M/s. D. Subhashchandra & Co., Surat V. The ACIT.,Circle-6, Surat

ITA 3486/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0007 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 24-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 22-10-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUDHANSHU S JHA
• Assessee Lawyers: J P SHAH
• Keywords: Gross profit estimation; Principle of natural justice; Question of law
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 30/07/2010 DRAFTED ON: 05/0 8/2010 ITA NO.3486/AHD/2008 ASSESSMENT YEAR : 2005-06 M/S.D.SUBHASHCHANDRA & CO. 2 ND FLOOR, NAVPAD COMPLEX OPP.MOTI BAUG, JADAKHADI MAHIDHARPURA, SURAT VS. THE ASST.CIT CIRCLE-6 SURAT PAN/GIR NO. : AACFD 3054 D (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI J.P.SHAH, A.R. RESPONDENT BY: SHRI SUDHANSHU S.JHA, D.R. O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WH ICH HAS EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS) -IV, SURAT DATED 12/08/2008 PASSED FOR ASSESSMENT YEAR 2005-06. 2. GROUNDWISE DECISION IS AS FOLLOWS: GROUND NO.I :- (1) THE LD. C.I.T.(A) ERRED IN CONFIRMING REJECTION OF BOOK RESULT MADE BY THE ASSESSING OFFICER WHEN THE REASONS GIVE N FOR REJECTION REQUIRED COMPLIANCE OF CONDITION WHICH WA S NOT POSSIBLE. (2) THE LD. C.I.T.(A) MISCONSTRUED THE NATURE OF DIAMON D BUSINESS AND FACTORS AFFECTING VALUATION OF DIAMOND IN REJEC TING THE BOOK RESULT. ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 2 - 2.1 THE BASIC REASON FOR INVOCATION OF THE PROVISIONS OF SECTION 145 OF THE I.T. ACT, 1961 WAS THAT THE ASSESSEE HAS NOT MAINTAINED THE PRESCRIBED DETAILS IN RESPECT OF THE CLOSING STOCK. THE START POINT WAS THE DISCLOSURE OF LOWER GROSS PROFIT FOR THE YEAR UNDER CONSIDERATION. IN THE IMMEDIATELY PRECEDING YEAR, THE PERCENTAGE OF G ROSS PROFIT WAS 8.26%, HOWEVER, FOR THE YEAR UNDER CONSIDERATION IT WAS ONLY 6.2%. THE ASSESSING OFFICER HAS ALSO COMPARED THE GROSS P ROFIT RATIO OF THE ASSESSEE WITH THE FEW OTHER COMPARABLE INSTANCES OF TAXPAYERS IN THE SIMILAR TYPE OF BUSINESS. THE SECOND REASON FOR D OUBTING THE BOOK RESULT WAS THAT THE ASSESSEE HAD TAKEN THE VALUE OF THE CLOSING STOCK OF POLISHED DIAMOND LOWER THAN THE COST OF PURCHASE . THEREFORE, A QUESTION WAS RAISED THAT WHETHER THE NET REALIZABLE VALUE COULD BE LESS THAN THE COST ? AND WHETHER THE ASSESSEE CAN SUBSTANTIATE THIS DI SCREPANCY AS PER THE RECORDS MAINTAINED?. THEREAFTER, THE A SSESSING OFFICER HAS MENTIONED THAT IN THE LIGHT OF THE PROVISIONS OF SE CTION 44AA OF THE I.T. ACT, 1961 A TAXPAYER IS REQUIRED TO MAINTAIN SUCH BOOKS OF ACCOUNT WHICH COULD ENABLE THE ASSESSING OFFICER TO COMPUTE THE CORRECT ASSESSABLE INCOME. NEVERTHELESS, IT IS HEREBY CLARI FIED THAT THE APPLICABILITY OF THIS SECTION IS NOT THE SUBJECT OF DISPUTE IN THIS APPEAL AND THE SAID REMARK OF THE A.O. CAN BE TREATED A GENER AL REMARK ON THE MAINTENANCE OF BOOKS OF ACCOUNT. NONETHELESS, HE H AD DRAWN A CONCLUSION THAT THE COMPLETE DETAILS WERE NOT MAINT AINED, HENCE, IN THE ABSENCE OF THE REQUISITE RECORD IT WAS NOT POSSIBLE TO ASCERTAIN THE CORRECT TAXABLE INCOME HENCE A BEST JUDGMENT COULD BE MADE. FOR THIS ACTION A RELIANCE HAS BEEN PLACED ON KACHWALA GEMS VS. JCIT REPORTED ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 3 - AS (2007) 288 ITR 10 (SC) FOR THE PROPOSITION THAT IN THE ABSENCE OF REQUISITE BOOKS OF ACCOUNT A BEST JUDGEMENT HAS TO BE MADE. BEING A FAILURE ON THE PART OF THE ASSESSEE, IT IS THE ASS ESSEE TO BE BLAMED FOR NOT SUBMITTING PROPER ACCOUNTS . THE ONUS IS ON THE ASSESSEE TO AVOID SUCH ADDITION BY PROVIDING TRUE AND CORRECT PICTURE OF THE ACCOUNTS. THE ASSESSING OFFICER HAD ALSO ASKED TO FURNISH THE DET AILED INVENTORY OF THE STOCK IN TERMS OF QUALITY, HOWEVER, THAT DETAIL WAS NOT FURNISHED. ACCORDING TO THE ASSESSING OFFICER, IN THE ABSENCE OF THE REQUISITE DETAILS IN TERMS OF QUALITY-WISE PRODUCTION OF DIAMONDS FROM EACH LOT , IT WAS NOT ASCERTAINABLE WHICH TYPE OF DIAMOND WAS PRODUCE D FROM A PARTICULAR LOT, IN ORDER TO DETERMINE THE CORRECT VALUE OF THE STO CK. PERCENTAGE OF COST OF PRODUCTION AS PER ASSESSING O FFICERS CALCULATION WAS 27.73%, HOWEVER, REALISATION PER CARAT WAS ONLY AT 24.96% WHICH ACCORDING TO ASSESSING OFFICER WAS UNBELIEVABLE PA RTICULARLY IN THE ABSENCE OF PROPER DETAILS. 2.2. THE FIRST APPELLATE AUTHORITY HAS ALSO GIVEN A FINDING THAT THERE WAS NO SCIENTIFIC OR MATHEMATICAL BASIS BEHIND THE VALUATION DISCLOSED BY THE ASSESSEE. IT WAS HELD THAT THE ASSESSING OFFIC ERS WORKING OF REVALUATION OF CLOSING STOCK WAS IN ORDER AND THAT ACTION OF THE ASSESSING OFFICER WAS CONFIRMED. IT HAS ALSO BEEN MENTIONED THAT IN THE PAST AS WELL, I.E. ASSESSMENT YEAR 2003-04, THE ADDITION WA S MADE ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK WHICH WAS CONFIRMED BY THE LEARNED CIT(APPEALS) AND, THEREAFTER, THE ADDITION WAS ALSO UPHELD BY THE TRIBUNAL IN ITA NO.2805/AHD/2006 DATED 04/01/2008 R EPORTED AS (2008)[15 DTR (AHD)(TRIB) 125 A REPORTED DECISION] . THE LEARNED CIT(APPEALS) HAS CONCLUDED AS FOLLOWS:- ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 4 - I AM THEREFORE OF THE VIEW THAT SINCE THE BOOKS OF ACCOUNT WERE NOT RELIABLE IN SO MUCH SO THAT THE VALUATION OF CLOSING STOCK WAS DEFECTIVE, THE BOOK RESULTS HAVE RIGHTLY BEEN REJECTED BY THE AO INVOKING THE PROVISIONS OF SECTION 145(3) OF THE IT ACT . ONCE THE BOOKS ARE REJECTED, THE AO IS PERFECTLY J USTIFIED IN ESTIMATING GP AND IN THE INSTANT CASE THE AO HAS BEEN FAIR AND REASONABLE IN MAKING AN ESTIMATE OF THE GP . I AM THEREFORE NOT INCLINED TO DISTURB THE FINDINGS OF THE AO AND THE ADDITION MADE IS HEREBY CONFIRMED. 3. AFTER HEARING BOTH THE SIDES AND AFTER CONSIDE RING THE TOTALITY OF THE CIRCUMSTANCES OF THE CASE, WE CAN HOLD THAT THIS I S NOT A CASE WHERE AN INTERFERENCE IS REQUIRED BY US BECAUSE THE ASSESSIN G OFFICER HAD NO OPTION BUT TO INVOKE THE PROVISIONS OF SECTION 145 OF THE I.T. ACT, 1961 IF HE HAD TO ESTIMATE THE VALUATION OF THE CLOSING STO CK. IN THIS REGARD, THE LAW IS VERY MUCH CLEAR ABOUT THE IMPORTANCE OF THE CORRECT VALUATION METHOD OF THE CLOSING STOCK, THAT WHATEVER MAY BE T HE METHOD OF ACCOUNTING, I.E. MERCANTILE OR CASH, IT WOULD BE IMPOSSIBLE TO ASSESS THE TRUE PROFIT WITHOUT TAKING INTO ACCOUNT THE VALUE O F THE STOCK-IN-TRADE AT THE BEGINNING AND AT THE END OF THE YEAR . THEREFORE THE BASIS ON WHICH STOCK-IN-HAND IS TO BE VALUED IS NOTHING BUT A PART OF THE METHOD OF ACCOUNTING. IT IS WELL ESTABLISHED THAT ON GENERAL PRINCIPLES OF COMMERCIAL ACCOUNTING, THE VALUES OF THE STOCK-IN-TRADE AT THE BEGINNING AND AT THE END OF THE ACCOUNTING YEAR SHO ULD BE ENTERED EITHER AT COST OR MARKET VALUE, WHICHEVER IS LOWER . SO THE ACCEPTED ACCOUNTING SYSTEM IS THAT EITHER OF THE TWO METHODS A BUSINESS MAN HAS TO ADOPT ANY ONE OF THEM FOR THE PURPOSES OF THE VALUATION OF THE CLOSING STOCK INDISTINGUISHABLE FOR THE OPENING AND CLOSING STOCK. IT IS AS LIKE ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 5 - AS TWO PEAS IN A POD SO THAT VIRTUALLY INDISTINGUISHABLE; HENCE METHOD OF VALUATION OF BOTH THE STOCKS, EITHER OPEN ING STOCK OR CLOSING STOCK, FOR A FINANCIAL YEAR HAS TO MATCH I. E. EITHER AT THE COST OR THE MARKET PRICE . IT IS ALSO AN ACCEPTED PRINCIPLE THAT THE MARKE T VALUE IS TO BE ASCERTAINED AT THE CLOSE OF THE ACCO UNTING PERIOD AND NOT AS AT ANY INTERMEDIATE DATE BETWEEN THE COMMENCEMENT A ND THE CLOSE OF THE YEAR. THIS IS ALSO AN ACCEPTED PRINCIPLE THAT THE C OST BE EITHER THE ACTUAL COST OF THE CLOSING STOCK OR THE AVERAGE COST OF TH E STOCKS PURCHASED. AN ANOTHER IMPORTANT FEATURE IS THAT THE OPTION TO CHO OSE THE METHOD , OUT OF THE TWO, OF VALUING HIS STOCK IS AVAILABLE TO THE A SSESSEE, BUT IT IS NOT OPEN TO THE ASSESSEE TO ADOPT ONE METHOD FOR VALUIN G OPENING STOCK AND A DIFFERENT METHOD FOR VALUING CLOSING STOCK. WHILE PRONOUNCING THE JUDGMENT IN THE CASE OF CIT VS. DOOM DOOMA INDI A LTD. (1993)200 ITR 496(GAU.), THE HONBLE GAUHATI HIGH COURT HAS OBSERVED, QUOTE IN OTHER WORDS, IT IS OPEN TO THE ASSESSEE TO OPT FOR SUCH METHOD OF ACCOUNTING AS HE DEEMS REASONABLE AND APPROPRIATE. HE MAY OPT TO ADOPT THE MANUFACTURING COST PRICE METHOD OR THE MA RKET PRICE METHOD PROVIDED THE METHOD IS FOLLOWED IN REGARD TO BOTH T HE OPENING STOCK AND THE CLOSING STOCK. IT IS NOT OPEN TO HIM TO ADOPT ONE METHOD FOR VALUING THE OPENING STOCK AND A DIFFERENT METHOD FOR VALUIN G THE CLOSING STOCK SO AS TO INTENTIONALLY SUPPRESS THE INCOME DERIVED OR DERIVABLE IN THE PARTICULAR PREVIOUS YEAR. EVEN WHERE AN ASSESSEE H AS ADOPTED A PARTICULAR METHOD FOR A PERIOD OF YEARS, THERE IS N O PROVISI8ON OF LAW WHICH PREVENTS HIM FROM CHANGING TO ANY OTHER METHO D, PROVIDED THE CHANGE OVER IS NOT MADE IN THE SAME ASSESSMENT YEAR . UNQUOTE. IN THE SAME SEQUENCE, NEXT IS THAT THE CLOSING STOCK OF A YEAR IS THE OPENING ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 6 - STOCK OF THE NEXT YEAR ; AND THE VALUATION PLACED B Y THE ASSESSEE UPON HIS CLOSING STOCK OF A YEAR SHOULD BE ADOPTED BY HIM AS THE VALUATION OF THE OPENING STOCK OF THE NEXT YEAR. THEREFORE THE RELI ANCE PLACED BY THE ASSESSEE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MAHENDRA MILLS LTD. VS. P.B.DESAI, A.A.C. REPORTED AS (1975) 99 ITR 135 (SC) IS TOTALLY MISPLACED. THIS JUDGEMENT DO N OT SUBSCRIBE THAT TWO DIFFERENT METHODS CAN BE ADOPTED, ONE FOR THE OPENI NG STOCK VALUATION AND OTHER FOR THE CLOSING STOCK VALUATION. RATHER IN THAT CASE AN APPELLATE ORDER WAS REGARDING VALUE OF THE OPENING STOCK BASED UPON THE FINDING OF CLOSING STOCK OF EARLIER ASSESSMENT YEAR . AN ORDER OF THE TRIBUNAL LATER ON PASSED HAD CORRECTED THE CLOSING STOCK OF EARLIER YEAR. THE QUESTION WAS IN RESPECT OF THE RECTIFICATION OF THE MISTAKE AS TO THE VALUE OF THE STOCK, HENCE, THE DECISION NEITHER APP LY ON FACTS NOR ON QUESTION OF LAW. AN ORDER HAS TO BE READ AND TO B E FOLLOWED IN THE CONTEXT IT WAS DECIDED. UNDISPUTEDLY THE SAID D ECISION OF THE HON'BLE APEX COURT WAS IN RESPECT OF THE CONTEXT OF RECTIFI CATION OF MISTAKE AND NOT IN RESPECT OF THE APPLICABILITY OF THE PROVISIO NS OF SECTION 145 OF THE I.T. ACT, 1961 FOR DETERMINING THE VALUE OF THE CLO SING STOCK. 3.1 THE FINDINGS ON FACTS WHICH HAVE MOTIVATED TH E ASSESSING OFFICER TO INVOKE THE PROVISIONS OF SECTION 145(3) FOR REJE CTION OF BOOKS OF ACCOUNT WERE FIRSTLY, THAT THE PERCENTAGE OF GROSS PROFIT HAD DRASTICALLY GONE DOWN FOR THE YEAR UNDER CONSIDERATION AND SECO NDLY, THE ASSESSEE HAS NOT PROVIDED QUALITY-WISE DETAILS OF THE DIAMON D. THE ASSESSING OFFICER HAS, THEREFORE, GIVEN A VERY PRECISE FINDIN G THAT THE ASSESSEE HAD VIOLATED THE PRESCRIBED ACCOUNTING SYSTEM, I.E. AS -2. BECAUSE OF THE ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 7 - SAID REASON THE VALUE OF CLOSING STOCK SO DISCLOSED WAS DEFECTIVE, HENCE, THE CORRECT PROFIT FOR THE YEAR UNDER CONSIDERATION COULD NOT BE CORRECTLY DEDUCED. IN A WELL-KNOWN DECISION OF ITAT MUMBAI PRONOUNCED IN THE CASE OF DCIT VS. SAMIR DIAMONDS EXPORTS (P) LTD. RE PORTED AS (1999)71 ITD 75 (MUM.), IT WAS HELD THAT THE ABSENCE OF DETAILS OF THE QUAL ITY OF DIAMONDS CAN BE A GOOD REASON FOR REJECTION OF T HE BOOKS OF ACCOUNT. IN THAT CASE AS WELL THE ASSESSEE HAS ADMITTED T HAT CUT AND POLISHED DIAMONDS WERE SORTED IN LOTS, SIZES, QUAL ITY, ETC. BUT THE ASSESSEE WAS NOT MAINTAINING THE COMPLETE AND CORRE CT DETAILS ON THE BASIS OF WHICH THE VALUE OF PIECES PER CARAT COULD HAVE BEEN ASCERTAINED. IN FACT, THIS WAS EXPECTED FROM THE APPELLANT TO FU RNISH THE DETAILS REGARDING COLOUR, CLARITY, SHAPE AND NUMBER OF PIEC ES PER CARAT, SO THAT VALUATION OF THE STOCK OF THE DIAMONDS COULD HAVE B EEN DETERMINED ON THE BASIS OF SUCH SPECIFICATIONS. THE ASSESSING OF FICER WAS, THEREFORE, JUSTIFIED IN TREATING THE ACCOUNTS OF THE ASSESSEE AS INCOMPLETE ACCOUNTS FOR THE PURPOSE OF INVOKING THE PROVISIONS OF SECT ION 145(3) OF THE I.T. ACT, 1961. IN THE RESULT, AS WELL AS IN THE LI GHT OF THE DISCUSSION MADE HEREINABOVE, WE ARE OF THE CONSCIENTIOUS VIEW THAT THE PROVISIONS OF SECTION 145(3) OF THE I.T. ACT, 1961 HAVE RIGHTLY BEEN INVOKED IN THE PRESENT CASE AS HELD IN THE CASE OF KACHWALA GERMS VS. JT.CIT REPORTED AS (2007) 288 ITR 10 (SC) AND IN THE CASE OF CIT VS. DOOM DOOMA INDIA LTD. REPORTED AS (1993) 200 ITR 496 (GAU.). THEREF ORE, THIS GROUND IS DISMISSED. 4. GROUND NO.II(2) READS AS UNDER. ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 8 - (1) THE LEARNED COMMISSIONER OF INCOME-TAX(APPEAL S) WAS NOT JUSTIFIED IN CONFIRMING ESTIMATE OF FURTHER GROSS P ROFIT AT 2% AND CONSEQUENT ADDITION OF RS.39,95,895/- (2)THE APPELLANT SUBMITS THAT THE LEARNED COMMISSIO NER OF INCOME-TAX (APPEALS) OUGHT TO HAVE CONSIDERED THE R EASONS GIVEN FOR FALL IN GROSS PROFIT AND DELETED THE ADDITION. 4.1. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT, 1961 DATED 26/12 /2007 WERE THAT THE ASSESSEE IS IMPORTING ROUGH DIAMONDS, MANUFACTURING / POLISHING AND THEN EXPORTING THE DIAMONDS. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THERE WAS FALL IN PERCENTAGE OF GROSS PROFIT COMPARING THE PAST RECORDS WHICH WAS DEPICTED IN THE ASSESSMENT ORDER AS PER THE FOLLOWING TABULATION: A.Y. TURNOVER (RS.) GROSS PROFIT (RS.) GROSS PROFIT MARGIN (IN %) 2005-06 19,97,94,752 1,24,03,659 6.2% 2004-05 11,49,63,898 95,01,766 8.26% 2003-04 7,22,16,019 98,50,265 13.64% 4.2. TO VERIFY THE CORRECT PERCENTAGE OF GROSS PROF IT, FEW COMPARABLE INSTANCES OF OTHER TAXPAYERS IN THE SAME BUSINESS H AVE ALSO BEEN GATHERED. DESCRIBING THE BUSINESS ACTIVITY OF THE ASSESSEE, IT WAS FOUND THAT THE ASSESSEE WAS IMPORTING ROUGH DIAMONDS IN LOTS. FROM THE ROUGH DIAMONDS, POLISHED DIAMONDS WERE MADE. OUT OF THE IMPORTED LOT OF THE ROUGH DIAMONDS, THE ASSESSEE THEN SEGREG ATE THE LOWER CATEGORY OF DIAMOND AND SOME OF THEM WERE FOUND NOT FIT FOR MAKING EVEN OF LOWER QUALITY OF DIAMONDS. ACCORDING TO ASSESSING OFFICER, IT WAS ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 9 - EXPECTED FROM THE ASSESSEE BEING A PRUDENT BUSINESS -MAN THAT HE SHOULD HAVE A COMPLETE RECORD OF QUANTITY IN TERMS OF CARAT AS WELL AS THE QUALITY OF ROUGH DIAMONDS . IT WAS REPEATED BY THE ASSESSING OFFICER THAT IT WAS NECESSARY FOR THE ASSESSEE, SO AS TO C ONTROL THE PRODUCTION OF THE DIAMOND, TO KNOW THE QUALITY AS WELL AS THE QUANTITY OF THE DIAMONDS GIVEN TO THE LABOURERS. BUT THOSE DETAILS WERE NOT FURNISHED IN FORM NO.3CD OF THE I.T. ACT, 1961 ALONG WITH THE RE TURN . THE ASSESSEE HAD ONLY SUBMITTED THE TOTAL QUANTITY OF THE CLOSIN G STOCK WITH ITS VALUE. THE SAME WAS REPRODUCED AS FOLLOWS:- ITEM OPENING (CARATS) VALUE (RS.) CLOSING (CARATS) VALUE (RS.) ROUGH DIAMONDS 31,732.34 2,03,94,058 14565.65 1,45,77,492 POLISHED DIAMONDS 5500 3,37,70,000 3080.22 2,41,70,700 REJECTED DIAMOND 30,300 57000 47,900 2,58,888 4.3. AS PER ASSESSING OFFICER, EVEN ON ENQUIRY, THE ASSESSEE HAS NOT PROVIDED QUALITY-WISE DETAILS OF THE DIAMOND. IT HAS ALSO BEEN COMMENTED THAT THE VALUATION FURNISHED BY THE ASSES SEE WAS IN VIOLATION OF A PRESCRIBED ACCOUNTING STANDARD AS-2. DESCR IBING THE FIGURES, IT WAS NOTED BY THE ASSESSING OFFICER THAT THE COST OF MANUFACTURING OF THE POLISHED DIAMONDS FROM THE ROUGH DIAMONDS WEIGHING 9728.84 CARATS WAS SHOWN AT RS.8,59,14,661/- GIVING AVERAGE COST OF MANUFACTURING PER CARAT AT 8830 . 90 . AS AGAINST THAT, THE VALUE OF THE CLOSING STOCK OF THE POLISHED DIAMONDS WAS AT THE AVERAGE OF 7847.06 / CARAT . SO ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 10 - ACCORDING TO ASSESSING OFFICER, THE VALUE OF THE CL OSING STOCK WAS LOWER THAN THE COST OF PRODUCTION OF POLISHED DIAMONDS. A S PER A.O. THE DIFFERENCE BETWEEN THE TWO , I.E THE MANUFACTURING COST AND THE VALUE OF STOCK , WAS 983.84 PER CARAT. BY THIS CALCULATION T HE A.O. HAS TRIED TO ESTABLISHED THAT THE VALUE OF THE CLOSING STOCK OF POLISHED DIAMONDS WAS DECLARED AT THE LOWER FIGURE THAN THEIR COST OF PRODUCTION. IN COMPLIANCE OF THE SHOW-CAUSE NOTICE, IT WAS STATED THAT CONSIDERING THE NATURE OF MANUFACTURING ACTIVITY AND THE VARIATION IN THE VALUE OF INDIVIDUAL DIAMONDS IT WAS NOT PRACTICABLE TO COMPU TE THE COST OF POLISHED DIAMONDS BY ADOPTING FIFO METHOD OR EVEN B Y ADOPTING THE WEIGHTED AVERAGE COST METHOD. AS PER ASSESSEE, WH ERE THE STOCK IS OF MIXED QUALITY, THEN ESTIMATED REALIZABLE VALUE IS T HE ONLY ANSWER, WHICH IS TO BE REDUCED BY THE GROSS PROFIT PERCENTAGE SO AS TO DETERMINE THE VALUE AT THE CLOSE OF THE ACCOUNTING PERIOD. THE CLOSING STOCK, THE PRICE OF WHICH WAS CLAIMED TO HAVE BEEN FIXED OF THE VARI OUS LOTS ON GRADATION BASIS HAVE, IN FACT, BEEN SOLD AT THAT PRICE IN THE SUBSEQUENT YEARS AND IN SUPPORT A CHART HAS ALSO BEEN PLACED BEFORE THE ASS ESSING OFFICER. IT HAS ALSO BEEN ARGUED THAT THE SAME METHOD WAS CONSISTEN TLY BEING FOLLOWED IN THE PAST. THE ASSESSING OFFICER HAS THUS CONCLU DED THAT THE EXPORT INVOICES WERE IN LOTS AND SO QUANTITY WISE DETAIL C OULD NOT BE ASCERTAINED. THEREAFTER THE ASSESSING OFFICER HAD PROCEEDED WITH THE DISCUSSION OF FALL IN GROSS PROFIT RATE AND COMPARING VARIOUS FIG URES HE HAS ESTIMATED THE SAME AT 8.26%. WITH THE RESULT, AN ADDITION OF RS.39,95,895/- WAS MADE AS PER THE FOLLOWING CALCULATION:- ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 11 - PARTICULARS A.Y. 2005-2006 TURNOVER RS.19,97,94,752 GROSS PROFIT RS.1,24,03,659 G.P.MARGIN 6.20% ESTIMATED G.P. MARGIN 8.26% DIFFERENCE 2% ADDITION TO BE MADE 2% * 19,97,94,752 TOTAL ADDITION RS.39,95,895 5. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLAT E AUTHORITY. THE LEARNED CIT(APPEALS) HAS DISCUSSED THE BRIEF BACKGR OUND OF THE CASE, HOWEVER, MAINLY RELYING UPON THE VERDICT OF THE TRI BUNAL GIVEN IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04, HE HAS AFFIRMED THE ACTION OF THE ASSESSING OFFICER. 6. FROM THE SIDE OF THE APPELLANT, SHRI J.P.SHAH, L EARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEARED. PRIMARILY HE HAS TWO FOLDS OF ARGUMENTS. HIS FIRST SUBMISSION WAS IN THE CONTEX T OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 REPORTED AS (2008) 15 DTR(AHD) (TRIB) 125. IT WAS HIGHLIGHTE D THAT IF THE ASSESSEE IS IN A POSITION TO SATISFY THE ASSESSING OFFICER B Y PRODUCING THE EVIDENCE THAT THE NET REALIZABLE VALUE WAS, IN FACT, LESS TH AN THE COST, THEN SUCH VALUATION OUGHT TO HAVE BEEN ACCEPTED BY THE ASSESS ING OFFICER WITHOUT CASTING ANY DOUBT UPON THE ASSESSEE. IN THIS CONT EXT, HE HAS REFERRED PARAGRAPH NO.11.4 OF THE ASSESSMENT ORDER TO DEMONS TRATE THAT FROM THE SIDE OF THE ASSESSEE AN ATTEMPT WAS MADE TO FURNIS H THE DETAILS OF SALE OF VARIOUS LOTS MADE IN THE SUBSEQUENT YEAR. ON THAT BASIS, THE ASSESSEE HAS TRIED TO DEMONSTRATE THAT THE ACTUAL SALES IN THE S UBSEQUENT YEARS WERE ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 12 - MORE OR LESS AT THAT PRICE PUT BY THE ASSESSEE IN T HE VALUATION OF THE CLOSING STOCK. IT WAS VEHEMENTLY ARGUED BY THE LD . COUNSEL FOR THE ASSESSEE THAT ONCE THE ASSESSEE WAS IN A POSITION T O SUBSTANTIATE THE BASIS OF VALUATION OF THE CLOSING-STOCK, THEN THE ASSESSI NG OFFICER SHOULD HAVE ACCEPTED THE SAME. HE HAS DRAWN OUR ATTENTION ON P AGE NOS.12 TO 15 GIVING THE DETAILS OF THE STOCK VALUED AS ON 31/03/ 2005. IN THE SAID CHART, THE ASSESSEE HAS MENTIONED QUALITY OF THE DIAMOND, CARATS, AND THE VALUE, STATED TO BE VERIFIED BY ASSORTER. SUBSEQUENT COLU MNS PORTRAYED THE DETAILS OF THE SALE- INVOICES OF THE SUBSEQUENT FIN ANCIAL YEAR AND THE AMOUNT OF SALE. THEREFORE, THE LEARNED AUTHORISED REPRESENTATIVE MR. SHAH HAS EMPHASIZED THAT THE ASSESSEE HAD GIVEN AL L THE INFORMATION TO ASSESSING OFFICER BUT THE ASSESSING OFFICER HAD IGN ORED THOSE DETAILS AND PROCEEDED TO MAKE THE ADDITION MERELY ON AN ESTIMAT ED RATE OF GROSS PROFIT. HIS NEXT PLANK OF ARGUMENT WAS THAT THE ALLEGATION OF LOWER GROSS PROFIT RATE WAS ALSO INCORRECT. IF THE TRADI NG ACCOUNT WAS RECASTED BY THE ASSESSING OFFICER IN THE LIGHT OF THE VERDIC T OF THE RESPECTED TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 THEN THERE WOULD NOT BE ANY DIFFICULTY. A QUESTION WAS RAISE D BY THE BENCH THAT HOW THE GROSS PROFIT RATE WAS BETTER COMPARING THE PAST RATE OF PROFIT EVEN IF THE APPEAL EFFECT IS GIVEN? IN REPLY THE LE ARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS FURNISHED A CHAR T OF THE COMPARATIVE FIGURES AS FOLLOWS:- ASST.YEAR TURNOVER IN RUPEES GROSS PROFIT IN RUPEES GROSS PROFIT IN % 2004-05 11,49,63,698 95,01,766 8.265 2005-06 19,97,94,752 (90% = 1,24,03,659 6.208 ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 13 - 17,67,32,013 IS EXPORT) RECALCULATED RESULT OF ASSESSMENT YEAR 2004-05 AFTE R THE ADDITION TO THE VALUE OF THE OPENING STOCK OF THAT YEAR (CONSEQUENT ON TH E ADDITION OF THE SELF-SAME AMOUNT TO THE CLOSING STOCK OF ASSESSMENT YEAR 2003 -04) OF RS.41,49,400/- WILL BE AS FOLLOWS: ASST.YEAR TURNOVER IN RUPEES GROSS PROFIT IN RUPEES GROSS PROFIT IN % 2004-05 11,49,63,698 53,52,366 4.65 REASONS FOR FALL IN GROSS PROFIT: COST OF PRODUCTION INCREASED BY 27.73% WHEREAS REAL IZATION INCREASED BY 24.96% LEAVING NEGATIVE DIFFERENCE OF 2.77% BY WAY OF FALL IN COMPARISON TO LAST YEAR. 7. ON CAREFUL PERUSAL OF THIS CHART AGAIN A QUERY W AS RAISED BY THE BENCH THAT IF THE VALUE OF THE CLOSING STOCK AS DETERMINED FOR ASSESSMENT YEAR 2003-04 IS TO BE CARRIED OVER AS AN OPENING VALUE FOR ASSESSMENT YEAR 2004-05, THEN WHAT WILL BE THE POSITION OF THE GROSS PROFIT RATE FOR THAT YEAR, IF THE SAME METHOD IS APPLIED FOR VALUING THE OPENING AS WELL AS FOR VALUING THE CLOSING THE STOCK. AT FIRST, LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SAID THAT THE GROSS PROFIT RATE FOR ASSESSMENT YEAR 2004-05 HAS ALREADY BEEN R E-CASTED AFTER TAKING INTO ACCOUNT THE VALUE OF THE CLOSING STOCK AS DET ERMINED FOR ASSESSMENT YEAR 2003-04, PARTICULARLY AFTER AN ORDER U/S.154 O F THE I.T. ACT, 1961 WAS PASSED , AND HENCE ,THERE IS NO REASON TO DISTU RB THE OTHER FIGURES OF THE CLOSING STOCK , MORE SO BECAUSE FOR ASSESSMENT YEAR 2004-05, THE ASSESSMENT HAS ALREADY BEEN REACHED TO THE FINALITY VIDE A SUMMARY ORDER PASSED U/S.143(1) OF THE I.T. ACT, 1961. ONCE THE BOOK RESULTS HAVE BEEN ACCEPTED BY THE REVENUE DEPARTMENT, THEN THERE IS N O AUTHORITY WHICH ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 14 - CAN SUBSTITUTE THE VALUE OF THE CLOSING STOCK FOR A SSESSMENT YEAR 2004- 05. IN SUPPORT OF THIS CONTENTION, LEARNED AUTHO RISED REPRESENTATIVE OF THE ASSESSEE HAS PLACED STRONG RELIANCE ON MAHENDRA MILLS VS. P.B.DESAI APPELLATE ASSTT.CIT & ANR. REPORTED AS (1975) 99 IT R 135 (SC).IT WAS ARGUED THAT THE ONLY POSSIBLE RE-CALCULATION FOR AS SESSMENT YEAR 2004-05 IS IN RESPECT OF THE OPENING STOCK FOR THAT YEAR ,W HICH IS BEING THE CLOSING STOCK FOR ASSESSMENT YEAR 2003-04 WHICH HAS NOW BEE N DETERMINED BY THE APPELLATE AUTHORITY. RELIANCE HAS ALSO BEEN P LACED ON TWO UNREPORTED DECISIONS OF THIS TRIBUNAL IN THE CASES OF ACIT VS. M/S.GAMI EXPORTS IN ITA NO.3146/AHD/2007 FOR ASSESSMENT YEAR 2004-05 D ATED 12/02/2010 AND IN THE CASE OF M/S.PANKAJ DIAMOND VS. ACIT IN I TA NO.555/AHD/2008 FOR ASSESSMENT YEAR 2004-05 DATED 5.09.2008. 8. FROM THE SIDE OF THE REVENUE LEARNED DEPARTMENTA L REPRESENTATIVE SHRI SUDHANSHU S.JHA HAS APPEARED. IT WAS VEHEMENTLY OPPOSED THAT THE ASSESSEE HAS WRONGLY SUBSTITUTED T HE VALUE OF THE CLOSING STOCK BY PLACING RELIANCE ON THE SALE OF SUBSEQUENT YEAR, HENCE, THERE WAS NO NECESSITY OF ANY SUBSTITUTION OF THE VALUE OF TH E CLOSING STOCK. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS PLEADED THA T BY PROVIDING THE DETAILS OF THE SALE OF THE SUBSEQUENT YEAR THE ASSE SSEE HAS TRIED TO MATCH THE FIGURES OF THE SALE WITH THE VALUE OF THE CLOSI NG STOCK BUT THERE WAS NO DIRECT LINK WITH THE QUALITY AND THE QUANTIT Y OF THE STOCK VIS- -VIS THE QUANTITY AND QUALITY OF THE SALE OF THE S TOCK. AN INTERESTING POINT HAS ALSO BEEN RAISED BY LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE VALUATION OF THE CLOSING STOCK OF THE POLISHED DIAM OND WAS SO LOW THAT THE AVERAGE PRICE PER CARAT WAS ABOUT RS.7,869 /- IF THE TOTAL ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 15 - QUANTITY OF CARAT OF THE STOCK 3080.22 IS DIVIDED B Y THE TOTAL VALUE OF THE STOCK OF RS.2,41,70,700/-, THE VALUE AS ON 31/03/20 05. AT SUCH A LOW PRICE, DIAMONDS WERE NEVER TRANSACTED IN THE YEAR 2005. THE COMPARISON OF THE VALUATION WITH THE SALE PRICE WAS UNSYSTEMATIC AND BY NO STRETCH OF REASONING CAN BE ACCEPTED, THE LEARNE D AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS CONCLUDED. 9. WE HAVE HEARD BOTH THE SIDES AT LENGTH AND ALSO CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF THE COMPILATION FILED BEFORE US AS WELL AS THE CASE LAW CITED, PARTICULAR LY THE REFERRED DECISION FOR ASSESSMENT YEAR 2003-04 DELIVERED IN ASSESSEES OWN CASE {REPORTED AS D.SUBHASHCHANDRA & CO. 15 DTR 125 (AHD.)(TRIB.)} . 9.1. IT IS WORTH TO FIRST DISCUSS THE LEGAL PROPO SITION AS LAID DOWN IN ASSESSMENT YEAR 2003-04 BY THE RESPECTED CO-ORDINA TE BENCH. IT WAS NOTED THAT AS A MATTER OF FACT, THE STOCK WAS VALUED ON THE BASIS OF ESTIMATED NET REALIZABLE VALUE. IT IS ALSO AFFIRMED THAT THE ASSESSEE HAD NOT VALUED THE CLOSING STOCK OF POLISHED DIAMONDS A T COST. AT THAT GROUND, THE TRIBUNAL HAS HELD THAT THERE WAS DEPART URE FROM THE METHODS OF VALUATION AS PRESCRIBED IN AS2. IT WAS COMMEN TED THAT HAD THE ASSESSEE FURNISHED THE COST OF EACH PIECE OF DIAMO ND THEN IT COULD HAVE BEEN SAID THAT THE ASSESSEE HAD VALUED THE INVENTOR IES IN ACCORDANCE WITH THE ITEM NO.14 OF AS-2. REFERRING SECTION 145(2) OF THE I.T. ACT, 1961, IT WAS MENTIONED IN THE SAID ORDER THAT THE ACCOUNT ING STANDARDS ARE MANDATORY AND TO BE FOLLOWED IN VIEW OF SECTION 145 (3) OF THE I.T. ACT, 1961. ACCORDING TO THE TRIBUNAL, IF THE ASSESSEE W AS FOLLOWING AN ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 16 - ESTIMATED REALIZABLE VALUE METHOD, THEN SUCH ESTIMA TED NET REALIZABLE VALUE MUST BE BASED ON SOME EVIDENCE AND HENCE THE ASSESSEE IS EXPECTED TO PLACE MATERIAL ON RECORD IN SUPPORT OF THE SAID VALUATION. THE ONUS IS ON THE ASSESSEE TO PROVE THE BONA FIDES OF THE REALIZABLE VALUE AS ADOPTED BY THE ASSESSEE. RATHER THE TRIBUNAL HAS S AID THAT IT COULD BE BELIEVED THAT THE ASSESSEE WAS NOT KEEPING THE ACCO UNTS OF EACH PIECE OF DIAMOND. CUT AND POLISHED DIAMONDS WERE REQUIRED TO BE SORTED IN ACCORDANCE OF DIFFERENT LOTS, SIZES, QUALITIES ETC. IT WAS OPINED THAT SUCH DETAILS WERE BOUND TO BE MAINTAINED ACCORDING TO TH E CUT, CARAT, CLARITY AND COLOUR OF EVERY DIAMOND BY EVERY PERSON DEALING IN DIAMONDS. WHENEVER ROUGH DIAMONDS ARE ISSUED TO THE LABOURERS , EXPECTED YIELD IS NOTED ON THE PACKETS AND THESE DETAILS ARE ALWAYS B EEN VERIFIED BY THE ASSESSEE WHEN CUT AND POLISHED DIAMONDS ARE RECEIVE D BACK FROM THE LABOURERS. IN THE OPINION OF THE TRIBUNAL, THE A SSESSEE COULD NOT RUN ITS BUSINESS WITHOUT MAINTAINING THE ACCOUNTS OF EACH A ND EVERY PIECE OF DIAMOND. IT WAS HELD THAT THE ASSESSEE HAD NOT SH OWN THE RELEVANT SUBSEQUENT INVOICES TO VERIFY THE VALUE ACTUALLY RE ALIZED BY THE ASSESSEE ON SALE OF THAT SPECIFIC STOCK. UNDISPUTEDLY NET REALIZABLE VALUE METHOD IS RECOGNIZED BY AS-2 ISSUED BY ICAI, BUT I N SUCH A SITUATION, THE ONUS IS ON THE ASSESSEE TO PLACE ON RECORD THAT THE NET REALIZABLE VALUE IS CORRECT VALUE MAY BE LESS THAN THE COST. SUPPO RTING EVIDENCE IS THE BASIC NECESSITY TO SUBSTANTIATE THE NET REALIZ ABLE VALUE IF ADOPTED BY THE ASSESSEE. NOW THE SITUATION IS THAT THE ASSESS EE HAS VEHEMENTLY PRESSED UPON THE POINT THAT THE SALE PRICE OF THE S UBSEQUENT YEAR HAD MATCHED WITH THE LOT OF THE DIAMONDS OF THE CLOSI NG STOCK AND THAT DETAILS WERE BEFORE THE ASSESSING OFFICER. HOWEVER , EVEN ON CAREFUL ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 17 - PERUSAL, THERE IS NO EVIDENCE ON THE BASIS OF WHICH IT COULD BE HELD THAT THE ASSESSEE HAD DISCHARGED HIS ONUS BY PLACING THE CORRECT INFORMATION ON RECORD IN RESPECT OF THE REALIZABLE VALUE OR THE SALE PRICE OF THE DIAMONDS AS ACCOUNTED FOR IN THE CLOSING STOCK. T HE CHART WHICH IS NOW REFERRED WAS STATED TO BE BEFORE THE ASSESSING OFFI CER, HOWEVER, THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING NOR MEN TIONED THAT THE CORRECTNESS OF THE CHART WAS VERIFIED BY HIM. RATHE R THE ASSESSEE IS UNDER STRICT OBLIGATION TO SUBSTANTIATE THAT THE ITEMS OF EACH LOT OF DIAMONDS HAVING SPECIFIC QUALITY HAD IN FACT MATCHED WITH TH E SALES PRICE OF THAT VERY ITEM OF THE STOCK WHEN SOLD IN THE SUBSEQUENT YEAR. BECAUSE OF THIS REASON, THE NATURAL JUSTICE DEMANDS TO REFER THIS I SSUE BACK TO THE STAGE OF ASSESSING OFFICER TO BE DECIDED DE NOVO IN THE BACKGROUND OF THE CHART FURNISHED BY THE ASSESSEE. 10. AS FAR AS THE RECASTING OF THE TRADING ACCOUNT IS CONCERNED, WE ARE NOT WITH THE ARGUMENT OF LEARNED AUTHORISED REPRESE NTATIVE OF THE ASSESSEE THAT WHILE RE-CASTING THE TRADING ACCOUNT FOR ASSESSMENT YEAR 2004-05 ONLY OPENING BALANCE IS TO BE DISTURBED BY THE FIGURE OF THE CLOSING STOCK AS FINALLY DETERMINED IN ASSESSMENT YEAR 2003-04 WITHOUT CONSEQUENTIALLY CHANGING THE VALUE OF THE CLOSING S TOCK OF ASSESSMENT YEAR 2004-05. THE RECASTED TRADING ACCOUNT AS FUR NISHED BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE ALREADY R EPRODUCED (SUPRA) IN PARAGRAPH NO.6 THE DEFECT IS THAT THE ASSESSEE SHOU LD HAVE FURNISHED THE CLOSING STOCK ARRIVED AT CONSEQUENCE UPON THE DECIS ION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2003-04 AND THAT CLOSING STOCK OUGHT TO BE THE OPENING STOCK FOR ASSESSMENT YEAR 2004-05. LIKEWIS E, APPLYING THE ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 18 - SAME METHOD OF ACCOUNTING, I.E. NET REALIZABLE VAL UE, THE CLOSING STOCK FOR ASSESSMENT YEAR 2004-05 SHOULD HAVE BEEN COMPUT ED. THAT CLOSING STOCK HAD TO BE THE OPENING STOCK FOR ASSESSMENT YE AR 2005-06 AND THEN FINALLY THE CLOSING STOCK FOR ASSESSMENT YEAR 2005- 06 OUGHT TO HAVE BEEN COMPUTED APPLYING THE SAME METHOD, I.E. NET R EALIZABLE VALUE. SO, IF THIS PROCESS WAS ADOPTED AND THE RECASTED T RADING ACCOUNTS WAS FURNISHED, THEN THE ASSESSEES CONTENTION COULD HAV E BEEN ACCEPTED THAT THE GROSS PROFIT FOR ASSESSMENT YEAR 2004-05 WAS FO UND LOWER THAN THE GROSS PROFIT FOR ASSESSMENT YEAR 2005-06 AS PER THE RECASTED TRADING ACCOUNT, HENCE, DUE TO BETTER RESULTS THE ASSESSEE S CONTENTION COULD BE ACCEPTED. THE FALLACY IS THAT FOR ARRIVING AT THE GROSS PROFIT RATE WHILE RECASTING THE TRADING ACCOUNT THE APPELLANT HAS NOT FOLLOWED A UNIFORM SYSTEM BOTH FOR VALUING THE OPENING STOCK AS ALSO T HE CLOSING STOCK. THIS IS WHAT WE HAVE ALREADY DISCUSSED ELABORATELY IN PR ECEDING PARAGRAPHS, THEREFORE, THE RECASTING OF THE TRADING ACCOUNTS SHOULD HAVE BEEN AGAIN COMPUTED AS PER THE OBSERVATIONS. ONE MORE ARGUME NT HAS BEEN RAISED THAT ONCE FOR THE IN-BETWEEN YEAR, I.E. FOR ASSES SMENT YEAR 2004-05, AN ASSESSMENT HAS BEEN FRAMED AND REACHED TO ITS FINAL ITY, THEN THE TRADING ACCOUNT COULD NOT DISTURBED. HOWEVER, WE ARE NOT T HROWING A SUGGESTION TO DISTURB THE ACCEPTED ASSESSMENT RESULTS OF 2004- 05, IF NOT PERMISSIBLE AS PER LAW, BUT TO ARRIVE AT THE CORRECT CLOSING ST OCK FOR THE YEAR UNDER CONSIDERATION; THE VALUATION FOR 04-05 STOCK HAS T O BE RECALCULATED BEING AN IN-BETWEEN YEAR IN CONSEQUENCE OF TRIBUNAL ORDER FOR ASSESSMENT YEAR 2003-04. THEREFORE, AS PER THE ABOVE DISCUSSI ON, THE LAW IS VERY CLEAR THAT THE OPENING AND THE CLOSING STOCK, BOTH HAVE TO BE VALUED BY APPLYING THE SAME METHOD OF VALUATION. THERE SHOUL D NOT BE ANY ITA NO.3486/AHD /2008 M/S.D.SUBHASHCHANDRA & CO. VS. THE ASST.CIT ASST.YEAR 2005-06 - 19 - VARIATION. IT CANNOT BE AND IT SHOULD NOT BE APPRO VED THAT ONE METHOD IS TO BE ADOPTED FOR THE OPENING STOCK AND SOME OTHER METHOD IS TO BE ADOPTED FOR THE VALUATION OF THE CLOSING STOCK. E VEN THIS PROPOSITION WAS NOT PRONOUNCED BY THE HON'BLE APEX COURT IN THE CAS E OF MAHENDRA MILLS (SUPRA). AN ELABORATE DISCUSSION HAS ALREADY BEEN M ADE IN THE FOREGOING PARAGRAPHS AND ON THAT BASIS WE CAN HOLD THAT A UNI FORM SYSTEM FOR THE OPENING STOCK AS WELL AS FOR CLOSING STOCK VALUATIO N HAS TO BE ADOPTED AND NO VARIATION AS SUGGESTED BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SHOULD BE ALLOWED. THUS, GROUND MAY B E TREATED AS ALLOWED ONLY FOR STATISTICAL PURPOSES AND PER THE DIRECTION S. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED THAT TOO ONLY FOR STATISTICAL PURPOSES. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 31/ 08 /2010. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL KR. SH RAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD; DATED 31/ 08 /2010 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPA RTMENT. 3. THE CIT CONCERNED. 4. THE LD. CIT(A PPEALS)-IV, SURAT 5. THE DR, AHMEDABAD BENCH. 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD