Radhagobindo Roy & Co., Cuttack V. ACIT, Circle-2(1), Cuttack

ITA 232/CTK/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3754 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 06-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 20-06-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D K PRADHAN
• Assessee Lawyers: D K SHETH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO . 232 /CTK/201 6 ASSESSMENT YEAR : 2011 - 2012 RADHAGOBINDO ROY & CO., NIMCHOURI, CUTTACK . VS. ACIT, CIRCLE 2(1), CUTTACK PAN/GIR NO . AABFR 6111 N (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI D.K.SHETH, AR RE V ENUE BY : SHRI D.K.PRADHAN, DR DATE OF HEARING : 06 /07 / 2017 DATE OF PRONOUNCEMENT : 10 /07 / 2017 O R D E R PER N.S.SAINI, AM THIS IS AN APPEAL FILED BY THE ASSESSEE AGA INST THE ORDER OF CIT(A) - CUTTACK , DATED 31.5.2016 , F OR THE ASSESSMENT YEAR 2011 - 12 . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ADDITION OF RS.17,78,235/ - AS MADE BY WAY OF REVALUATION OF CLOSING STOCK IS UNCALLED FOR, ARBITRARY AND HIGHLY UNJUSTIFIED. 2. FOR THAT THE LD CIT(A) FAILED TO APPRECIATE THE CONTENTIONS OF THE APPELLANT AND ACCORDINGLY IS NOT JUSTIFIED TO CONFIRM THE ADD ITION AND DISMISS THE APPEAL. 3. BRIEF FACTS OF THE CASE ARE THAT THAT THE ASSESSEE IS IN THE BUSINESS OF DEALING IN GOLD JEWELLERY. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS , THE 2 ITA NO. 232/CTK/2016 ASSESSMENT YEAR: 2011 - 2012 ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE METHOD OF VALUATIO N OF CLOSING STOCK. THE ASSESSEE SUBMITTED THAT THE VALUATION OF CLOSING STOCK WAS MADE ON AVERAGE PR ICE OF OPENING STOCK PER GRAMS. THE ASSESSING OFFICER TREATED THE SAME AS 'BASE STOCK METHOD' AND 'LAST IN FIRST OUT' METHOD. BASED ON SUCH METHOD, THE ASSESSEE HAS VALUED THE CLOSING STOCK OF 7145,812 GMS AT RS.1,07,18,718/ - @ RS.1500/ - PER GMS AS THAT OF OPENING STOCK. THE ASSESSING OFFICER REQUIRED THE AS SESSEE TO PRODUCE THE DOCUMENTS TO SUBSTANTIATE THE CLAIM OF THE ASSESSEE THAT OLD STOCK REMAINS UNSOLD AND ONLY THE NEWLY PURCHASED STOCK HAVE BEEN SOLD. THE ASSESSING OFFICER THEN REQUIRED THE ASSESSEE TO PRODUCE THE MONTH WISE STOCK STATUS WHICH THE ASS ESSING OFFICER HAS REPRODUCED IN THE ASSESSMENT ORDER. AFTER VERIFYING THE SAME, THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE THAT VALUATION OF CLOSING STOCK IN GOLD ORNAMENT BUSINESS CANNOT BE TAKEN UP FOLLOWED AS LAST IN FIRST OUT. HE CONCLUDED THAT IT CAN NOT BE MAINTAINED THAT THE CLOSING STOCK CONTAINS ONLY THE OLD STOCK WHICH WAS THERE IN THE OPENING STOCK AND SHOULD BE VALUED AT THE PRICE OF THE OPENING STOCK. THE ASSESSING OFFICER DID NOT ACCEPT THAT THE OLD STOCK HAS BEEN SOLD ONLY IN THE MONTH OF MAY, 2010 AND MARCH, 2011 WHEN THE NEWLY PURCHASED STOCK IS NOT AVAILABLE BECAUSE CONVERSION OF THE OLD STOCK INTO NEW ORNAMENTS IS COSTLY. THE ASSESSING OFFICER ALSO DID NOT ACCEPT THIS ARGUMENT OF THE ASSESSEE BECAUSE THE ASSES SEE KEPT ON PRODUCING OLD GOLD FROM THE CUSTOMERS THROUGHOUT THE YEAR AND HAS BEEN SELLING IT SUBSEQUENTLY BY CONVERTING THE SAME INTO ORNAMENTS. THERE HAS BEEN NO ITEM TO ITEM STOCK 3 ITA NO. 232/CTK/2016 ASSESSMENT YEAR: 2011 - 2012 MAINTAINED AND THE INVENTORY ITEMS ARE SO INTERMINGLED THAT IT IS IMPOSSI BLE TO ASSIGN A SPECIFIC COST TO AN INDIVIDUAL UNIT. THE ASSESSING OFFICER POINTED OUT THAT ACCOUNTING SYSTEM IN THE GOLD BUSINESS OF THE ASSESSEE IS NOT SUFFICI ENTLY ENDOWED TO TRACK FIFO OR LI FO INVENTORY LAYERS SEPARATELY. THE ASSESSING OFFICER THEN STATED THAT LI FO OR FIFO METHOD OF VALUATION OF CLOSING STOCK OF GOLD ORNAMENTS MAY LEAD TO UNDER VALUATION OR OVER VALUATION OF THE STOCK AND , THEREFORE , THE MOST APPROPRIATE METHOD OF VALUATION OF CLOSING STOCK SHOULD BE WEIGHTED AVERAGE METHOD AS FAR AS GOLD ORNAMENTS ARE CONCERNED. BY APPLYING WEIGHED AVERAGED METHOD OF OPENING STOCK AND PURCHASE THE ASSESSING OFFICER WORKED OUT THE WEIGHED AVERAGED COST OF RS.1748.85 PER GMS OF GOLD AND ARE VALUED THE CLOSING STOCK AT RS.1,24,96,953.31. THE DIFFERENCE OF RS.17,78,235.31 WERE ADDED TO THE TOTA L INCOME OF THE ASSESSEE. 4 . BEFORE THE CIT(A), THE ASSESSEE CONTENDED THAT IT MAINTAINS REGULAR BOOKS O F ACCOUNT AND THE SAME WERE DULY AUDITED U/S.44AB. THE TRADING ACCOUNT AS PER BOOK S OF ACCOUNT WAS FURNISHED SE PARATELY THE QUANTITY OF OPENING STOCK WAS GMS.10,143.198 WHEREAS THE CLOSING STOCK AT THE END OF THE YEAR WAS 7,145.812 GMS . IN GOLD ORNAMENTS BUSINESS THE VALUE OF THE METAL I.E. GOLD IS IMPORTANT AND NOT THE ITEM OF JEWELLERY. THAT IS WHY THE CLOSING STOCK BEING LESS THAN THE OPENING STOCK WAS VALUED AT THE SAME RATE AS THAT OF THE OPENING STOCK. HAD THERE BEEN MORE CLOSING STOCK, THE CLOSING STOCK EQUAL TO THE OPENING STOCK WOULD HAVE BEEN VALUED AT THE SAME PRICE AND THE EXCESS WOULD HAVE BEEN VALUED AT THE AVERAGE PURCHASE 4 ITA NO. 232/CTK/2016 ASSESSMENT YEAR: 2011 - 2012 PRICE. THE METHOD APPLIED BY THE ASSESSEE GETS SUPPORT FROM THE ORDER OF THIS BENCH OF THE TRIBUNAL I N ITA NO. 407/CTK/2011 DT.21.10.2011 IN THE CASE OF BHOGILAL & CO., BALASORE. 5. THE CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE OBSERVED THAT HE HAS GONE THROUGH THE ASSESSMENT ORDER . AS PER THE STOCK STATEMENTS, SALE OF GOLD ORNAMENTS HAVE B EEN MORE THAN THE PURCHASE FOR THE MONTH OF MAY, SEPTEMBER, OCTOBER, NOVEMBER & DECEMBER, 2010 AND FEBRUARY AND MARCH, 2011. MOREOVER, THE PURCHASES AND SALE S MONTH WISE HAVE BEEN ENTERED IN THE STOCK REGISTER AND REPRODUCED AT THE END O F THE MONTH. THE AS SESSING OFFICER MENTIONED THAT APART FROM PURCHASING ORNA MENTS FROM MARKET, THE ASSESSEE USED TO BUY OLD GOLD ORNAMENTS FROM PEOPLE. U NDER SUCH CIRCUMSTANCES, IT CAN NOT BE DEFINITELY SAID THAT THE OPENING STOCK AT THE BEGINNING OF THE YEAR HAS REMAINED UNS OLD THROUGHOUT THE YEAR AND CLOSING STOCK ENTIRELY CONSISTED OF THE OPENING STOCK OF ORNAMENTS AT THE BEGINNING OF THE YEAR AND SHOULD BE VALUED AT THE PRICE OF THE OPENING STOCK OF THE GOLD ORNAMENTS AT THE OPENING OF THE YEAR. THE CIT(A) OBSERVED THAT THE GOLD PRICE IS AN EVER CHANGING PRICE AND SALE OF GOLD ORNAMENTS CANNOT FOLLOW A PARTICU LAR AND DEFINITE PATTERN. THE ASSESSING OFFICER HAS MENTIONED THAT THE ASSESSEE DID NOT MAINTAIN ITEM WISE STOCK DETAILS TO VERIFY WHICH PU RCHASE OF GOLD ORNAMENTS IS SOLD ON WHICH DATE. THEREFORE, HE ABSOLUTELY AGREE D WITH THE FINDING OF THE ASSESSING OFFICER THAT LAST IN FIRST OUT METHOD IN GOLD ORNAMENTS BUSINESS 5 ITA NO. 232/CTK/2016 ASSESSMENT YEAR: 2011 - 2012 WILL LEAD TO UNDER VALUATION OF STOCK BECAUSE IT DOES NOT REFLECT THE TRUE PI CTURE OF THE BUSINESS ACTIVITY AND LAST IN THE FIRST OUT METHOD OF VALUATION WOULD LEAD TO OVER VALUATION OF CLOSING STOCK BECAUSE THE CLOSING STOCK MAY CONTAIN BOTH THE OLD STOCK AS WELL AS NEWLY PURCHASE STOCK. THEREFORE, THE MOST APPROPRIATE METHOD OF CLOSING STOCK IN GOLD ORNAMENT BUSINESS WHERE ITEM TO ITEM PURCHASE AND SALE DETAILS ARE NOT AVAILABLE IS THE WEIGHTED AVERAGE METHOD. THE ASSESSING OFFICER HAS CORRECTLY FOLLOWED THE METHOD AND FOUND THE WEIGHTED AVERAGE COST PER GMS GOLD ORNAMENTS AND R EVISED THE VALUATION OF THE CLOSING STOCK. IN THE PROCESS, THE ASSESSING OFFICER HAS ADDED RS.17,78,235.31. THE CIT(A) FURTHER OBSERVED THAT THE WEIGHTED AVERAGE METHOD OF CLOSING STOCK FINDS SUPPORT FROM THE ORDER OF THIS BENCH OF THE TRIBUNAL IN THE C ASE OF M/S. BHOGILAL & CO. (SUPRA) AND M/S. KHIMJI DAYAB HAI JEWELLERS VS ITO, WQARD - 1, BARIPADA IN ITA NO.501/CTK/2012 AND THE SAME HAS BEEN FOLLOWED BY HIM IN THE CASE OF M/S. SHREE ASHOKA JEWELLER IN ITA NOS.216,27,218/2012 - 13. HE OBSERVED THAT THE ORDE R OF THE TRIBUNAL AS MENTIONED BY THE ASSESSEE IN HIS CONTENTION AS ABOVE IS NOT CLEAR REGARDING WHICH METHOD SHOULD BE APPROPRIATELY TAKEN IN VALUATION OF CLOSING STOCK WHERE ORNAMENT TO ORNAMENT PURCHASE AND SALE DETAILS WERE NOT AVAILABLE. THEREFORE, H E HELD THAT THE ORDER OF THE TRIBUNAL WAS DISTINGUISHABLE AS ABOVE AS SUBMITTED BY THE APPELLANT FROM THE FACTS OF THE PRESENT CASE. THE FACTS OF THE PRESENT CASE ARE MORE APPROPRIATE TO THE ORDER OF THE TRIBUNAL IN THE CASE OF KHIMJI DAYABHAI JEWLLERS (S UPRA). HENCE, HE DISMISSED THE APPEAL OF THE ASSESSEE. 6 ITA NO. 232/CTK/2016 ASSESSMENT YEAR: 2011 - 2012 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE HAS FILED APPEAL BEFORE US. 7. LD A.R. OF THE ASSESSEE SIMPLY REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES . 8. LD D.R. SUPPORTED THE ORDER OF THE CIT(A). 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIALS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS NOT PRODUCED ANY MATERIAL EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE CIT(A) AND EVEN BEFORE US TO SHOW THAT THE ITEM OF JEWELLERY CONTAINS IN THE OPENING STOCK WAS STILL LYING IN STOCK WITH THE ASSESSEE AS AT THE END OF THE YE A R AS ON 31.3.2011. IN ABSENCE OF THE SAME, WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). WE ALSO FIND THAT THE LD A.R. OF THE ASSESSEE MISERABLY FAILED TO SHOW ANY GOOD REASON AS TO WHY THE CIT(A) WAS NOT JUSTIFIED IN FOLLOWING THE ORDER OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF M/A. ASHOK JEWELLERY (SUPRA). WE FIND THT THE CIT(A) HAS DISTINGUISHED THE ORDER O F THIS BENCH OF THE TRIBUNAL RELIED ON IN THE CASE OF M/S. BHOGILAL & CO. (SUPRA). LD A.R. OF THE ASSESSEE ALSO COULD NOT POINT OUT ANY MISTAKE IN THE FINDINGS OF THE CIT(A). STILL FURTHER THAT ON SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE, THIS BENCH OF THE TRIBUNAL IN THE CASE OF PARBATI DAS VS ITO, WARD - 2, PARADEEP IN ITA NO.287/CTK/2015 ORDER DATED 7.3.2017 HAS UPHELD THE ORDER OF THE CIT(A) CONFIRMING THE ADDITION OF RS.17,76,662/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDER VALUATION OF CLOSIN G STOCK OF JEWELLERY BY FOLLOWING THE WEIGHTED AVERAGE 7 ITA NO. 232/CTK/2016 ASSESSMENT YEAR: 2011 - 2012 METHOD OF STOCK. HENCE, WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHICH IS HEREBY CONFIRMED AND DISMISS THE GROUND OF APPEAL OF THE ASSESSEE. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED . ORDER PRONOUNCE D IN THE OPEN COURT ON 10 /07 /2017 IN THE PRESENCE OF PARTIES. SD/ - SD/ - ( PAVAN KUMAR GADALE) ( N.S SAINI) JUDICIALMEMBER A CCOUNTANT MEMBER CUTTACK; DATED 10 /07 /2017 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER, SR.PRIVATE SECRETARY ITAT, CUTTACK 1. TH E APPELLANT : RADHAGOBINDO ROY & CO., NIMCHOURI, CUTTACK. 2. THE RESPONDENT ACIT, CIRCLE 2(1), CUTTACK 3. THE CIT(A) - CUTTACK 4. PR.CIT - CUTTACK 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//