ITO, Patiala V. M/s Sunny Jewellery House, Patiala

ITA 196/CHANDI/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0028 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 28-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.196 /CHD/2014 (ASSESSMENT YEAR : 2010-11) THE INCOME TAX OFFICER, VS. M/S SUNNY JEWELLERY HOUSE, WARD 1, 16 AC MARKET, ADALAT BAZAR, PATIALA. PATIALA. PAN: AANFS31408 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K. MITTAL, DR RESPONDENT BY : SHRI RAKESH CAJLA DATE OF HEARING : 28.04.2016 DATE OF PRONOUNCEMENT : 03.05.2016 O R D E R PER RANO JAIN, A.M . : THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), PATIALA, DATED 26.12.2013, RELATING TO ASSESSMENT YEAR 2010-11, PASSED UNDER SECTION 250(6 ) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A JEWELER. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOU NT UNDER 2 SECTION 145(3) OF THE ACT. THE DETAILED REASONING FOR REJECTING THE BOOKS OF ACCOUNT ARE CONTAINED IN THE ASSESSMENT ORDER. DETAILED REPLY ON THE OBJECTIONS RAISED BY THE ASSESSING OFFICER WERE FILED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE SAME, MAINLY B ECAUSE ITEM-WISE INVENTORY OF OPENING AND CLOSING STOCK WA S NOT MAINTAINED. THE ASSESSING OFFICER CONTENDED THAT U NDER SAID CIRCUMSTANCES, FIFO METHOD IS TO BE ADOPTED IN PLACE OF AVERAGE RATE ADOPTED BY THE ASSESSEE. AFTER REJ ECTING THE BOOKS OF ACCOUNT, THE ASSESSING OFFICER MADE AN ADDITION OF RS.12,35,287/- BEING THE DIFFERENCE IN VALUATION OF CLOSING STOCK OF 4548.679 GMS OF GOLD JEWELLERY AND ANOTHER ADDITION OF RS.22,12,836/- BE ING THE VALUE OF DIAMOND JEWELLERY EXCEPT THE VALUE OF STONE STUDDED THEREIN. THE ASSESSING OFFICER FURTHER AD DED AN AMOUNT OF RS.3,37,269/- AT 10% OF THE VALUE OF CLOS ING STOCK OF GOLD IN THE DIAMOND JEWELLERY AS ESTIMATED BY HIM AT RS.33,73,690/- ON THE GROUND THAT THE DETAILS OF 165.23 CARATS OF STONE STUDDED IN THE DIAMOND JEWELLERY IS NOT FURNISHED. 3. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE MADE DETAILED SUBMISSIONS WITH REGARD TO THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT S AS WELL AS ON THE MERITS OF THE CASE. THE SUBMISSIONS ARE REPRODUCED BY THE LEARNED CIT (APPEALS) IN HIS ORDER AT 3 PAGES 6 TO 22. A REMAND REPORT WAS ALSO CALLED FOR BY THE LEARNED CIT (APPEALS) FROM THE ASSESSING OFFICER AN D AFTER CONSIDERING ALL THIS, THE LEARNED CIT (APPEALS) ALL OWED THE APPEAL OF THE ASSESSEE, MAINLY RELYING ON THE ORDER OF THE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF ACIT VS. JAGDISH CHAND, 90 TTJ 943 (CHD) 4. AGGRIEVED BY THIS, THE DEPARTMENT HAS COME UP IN APPEAL, RAISING THE FOLLOWING GROUNDS OF APPEAL : 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. C IT(A) HAS ERRED IN NOT SUSTAINING THE ACTION OF THE AO REGARDING REJECTION OF BOOKS OF ACCOUNT U/S 145(3) AND THEREBY DELETING THE ADDITIONS OF RS.12,35,287/- IN GOLD ORNAMENTS ACCOUNT, RS.22,12,8367- IN DIAMOND JEWELLERY ACCOUNT FOR LOW G.P. FOR UNDERVALUATION OF CLOSING STOCK OF GOLD AND DIAMOND JEWELLERY AND RS.3,37,2697- FOR LOW G.P. FOR UNDERVALUATION OF CLOSING STOCK OF STONES STUDDED IN DIAMOND JEWELLERY, IGNORING THE FACT THAT NO QUANTI TATIVE AND QUALITATIVE DETAILS OF OPENING STOCK AS WELL AS CLOSING STOCK WAS MAINTAINED OR PRODUCED BY THE ASSESSEE. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CI T(A) HAS ERRED IN NOT SUSTAINING THE ACTION OF THE AO REGARDING REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE INCOME TAX ACT, 1961, IGNORING THE FA CT THAT THE VALUE OF OPENING AND CLOSING STOCK IS NOT VERIFIABLE IN THE ABSENCE OF ITEM-WISE BREAKUP OF OPENING AND CLOSING STOCK AND THE ASSESSEE HAD ALSO FAILED TO MAINTAIN THE ITEM-WISE INVENTORY OF GOODS AND MOST OF THE SALE BILLS WERE ISSUED WITHOUT NAMES & 4 ADDRESSES OF THE BUYERS. FURTHER, THE ASSESSEE COULD NOT DISCLOSE OR PROVE THE BASIS OF VALUATION OF CLOSING STOCK DESPITE AFFORDING ADEQUATE OPPORTUNIT IES BY THE AO. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A)HAS ERRED IN NOT CONFIRMING THE ACTION OF THE AO IN APPLYING FIFO METHOD FOR VALUATION OF THE CLOSING S TOCK IGNORING THE FACT THAT ASSESSEE'S CLAIM THAT SALES M ADE 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 WHICH RENDERS THE IDENTIFICATION OF PURCHASES IMPOSSIBLE AND SINCE THE ASSESSEE WAS DEALING IN SO MANY ITEMS DIFFER IN WEIGHT, PURITY, DESIGN, SPECIFICATION, MATERIAL & BRAND, THE APPLICATION OF WAC METHOD WAS NOT POSSIBLE AS E VEN THE AS-2 PRESCRIBED WAC METHOD FOR INVENTORY VALUATION IN CASES INVOLVING IDENTICA L GOODS OR ITEMS. 4. IT IS PRAYED THAT THE ORDER OF LD. CIT(A) BE SET A SIDE AND THAT OF THE AO RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROU NDS OF APPEAL BEFORE THE APPEAL IS HEARD AND FINALLY DI SPOSED OF. 5. THE LEARNED D.R. VEHEMENTLY ARGUED THE CASE OF THE REVENUE RELYING ON THE ORDER OF THE ASSESSING O FFICER AND FURTHER STATED THAT THE ASSESSING OFFICER HAS V ERY METICULOUS BEING ABLE TO BRING ON RECORD THE FACT T HAT THERE ARE SO MANY DISCREPANCIES IN THE BOOKS OF ACC OUNT MAINTAINED BY THE ASSESSEE AND ONLY AFTER THAT HE H AS REJECTED THE BOOKS OF ACCOUNT AND MADE THE ADDITION . 5 6. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED BEFORE US A COPY OF THE ORDER OF THE I.T.A.T., CHAN DIGARH 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) WA S RIGHT IN DELETING THE ADDITION. AFTER PERUSING THE ORDE R OF THE LEARNED CIT (APPEALS), WE SEE THAT RELEVANT FINDING S ARE RECORDED AT PAGES 4.5 AND 4.6 OF HIS ORDER, WHICH R EAD 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 OPENIN G STOCK AND PURCHASES WAS CONSISTENTLY FOLLOWED BY TH E APPELLANT OVER A NUMBER OF YEARS. HE, THEREFORE, DE LETED THE ADDITION MADE BY THE A.O. ON THE BASIS OF AVERA GE RATE OF PURCHASES. THIS VIEW WAS CONFIRMED BY HON'BLE IT AT. IT IS HELD THEREIN THAT 'IT IS CLEAR FROM ABOVE THAT T HE ASSESSEE COULD NOT SELL EVEN THE ENTIRE STOCK OF GOLD ORNAME NTS LYING WITH THE ASSESSEE IN THE OPENING STOCK. A PART OF IT WAS CARRIED TO THE CLOSING STOCK OF THE YEAR UNDER CONSIDERATION. THER E IS NO JUSTIFICATION FOR APPLYING PURCHASE RATE TO ABOVE S TOCK, AS THE ASSESSEE COULD NOT BE SAID TO HAVE EARNED ANY PROFI T FROM THE ABOVE CARRY FORWARD STOCK. BUT, IF AVERAGE RATE OF PURCHASES OF THIS YEAR IS APPLIED EVEN TO ABOVE STOCK, THEN SOME ADDITION AUTOMATICALLY FOLLOWS IN THE INCOME OF THE ASSESSEE. IT IS NOT PERMISSIBLE AND IS CONTRARY TO THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM VS. CIT (19 53) 24ITR 481 (SC). THE AVERAGE COST OF OPENING AND PURCHASES IS ALSO AN ACCEPTED METHOD OF VALUATION AT COST APPROVED BY THE ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCO UNTANT OF 6 INDIA. IN THE PRESENT CASE, IT IS FURTHER NOT CONTE STED BY THE REVENUE THAT SIMILAR METHOD OF