M/s Agra Machine Tools (P) Ltd., Agra V. Dy. C.I.T., Circle-4(1), Agra

ITA 262/AGR/2011

• Counselvise Citation: 26220314 RSA 2011
• Duration Of Justice: 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 21-05-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 05-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Cost of acquisition; Revenue expenditure
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 262/AGRA/2011 ASSTT. YEAR : 2004-05 M/S. AGRA MACHINE TOOLS (P) LTD., VS. D.C.I.T., CI RCLE 4 (1), 132, INDUSTRIAL ESTATE, NUNHAI, AGRA. AGRA (PAN : AABCA 3713 A). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PANKAJ GARGH, ADVOCATE RESPONDENT BY : SHRI PRADEEP SINGH GAUTAM, JR. D.R . DATE OF HEARING : 21.05.2012 DATE OF PRONOUNCEMENT OF ORDER : 25.05.2012 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD.CIT(A)-II, AGRA DATED 10.05.2011 FOR THE ASSESSMENT YEAR 2004- 05, CHALLENGING THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE ADDITION OF RS.21, 07,555/- ON ACCOUNT OF UNDERVALUATION OF STOCK OF SILVER. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS I N THE BUSINESS OF MANUFACTURING OF SILVER CHAINS AND COMPONENTS. BESIDES MANUFACTUR ING ON OWN ACCOUNT, THE COMPANY IS ALSO DOING JOB WORK FOR OTHERS. AS PER T HE AO, FROM THE BOOKS OF ACCOUNT IT WAS SEEN THAT WHILE DOING JOB WORK THE A SSESSEE HAD GAINED SILVER ITA NO. 262/AGRA/2011 2 WEIGHING 611.602 GRAMS IN DOING JOB WORK. OUT OF TH AT THE ASSESSEE SOLD SILVER WEIGHING 198.356 KG. FOR RS.2335619/- AND THERE REM AINED BALANCE SILVER OF 413.246 KG. WHICH ASSESSEE HAS SHOWN AS PART OF ITS CLOSING STOCK. ASSESSEE HAS VALUED THE SILVER GAINED ON ACCOUNT OF WASTAGE IN D OING JOB WORK AT RS.6670 PER KG., HOWEVER, AS PER THE AO THE RATE OF SILVER ON 3 1.O3.2004 WAS RS.11770 PER KG. WHEN ASKED AS TO WHY SILVER SHOULD NOT BE VALUED @R S.11770 PER KG., IT WAS SUBMITTED BEFORE THE AO THAT NO PURCHASES WERE MADE AND THE VALUATION IS DONE ON COST OR MARKET PRICE, WHICHEVER IS LOWER. THEREFORE , IT WAS SUBMITTED BEFORE THE AO THAT AS THE COST WAS NIL, THEREFORE, THE SAME SH OULD BE TAKEN AT NIL, AS THERE WAS NO COST BUT INSTEAD OF TAKING THE VALUE AT NIL THE ASSESSEE HAD TAKEN THE VALUE OF OPENING STOCK OF SILVER AND ACTUAL PROFIT WILL B E DERIVED ON CONSUMPTION / SALE OF STOCK. HOWEVER, THE AO DID NOT AGREE WITH THE SUBMI SSION OF THE ASSESSEE AND VALUED THE SILVER AT RS. 11770/- PER KG. AND, ACCOR DINGLY, MADE THE ADDITION OF RS. 21,07,555/-. 2.1 THE ADDITION WAS CHALLENGED BEFORE THE LD. CIT( A) AND THE ASSESSEE FILED WRITTEN SUBMISSIONS, WHICH IS INCORPORATED IN THE I MPUGNED ORDER AND READS AS UNDER : 1.1 THE APPELLANT COMPANY IS MANUFACTURER OF SILVE R CHAINS AND COMPONENTS ON JOB WORK FOR OTHERS. THE MAIN SOU RCE OF INCOME IS JOB CHARGES RECEIVED AGAINST MANUFACTURING OF SILVE R JEWELLERY. NATURE OF BUSINESS IS THE SAME AS IN THE PRECEDING YEARS. ITA NO. 262/AGRA/2011 3 1.2 IN THE MANUFACTURING PROCESS OF SILVER JEWELLE RY THERE IS SOME WASTAGE OF METAL WHICH IS CHARGED FROM THE PARTIES WHOSE JOB WORK IS DONE. DURING THE YEAR THERE IS ADDITION IN SILVER W EIGHING 413.246 KG WHICH IS ON ACCOUNT OF MANUFACTURING ACTIVITY (WAST AGE EARNED). NO PURCHASE OF SILVER HAS BEEN MADE DURING THE YEAR. 1.3 THE QUANTITY OF SILVER IN OPENING AND CLOSING STOCK IS AS UNDER :- QUANTITY (IN KG) OPENING STOCK 3619.802 ADD: WASTAGE EARNED 1419.974 5039.776 LESS: SALE 198.356 WASTAGE 808.372 1006.728 CLOSING STOCK 4033.048 1.4 VALUATION OF STOCK IS DONE AT COST OR AS PER M ARKET PRICE WHICHEVER IS LOWER. METHOD OF VALUATION IS THE SAME AS IN THE PRECEDING YEARS. THE STOCK IS VALUED AT COST, AS IT IS LESS THAN MARKET PRICE AND THE COST IS WORKED OUT BY TAKING AVERAGE OF OPENING STOCK + PURCHASE OF THE YEAR. AS THERE IS NO PURCHASE OF SI LVER DURING THE YEAR, THE AVERAGE COST OF OPENING STOCK IS TAKEN FOR THE VALUATION OF TOTAL STOCK. 1.5 THE ASSESSING OFFICER HAS VALUED THE SILVER GA IN ON ACCOUNT OF WASTAGE CHARGED WEIGHING..413.246 KG AT THE-MARKET RATE OF SILVER AS ON 31-03-2004 I.E. AT RS. 11,770/- PER KG AND ACCOR DINGLY MADE ADDITION OF RS. 21,07,5551- ON ACCOUNT OF UNDER VA LUATION OF STOCK OF SILVER. 1.6 THAT IN THE PRECEDING YEAR ALSO THE STOCK IS V ALUED AT AVERAGE COST METHOD WHICH IS RECOGNIZED METHOD OF VALUATION . THE WORKING ADOPTED BY THE ASSESSING OFFICER IN VALUING THE MET AL ADDITION AT MARKET PRICE AS ON 31-03-2004 IS TOTALLY UNACCEPTAB LE AS PER LAW AS BY THE METHOD ADOPTED BY ASSESSING OFFICER ONLY THE NOTIONAL PROFIT ARISE AS SILVER IS HIGHLY SPECULATIVE COMMODITY AND UNTIL UNLESS THE METAL IS SOLD IT CANNOT BE SAID THAT THERE IS ANY P ROFIT TO THE APPELLANT. IN THE YEAR UNDER CONSIDERATION SILVER WEIGHING 198 .356 KG HAS BEEN SOLD FOR RS, 23,33,619/- AND ACCORDINGLY THE SALE C ONSIDERATION HAS BEEN CREDITED TO THE TRADING ACCOUNT AS SALE OF SIL VER AND ACTUAL PROFIT HAS BEEN ACCOUNTED FOR. ITA NO. 262/AGRA/2011 4 1.7 THAT SECTION 145 DOES NOT LAY DOWN ANY SPECIFI C METHOD OF VALUATION OF CLOSING STOCK. ACCORDING TO SECTION 14 5 THE BUSINESS INCOME SHALL BE INCOME NORMALLY COMPUTED IN ACCORDA NCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED. AS ALREADY SUBMITTED ABOVE THE APPELLANT COMPANY HAS ADOPTED THE SAME ME THOD OF VALUATION IN THE YEAR UNDER CONSIDERATION AS HAS BE EN ADOPTED IN THE PRECEDING YEAR. HONBLE SUPREME COURT IN THE CASE O F CHAINRUP SAMPATRAM VS. CIT 24 ITR 481 AND IN THE CASE OF KIK A BHAI PREM CHAND VS. CIT 24 ITR 506 HAS HELD THAT IF ANY ACCOU NTING PRINCIPLE IS RECOGNIZED AND HAS BEEN ACCEPTED THAN THE STOCK VAL UED ACCORDING TO THAT METHOD IS TO BE ACCEPTED. 1.8 THAT THE OPTION TO ADOPT ANY SYSTEM OF ACCOUNT ING LIES WITH THE ASSESSEE. HONBLE SUPREME COURT IN THE CASE OF INVE STMENT LTD. VS. CIT 77 ITR 533 HAS HELD A TAX PAYER IS FREE TO EMP LOY FOR THE PURPOSE OF HIS TRADE HIS OWN METHOD OF KEEPING ACCO UNTS AND FOR THAT PURPOSE TO VALUE HIS STOCK IN TRADE EITHER AT COST OR MARKET PRICE. A METHOD OF ACCOUNTING ADOPTED BY THE TRADER CONSISTE NTLY AND REGULARLY CANNOT BE DISTURBED BY THE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPIN G ACCOUNT OR OF VALUATION. 1.9 HONBLE SUPREME COURT IN THE CASE OF CIT VS. B IHARILAL INVESTMENT (P) LTD. 168 TAXMANN 95 HAS HELD ASSESS EE COMPANY WAS SUBSCRIBING TO CHITS AS ITS BUSINESS ACTIVITY IN CONTEXT OF CHIT DISCOUNT IT WAS FOLLOWING COMPLETED CONTRACT METH OD OF ACCOUNTING WHICH WAS EARLIER ACCEPTED BY DEPARTMENT OVER SEVER AL YEARS FOR RELEVANT ASSESSMENT YEAR. ASSESSING OFFICER SUBSTIT UTED THAT METHOD BY DEFERRED REVENUE EXPENDITURE METHOD WHETHER SINC E IN PAST DEPARTMENT HAD ACCEPTED COMPLETED CONTRACT METHOD; ENTIRE EXERCISE ARISING OUT OF CHANGE OF METHOD FROM COMPLETED CONT RACT METHOD TO DEFERRED REVENUE EXPENDITURE WAS REVENUE NEUTRAL; A ND METHOD ADOPTED BY ASSESSEE DID NOT RESULT IN DISTORTION OF PROFITS, HIGH COURT WAS JUSTIFIED IN HOLDING THAT COMPLETED CONTRACT ME THOD OF ACCOUNTING ADOPTED BY ASSESSEE WAS VALID, AND THAT DEPARTMENT HAD ERRED IN SPREADING DISCOUNT OVER REMAINING PERIOD OF CHIT ON PROPORTIONATE BASIS HELD, YES. 1.10 HONBLE ALLAHABAD HIGH COURT IN THE CASE OF J UGGILAL KAMLAPAT BANKERS VS. CIT 101 ITR 40 HAS HELD, THE O PINION REGARDING ITA NO. 262/AGRA/2011 5 ADOPTION OF SYSTEM OF ACCOUNTING IS WITH THE ASSESS EE AND NOT WITH THE INCOME TAX DEPARTMENT. 1.11 HONBLE ALLAHABAD HIGH COURT IN THE CASE OF C IT VS. KISHORE BANDHU (P) LTD. 2008 (11) MTC 22 HAS HELD ACCOUNTS MAINTAINED ON PROJECT COMPLETION METHOD, A RECOGNIZED METHOD OF A CCOUNTING COULD NOT BE REJECTED. 1.12 THAT WITHOUT PREJUDICE TO THE SUBMISSION AS M ENTIONED ABOVE, IF THE METHOD OF VALUATION OF CLOSING STOCK ADOPTED BY THE ASSESSING OFFICER IS TAKEN,THOUGH NOT ADMITTED, THEN THE SAM E METHOD IS-TO BE ADOPTED IN THE OPENING STOCK ALSO. OPENING STOCK CA NNOT BE VALUED IN A DIFFERENT MANNER FROM THAT OF VALUATION OF CLOSIN G STOCK. IN SUPPORT OF THIS SUBMISSION THE APPELLANT RELY ON :- I) MELMOULD CORPORATION VS. CIT 202 ITR 789 (BOMBAY) UNDER SECTION 145 OF THE INCOME TAX ACT, 1961, THE ASSESSEE CAN ADOPT A METHOD OF VALUATION WHICH IS TO BE FOLLOWED BY IT REGULARLY. IT IS AN ACCEPTED PRINCIPLE OF ACCOUNTING THAT VALUE O F THE STOCK CAN BE DETERMINED AT COST PRICE OR MARKET PRICE, WHICHEVER IS LOWER. THE TWO PRINCIPLES APPLICABLE WITH REGARD TO THE VALUATION OF STOCK ARE THAT THE ASSESSEE IS ENTITLED TO VALUE THE CLOSING STOCK EIT HER AT COST OR MARKET PRICE VALUE, WHICHEVER IS LOWER, AND THAT THE CLOS ING STOCK MUST BE THE VALUE OF THE OPENING STOCK IN THE SUCCEEDING YE AR. IT, THUS, CLEAR THAT IRRESPECTIVE OF THE BASIS ADOPTED FOR VALUATIO N IN THE EARLIER YEARS, THE ASSESSEE HAS THE OPTION TO CHANGE THE ME THOD OF VALUATION OF CLOSING STOCK AT COST OR MARKET PRICE, WHICHEVER IS LOWER, PROVIDED THE CHANGE IS BONAFIDE AND FOLLOWED REGULARLY THERE AFTER. WHENEVER THERE IS A CHANGE IN THE METHOD OF VALUATION, THERE IS BOUND TO BE SOME DISTORTION IN THE CALCULATION OF PROFITS IN TH E YEAR IN WHICH THE CHANGE TAKES PLACE. BUT IF, THE CHANGE IS BROUGHT A BOUT BONAFIDE AND IS IN ACCORDANCE WITH THE NORMALLY ACCEPTED ACCOUNT ING PRACTICE, THERE IS NO REASON WHY SUCH A CHANGE SHOULD NOT BE PERMITTED. THE CHANGE HAS TO BE AFFECTED BY ADOPTING THE NEW METHO D FOR VALUING THE CLOSING STOCK WHICH WILL, IN ITS TURN, BECOME THE V ALUE OF THE OPENING STOCK OF THE NEXT YEAR. IF, INSTEAD, A PROCEDURE IS ADOPTED FOR CHANGING THE VALUE OF THE OPENING STOCK ALSO, IT WILL LEAD T O CHAIN REACTION OF CHANGES IN THE SENSE THAT THE CLOSING VALUE OF THE STOCK OF THE YEAR PRECEDING WILL ALSO HAVE TO CHANGE AND CORRESPONDIN GLY THE VALUE OF OPENING STOCK OF THAT YEAR AND SO ON. ITA NO. 262/AGRA/2011 6 II) CIT VS. BENGAL JUTE MILLS CO. LTD 107 CTR 34 (CALC UTTA) VALUATION CLOSING STOCK VALUE OF CLOSING STOCK O F ANY YEAR BECOMES THE VALUE OF OPENING STOCK OF THE NEXT YEAR THUS, WHERE THE ITO REVALUES THE CLOSING STOCK OF EARLIER YEARS AT THE MARKET RATE REJECTING ASSESSEES VALUATION, HE MUST ALSO VALUE THE OPENING STOCK IN A SIMILAR MANNER OTHERWISE, THE FIGURE OF PROFIT WILL GET HIGHLY DISTORTED WHICH IS BEYOND THE SCOPE OF CHARGING SEC TION 1. 13 THE INCREASE IN VALUATION OF CLOSING STOCK W ILL MAKE CONSEQUENTIAL CHANGE IN OPENING STOCK OF SUBSEQUENT YEAR WHICH WILL REDUCE THE PROFIT OF SUBSEQUENT YEAR AND THE TAX EF FECT FOR THE REVENUE WILL BE NIL. 1.14 THAT CONSIDERING THE SUBMISSION AND POSITION OF LAW THE VALUATION OF CLOSING STOCK BY ADOPTING AVERAGE COST METHOD AS HAS BEEN ADOPTED IN THE PRECEDING YEAR IS CORRECT AND S HOULD HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER SINCE IF THE WORK ING AS ADOPTED BY THE ASSESSING OFFICER IS TAKEN THAN THE APPELLANT C OMPANY WILL HAVE TO PAY TAXES ON NOTIONAL PROFIT AND NOT ON REAL PROFIT . IT IS PRAYED THAT THE APPEAL MAY KINDLY BE ALLOWED AS SUBMITTED ABOVE AND AS CLAIMED IN GROUNDS OF APPEAL. 2.3 THE LD. CIT(A), HOWEVER, CONSIDERING THE EXPLAN ATION OF THE ASSESSEE DISMISSED THE APPEAL OF THE ASSESSEE. HIS FINDINGS IN PARA 2.1 & 3 ARE REPRODUCED AS UNDER : 2.1 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSION MADE BY THE LD. AR. IT IS WELL SETTLED P RINCIPLE OF ACCOUNTING THAT VALUATION OF CLOSING STOCK HAS TO B E DONE EITHER BY APPLYING THE COST OR MARKET PRICE WHICH EVER IS LES S. IN THE CASE OF APPELLANT THE COST OF ACQUISITION IS ADMITTEDLY NIL AS THE SILVER GAIN HAS ACCRUED TO THE ASSESSEE WHILE PERFORMING JOB WO RK FOR OTHERS. IF THE VALUATION OF CLOSING STOCK IS TAKEN AT NIL THEN IT WILL LEAD TO ANOMALOUS SITUATION AS THE ASSESSEE HAS ITSELF VALU ED THE CLOSING AT RS.6670 PER KG. NOT WITHSTANDING THAT, THE SILVER G AIN WHICH HAS ACCRUED TO THE ASSESSEE IS ASSESSABLE AS PER SEC. 2 8(IV) OF THE ACT AS PER WHICH THE VALUE OF ANY BENEFIT OR PERQUISITE, W HETHER CONVERTIBLE ITA NO. 262/AGRA/2011 7 INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXE RCISE OF A PROFESSION SHALL BE CHARGEABLE TO THE INCOME TAX UN DER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. ADMI TTEDLY THE SILVER GAIN HAS ACCRUED TO THE APPELLANT DURING THE COURSE OF ITS BUSINESS OPERATIONS. THEREFORE, THE SILVER WHICH HAS NOT BEE N SOLD OR CONSUMED WILL FORM PART OF THE CLOSING STOCK AND THE SAME HA S TO BE VALUED AT MARKET PRICE AS ON THE LAST DAY OF THE FINANCIAL YE AR. THEREFORE, I AM OF THE OPINION THAT THE ADDITION HAS BEEN RIGHTLY B EEN MADE BY THE AO AND THE SAME IS UPHELD. GROUNDS ARE DISMISSED. 3 IN THE RESULT, APPEAL IS DISMISSED. 3. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND ALSO RELIED UPON THE JUDGMENT S CITED BEFORE THE LD. CIT(A) AS NOTED ABOVE. HE HAS SUBMITTED THAT APART FROM THE A SSESSEE BEING ENGAGED IN THE BUSINESS OF MANUFACTURING OF SILVER CHAINS AND COMP ONENTS, THE ASSESSEE COMPANY IS ALSO DOING JOB WORK FOR OTHERS AND OUT OF THE JO B WORK, THE ASSESSEE HAD GAINED SILVER AND THE AO HAD MADE NOTIONAL ADDITION FOR TH E SAME DESPITE NO PURCHASE HAS BEEN MADE BY THE ASSESSEE IN THE YEAR UNDER CONSIDE RATION. COPY OF TRADING AND PROFIT AND LOSS ACCOUNT IS FILED IN SUPPORT OF THE SAME. HE HAS ALSO SUBMITTED THAT THE ASSESSEE CONSISTENTLY FOLLOWED THE SAME METHOD OF ACCOUNTING OF VALUING THE GAINED SILVER, IN WHICH NO DEFECTS HAVE BEEN POINTE D AND WHENEVER SUCH GAINED SILVER WAS SOLD, IT WAS OFFERED FOR TAXATION. HE S UBMITTED THAT IF THE VALUATION OF CLOSING STOCK AS PER THE ASSESSEE IS TAKEN AND THAT THE STOCK IS SOLD SUBSEQUENTLY, THE DIFFERENCE WOULD BE SUBJECTED TO TAX AT HIGHER RATE AND THE REVENUE WOULD NOT BE AT LOSS AT ALL. THEREFORE, EITHER THE VALUATION OF CLOSING STOCK IS TAKEN AT HIGHER ITA NO. 262/AGRA/2011 8 RATE OR THE SALES HAVE BEEN SHOWN AT HIGHER PRICE, WOULD NOT MAKE ANY DIFFERENCE. HE SUBMITTED THAT THE ASSESSEE GAINED SILVER WHILE DOING THE JOB WORK AND NO ACTUAL PROFIT IS EARNED BY THE ASSESSEE OUT OF THAT TRANSACTION. THEREFORE, NO NOTIONAL GAIN SHOULD BE SUBJECTED TO TAX AS DONE BY THE AO IN THE NAME OF UNDERVALUATION OF THE CLOSING STOCK. HE HAS ALSO RE LIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF A.L.A. FIRM VS . CIT, 189 ITR 285 IN WHICH IT WAS HELD THAT CLOSING STOCK SHOULD BE VALUED AT COST OR AT MARKET VALUE WHICHEVER IS LOWER. HE HAS SUBMITTED THAT SINCE THE COST OF T HE GAINED SILVER IS NIL, THEREFORE, METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE CONSI STENTLY SHOULD NOT BE DISTURBED IN THE YEAR UNDER CONSIDERATION, WHICH WO ULD ULTIMATELY THE OPENING STOCK IN THE NEXT YEAR. 4. ON THE OTHER HAND, THE LD. DR RELIED UPON THE OR DERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE DID NOT MAKE PURCHA SE OF SILVER, BUT WHILE DOING THE JOB WORK, THE ASSESSEE HAD GAINED THE SILVER. S O, IT SHOULD BE VALUED AT COST OR MARKET PRICE WHICHEVER IS LOWER. THEREFORE, THE AO HAS TAKEN THE MARKET VALUE CORRECTLY AND AS SUCH, THE ADDITION IS JUSTIFIED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE DID NOT MAKE PURCH ASE OF SILVER DURING THE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE HAD GAIN ED THE SILVER WHILE DOING JOB ITA NO. 262/AGRA/2011 9 WORK FOR OTHERS, PART OF WHICH WAS SOLD AND THE BAL ANCE WAS TAKEN AS PART OF THE CLOSING STOCK. THUS, THE ASSESSEE IS JUSTIFIED IN C ONTENDING THAT THE COST IN THE HANDS OF THE ASSESSEE OF GAINED SILVER WAS NIL. THE ASSES SEE FOLLOWED THE SAME METHOD OF ACCOUNTING OF CLOSING STOCK OF GAINED SILVER IN EAR LIER YEARS AS WELL AS IN ASSESSMENT UNDER APPEAL. IT IS WELL SETTLED LAW THA T WHENEVER THE CLOSING STOCK IS DISTURBED, IT WOULD ENHANCE THE OPENING STOCK OF TH E NEXT YEAR. THE ASSESSEE HAD BEEN CONSISTENTLY FOLLOWING THE SAME METHOD OF ACCO UNTING AND THE NOTIONAL VALUE OF THE GAINED SILVER WAS TAKEN. THEREFORE, ON SUCH NOTIONAL VALUE, THE AO SHOULD NOT HAVE PRESUMED PROFIT BECAUSE ULTIMATELY, THE AS SESSEE HAD BEEN SELLING SUCH GAINED SILVER PERIODICALLY AND WHENEVER THE SALE IS MADE, THE DIFFERENCE IN THE STOCK PRICE AND SALE WAS OFFERED FOR TAXATION. IN T HAT EVENT, THE ASSESSEE WOULD BE SHOWING MORE PROFIT AS AGAINST THE VALUATION ADOPTE D BY THE AO. MOREOVER, IF THE CLOSING STOCK VALUATION IS ENHANCED, IT WOULD AFFEC T THE OPENING STOCK OF THE NEXT YEAR AND REVENUE WOULD NOT GET ANYTHING OUT OF THE SAME. IT IS ALSO WELL SETTLED LAW THAT NOTIONAL INCOME SHOULD NOT BE SUBJECTED TO TAX AND ONLY THE REAL INCOME SHOULD BE BROUGHT TO TAX. AO HAS NOT DISPUTED THE S ALE MADE BY THE ASSESSEE OF GAINED SILVER. THEREFORE, METHOD OF ACCOUNTING ADOP TED BY THE ASSESSEE CONSISTENTLY, SHOULD NOT HAVE BEEN DISTURBED BY THE AO WITHOUT ANY JUST CAUSE / REASON. THE DECISION CITED BY THE LD. COUNSEL FOR T HE ASSESSEE, THUS, CLEARLY SUPPORT THE CASE OF THE ASSESSEE THAT THE ADDITION IS UNJUS TIFIED IN THE MATTER. CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES ABOVE, PART ICULARLY WHEN NO PURCHASE WAS ITA NO. 262/AGRA/2011 10 MADE BY THE ASSESSEE AND ASSESSEE ADOPTED SAME METH OD OF ACCOUNTING OF VALUATION OF GAINED SILVER CONSISTENTLY IN EARLIER YEARS AS WELL AS IN THE YEAR UNDER APPEAL, WE ARE OF THE VIEW THAT THE AUTHORITIES BEL OW SHOULD NOT HAVE MADE ADDITION ON NOTIONAL BASIS TREATING IT TO BE UNDER VALUATION OF SILVER GAINED. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND D ELETE THE ENTIRE ADDITION. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A.L. GEHLOT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY