The ACIT, Central Circle-6, Surat V. Shri Keshrimal Bhimraj Shah,

ITA 1723/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5997 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 25-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 15-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H P MEENA
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : A HMEDABAD CAMP AT SURAT (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON'BLE SH RI D.C. AGRAWAL, A.M.) I.T.A. NO. 1723/AHD./2008 ASSESSMENT YEAR : 2005-2006 ASSISTANT COMMISSIONER OF INCOME TAX, -VS.- SHR I KESHRIMAL BHIMRAJ SHAH, SURAT CIRCLE-6, SURAT (PAN : ANAPS 4883 L) (APPELLANT) (RES PONDENT) APPELLANT BY : SHRI H.P. MEENA, SR. D.R. RESPONDENT BY : SHRI RAJESH C. SHAH O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 18.03.2008 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-IV, SURAT DELET ING THE ADDITION OF RS.15,45,134/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDER-VALUAT ION OF CLOSING STOCK FOR THE ASSESSMENT YEAR 2005-06. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF JEWELLERY. FOR THE ASSESSMENT YEAR UNDER APPEAL, HE FILED THE RETU RN OF INCOME ON 13.10.2005 DECLARING TOTAL INCOME OF RS.6,00,713/- ALONGWITH THE AUDIT REPORT IN FORM NO. 3CD, PROFIT & LOSS A/C. AND BALANCE-SHEET. THE ASSESSING OFFICER FRAMED THE ASS ESSMENT UNDER SECTION 143(3) ON 30.11.2007 AT TOTAL INCOME OF RS.21,45,850/-, WHEREIN HE MADE THE ADDITION OF RS.15,45,134/- ON ACCOUNT OF UNDER-VALUATION OF CLOSING STOCK. 3. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS), IT WAS CONTENDED THAT THE ASSESSEE WAS PURCHASING GOLD AND MADE GOLD JEWELLERY BY ADDING COPPER IN THE MANUFACTURING PROCESS. THE ASSESSING OFFICER PREPAR ED A TABLE IN PARA 3 OF THE ASSESSMENT ORDER, WHICH WAS REPRODUCED FROM POINT NO. 28(B) OF THE TA X AUDIT REPORT BUT MADE A MISTAKE AND IGNORED THE QUANTITY DETAILS OF CONSUMPTION OF COPP ER. IT DID NOT APPRECIATE AS TO HOW THE PURCHASE AND SALE OF GOLD REMAIN THE SAME BUT THE C LOSING STOCK WAS MORE THAN THE OPENING STOCK 2 ITA NO. 1723/AHD/2008 BY A QUANTITY OF 2578.36 GRAMS. THE REASONING OF TH E ASSESSING OFFICER IS THAT THE GOODS WHICH WERE PURCHASED FIRST WERE SOLD FIRST AND THOSE PURC HASED LATER WOULD BE SOLD LATER. TO SUM UP, THE ASSESSING OFFICER APPLIED THE FIFO METHOD. IT WAS S UBMITTED BY THE ASSESSEE THAT IF IT WAS PRESUMED THAT THE ASSESSEE COULD SELL THE ENTIRE OP ENING STOCK FIRST, THEN THERE WAS NO NEED FOR FURTHER PURCHASES TILL THE SALE OF THE OPENING STOC K. HE SUBMITTED THAT IN THE CASE OF GOLD ORNAMENTS, WHICH WERE FINISHED GOODS AND NOT RAW MA TERIAL, THE VALUATION OF CLOSING STOCK HAD TO BE DONE AT COST OR MARKET PRICE WHICHEVER WAS LESS. THE NATURE OF BUSINESS WAS THAT EACH AND EVERY ITEM WAS GENERALLY DIFFERENT IN RESPECT OF DE SIGN, SIZE OR WEIGHT AND IT WOULD NOT BE WORTHWHILE TO MAINTAIN ITEM-WISE STOCK REGISTER. TH E ASSESSING OFFICER OBSERVED THAT THREE NOTICES UNDER SECTION 133(6) COULD NOT BE SERVED WA S NEVER COMMUNICATED TO THE ASSESSEE AND COULD NOT BE USED AGAINST THE ASSESSEE. THE COUNSEL OF THE ASSESSEE OBJECTED TO THE REJECTION OF BOOK RESULTS AND RELIED ON VARIOUS JUDICIAL PRONOUN CEMENTS IN SUPPORT OF THE CLAIM. 4. AFTER CONSIDERING THE AFORESAID SUBMISSIONS, IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ADD ITION FOR THE DETAILED REASONS GIVEN IN PAGES 2-3 OF THE IMPUGNED ORDER, WHICH READS AS UND ER :- I HAVE CONSIDERED THE SUBMISSIONS AND HAVE GONE TH ROUGH THE VARIOUS DECISION CITED BY THE LD. A.R. THE COURTS HAVE HELD THAT BOOKS OF ACCOUNTS CAN BE REJECTED ONLY WHEN THE RESULTS SHOW A INCORR ECT INCOME BY APPLYING WRONG OR UNRECOGNIZED METHODS OF ACCOUNTING. THE CH OICE OF METHOD OF ACCOUNTING REMAINS WITH THE APPELLANT AND A PARTICU LAR METHOD CANNOT BE IMPOSED, IF THE METHOD OF ACCOUNTING IS BEING CONSI STENTLY FOLLOWED. THE APPELLANT IS PURCHASING GOLD AND AFTER ADDING IMPUR ITIES, CONVERTING IT INTO ORNAMENTS AND WOULD BE PREPARING VARIOUS ITEMS AND IT WOULD NOT BE POSSIBLE TO IDENTIFY USE OF A PARTICULAR LOT OF GOL D IN SUCH MANUFACTURING PROCESS. THE JEWELLERY IS MANUFACTURED AND SOLD AS PER THE CHOICE OF THE CUSTOMER AND THE STOCK OF JEWELLERY AT THE END OF T HE YEAR WOULD BE A MIX OF OLD AND NEW JEWELLERY. IT IS ALSO SEEN THAT THE A.O. HAS NOT CONSIDERED AS TO HOW THE OPENING STOCK OF 32501.48 GMS. BECAME CLOSING STOCK OF 35075.84 GMS. WHEN THE PURCHASE OF GOLD AND SALE OF GOLD ORNAMENTS DURING THE YEAR WAS ALMOST THE SAME. THIS WOULD MEA N THAT THE CLOSING STOCK CONSISTED OF JEWELLERY ITEMS CONTAINING IMPUR ITIES AND WAS NOT THE SAME AS PURE GOLD AND WOULD OBVIOUSLY HAVE A LOWER VALUE. I AM ALSO NOT IN AGREEMENT WITH THE A.O. THAT THE GOODS WHICH WER E PURCHASED FIRST WOULD BE SOLD FIRST AND THOSE PURCHASED LATER WOULD BE SOLD LATER. THIS IS NOT TRUE OF JEWELLERY BUSINESS. IT IS FURTHER SEEN THAT THE A.O. DID NOT GIVE AN OPPORTUNITY TO THE APPELLANT TO PRODUCE THE PART IES, IN WHOSE CASES NOTICES U/S. 133(6) OF THE ACT WERE NOT COMPLIED WI TH AND THEREFORE, THIS CANNOT BE USED AGAINST THE APPELLANT FOR REJECTING THE BOOK RESULTS. I AM 3 ITA NO. 1723/AHD/2008 ALSO INCLINED TO AGREE WITH THE APPELLANT THAT WHEN IT CANNOT BE SAID THAT THE ENTIRE SALE DURING THE YEAR WAS MADE FROM OPENI NG STOCK, THE BEST METHOD OF VALUATION WILL BE BY APPLYING WEIGHTED AV ERAGE COST METHOD WHICH HAS BEEN FOLLOWED BY THE APPELLANT. THEREFOR E, I AM OF THE VIEW THAT THE A.O.S ACTION IN REJECTING THE BOOK RESULTS AND DISTURBING THE METHOD OF VALUATION FOLLOWED BY THE APPELLANT IS NOT IN ORDER AND ADDITION ON ACCOUNT OF VALUATION OF CLOSING STOCK IS DIRECTED T O BE DELETED. 5. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF R EVENUE SHRI H.P. MEENA, SR. D.R. APPEARED AND CONTENDED THAT BY APPLYING THE FIFO ME THOD, THE ASSESSING OFFICER RIGHTLY REJECTED THE BOOK RESULTS AND MADE THE ADDITION OF RS.15,45, 134/- ON ACCOUNT OF UNDER-VALUATION OF CLOSING STOCK BECAUSE THE ASSESSEE HAD NOT MAINTAIN ED ITEM-WISE STOCK REGISTER AND HAD NOT FURNISHED ITEM-WISE INVENTORY OF CLOSING STOCK. THE ASSESSING OFFICER ALSO CALLED THE DETAILS OF SALE PARTIES BY ISSUING NOTICE UNDER SECTION 133(6) OF THE ACT TO FIVE PARTIES. OUT OF THESE, THE NOTICES ISSUED COULD NOT BE SERVED IN RESPECT OF TH REE PARTIES, FOR WANT OF PROPER ADDRESS. THEREFORE, THE SALES WERE NOT VERIFIABLE. THE ASSES SING OFFICER IN THE ABSENCE OF DETAILS AS TO WHETHER ITEMS SOLD DURING THE CURRENT YEAR WAS FROM OPENING STOCK OR FROM CURRENT YEAR PURCHASE, RIGHTLY APPLIED FIFO METHOD AND CORRECTLY REJECTED THE BOOK RESULTS UNDER SECTION 145(3) OF THE ACT AND MADE THE ADDITION OF RS.15,45 ,134/- ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK VALUATION. THE ACTION OF ASSESSING OFFICER IS IN ORDER, THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER BE RESTORED. 6. ON THE OTHER HAND, SHRI RAJESH C. SHAH, LD. COUN SEL APPEARING ON BEHALF OF THE ASSESSEE SUPPORTED THE ORDER OF AUTHORITIES BELOW. HE SUBMIT TED THAT QUANTITY OF MATERIAL IS AVAILABLE. FIFO AS WELL AS LIFO, BOTH THE METHODS ARE RECOGNIZ ED. THE ASSESSEE IS ALWAYS FOLLOWING LIFO METHOD. THE ASSESSING OFFICER, IN THE ASSESSMENT OR DER, APPLIED FIFO METHOD AND WORKED OUT THE ADDITION OF RS.15,45,134/- ON ACCOUNT OF UNDER- VALUATION OF CLOSING STOCK. THE LD. COUNSEL OF THE ASSESEE SUBMITTED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN COGENT REASON FOR DELETING THE ADDITION OF RS.15,45,134/-, THEREFORE, THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE UPHELD. 7. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN JEWELLERY BU SINESS, IT IS NOT NECESSARY THAT GOODS, WHICH WERE PURCHASED FIRST, WOULD BE SOLD FIRST AND THOSE PURC HASED LATER WOULD BE SOLD LATER. APART FROM THIS, THE ASSESSING OFFICER HAS NOT ASKED THE ASSES SEE TO PRODUCE THE PARTIES AND IN WHOSE CASES, 4 ITA NO. 1723/AHD/2008 NOTICES UNDER SECTION 133(6) OF THE ACT WERE NOT CO MPLIED WITH. THEREFORE, NON-SERVICE OF NOTICE CANNOT BE A GROUND FOR REJECTING THE BOOK RESULTS. IT IS ALSO UNBELIEVABLE THAT ENTIRE SALES WERE MADE FROM THE OPENING STOCK. AFTER CONSIDERING THE REASONING GIVEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), WE ARE CONVINC ED THAT THE ASSESSING OFFICERS ACTION IN REJECTING THE BOOK RESULTS AND DISTURBING THE METHO D OF VALUATION FOLLOWED BY THE ASSESSEE IS NOT IN ORDER AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS FULLY JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO RS.15,45,134/- ON ACCOUNT OF UNDER- VALUATION OF CLOSING STOCK. WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 11.06.201 0 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 11 / 06 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.