ACCOUNTING WAS FOLLO WED BY THE ASSESSEE IN EARLIER YEAR. FOR ALL THE ABOVE REASONS , WE ARE OF THE VIEW THAT THE METHOD OF VALUATION ADOPTED BY THE AS SESSEE WAS CORRECT AND ADDITION MADE ON ACCOUNT OF ENHANCEMENT OF VALUE OF STOCK IS NO JUSTIFIED. THE ID. CIT(A) RIGHTL Y DELETED THE ADDITION. HIS ACTION IS HEREBY 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 VALUAT ION OF CLOSING STOCK ACCORDING TO THE 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 DIFF ERENT METHOD FOR ASSESSMENT YEAR IN QUESTION.' 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 FOLLOWE D. SECONDLY, THE REASON FOR VARIANCE OF NET PROFIT VIS A VIS THE CASE OF M/S MADAN LAL IS DULY EXPLAINED BY THE APPE LLANT WHICH IS NOT REBUTTED BY THE A.O FURTHER THERE IS N O CASE OF ANY DISCREPANCY IN THE PURCHASE OR SALE ACCOUNT. THIRDLY, THE A.O. IN THIS CASE HAS ONLY REVALUED THE S TOCK BY ADOPTING A HIGHER FIGURE THAN THE RATE DISCLOSED BY T HE APPELLANT ON THE ASSUMPTION THAT ONLY OLD JEWELLERY HAS BEEN SOLD FIRST AND FRESH JEWELLERY HAS REMAINED IN S TOCK UNTIL THE OLD JEWELLERY IS EXHAUSTED. HE HAS NOT DISP UTED THE QUANTITY OF STOCK OR PURCHASE/SALE AT ANY POINT . THUS THE STOCK IN WEIGHT HAS BEEN ACCEPTED BY THE A.O. T HE PRESUMPTION THAT THE JEWELLER HAS KEPT ON PURCHASING JEWELLERY IN THE YEARS BUT HAVE NOT SOLD TILL THE OLD JEWELLERY 7 IS EXHAUSTED IS A MERE PRESUMPTION WITHOUT ANY EVID ENCE 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 N ON- INCLUSION OF ADDRESSES OF CUSTOMERS IN RESPECT OF CA SH TRANSACTION CAN NOT BE BASIS FOR REJECTION OF BOOKS OF ACCOUNT. THE FIXATION OF AN ARBITRARY RATE BY THE A .O FOR THE STONES/DIAMOND AND FURTHER ADDING 10% OF GOLD IN DIAMOND JEWELLERY WITHOUT ANY EVIDENCE, IN MY OPINI ON IS NOT CORRECT. THE APPELLANT IS VALUING THE CLOSING STOC K ON THE BASIS OF WEIGHTED AVERAGE COST METHOD CONSISTENTLY. FU RTHER, THE SALE OF ARTICLES BEING SOLD IS AS PER MARKET AN D CUSTOMER PREFERENCE IN THE TYPE OF BUSINESS OF THE APPELLANT. THEREFORE IN VIEW OF NATURE OF BUSINESS AND TRADING OF ITEMS AS PER CUSTOMERS PREFERENCE DOES NO T LEAVE ANY POSSIBILITY OF FIFO TO BE APPLIED IN THE MANNER SUGGESTED BY THE A.O HENCE, THE VERY PRESUMPTION OF THE A.O IS NOT IN TERMS OF BUSINESS REALITY OF APPELLANT'S TRADE. THEREFORE, RELYING ON THE FACTS OF THE CASE, CONSIS TENCY OF METHOD OF VALUATIONS AND JUDICIAL DECISION THE REJEC TION OF BOOKS OF ACCOUNT AND THE VALUATION OF JEWELLERY BY THE A.O. IS HELD AS NOT CORRECT AND THE ADDITION MADE BY THE AO IS UNSUSTAINABLE IN LAW AND ON FACTS. THEREFORE, GROUN D 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, THEREFORE, N O 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 OR DER OF THE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF JAGD ISH 8 CHAND (SUPRA), A COPY OF WHICH WAS ALSO PLACED ON R ECORD BEFORE US. AFTER GOING THROUGH THE SAME, WE SEE TH AT THE FACTS AND CIRCUMSTANCES OF THAT CASE ARE IDENTICAL TO THE FACTS OF THE PRESENT CASE AND NO DISTINGUISHING FAC TORS BEING BROUGHT TO OUR NOTICE, RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCH WE ARE INCLINED TO DI SMISS THE APPEAL OF THE REVENUE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF MAY, 2016. SD/- SD/- (H.L.KARWA) (RANO JAIN) VICE PRESIDENT ACOUNTANT MEMBER DATED : 3 RD MAY, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE D R. ASSISTANT REGISTRAR, ITAT, CHANDIGARH