M.P. Jewellers (Calcutta) & Co., Kolkata V. JCIT, Range - 40, Kolkata, Kolkata

ITA 2220/KOL/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6030 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 20-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PIJUSH MUKHERJEE
• Assessee Lawyers: A BISWAS; D DA SGUPTA
• Keywords: Depreciation
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE SHRI A.T.VARKEY, JM &DR. A.L.SAINI, AM ./ITA NO.2220/KOL/2017 ( / ASSESSMENT YEAR: 2011-12) M.P. JEWELLERS (CALCUTTA) & CO. P-227, C.I.T. SCHEME-VIM, KOLKATA- 700045 VS. JCIT, RANGE-40, KOLKATA 3, GOVERNMENT PLACE, KOLKATA-700001. ./ ./PAN/GIR NO.: AASFM 6237 F (ASSESSEE) .. (REVENUE) ASSESSEE BY : SHRI A. BISWAS, FCA & SHRI D. DA SGUPTA, AR RESPONDENT BY : SHRI PIJUSH MUKHERJEE, ADDL. CIT SR . DR / DATE OF HEARING : 01/01/2019 /DATE OF PRONOUNCEMENT : 23/01/2019 / O R D E R PER DR. A. L. SAINI: 1. THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERTA INING TO ASSESSMENT YEAR 2011- 12, IS DIRECTED AGAINST AN ORDER PASSED BY THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS)-13, KOLKATA (IN SHORT THE LD. CIT(A)] , WHICH IN TURN ARISES OUT OF AN ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/ S 143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) DATED 18.03.2014. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS FOLLOWS: 1) FOR THAT ON THE FACT AND IN THE CIRCUMSTANCES TH E LD. CIT(A) WAS WRONG IN HOLDING THAT THE APPELLANT FAILED TO ESTABLISH THAT THE AFORESAID BUILDING HAS BEEN USED FOR BUSINESS PURPOSE DESPITE HIS AC CEPTANCE OF THE FACT THAT M.P. JEWELLERS (CALCUTTA) & CO. ITA NO.2220/KOL/2017 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 2 22 2 THE IDENTIFIED EMPLOYEES OF THE APPELLANT STAYED AT THE SAID RESIDENTIAL FLAT DURING THE ASSESSMENT YEAR UNDER APPEAL AND THEREBY ERRED IN UPHOLDING THE DISALLOWANCE OF THE SPECIFIED DEPRECIATION RATE OF 5% AS PER I T RULES ON RESIDENTIAL BUILDING USED FOR BUSINESS PURPOSE. 2) FOR THAT LD. CIT(A) WAS WRONG IN NOT ALLOWING TH E DEPRECIATION OF RS. 62,199/- ON THE RESIDENTIAL BUILDING (2.5% OF RS. 2 4,87,942), ON THE GROUND THAT THE PARK HAS NOT BEEN DECLARED IN THE HANDS O F THE EMPLOYEES, WHEN NO SUCH REQUIREMENT HAS BEEN SPECIFIED IN SEC 32 OF I.T. ACT, 1961. 3. A) FOR THAT THE LD. CIT(A) WRONGLY AND ARBITRARI LY UPHELD THE ADDITION OF MELTING GAIN OF GOLD OF 277.702 GRAMS AMOUNTING TO RS. 5,75,648/- ALTHOUGH SAID QUANTITY OF 277.702 GRAMS HAD BEEN R ECORDED IN THE STOCK REGISTER. B) FOR THAT THE LD. CIT(A) FAILED TO EXAMINE AND GI VE HIS FINDING ON THAT PART OF THE WRITTEN STATEMENT DEPICTING THE AFORESA ID GAIN OF 277.702 GRAM AND ITS INCLUSION IN THE QUANTITY RECEIVED AS PER 24 KARAT (KT) REGISTER. C) FOR THAT THE LD. CIT(A) FAILED TO CONSIDER THAT THE INTERMEDIATE PROCESS OF GAIN OR LOSS IN QUANTITY FROM MELTING, WHICH RESULT S IN THE FORM OF GOLD BARS OR MANUFACTURED JEWELLERY, DOES NOT HAVE A SEPARATE COST, ARE NOT REQUIRED TO BE VALUED SEPARATELY WHEN THE Q UANTITY OF CLOSING STOCK OF GOLD BARS AND MANUFACTURED JEWELLE RY ARE VALUED AT COST AND REFLECTED IN THE FINANCIAL STATEMENT. 4) THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR ALTE R, AMEND, MODIFY OR RESCIND THE GROUNDS HEREINABOVE BEFORE OR AT THE TI ME OF HEARING OF THIS APPEAL. 3. THE GROUND NOS. 1 AND 2 RAISED BY THE ASSESSEE R ELATES TO THE ISSUE OF DISALLOWANCE OF DEPRECIATION CLAIMED BY THE ASSESSE E TO THE TUNE OF RS. 1,24,397/- ON OFFICE BUILDING. 4. THE BRIEF FACTS QUA THE ISSUE ARE THAT DURING TH E ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT ASSESSEE CLAIMED DE PRECIATION ON RESIDENTIAL BUILDING, SINCE IT WAS A RESIDENTIAL BUILDING FOR T HE PURPOSE OF RESIDENCE THEREFORE DEPRECIATION SHOULD NOT BE ALLOWED @ 10%. THE ASSES SING OFFICER HAS ALSO NOTED THAT THE AFORESAID BUILDING WAS USED FOR THE STAFF MEMBER AND THE PARTNERS OF THE FIRM AS AND WHEN REQUIRED. SINCE THE BUILDING WAS N OT USED FOR BUSINESS PURPOSES. M.P. JEWELLERS (CALCUTTA) & CO. ITA NO.2220/KOL/2017 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 3 33 3 THEREFORE, THE ASSESSING OFFICER MADE THE DISALLOWA NCE TO THE TUNE OF RS. 1,24,397/-. 5. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. DURING THE APPELLATE PROCEEDINGS, THE ASSE SSEE WAS ASKED TO FURNISH THE CONFIRMATION OF RESIDENT WELFARE ASSOCIATION OF TH E BUILDING BUT HE DID NOT SUBMIT ANY PROOF. THE ASSESSEE HAS ALSO NOT SUBMITTED THE EMPLOYEE AND EMPLOYER CONTRACT AGREEMENT WHICH PROVES THAT THE AFORESAID FACILITY HAS NOT BEEN REFLECTED AS A PERK, IN THE HANDS OF EMPLOYEES. THEREFORE, SI NCE THE ASSESSEE HAS NOT ESTABLISHED THAT THE PERQUISITE OF THE SAME HAS NOT BEEN SHOWN IN THE HANDS OF THE EMPLOYEES; AND THE BUILDING HAS BEEN USED FOR BUSI NESS PURPOSES; HENCE DEPRECIATION SHOULD NOT BE ALLOWED. 6. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED BEFORE US THAT THE ASSESSEE IN ANY CASE IS ENTITLED TO CLAIM DEPRECIATION @ 5% OF RS. 24,87,942/-. SINCE THE BUILDING WAS USED FOR LESS THAN 180 DAYS DURING THE PREVIOUS YEAR, RELEVANT TO ASSESSMENT YEAR, THEREFORE THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION @ 2.5% OF RS. 24,87,942/-, WHICH COMES TO THE TUNE OF RS. 62, 199/-. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE HAS FAIRLY AGREED THAT SINCE IT IS A RESIDENTIAL BUILDING WHICH QUALIFIES FOR DEPRECIATION @ 5% AND SINCE TH E BUILDING HAS BEEN USED BY THE EMPLOYEES DURING THE PREVIOUS YEAR, RELEVANT TO THE ASSESSMENT YEAR FOR LESS THAN 180 DAYS THEREFORE THE ASSESSEE IS ENTITLED TO CLAIM THE DEPRECIATION @ 2.5% OF RS. 24,87,942/- WHICH COMES TO THE TUNE OF RS. 6 2,199/-. WE NOTE THAT THE LD. DR FOR THE REVENUE HAS FAIRLY AGREED WITH THE PROPO SITIONS CANVASSED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE IS ENTIT LED TO CLAIM THE DEPRECIATION TO THE TUNE OF RS. 62,199/- @ 2.5% OF RS. 24,87,942/-. WE NOTE THAT DEPRECIATION RATE ON RESIDENTIAL BUILDING IS 5%, THEREFORE WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION TO THE TUNE OF RS. 62,199/-. M.P. JEWELLERS (CALCUTTA) & CO. ITA NO.2220/KOL/2017 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 4 44 4 8. GROUND NO. 3 RAISED BY THE ASSESSEE RELATES TO A DDITION OF MELTING GAIN OF GOLD OF 277.702 GRAMS AMOUNTING TO RS. 5,75,642/-. 9. THE BRIEF FACTS QUA THE ISSUE ARE THAT DURING TH E ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF GAIN F ROM MELTING OF OLD GOLD AND ACCORDINGLY THE ASSESSEE FURNISHED THE STATEMENT SH OWING GAIN AMOUNT, OUT OF MELTING TO THE TUNE OF RS. 277.702 GRAMS IN QUANTIT Y. THE ASSESSING OFFICER NOTED THAT THE SAME GAIN WAS NOT SHOWN BY THE ASSESSEE IN THE TAX AUDIT REPORT. THE ASSESSEE WAS REQUESTED TO EXPLAIN THE GAIN OF 277. 702 GRAMS OF GOLD. IN RESPONSE THE ASSESSEE SUBMITTED THAT IT IS ESTABLISHED PRACT ICE IN THE JEWELLERY INDUSTRY THAT ALL OLD ORNAMENTS ARE PURCHASED FROM CUSTOMERS, IN EXCHANGE OF SALE OF FINISHED JEWELLERY, AFTER ASSESSING THE PURITY BY IN-HOUS E TESTER WITH THE HELP OF TOUCH STONE AND ON THE BASIS OF HIS OBSERVATION. THEREAFT ER, ALL THE OLD ORNAMENTS ARE SENT FOR MELTING FOR RECYCLING INTO 24 K OLD GOLD, TO DI STINGUISH FROM 24 K BULLION, IN THE PROCESS OF MELTING THERE MAY ARISE AN ACTUAL GA IN / LOSS IN QUANTITY. THE ACCUMULATED OLD GOLD OF 24K IRRESPECTIVE OF GAIN / LOSS POST MELTING IS ISSUED TO SMITHS, WHO IN TURN FABRICATE JEWELLERY IN PIECES. ALL SUCH PIECES ARE RECEIVED AS UNIQUE STOCK NUMBER AGAINST SERIALLY NUMBERED VOUCH ER(S). NOTWITHSTANDING THE 24 K OLD POST MELTING, IS VERY MUCH PART OF ASSESSE ES STOCK. THIS HAS ALREADY BEEN CONSIDERED AS INPUT AT THE TIME OF ISSUE TO TH E SMITHS AND ALSO INCLUDED IN THE FINISHED JEWELLERY RECEIVED BACK FROM THE SMITHS TH EREBY DULY RECOGNIZED IN THE BOOKS AND REFLECTS IN THE FINANCIAL STATEMENT. HOWE VER THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE AND NOTED T HAT AUDIT REPORT AND PROFIT & LOSS ACCOUNT OF THE ASSESSEE DID NOT CONSIDER THE SAID GAIN OF 277.702 GRAMS OF GOLD, SO THE VALUE OF 277.702 GRAMS OF GOLD AS ON 31.03.2 011 WAS ADDED BACK TO THE STOCK AND THEREFORE RS. 5,75,648/- WAS ADDED BACK T O THE TOTAL INCOME OF THE ASSESSEE. 10. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO HAS CONFIRMED THE ADDITION MA DE BY THE ASSESSING OFFICER. 11. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. M.P. JEWELLERS (CALCUTTA) & CO. ITA NO.2220/KOL/2017 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 5 55 5 12. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFO RE US THAT THE ASSESSEE HAS FOLLOWED CORRECT ACCOUNTING PRACTICE WHICH IS PREVA ILING IN THE JEWELLERY MARKET / MANUFACTURING PROCESS OF JEWELLERY BY TAKING OLD OR NAMENTS FROM THE CUSTOMERS. ON THE OTHER HAND, LD. DR FOR THE REVENUE HAS PR IMARILY REITERATED THE STANDS TAKEN BY THE ASSESSING OFFICER WHICH WE HAVE ALREAD Y NOTED IN OUR EARLIER PARA AND THE SAME IS NOT BEING REITERATED FOR THE SAKE O F BREVITY. 13. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT SO FAR THE QUANTITY RECONCILIATION AND ACCOUNTING TREATMENT IS CONCERNED THE ASSESSEE IN T HE APPEAL UNDER CONSIDERATION HAS FOLLOWED THE PRACTICES PREVAILING IN THE JEWELL ERY MANUFACTURING PROCESS IN CASE OF OLD JEWELLERY RECEIVED FROM THE CUSTOMERS D URING THE COURSE OF BUSINESS. SO FAR THE QUANTITY RECONCILIATION IS CONCERNED, WE ARE OF THE VIEW THAT OLD GOLD FROM CUSTOMERS IN THE FORM OF BANGLES, RING, EAR-RI NG, NECKLACE ETC. WERE PURCHASED FROM CUSTOMERS. THE 24 K OF THIS GOLD IS ESTIMATED ON THE BASIS OF TOUCHSTONE FOR THE PURPOSE OF MAKING PAYMENTS TO TH E CUSTOMERS. THE COST SO INCURRED IS DEBITED TO THE PROFIT & LOSS ACCOUNT. P ERIODICALLY THIS OLD GOLD PURCHASED, SAY DURING A WEEK OR FORTNIGHT FROM THE CUSTOMERS ARE SENT TO THE MELTERS FOR MELTING. AFTER MELTING THE IDENTITY OF GAIN OR LOSS FROM A PARTICULAR ITEM OF PURCHASE IS LOST. AFTER MELTING, THE QUANT ITY OBTAINED FROM THE MELTERS WERE COMPARED TO THE ESTIMATED QUANTITY AT THE TIME OF PURCHASE AND THE DIFFERENCE MAY BE EITHER GAIN OR LOSS. ACTUALLY, THIS IS NOT A GAIN ARISING FROM MELTING. THIS IS THE DIFFERENCE BETWEEN THE EARLIER ESTIMATED QUANTI TY OF JEWELLERY PURCHASED WITH THE ACTUAL QUANTITY OBTAINED FROM MELTERS. THAT EXC ESS OR SHORT IS NOT SEPARATELY IDENTIFIABLE BUT EMBADED IN THE MELTED PIECE IN TH E FORM OF BAR, STRIP ETC. SO FAR THE ACCOUNTING TREATMENT IS CONCERNED, WE ARE OF T HE VIEW THAT AS DETAILED IN PAGE 5 OF THE PAPER BOOK THE MONTH WISE COST OF OLD GOLD PURCHASED (WITH QUANTITY TALLIED WITH TAX AUDIT REPORT) HAS BEEN DEBITED IN THE PROFIT & LOSS A/C. AGGREGATE OF MONTH-WISE SALES WAS CREDITED IN THE P ROFIT & LOSS ACCOUNT (PAGE 5 M.P. JEWELLERS (CALCUTTA) & CO. ITA NO.2220/KOL/2017 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 6 66 6 OF PAPER BOOK). STOCK OF OLD GOLD OF 600.474 GMS (A S PER PAGE 34 OF THE PAPER BOOK- I.E. 436.015+60.671+95.728+8.060=600.474) WAS DISCLOSED IN THE QUANTITATIVE DETAILS OF TAX AUDIT REPORT. THE APPEL LANT HAS RECONCILED THAT OUT OF THE TOTAL RECEIPT OF 12,541.817 GRAMS (MENTIONED IN THE ASSESSMENT ORDER) , THE YEAR-END BALANCE OF 24KT. GOLD REGISTER WAS THE AFO RESAID 60.671 GRAMS. SO THERE IS NO DISPUTE THAT THE MELTING GAIN QUANTITY OF 277 .702 GRAMS WAS INCLUDED IN THE STOCK REGISTER AS WELL AS THE CLOSING STOCK AS PER TAX AUDIT REPORT AND ALSO VALUED AT COST AND STATED IN THE P&L A/C. THIS MELTED QUANTIT Y THEREAFTER ENTERS IN THE PRODUCTION PROCESS OF JEWELLERY MANUFACTURE AND ISS UED TO GOLD SMITHS. IN ASSESSEES CASE THE DISPUTE IS WHETHER THE VALUE O F THE MELTED GOLD WOULD HAVE TO BE CONSIDERED AS INCOME OR NOT. MELTED GOLD (INCLUD ING GAIN OR LOSS) IS ONLY AN INTERMEDIATE PROCESS WHICH WOULD HAVE TO UNDERGO FU RTHER PROCESS OF JEWELLERY MANUFACTURE AND THEREAFTER SOLD TO THE CUSTOMERS. A CCORDING TO THE APPELLANT THE TAXABLE EVENT OF INCOME WOULD BE TRIGGERED AS SOON AS THE JEWELLERY IS SOLD AND THEREBY THE OWNERSHIP OF THE SAME IS TRANSFERRED FR OM THE APPELLANT TO THE CUSTOMER. SO LONG THE OWNERSHIP REMAINS WITH THE AP PELLANT ON ANY QUANTITY OF GOLD OR JEWELLERY PRODUCED EITHER SEMI-FINISHED OR FINISHED, NO TAXABLE INCOME WOULD ARISE. THIS IS BECAUSE OF THE CARDINAL PRINCI PLE THAT NO ONE CAN SELL HIS GOODS TO HIMSELF' [HIND CONSTRUCTION LTD.83ITR 211 SC]. AS PER ACCOUNTING PRINCIPLE THE GAIN IN QUANTITY OF 277.702 GRAMS WOU LD GO IN REDUCING THE COST OF PURCHASE. SINCE THE SALES PRICE INCLUDES WEIGHT OF GOLD, THE REALIZATION OF THIS QUANTITY OF 277.702 GRAMS WOULD BE FROM THE CUSTOME RS AND THEREBY THE VALUE CREDITED IN THE PROFIT & LOS ACCOUNT. THE RAW MATER IAL STOCKS ARE VALUED AT COST. AS PER ACCOUNTING PRINCIPLES NO RECOGNITION OF QUAN TITATIVE GAIN OR LOSS OF AN INTERMEDIATE PROCESS IS REQUIRED TO BE SEPARATELY D ISCLOSED. THUS, THE APPELLANT HAD MADE FULL DISCLOSURE IN ITS TAX AUDIT REPORT. THERE ARE NO FURTHER REQUIREMENTS OF DISCLOSURE IN THE TAX AUDIT REPORT. WE NOTE THAT THE LD A.O. AND THE LD. CIT(A) WITHOUT REFERRING TO ANY SPECIFIC RE QUIREMENTS OF DISCLOSURE HAD MADE A GENERALIZED STATEMENT THAT THERE WAS NO DISC LOSURE IN THE TAX AUDIT REPORT. WE NOTE THAT WHILE PASSING THE ORDER U/S 143(3) IN THE SUBSEQUENT YEAR'S ASSESSMENT I.E. A.Y. 2012-13, THIS INCREASE IN THE VALUATION OF CLOSING STOCK OF RAW MATERIAL, BY THE LD. A.O. WAS NOT CONSIDERED I N THE VALUATION OF OPENING M.P. JEWELLERS (CALCUTTA) & CO. ITA NO.2220/KOL/2017 ASSESSMENT YEAR:2011-12 P PP PA AA AG GG GE EE E | || | 7 77 7 STOCK OF RAW MATERIALS THEREFORE, WE DO NOT ACCEPT THE ADDITION MADE BY ASSESSING OFFICER. CONSIDERING THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE FACTS NARRATED ABOVE WE ARE OF THE VIE W THAT THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) N EEDS TO BE DELETED, ACCORDINGLY WE DELETE THE ADDITION OF RS. 5,75,648/-. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE COURT ON 23.0 1.2019 SD/- ( A.T.VARKEY ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; / DATE: 23/01/2019 ( SB, SR.PS ) COPY OF THE ORDER FORWARDED TO: 1. M.P. JEWELLERS (CALCUTTA) & CO. 2. JCIT, RANGE-40, KOLKATA 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES