The ACIT.Central Circle-2, Surat V. Shri Sharad Mohanlal Shah, Surat

ITA 2877/AHD/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5756 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 06-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGADISH

Judgement Text

, *CH* *CH**CH* *CH* IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD LOZJH IZNHI DQEKJ DSFM;K] YS[KK LNL; ,OA EGKOHN IZL KN] LOZJH IZNHI DQEKJ DSFM;K] YS[KK LNL; ,OA EGKOHN IZL KN] LOZJH IZNHI DQEKJ DSFM;K] YS[KK LNL; ,OA EGKOHN IZL KN] LOZJH IZNHI DQEKJ DSFM;K] YS[KK LNL; ,OA EGKOHN IZL KN] U;KF;D LNL; DS LE{KA U;KF;D LNL; DS LE{KA U;KF;D LNL; DS LE{KA U;KF;D LNL; DS LE{KA BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO. 2877/AHD/2013 ( / ASSESSMENT YEAR : 2010-11) ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, ROOM NO.504, 5 TH FLOOR, AAYAKAR BHAVAN, MAJURAGATE, SURAT / VS. SHRI SHARAD MOHANLAL SHAH, PROP. OF KALAMANDIR JEWELLERS, AT & POST KOSAMBA, STATION ROAD, KOSAMBA. ./ ./ PAN/GIR NO. : AFSPS 3085 A ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI JAGADISH, CIT D.R. / RESPONDENT BY : SHRI MEHUL SHAH, A.R. / DATE OF HEARING 21/03/2017 !'# / DATE OF PRONOUNCEMENT 30/05/2017 $% / O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-II, AHMEDABAD, DATED 18/09/2013 FOR THE ASSESSMENT YEAR (AY) 2010-11. ITA NO.2877/AHD /2013 ACIT VS. SHRI SHARAD MOHANLAL SHAH ASST.YEAR 2010-11 - 2 - 2. REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEA L: THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.7,10,49,787/- MADE ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- THE AO NOTICED DURING COURSE OF ASSESSMENT PROCEEDI NGS THAT THE ASSESSEE WAS VALUING ITS CLOSING STOCK MUCH BELOW T HE AVERAGE (PURCHASE) COST PRICE OF GOLD. ON VERIFICATION OF T HE 3CD REPORT ALONGWITH RETURN OF INCOME THAT THE ASSESSEE WAS CL AIMING TO FOLLOW LIFO METHOD FOR CLOSING STOCK VALUATION. HOWEVER, T HE ASSESSEE WAS VALUING ITS CLOSING STOCK ON THE BASIS OF AVERAGE C OST PRICE. IT WAS ALSO NOTICED IN THE AUDIT REPORT THAT NO STOCK-REGISTER WAS MAINTAINED OR EXAMINED BY THE AUDITOR. IN THIS MATTER, VIDE SHOW- CAUSE NOTICE, THE ASSESSEE WAS ASKED TO EXPLAIN VARIOUS DISCREPANCIES NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HOWEVER, THE ASSE SSEE HAS FILED HIS REPLY WHICH WAS NOT ACCEPTABLE FOR THE REASONS THAT THE ASSESSEE HAS NOT FOLLOWED THE ACCOUNTING METHOD OF VALUATION OF CLOS ING STOCK AS PER INCOME TAX ACT. THE ASSESSEE IN HIS REPLY STATED TH AT HE IS FOLLOWING LIFO METHOD OF STOCK VALUATION CONSISTENTLY FOR THE LAST MORE THAN FIVE YEARS. LIFO STANDS FOR LAST-IN, FIRST-OUT, ASSUMING THAT THE MOST RECENTLY PRODUCED ITEMS ARE RECORDED AS SOLD FIRST. THE ASSE SSEE IS DEALING IN THE ITEMS OF GOLD IN WHICH THE PRICE OF THE GOLD HAS ST EADILY AND CONSISTENTLY GONE UP OVER THE TIME. THE VALUATION OF STOCK BY FO LLOWING THE METHOD OF ITA NO.2877/AHD /2013 ACIT VS. SHRI SHARAD MOHANLAL SHAH ASST.YEAR 2010-11 - 3 - LIFO AND VALUING IT AT THE RATE OF PURCHASE PRICE O F OPENING-STOCK HAS LEAD TO SUPPRESSION OF THE STOCK AND THEREBY DISTOR TING THE TRUE PROFIT OF THE ASSESSEE. THEREFORE, THE ADDITION OF RS.7,10,49 ,787/- WAS MADE ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. 4. BEING AGGRIEVED, THE ASSESSEE HAS FILED AN APPEA L BEFORE THE CIT(A)-II, AHMEDABAD AGAINST THE SAID ADDITION. T HE LD CIT(A)-II HAS DELETED THE ADDITION MADE BY THE AO. 4.1. THE DECISION OF THE CIT(A) IS NOT ACCEPTABLE F OR THE REASONS THAT THE ASSESSEE WAS VALUING ITS CLOSING STOCK MUCH BEL OW THE AVERAGE (PURCHASE) COST PRICE OF GOLD WHICH RESULTED IN SUP PRESSION OF CLOSING STOCK. THE ASSESSEE HAS STATED IN HIS REPLY THAT HE IS FOLLOWING LIFO METHOD CONSISTENTLY OVER THE YEARS. 4.2. AS PER THE DEPARTMENT ON PERUSAL OF THE ACCOUN TING STANDARD(AS- 2), FIFO IS THE MOST APPROPRIATE METHOD FOR VALUATI ON OF STOCK AS THERE ARE LARGE NUMBERS OF ITEMS OF INVENTORY WHICH ARE O RDINARILY INTERCHANGEABLE, SPECIFIC IDENTIFICATION OF COSTS I S INAPPROPRIATE SINCE, IN SUCH CIRCUMSTANCES, AN ENTERPRISE COULD OBTAIN PRED ETERMINED EFFECTS ON THE NET PROFIT OR LOSS. THE ASSESSEE STATED THAT HE IS FOLLOWING LIFO METHOD OF STOCK VALUATION FOR THE LAST 5 YEARS BUT SAME WAS NOT MAINTAINABLE BECAUSE OF THE FACTS THAT THE ASSESSEE NOT MAINTAINED STOCK ITA NO.2877/AHD /2013 ACIT VS. SHRI SHARAD MOHANLAL SHAH ASST.YEAR 2010-11 - 4 - REGISTER NOR HAS THE STOCK-REGISTER BEEN EXAMINED/V ERIFIED BY THE AUDITOR. THE STOCK REGISTER HAS NOT BEEN MAINTAINED AS CLEAR AND CORROBORATE FROM THE AUDIT REPORT. NO COST-AUDIT HAS BEEN CARRIED OU T IN THIS CASE, IT CANNOT BE POSSIBLE OR FEASIBLE TO ARRIVE AT THE STOCK QUAN TIFICATION. THE AUDITOR HAS NOT SPECIFIED AS TO HOW HE HAS ARRIVED AT THE D ETAILS OF THE QUANTITY OF STOCK IN THE ABSENCE OF STOCK REGISTER. THE ANNEXUR E TO AUDIT REPORT DOES NOT SPECIFY AS TO WHAT IS THE BASIS OF ARRIVING AT QUANTITATIVE DETAILS OF PRINCIPAL ITEMS, IN ABSENCE OF STOCK REGISTER. 4.3. THE ASSESSEE HAS FURTHER PLEADED THAT IN THE A .Y. 2007-08, THE ADDITION ON THE BASIS OF STOCK VALUATION WAS MADE B Y THE AO ON THE SAME ISSUE BUT THE LEARNED CIT(A) HAD ALSO ACCEPTED THE LIFO METHOD AND THE ADDITIONS WERE DELETED BY THE CIT(A) AS WELL AS ITA T. 5. WE HAVE PERUSAL OF RECORD AND GONE THROUGH THE I MPUGNED ORDER AND HEARD RIVAL SUBMISSION. LEARNED AR CITED AN ORD ER OF THE ALLAHABAD TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2007-0 8 IN ITA NO.2496/AHD/2010, OPERATIVE PARA IS REPRODUCED AS B ELOW: WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD ALONG WITH THE ORDER OF THE AUT HORITIES BELOW AS WELL AS THE PAPER BOOK SUBMITTED BY THE ASSESSEE. A S ARGUED BY THE LEARNED AR AND ACCEPTED BY THE LEARNED CIT(A), THE ASSESSEE IS AT LIBERTY TO VALUE THE CLOSING STOCK IN ANY PARTICULA R ACCEPTABLE METHOD. LIFO, BEING ONE SUCH METHOD, THE ASSESSEE MAY ADOPT SUCH METHOD IN ITA NO.2877/AHD /2013 ACIT VS. SHRI SHARAD MOHANLAL SHAH ASST.YEAR 2010-11 - 5 - VALUING THE CLOSING STOCK, PROVIDED THE RULE OF CON SISTENCY IS MAINTAINED. THIS VIEW IF FORTIFIED BY THE DECISIONS CITED BY THE LEARNED AR SUPRA. HOWEVER, THE LEARNED CIT(A) HAS HELD THAT CERTAIN PORTION OF STOCK DECLARED AT THE TIME OF SURVEY REMAINED UNSOL D AND THEREBY BECAME A PART OF CLOSING STOCK AND ACCORDINGLY, ADO PTED THE RATE AT RS.962/- PER GRAM FOR THE STOCK OF 4362.580 GRAMS. THIS ASPECT IS DISPUTED BY THE LEARNED AR. THEREFORE, IN THE INTER EST OF JUSTICE, WE REMIT THIS ISSUE BACK TO THE FILE OF THE LEARNED AO FOR VERIFYING THE COMPUTATION OF THE CLOSING STOCK BASED ON LIFO METH OD AND FURTHER HOLD THAT THE VALUATION OF CLOSING STOCK ADOPTING L IFO METHOD WHICH IS CONSISTENTLY FOLLOWED BY THE ASSESSEE SHALL BE ACCE PTED BY THE REVENUE. IT IS ORDERED ACCORDINGLY. 5.1 APPELLANT HAS ALSO PLACED RELIANCE ON THE DECIS ION OF DCIT VS. HARJIVANDAS H. ZAVERI (1998) 60 TTJ (AHD) 155 WHE REIN LIFO METHOD CONSISTENTLY FOLLOWED BY THE ASSESSEE WAS UPHELD AN D ADDITION MADE ON THAT BASIS WAS DELETED. THE APPELLANT HAS ALSO PLAC E RELIANCE ON DECISION OF HONBLE ITAT, HYDERABAD IN THE CASE OF RAMESH CH AND JEWELLERS VS. ITO IN ITA NO. 63 TO 65/HYD/2006, WHEREIN HONBLE I TAT HAD OBSERVED THAT THE LIFO METHOD ADOPTED CONSISTENTLY BY THE AS SESSEE WAS ACCEPTED BY THE DEPARTMENT THROUGHOUT IN THE PAST YEARS AND THEREFORE ACCORDINGLY TRADING ADDITIONS MADE FOR THE THREE YEARS WERE NOT JUSTIFIED AND ACCORDINGLY DELETED. IN VIEW OF THIS, CONSIDERING T HE FACTS OF THE CASE, I DO NOT SEE ANY REASON AND JUSTIFICATION ON THE PART OF THE AO TO DISTURB THE CONSISTENTLY FOLLOWED METHOD OF VALUATION OF ST OCK I.E. LIFO METHOD MADE THE ADDITION SIMPLY ON THIS COUNT ITSELF. ITA NO.2877/AHD /2013 ACIT VS. SHRI SHARAD MOHANLAL SHAH ASST.YEAR 2010-11 - 6 - 6. RESPECTFULLY, FOLLOWING OUR OWN TRIBUNALS JUDGM ENT, WE DO NOT FIND ANY INFIRMITY OR INCONSISTENTLY IN THE ORDER P ASSED BY THE LEARNED CIT(A). THEREFORE, WE DISMISS THE APPEAL OF THE REV ENUE. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 30/05/2017 SD/- SD/- IZNHI DQEKJ DSFM;K IZNHI DQEKJ DSFM;K IZNHI DQEKJ DSFM;K IZNHI DQEKJ DSFM;K EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN YKS[KK LNL; U;KF;D LNL; YKS[KK LNL; U;KF;D L NL; YKS[KK LNL; U;KF;D L NL; YKS[KK LNL; U;KF;D L NL; (PRADIP KUMAR KEDIA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 30/05/2017 PRITI YADAV, SR.PS !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. & '( ) / CONCERNED CIT 4. ) () / THE CIT(A)-II, AHMEDABAD. 5. ,-. //'( , '(# , 12$&$ / DR, ITAT, AHMEDABAD 6. .34 5 / GUARD FILE. % & / BY ORDER, , / //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY