSEE ALSO CLARIFIED THAT AVERAGE COST METHOD IS ACCEPT ED METHOD OF STOCK VALUE AND IT WAS BEING ACCEPTED BY THE DEPARTME NT IN ASSESSEE'S OWN CASE IN THE PAST. IN SUPPORT OF THE SAME, DECISIONS W ERE CITED WHICH HAVE BEEN REPRODUCED BY THE LEARNED CIT(A) AT PAGE NOS. 32 AND 33 OF THE FIRST APPELLATE ORDER, WHEREIN THE HON'BLE COURT S HAVE ACCEPTED SUCH AVERAGE COST METHOD FOLLOWED BY THE ASSESSEES. CONSIDERING THESE SUBMISSIONS LEARNED CIT(A), IN OUR VIEW HAS RIGHTLY COME TO THE CONCLUSION THAT THERE WAS NO REASON TO REJECT THE METH OD OF VALUATION OF STOCK AND THE ADDITION MADE WAS THUS NOT JUSTIFIED. WE ALSO FIND SUBSTANCE IN THE OBSERVATIONS OF THE LEARNED CIT(A) ON THE ISSUE THAT UNDISCLOSED INCOME HAS TO BE WORKED OUT ON THE BASIS OF SEIZED PAPERS AND SINCE IN THE PRESENT CASE NO SUCH INCRIMINATING EVI DENCE WAS FOUND 5 REGARDING METHOD OF VALUATION OF STOCK AS THE A.O. TR IED TO ADOPT, THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE ADDITIO N MADE ON THIS ACCOUNT. THE FIRST APPELLATE ORDER IN THIS REGARD IS T HUS UPHELD. GROUND NO.3 IS ACCORDINGLY REJECTED. 4.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COOR DINATE BENCH OF THE TRIBUNAL IN THE CASE OF THE SISTER CONCERN UNDE R IDENTICAL CIRCUMSTANCES AND IN ABSENCE OF ANY CONTRARY MATERI AL BROUGHT TO OUR NOTICE WE FIND NO INFIRMITY IN THE ORDER OF LD.CIT( A) DELETING THE ADDITION. WE ACCORDINGLY UPHOLD THE ORDER OF THE C IT(A) ON THIS ISSUE. THE GROUND RAISED BY THE REVENUE IS THEREFORE DISMI SSED. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ITSELF, I.E. ON 30-04-2014. SD/- SD/- (R.S. PADVEKAR) (R.K. PAND A) JUDICIAL MEMBER ACCOUN TANT MEMBER PUNE DATED: 30 TH APRIL, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-I, PUNE 4 CIT-I, PUNE 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE