RAJEEV SHETH , MUMBAI V. ITO 16(2)(4), MUMBAI

ITA 2663/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9113 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2001-2002
• Appeal Filed On: 01-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 2663/MUM/2018 ASSESSMENT YEAR: 2001 - 02 MR. RAJEEV SHETH, 37/A, VILLA RAMONA, NEPEANSEA ROAD, MUMBAI - 400036. VS. INCOME TAX OFFICER - 16(2)(4), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. PAN NO. AAFPS7760Q APPELLANT RESPONDENT ASSESSEE BY : NONE REVENUE BY : MS. JOTHI L AKSHMI NAYAK, DR DATE OF HEARING : 25/09/2019 DATE OF PRONOUNCEMENT : 30/09/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2001 - 02. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX - 7, MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THOUGH THE CASE WAS FIXED FOR HEARING ON 16.05.2019 AND 25.09.2019, NEITHER THE ASSESSEE NOR HIS AUTHORIZED REPRESENTATIVE APPEARE D BEFORE THE TRIBUNAL ON THE ABOVE DATES. AS THERE IS REPEATED RAJEEV SHETH ITA NO. 2663/MUM/218 2 NON - COMPLIANCE BY THE ASSESSEE, WE ARE PROCEEDING TO DISPOSE OFF THIS APPEAL AFTER HEARING THE LD. DR AND PERUSING THE RELEVANT MATERIALS ON RECORD. 3. THE GROUND OF APPEAL FILED BY THE ASSESS EE READS AS UNDER : THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN CONSIDERING INCREMENTA L CLOSING STOCK FOR MATCHING GP RATIO WITH PRECEDING YEAR. THE DETAILS PERTAINING TO VALUATION OF CLOSING STOCK COMPRISING OF PRICES OF HIGH AND LOW QUALITY DIAMONDS W ERE FURNISHED BEFORE ASSESSING OFFICER. THE CLOSING STOCK COMPRISE S MAINLY OF LOW QUALITY DIAMONDS AND HENCE, WAS VALUED ACCORDINGLY. THE ADDITION BY THE ASSESSING OFFICER ON ESTIMATION BASIS IS BAD IN LAW JUST TO MATCH THE GP RATIO FOR EARLIER YEAR. 4. B RIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2001 - 02 ON 30.10.2001 DECLARING INCOME OF RS.66,54,100/ - . THE ASSESSEE IS PROPRIETOR OF M/S DIVYA JEWELS, WHICH IS IN THE BUSINESS OF 100% EXPORT OF CUT AND POLISHED DIAMONDS. DURING THE IMPUGNED ASSESSMENT YEAR, AS OBSERVED BY THE AO THE GP MARGIN WORKED OUT TO 7.93% AS AGAINST 17.09% FOR THE PREVIOUS ASSESSMENT YEAR. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE AO NOTICED THAT THE ASSESSEE HAS STATED THE VALUE OF CLOSING STOCK TO BE TAKEN AT AVERAGE RATE IN RESPECT OF EACH ITEM OF DIAMONDS LYING IN THE STOCK. HE ASKED THE ASSESSEE TO FURNISH THE METHOD AND WORKING OF AVERAGE RATE OF EACH ITEM AND ALSO TO SUPPORT IT BY DOCUMENTARY EVIDENCE. HOWEVER, THE ASSESSEE NEITHER FILED THE WORKING OF THE CLOSING STOCK OF EACH ITEM NOR FURNISHED ANY EVIDENCE TO JUSTIFY THE VALUATION ADOPTED. THE AO WORKED OUT THE GROSS PROFIT RATIO OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AS A PROPORTION OF PURCHASES PLUS TRADING RAJEEV SHETH ITA NO. 2663/MUM/218 3 EXPENSES TO SALE PER CARAT WHICH WORKED OUT TO 16%. THUS BY ADOPTING GP FOR THE YEAR AT 16%, THE AO MADE AN ADDITION OF RS.31,42,458/ - . 5. IN APPEAL, THE LD. CIT(A) HELD : 6.2 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER OF THE AO O N THE ISSUE AND THE AFORESAID WRITTEN SUBMISSIONS OF THE ASSESSEE. THE FIGURES OF OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK OF THE ASSESSEE'S BUSINESS FOR THE RELEVANT PERIOD OF THE YEAR ARE AS FOLLOWS: ITEMS (RS.) QTY. D ETAILS I N CARATS AMOUNT (RS.) AVERAGE COST P ER CARAT OPENING STOCK NIL NIL NIL PURCHASES 7060,74 4,23,26,465 5994.62 SALES 5519.89 4,10,94,104 7444.73 CLOSING STOCK 1540.85 61,02,905 3960.73 FROM THE ABOVE TABLE, IT WAS SEEN BY THE AO THAT THE AVERAGE PURCHASE COST OF CUT AND POLISHED DIAMOND WORKED OUT AT RS.5994.62 PER CARAT, WHEREAS THE CLOSING STOCK IS VALUED AT MUCH LOWER FIGURE OF RS.3960.73 PER CARAT WHICH CLEARLY SHOWS THAT VALUATION O F CLOSING STOCK WAS NOT PROPER AND IT WAS UNDERVALUED. IT IS A SETTLED POSITION OF L AW THAT THE CLOSING STOCK HAS TO BE VALUED AT COST OR MARKET PRICE, WHICHEVER IS LESS. THE BURDEN OF PROVING THAT THE CLOSING STOCK HAS BEEN VALUED EITHER AT COST OR MARKET PRICE IS ON THE ASSESSES. THE ASSESSEE HAS FAILED AT THE ASSESSMENT STAGE AS WELL AS DURING THE APPELLATE PROCEEDINGS TO ADDUCE ANY EXPLANATION WITH THE HELP OF DOCUMENTARY EVIDENCE TO PROVE THAT THE VALUATION OF CLOSING STOCK DONE BY HIM WAS CORRECT. THE AO, THEREFORE, ESTIMATED THE VALUE OF CLOSING STOCK AFTER OBSERVING THAT THE GROSS PROFIT MARGIN SHOWN BY THE ASSESSEE DURING THE YEAR WAS 7.93% AS COMPARED TO 17.09% OF EARLIER YEAR. THE AO WORKED OUT THE REVISED GP @ 16% OF THE SALES OF RS.4,10,94,104/ - AT RS.65,75,056/ - . THE GP RAJEEV SHETH ITA NO. 2663/MUM/218 4 SHOWN BY THE ASSESSEE BEING RS.34,32,598/, THE DIFFERENCE WAS CALCULATED AT RS.31,42,458/ - . THUS THE DOSING STOCK OF RS.61,02,905/ - SHOWN CALCULATED AT RS.31,42,458/ - . THUS THE CLOSING STOCK OF RS.61,02,905/ - SHOWN BY THE ASSESSEE WAS INCREASED AFTER ADDING THE ABOVE DIFFERENCE IN G.P OF RS31,42,458/ - TO RS.92,45,363/ - . DURING THE APPELLATE PROCEEDINGS, THE AFORESAID WRITTEN SUBMISSIONS OF THE ASSESSEE CONSISTING OF 6 PAGES WERE FORWARDED TO THE A O VIDE THIS OFFICE LETTER DATED 31. 01.2006 TO RE - EXAMINE THE ISSUE OF VALUATION OF CLOSING STOCK IN THE LIGHT OF THE AFORESAID SUBMISSIONS OF THE ASSESSE E . AFTER SEVERAL REMINDERS, THE AO HAS SUBMITTED A LETTER DATED 11.12.2018 STATING THAT THE RECORDS WERE NOT AVAILABLE. IT MAY BE MENTIONE D HERE AT THE COST OF REPETITION THAT EVEN DURING THE APPELLATE PROCEEDINGS NO DOCUMENTARY EVIDENCE HAS BEEN SUBMITTED BY THE ASSESSEE TO JUSTIFY VALUATION OF CLOSING STOCK DONE BY HIM. IN VIEW OF THE ABOVE, SINCE THE APPELLANT HAS NOT SUBMITTED ANY DOCUME NTARY EVIDENCE, TO ESTABLISH THAT THE AO WAS NOT CORRECT IN ESTIMATING THE G.P AND THE AO HAVING BASED HIS ESTIMATION ON FIGURES PROVIDED BY THE ASSESSEE ONLY, I DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE AO MAKING AN ADDITION OF RS.31,42,458 / - TO THE CLOSING STOCK: THUS, THE ADDITION OF RS.31,42,458/ - MADE BY THE AO IS CONFIRMED. 6 . BEFORE US, THE LD. DR SUBMITS THAT THE ADDITION OF RS.31,42,458/ - MADE BY THE AO AND THEN CONFIRMED BY THE LD. CIT(A) BE UPHELD. 7 . WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVANT MATERIALS ON RECORD. AS RECORDED BY THE AO THE VALUATION OF CLOSING STOCK BY THE ASSESSEE IS NOT SUPPORTED BY DOCUMENTARY EVIDENCE. WE FIND THAT EVEN DURING THE HEARING BEFORE THE CIT(A) THE ASSESSEE COULD NOT FILE ANY DOCUMENTARY EVID ENCE TO JUSTIFY THE VALUATION OF CLOSING STOCK DONE BY HIM. THERE IS NO DISPUTE THAT VALUATION OF CLOSING STOCK IS TO BE SUPPORTED BY DOCUMENTS. IT CANNOT BE ARBITRARILY VALUED. RAJEEV SHETH ITA NO. 2663/MUM/218 5 IN VIEW OF THE ABOVE FACTS, WE UPHOLD THE ORDER OF THE LD. CIT(A). 8 . IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/09/2019. SD/ - SD/ - ( C.N. PRASAD ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 30/09/2019 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI