Bhima Jewellers, Calicut V. The Jt CIT, Calicut

ITA 340/COCH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68985 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 27-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: R KRISHNAN

Judgement Text

1 ITA NO. 340/COCH/2013 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 340/COCH/2013 (ASSESSMENT YEAR 2009-10) BHIMA JEWELLERS VS THE JT CIT, RANGE-1 JAFFERKHAN COLONY ROAD CALICUT CALICUT PAN : AADFB4074G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R KRISHNAN RESPONDENT BY : SMT.S VIJAYAPRABHA DATE OF HEARING : 06-08-2013 DATE OF PRONOUNCEMENT : 27-09-2013 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A), KOZHIKODE DATED 13-03-2013 AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS ADDIT ION OF RS.66,02,494 TOWARDS CLOSING STOCK. 3. SHRI R KRISHNAN, THE LD.REPRESENTATIVE FOR THE A SSESSEE SUBMITTED THAT THE ASSESSEE IS FOLLOWING A REGULAR METHOD FOR VALUING THE CLOSING 2 ITA NO. 340/COCH/2013 STOCK CONSISTENTLY. ACCORDING TO THE LD.REPRESENTA TIVE, THE ASSESSEE IS ENGAGED ITSELF IN THE RETAIL BUSINESS OF JEWELLERY. ACCORDING TO THE LD.REPRESENTATIVE, IN THE CASE OF NEW GOLD ORNAMENT S, STANDARD GOLD AND ALLOY ARE REQUIRED FOR MANUFACTURING JEWELLERY. IN RESPECT OF OLD GOLD PURCHASED, ACCORDING TO THE LD.REPRESENTATIVE, IT W AS SENT TO THE MINT FOR PURIFICATION AND AFTER PURIFICATION WHAT WAS RECEIV ED IS STANDARD GOLD. AFTER RECEIPT OF STANDARD GOLD, THE REQUIRED QUANTITY OF ALLOY IS MIXED TO THAT WHILE MANUFACTURING GOLD JEWELLERY. THEREFORE, IN RESPEC T OF OLD GOLD ALSO WHEN THE ASSESSEE SENDS THE SAME FOR PURIFICATION AFTER REDUCTION OF THE WEIGHT OF ALLOYS, WHAT WAS RETURNED TO THE ASSESSEE IS THE GOLD IN THE FORM OF STANDARD GOLD. HOWEVER, THE ASSESSING OFFICER HAS NOT TAKEN INTO CONSIDERATION THE WEIGHT OF ALLOY WHICH WAS MIXED W ITH STANDARD GOLD OBTAINED ON PURIFICATION OF THE OLD GOLD. THE LD.R EPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT COST OF PURIFICATION, MANUF ACTURE AND COST OF ALLOY THAT IS REQUIRED TO BE ADDED TO THE VALUE OF THE GO LD JEWELLERY ARE TO BE ADDED TO THE COST OF GOLD JEWELLERY. EVEN THOUGH T HE COST OF ALLOY IS NEGLIGIBLE, WHEN IT IS MIXED WITH STANDARD GOLD FOR MANUFACTURING JEWELLERY, THE COST OF ALLOY ALSO WOULD BE VALUED AS THAT OF G OLD. THERE IS NO VALUE FOR THE ALLOY WHEN IT IS MIXED WITH GOLD FOR CONVERTING THE SAME INTO GOLD JEWELLERY AS IT IS TAKEN AS THE WEIGHT OF GOLD. AC CORDING TO THE LD.REPRESENTATIVE, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS DEDUCTED ONLY THE WASTAGE AND NOT THE PURIFICATION LOSS. ACCORDING TO THE 3 ITA NO. 340/COCH/2013 LD.REPRESENTATIVE, THERE IS NO PURIFICATION LOSS SI NCE THE QUANTITY REDUCED IN THE PROCESS OF PURIFICATION WAS REGAINED BY ADDING ALLOY AT THE TIME OF MANUFACTURING GOLD JEWELLERY. THEREFORE, THERE I S NO QUESTION OF ADDING ANY PURIFICATION LOSS. 4. THE LD.REPRESENTATIVE HAS PLACED RELIANCE ON THE JUDGMENT OF THE APEX COURT IN CIT VS BRITISH PAINTS INDIA LTD (1991 ) 188 ITR 44 (SC) AND SUBMITTED THAT WHEN THE ASSESSEE WAS FOLLOWING CONS ISTENT METHOD FOR VALUING THE STOCK, THE SAME CANNOT BE DISTURBED. T HE LD.REPRESENTATIVE HAS ALSO PLACED RELIANCE ON THE JUDGMENT OF THE APE X COURT IN THE CASE OF UNITED COMMERCIAL BANK VS CIT 240 ITR 355 (SC) AND SANJEEV WOOLEN MILLS VS CIT 279 ITR 434 (SC). THE LD.REPRESENTATI VE HAS FURTHER PLACED RELIANCE ON THE JUDGMENT OF THE APEX COURT IN THE C ASE OF CIT VS BILAHARI INVESTMENT PVT TD 299 ITR 1 (SC) AND CIT VS REALEST BUILDERS AND SERVICES LTD 307 ITR 202 (SC). 5. ON THE CONTRARY, SMT. S VIJAYAPRABHYA, THE LD.DR SUBMITTED THAT AT THE TIME OF VALUATION, THE ASSESSEE HAS CONSIDERED WASTAGE ALONE. THE PURIFICATION LOSS WAS NOT CONSIDERED. ACCORDING TO THE LD.DR, WHEN THE ASSESSEE PURCHASED OLD JEWELLERY, IT HAS TO BE PURI FIED BEFORE CONVERTING THE SAME INTO GOLD JEWELLERY. IN THAT PROCESS, THE ASSESSEE HAS TO DEFINITELY SUFFER LOSS; THAT PURIFICATION LOSS WAS NOT CONSIDERED. THEREFORE, THERE WAS AN UNDER VALUATION TO THE EXTENT OF RS.66 ,02,494. HENCE, THE CIT(A) HAS RIGHTY CONFIRMED THE ADDITION MADE BY TH E ASSESSING OFFICER. 4 ITA NO. 340/COCH/2013 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ONLY ISSUE ARISES FOR CONSIDERATION IS WHETHER THE PURIFICATION LOSS SAID TO BE SUFFERED BY THE ASSESSEE IS TO BE DEDUCTED AT THE TIME OF VALUATION OF THE CLOSING STOCK OR NOT? IT IS COMMON KNOWLEDGE THAT WHENEVER A JEWELL ER PURCHASES OLD JEWELLERY, THE IMPURITY AND WASTAGES WILL BE DEDUCT ED AND THEREAFTER DETERMINES THE PURCHASE VALUE. THEREFORE, THE PURI TY LOSS OR IMPURITY HAS BEEN DETERMINED EVEN AT THE TIME OF INITIAL PURCHAS E FROM THE RESPECTIVE CUSTOMER. EVEN OTHERWISE, WHEN THE ASSESSEE SENDS THE GOLD ORNAMENT FOR PURIFICATION, AS RIGHTLY SUBMITTED BY THE LD.RE PRESENTATIVE FOR THE ASSESSEE, IT WAS RETURNED TO THE ASSESSEE IN THE FO RM OF STANDARD GOLD WITH 99.99% PURITY. THIS HAS TO BE CONVERTED INTO 91.6% PURE GOLD AT THE TIME OF MAKING JEWELLERY. IN THAT PROCESS, THE ASSESSEE HAS TO NECESSARILY ADD ALLOY TO THE PURE GOLD. IT IS ALSO COMMON KNOWLEDG E THAT THE ALLOY WHICH WAS ADDED TO THE GOLD FOR MAKING JEWELLERY IS ALSO SOLD AT THE COST OF THE GOLD. THEREFORE, EVEN THOUGH THE COST OF ALLOY IS NEGLIGIBLE, THE ALLOY WOULD COST AS THAT OF GOLD BECAUSE IT IS MIXED WITH GOLD WHILE CONVERTING THE PURE GOLD INTO JEWELLERY. 7. IT IS WELL SETTLED PRINCIPLES OF LAW THAT THE CL OSING STOCK HAS TO BE VALUED AT THE COST PRICE OR MARKET PRICE AT THE DIS CRETION OF THE ASSESSEE. IN THIS CASE THE ASSESSEE HAS VALUED THE COST OF AL LOY ALSO AT THE MARKET 5 ITA NO. 340/COCH/2013 PRICE OF GOLD. THIS METHOD IS CONSISTENTLY FOLLOWE D BY THE ASSESSEE YEAR AFTER YEAR. THEREFORE, THIS TRIBUNAL IS OF THE CON SIDERED OPINION THAT THE LOSS SUFFERED BY THE ASSESSEE IN THE FORM OF PURITY LOSS HAS BEEN REGAINED BY MIXING ALLOY WITH THE VERY SAME PURE GOLD WHILE MAKING THE JEWELLERY. THEREFORE, THERE IS NO QUESTION OF ANY FURTHER DEDU CTION IN THE VALUE. HENCE, WE DO NOT FIND ANY REASON TO CONSIDER THE LO SS WHILE VALUING THE CLOSING STOCK. 8. IN VIEW OF THE ABOVE, WE ARE UNABLE TO UPHOLD TH E ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, THE ADDITION MADE BY THE ASSESSING OFFICER TO THE EXTENT OF RS.66,02,494 IS DELETED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF SEPTEMBER, 2013. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 27 TH AUGUST, 2013 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH