ACIT, New Delhi V. M/s Popular Jewellers, Delhi

ITA 3748/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3999 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 29-04-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 03-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BANITA DEVI
• Assessee Lawyers: SM MATHUR
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F: NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 3748/DEL/2009 ASSESSMENT YEAR: 2004-05 ACIT, CIRCLE 29(1), NEW DELHI. VS. M/S POPULAR JEWELLERS, 37, GALI PARANTHEWALI, CHANDNI CHOWK, DELHI. AAAFP7218F (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. BANITA DEVI, SR. DR RESPONDENT BY: SH. S.M. MATHUR, CA O R D E R PER I.P. BANSAL, J.M. THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DI RECTED AGAINST THE ORDER OF CIT(A) DATED 9 TH JULY, 2009 FOR A.Y. 2004-05. GROUNDS OF APPEAL READ AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF EX CESS STOCK OF RS. 7,71,265/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF DI SALLOWANCE OF CAR DEPRECIATION AT RS. 5367/-. 2. THE ASSESSEE FIRM IS IN THE BUSINESS OF TRADING IN GOLD ORNAMENTS. A SURVEY OPERATION WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 3 RD SEPTEMBER, 2003. THE STOCK OF THE ASSESSEE WAS 2 ITA NO. 3748/DEL/2009 INVENTORISED AND VALUATION WAS DONE BY REGISTERED G OVERNMENT VALUER ACCORDING TO WHICH THE EXCESS STOCK WAS VALUED AT R S. 9,48,065/-. HOWEVER, WHILE FILING THE RETURN OF INCOME THE EXCE SS TOCK DISCLOSED WAS ONLY OF 348.8 GMS VALUED AT RS. 1,76,800/-. 3. THE REASONS GIVEN BY ASSESSEE TO THE AO FOR NOT DECLARING THE ENTIRE EXCESS VALUED AT THE TIME OF SURVEY WERE DES CRIBED AS UNDER: - I. THAT CERTAIN PURCHASE BILLS WERE NOT ENTERED AT THE TIME OF SURVEY. II. THAT CERTAIN SALES RETURNS WERE NOT PROPERLY ACCOUNTED FOR III. THAT THE STOCK WITH KARIGARS WAS TAKEN AT 5500 GMS WHICH ACTUALLY WAS 5100.540 GMS. IV. THAT THE GOVERNMENT VALUER VALUED STOCK AT MARK ET VALUE WHEREAS THE APPELLANT HAS BEEN FOLLOWING WEIGHTED AVERAGE METHOD TO VALUE STOCK. 4. THE AO REJECTED THE EXPLANATION OFFERED BY THE A SSESSEE AND HE MADE THE ADDITION OF RS. 7,71,265/- BEING THE RESUL TANT AMOUNT OF EXCESS STOCK OF RS. 9,48,065/- BEING INCOME OF THE ASSESSE E AS ASSESSEE HAD ALREADY OFFERED A SUM OF RS. 1,76,800/-. 5. BEFORE CIT(A), IT WAS SUBMITTED THAT EXCESS STOC K CALCULATED ON THE BASIS OF REGISTERED VALUER REPORT COULD NOT BE TAKEN AS BASIS OF MAKING ADDITION AS THE SAID VALUATION WAS ON THE BA SIS OF MARKET RATE. IT WAS SUBMITTED THAT WHILE ARRIVING AT THE VALUE OF C LOSING STOCK, THE COST IF IT IS LESS THAN MARKET RATE HAS TO BE TAKEN IN ACCO UNT AND ACCORDING TO THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE FOR VALUING ITS CLOSING 3 ITA NO. 3748/DEL/2009 STOCK WHICH WAS WEIGHTED AVERAGE VALUE METHOD, TH E DIFFERENCE WAS ONLY TO THE TUNE OF RS. 1,76,800/- WHICH WAS DECLAR ED BY THE ASSESSEE. IT WAS SUBMITTED THAT SUCH METHOD OF VALUATION OF S TOCK WAS ADOPTED BY THE ASSESSEE SINCE INCEPTION I.E. FROM THE YEAR 198 6-87. 6. LD. CIT(A) ON THE BASIS OF SUCH CONTENTIONS OF T HE ASSESSEE HAS DELETED THE ADDITION BY OBSERVING THAT THERE IS NO PROVISION IN THE LAW FOR SURRENDERING ANY INCOME AT THE TIME OF SURVEY. THE AO COULD VERIFY THE STOCK ITEMS DISCOVERED AT THE TIME OF SURVEY AND CO ULD MADE ENQUIRIES THAT WHETHER THEY ARE PROPERLY ACCOUNTED FOR IN THE RETURN OF INCOME. LD. CIT(A) OBSERVED THAT IN THE ASSESSMENT ORDER THERE IS NO ALLEGATION ON THE PART OF AO THAT ANY ITEM OF STOCK FOUND DURING THE COURSE OF SURVEY WAS NOT ACCOUNTED FOR. THE ASSESSEE HAD POINTED OU T THE DISCREPANCIES IN THE PROCESS OF STOCK TAKING AT THE TIME OF SURVE Y WHICH HAVE NOT BEEN CHALLENGED BY THE AO. LD. CIT(A) OBSERVED THAT THE VALUER HAD VALUED THE STOCK ON THE BASIS OF PREVAILING MARKET PRICE W HICH WAS NOT INCONFORMITY WITH THE WEIGHTED AVERAGE METHOD CONSI STENTLY FOLLOWED BY THE ASSESSEE AND IN ANY CASE THE PROFIT OF THE ASSE SSEE WAS TO BE DETERMINED ON THE BASIS OF FINAL ACCOUNTS PREPARED AT THE END OF THE ACCOUNTING YEAR. LD. CIT(A) HAS GIVEN A FINDING TH AT ASSESSEE HAD ACCOUNTED FOR ALL THE ITEMS DISCOVERED AT THE TIME OF SURVEY EXCEPT FOR AN AMOUNT OF RS. 1,76,800/- WHICH WAS ON ACCOUNT OF EX CESS FOUND ON QUANTITY DIFFERENCE. THUS, LD. CIT(A) HAS DELETED THE ADDITION OF RS. 7,71,265/- AGAINST WHICH THE REVENUE IS AGGRIEVED, HENCE HAS RAISED GROUND NO. 1. 4 ITA NO. 3748/DEL/2009 7. AFTER NARRATING THE FACTS, IT WAS VEHEMENTLY PLE ADED BY LD. DR THAT ADDITION WAS MADE BY THE AO ON THE BASIS OF EXCESS STOCK FOUND DURING THE COURSE OF SURVEY AND LD. CIT(A) HAS WRONGLY DEL ETED THE ADDITION. 8. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. AR TH AT THERE WAS NO DIFFERENCE IN THE QUANTITY EXCEPT AN AMOUNT OF RS. 1,76,800/- WHICH WAS DECLARED BY THE ASSESSEE WHILE FILING THE RETURN. HE CONTENDED THAT THE DIFFERENCE IN VALUE WAS ONLY ON ACCOUNT OF DIFFEREN CE IN METHOD OF VALUATION. HE SUBMITTED THAT THE REGISTERED VALUAT ION VALUED THE STOCK OF THE ASSESSEE ON THE BASIS OF PREVAILING MARKET R ATE. HE SUBMITTED THAT SUCH VALUATION COULD NOT BE TAKEN AS A BASE FO R VALUING THE CLOSING STOCK. HE CONTENDED THAT AO HAS NOT BROUGHT ON REC ORD ANY MATERIAL TO SUGGEST THAT AFTER TAKING INTO CONSIDERATION THE AM OUNT ADDED BY THE ASSESSEE OF A SUM OF RS. 1,76,800/-, THERE WAS ANY OTHER DIFFERENCE IN THE STOCK. THUS, HE PLEADED THAT LD. CIT(A) HAS RI GHTLY DELETED THE ADDITION AS THE DIFFERENCE, IF ANY, WAS ON ACCOUNT OF METHOD OF VALUATION DONE BY THE ASSESSEE AND DONE BY THE DEPARTMENTAL V ALUATION. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS IN THE LIGHT OF MATERIAL PLACED BEFORE US. THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THERE WAS ANY DIFFERENCE OF QUANTITY AFTER THE DECL ARED AMOUNT OF RS. 1,76,800/- IS TAKEN INTO ACCOUNT. THE DIFFERENCE, I F ANY, WAS ON ACCOUNT OF METHOD OF VALUATION. ACCORDING TO WELL-ESTABLIS HED PRINCIPLES OF LAW THE VALUATION OF STOCK IS TO BE DONE ON THE BASIS O F COST OR MARKET RATE WHICHEVER IS LOWER. ACCORDING TO THE SUBMISSIONS M ADE BY THE ASSESSEE THE METHOD OF VALUATION OF CLOSING STOCK ADOPTED BY THE ASSESSEE FOR 5 ITA NO. 3748/DEL/2009 VALUING ITS CLOSING STOCK WAS WEIGHTED AVERAGE MET HOD WHICH WAS CONSISTENTLY FOLLOWED AND IF THAT METHOD IS TAKEN I NTO ACCOUNT, THERE WAS NO DIFFERENCE. THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUGGEST THAT SUCH CONTENTION OF THE ASSESSEE WAS EI THER INCORRECT OR WAS NOT SUPPORTED BY THE FACTS AND FIGURES. IF THE DIF FERENCE IS ON ACCOUNT OF METHOD OF VALUATION ONLY, THEN WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) VIDE WHICH IT HAS BEEN HELD THAT ADDITION COULD NOT BE MADE SIMPLY ON THE GROUND THAT THE CALCULATION OF EXCESS STOCK WAS DONE DURING THE COURSE OF SURVEY ITSELF. THE ASSESSEE HAS RIGHT TO EXPLAIN THE DISCREPANCY IN THE VALUATION DONE AT THE TIME OF SU RVEY AND VALUATION ON THE BASIS OF FACTS AND FIGURES EXISTING AS PER BOOK S OF ACCOUNT. IF THE DIFFERENCE IS EXPLAINED, THE ADDITION CANNOT BE MAD E SIMPLY ON THE GROUND THAT THE DIFFERENCE WAS CALCULATED AT THE TI ME OF SURVEY. FOR THESE REASONS, WE DECLINE TO INTERFERE IN THE DELET ION MADE BY LD. CIT(A) ON THIS ACCOUNT AND GROUND NO. 1 RAISED BY THE REVE NUE IS DISMISSED. 10. THE SECOND GROUND RELATES TO DISALLOWANCE OF CA R DEPRECIATION AMOUNTING TO RS. 5,376/- (WRONGLY WRITTEN IN THE GR OUND THAT 5,367/-) LD. CIT(A) HAS DELETED THE DISALLOWANCE ON THE GROUND T HAT CONDITION OF USE OF CAR WAS SATISFIED. THEREFORE, PARTIAL DISALLOWA NCE ON ACCOUNT OF PERSONAL UTILIZATION COULD NOT BE MADE. 11. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. W E FOUND THAT IT HAS BEEN HELD BY LD. CIT(A) THAT THE PERSONAL USER CANN OT BE RULED OUT BUT DESPITE THESE FINDINGS HE HAS DIRECTED THE AO TO AL LOW DEPRECIATION IN FULL. BUT ACCORDING TO PROVISIONS OF SEC. 38(2) WH ERE ANY BUILDING 6 ITA NO. 3748/DEL/2009 MACHINERY, PLANT OR FURNITURE IS NOT EXCLUSIVELY US ED FOR THE PURPOSE OF THE BUSINESS OR PROFESSION THE ALLOWANCE INTER-ALIA DEPRECIATION IS TO BE RESTRICTED TO A FAIR PROPORTIONATE PART THEREOF WHI CH THE AO MAY DETERMINE HAVING REGARD TO THE USER OF SUCH ASSET F OR THE PURPOSE OF BUSINESS OR PROFESSION. ACCORDINGLY TO THAT EXTENT THE ORDER OF LD. CIT(A) IS CONTRARY TO THE PROVISIONS OF SEC. 38(2). WE, T HEREFORE, HOLD THAT PROPORTIONATE DISALLOWANCE ON ACCOUNT OF DEPRECIATI ON OF CAR FOR NON- USER OF THE BUSINESS PURPOSES COULD BE MADE AND THE DELETION BY THE CIT(A) IS NOT PROPER. WE UPHOLD THE DISALLOWANCE M ADE BY THE AO IN THIS REGARD AND THE SECOND GROUND OF THE REVENUE IS ALLOWED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 30.04.201 0 (SHAMIM YAHYA) ACCOUNTANT MEMBER (I.P. BANSAL) JUDICIAL MEMBER DATED: *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR