SOHANLAL J.JAIN, MUMBAI V. JCIT RG 14(2), MUMBAI

ITA 4189/MUM/2009

• Counselvise Citation: 418919914 RSA 2009
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 08-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 08-07-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P K B MENON
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI BEFORE SHRI N. V. VASUDEVAN, JM AND SHRI R.K. PANDA , AM ITA NO. : 4189/MUM/2009 ASSESSMENT YEAR : 2005-06 SHRI SOHANLAL J. JAIN SHOP NO.22, ABHINANDAN MARKET, 215/217 KALBADEVI ROAD, MUMBAI-400 002 PAN NO: AABPJ 6908 M VS. JT. COMMISSIONER OF INCOME - TAX RANGE-14(2), EARNEST HOUSE, NARIMAN POINT, MUMBAI-400 021 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI FARROKH V. IRANI RESPONDENT BY : SHRI P.K.B. MENON DATE OF HEARING : 08 .1 2 .2011 DATE OF PRONOUNCEMENT : 30.12.2011 ORDER PER R. K. PANDA (AM) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 22.04.2009 PASSED BY THE LD. CIT(A)-XIV, MUMB AI RELATING TO ASSESSMENT YEAR 2005-06. 2. THE GROUNDS OF APPEAL NO.1(A), (B) AND (C) BY TH E ASSESSEE RELATES TO THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE AD DITION OF `. 2,31,130/- MADE BY THE AO BY WAY OF INCREASING THE VALUE OF CL OSING STOCK. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS AN INDIVIDUAL AND PROPRIETOR OF M/S. MILAP JEWELLERS. THE ASSESSE E DURING THE ITA NO : 4189/MUM/2009 SHRI. SOHANLAL J. JAIN 2 IMPUGNED ASSESSMENT YEAR WAS ENGAGED IN DEALING IN & MANUFACTURING OF GOLD ORNAMENTS AND LABOUR CHARGES OF GOLD ORNAME NTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAS SHOWN THE VALUE OF CLOSING STOCK OF GOLD JEWELLERY AT `. 67,62,122/-, WEIGHTING 11936.667 GRAMS OF GOLD ORNAMENTS. THE BA SIS OF VALUATION OF CLOSING STOCK HAS BEEN GIVEN IN SCHEDULE-B OF BA LANCE-SHEET. ACCORDING TO THE VALUE OF THE CLOSING STOCK AT COST COMES TO `. 72,42,650/-. HOWEVER, THE VALUE OF CLOSING STOCK AT NET REALISABLE VALUE HAS BEEN SHOWN AT `. 67,62,122/- WHICH HAS BEEN TAKEN TO THE TRADING ACCOUNT, ON THE GROUND THAT THE METHOD OF V ALUATION OF CLOSING STOCK IS AT COST PRICE OR NET REALISABLE VALUE WHI CHEVER IS LESS. HOWEVER, WHILE FOLLOWING THE CLOSING STOCK AT NET R EALISABLE VALUE, THE ASSESSEE HAS NOT INCLUDED THE COST OF LABOUR CHARGE S PAID FOR MAKING THE JEWELLERY WHICH IS LYING IN THE CLOSING STOCK. THE AO, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE LABOUR CHARGES ARE NOT INCLUDED IN THE VALUATION OF CLOSING STOCK AND EXPL AIN AS TO WHY THE SAME SHOULD NOT BE ADDED TO THE VALUE OF CLOSING ST OCK. IN RESPONSE TO THE SAME, THE ASSESSEE REPLIED AS UNDER :- THE VALUATION OF CLOSING STOCK A/C OF GOLD ORNAM ENTS I AM REGULARLY MAINTAINING STOCK A/C OF GOLD ORNAME NT IN G.S. 11 AND 12 REGISTER MAINTAINED BY ME. THE VALUE OF CLOSING STOCK IS ADOPTED ON THE BASIS OF COST OR NE T REALISABLE VALUE OF GOLD ORNAMENT WHICHEVER IS LESS. THE METHO D OF VALUATION OF STOCK IS ALSO ADOPTED FROM YEAR TO YEA R. THIS IS NO REVENUE LOSS BY ADOPTING VALUATION OF STOCK A/C. ON THE BASIS OF NET REALIZATION VALUE. THE NET REALISABLE VALUE IS THE VALUE OF GOLD BAR OR PURE GOLD IN THE STOCK A/C. IF I CLOSE DOWN THE BUSINESS AND SOLD THE ORNAMENTS THE PURCHA SER WILL DETERMINE THE PRICE OF GOLD AS PER PREVAILING MARKET RATE OF PURE GOLD AFTER DEDUCTING LABOUR CHARGES AND THE MIXING METAL IN THE GOLD ORNAMENT MANUFACTURED BY ME. THER E IS NO LOSS OF REVENUE SINCE THE OPENING AND CLOSING STOCK IS VALUED BY ADOPTING SAME METHOD I.E. NET REALISABLE VALUE O R COST ITA NO : 4189/MUM/2009 SHRI. SOHANLAL J. JAIN 3 WHICHEVER IS LESS AND THE ORNAMENT ARE SOLD AS PER THE PREVAILING MARKET RATE INCLUDING LABOUR CHARGES PAI D FOR MANUFACTURE OF ORNAMENT. CONSIDERING THE ABOVE FACTS I HAVE TAKEN THE VALUE OF CLOSING STOCK OF GOLD ORNAMENTS. ON BASIS OF NET REALISABLE VALUE OR COST WHICHEVER IS LESS OF GOLD ORNAMENTS. 2.2 THE ASSESSEE ALSO SUBMITTED THE BILL-WISE DETAI LS OF LABOUR CHARGES FOR MAKING THE JEWELLERY WHICH WAS LYING IN THE CLOSING STOCK. 3. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLA NATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM, THE INCOME OF ONE Y EAR HAS TO BE ASSESSED IN THE SAME YEAR. THEREFORE, THE VALUATION OF CLOSING STOCK SHOULD BE DONE CORRECTLY TO ARRIVE AT THE CORRECT I NCOME OF THAT PARTICULAR YEAR. HE REJECTED THE PLEA OF THE ASSESS EE THAT THERE IS NO REVENUE LOSS TO THE DEPARTMENT. HE ALSO REJECTED TH E ALTERNATE PLEA OF THE ASSESSEE THAT THE NET REALISABLE VALUE SHOULD B E THE VALUE OF GOLD BAR OR PURE GOLD ON THE GROUND THAT THE LABOUR COST IS THE INTRINSIC COMPONENT OF THE GOLD JEWELLERY, WHICH IS LYING IN THE CLOSING STOCK. ACCORDING TO HIM, ALL DIRECT EXPENSES PERTAINING TO THE GOODS LYING IN THE CLOSING STOCK SHOULD BE PROPORTIONATELY ADDED T O THE VALUE OF THE CLOSING STOCK OF THE ASSESSEE. ACCORDINGLY, THE AO MADE AN ADDITION OF `. 2,31,130/- TO THE VALUE OF THE CLOSING STOCK OF THE ASSESSEE. 4. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED TH AT HE HAS VALUED ITS CLOSING STOCK OF GOLD ORNAMENT AS ON 31.03.2005 AT NET REALISABLE VALUE BY OPTING THE METHOD OF VALUATION OF CLOSING STOCK AT COST OR NET REALISABLE VALUE WHICHEVER IS LOWER. IT WAS SUBMITT ED THAT THIS METHOD IS BEING FOLLOWED REGULARLY AND CONSISTENTLY. FURTH ER, THE NET REALISABLE VALUE OF THE CLOSING STOCK OF GOLD ORNAMENTS AS ON 31.03.2005 WAS LESS THAN THE COST OF GOLD ORNAMENTS. THE BOOKS OF ACCOU NTS WERE AUDITED U/S.44AB OF THE ACT AND THE AUDITORS HAVE CERTIFIED THE CORRECTNESS OF ITA NO : 4189/MUM/2009 SHRI. SOHANLAL J. JAIN 4 THE METHOD OF VALUATION OF THE CLOSING STOCK OF GOL D ORNAMENTS. IT WAS SUBMITTED THAT THE NET REALISABLE VALUE OF THE CLOS ING STOCK OF GOLD ORNAMENTS IS CONSIDERED ON THE BASIS OF VALUE OF GO LD WHICH IT WILL GET IF WHOLE OF THE CLOSING STOCK IS SOLD TO ANY OTHER TRA DER IN THE OPEN MARKET AS ON DATE. THE SELLER WILL GET ONLY THE VALUE OF T HE GOLD THAT IS EMBEDDED IN THE GOLD ORNAMENTS AND NOT THE COST OF LABOUR CHARGES WHICH IS INCLUDED IN THE COST OF THE GOLD ORNAMENTS . REFERRING TO THE DECISION OF HON'BLE DELHI COURT IN THE CASE OF CIT VS. MAHAVIR ALUMINIUM LTD. (2008) REPORTED IN 297 ITR 77 IT WAS SUBMITTED THAT ONCE THE CLOSING STOCK IS VALUED BY THE METHOD OF A DDING DIRECT EXPENSES TO THE COST OF CLOSING STOCK, THEN THE OPE NING STOCK SHOULD ALSO BE VALUED BY THE SAME METHOD FOR CONSISTENCY. IT WAS ACCORDINGLY, SUBMITTED THAT THE ADDITION OF `. 2,31,130/- MADE ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK SHOULD BE DELETED. 4.1 HOWEVER, THE LD. CIT(A) ALSO WAS NOT CONVINCED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE AC TION OF THE AO. WHILE DOING SO, HE HELD THAT THE AO IS BOUND TO TAK E THE VIEW WHICH IS IN ACCORDANCE OF LAW AND HE IS NOT STOPPED BY CONDU CT FOR INSISTING ON THE DIFFERENT PRACTICE CONSISTENT WITH LAW. ACCORDI NG TO HIM, ESTOPPEL WILL NOT OPERATE IN THE CASE OF THE ASSESSEE. HE AL SO DISTINGUISHED THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAHAVIR ALUMINIUM LTD. (SUPRA) ON THE GROUND THAT THE SAME WAS WITH REFERENCE TO AN EFFECT TO BE GIVEN TO THE AMENDMENT MADE U/S. 145A OF THE I.T. ACT W.E.F. 01.04.1999 BY INSERTING SUB CLAUSE (B) FOR M AKING ADJUSTMENTS AND TO INCLUDE AMOUNT OF TAX, DUTY CESS OR FEE ACTU ALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. FURTHER, ACC ORDING TO HIM THE EFFECT OF ADDITION ON ACCOUNT OF VALUATION OF CLOSI NG STOCK FOR THE YEAR UNDER CONSIDERATION WILL AUTOMATICALLY BE GIVEN IN THE SUBSEQUENT ITA NO : 4189/MUM/2009 SHRI. SOHANLAL J. JAIN 5 ASSESSMENT YEAR BY WAY OF DEBITING THE TRADING ACCO UNT WITH THE OPENING STOCK, WHICH IS NOTHING BUT THE CLOSING STO CK BROUGHT FORWARD. HE ACCORDINGLY, REJECTED THE VARIOUS ARGUMENTS ADVA NCED BY THE ASSESSEE AND DISTINGUISHED THE VARIOUS DECISIONS CI TED BEFORE HIM AND UPHELD THE ACTION OF THE AO. 5. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE AO AND THE LD. CIT(A ). HE SUBMITTED THAT THE ASSESSEE IS CONSISTENTLY FOLLOWING ONE PAR TICULAR METHOD I.E. COST PRICE OR NET REALISABLE VALUE WHICHEVER IS LE SS. IF THE ASSESSEE STOPS HIS BUSINESS, THEN THE NET REALISABLE VALUE W ILL BE LESS THAN THE MARKET VALUE. HE SUBMITTED THAT THE METHOD ADOPTED BY THE ASSESSEE IS CORRECT. REFERRING TO THE DECISION OF THE TRIBUNAL IN THE CASE OF O.P. JEWELLERS VS. ACIT REPORTED IN 71 TTJ (DEL) 206 HE SUBMITTED THAT THE AO HAD ADDED LABOUR CHARGES TO THE VALUE OF GOLD OR NAMENTS VALUED BY THE VALUATION OFFICER AND THE TRIBUNAL HELD SUCH AD DITION AS UNJUSTIFIED. THEREFORE, ACCORDING TO HIM AT THE VER Y LEAST THE METHOD ADOPTED BY THE ASSESSEE FOR VALUATION OF HIS GOLD O RNAMENT IS AN ACCEPTABLE METHOD. HE SUBMITTED THAT IT IS THE PRER OGATIVE OF THE ASSESSEE TO CHOOSE THE METHOD OF ACCOUNTING AND FOL LOW IT CONSISTENTLY. HE FURTHER SUBMITTED THAT IT BECOMES TAX NEUTRAL OV ER A PERIOD OF YEARS, SINCE THE CLOSING STOCK OF ONE YEAR BECOMES THE OPE NING STOCK OF THE SUBSEQUENT YEAR. HE ACCORDINGLY, SUBMITTED THAT THE METHOD ADOPTED BY THE ASSESSEE SHOULD BE ACCEPTED AND THE ADDITION MADE BY THE AO AND UPHELD BY THE LD. CIT(A) SHOULD BE DELETED. ITA NO : 4189/MUM/2009 SHRI. SOHANLAL J. JAIN 6 7. THE LD. DR, ON THE OTHER HAND, STRONGLY RELIED O N THE ORDERS OF THE AO AND THE LD. CIT(A). HE SUBMITTED THAT THE AS SESSEE HAS OMITTED TO ADD THE COST OF LABOUR CHARGES WHILE VALUING THE CLOSING STOCK OF GOLD ORNAMENTS. HE SUBMITTED THAT EVERY ASSESSMENT YEAR BEING SEPARATE AND DISTINCT, THE ASSESSEE IS BOUND TO ADD THE COST OF LABOUR CHARGES TO THE VALUE OF THE CLOSING STOCK SO THAT THE CORRECT PROFIT CAN BE DETERMINED. THEREFORE, THE AO WAS FULLY JUSTIFIED IN ADDING THE COST OF LABOUR CHARGES TO THE CLOSING STOCK OF GOLD ORNAMEN TS. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE LD. CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSI DERED THE DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. IN O UR OPINION, THE AO WAS FULLY JUSTIFIED IN ADDING THE COST OF LABOUR CH ARGES TO THE VALUE OF THE CLOSING STOCK OF GOLD ORNAMENTS. ADMITTEDLY THE ASSESSEE HAS DEBITED LABOUR CHARGES TO THE TRADING AND PROFIT AN D LOSS ACCOUNT. THEREFORE, WITHOUT ADDING THE PROPORTIONATE LABOUR CHARGES WHILE VALUING THE GOLD ORNAMENTS AND JEWELLERY, THE CORRE CT PROFIT FOR THE YEAR CANNOT BE DETERMINED. MERELY, BECAUSE ONE FAULTY ME THOD IS FOLLOWED BY THE ASSESSEE, THE SAME IN OUR OPINION, CANNOT DEBAR THE AO TO APPLY THE CORRECT LAW. THE DECISION IN THE CASE OF O.P. J EWELLERS VS. ACIT (SUPRA) RELIED ON BY THE LD. COUNSEL FOR THE ASSESS EE IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THAT CASE, THE AO HAD ADDED THE LABOUR CHARGES TO VALUE THE GOLD ORNAMENTS VALUED BY THE V ALUATION OFFICER. THE TRIBUNAL IN THAT CASE HAD FOUND THAT THE GENERA L PRACTICE WAS THAT THE KARIGARS DID NOT SEPARATELY CHARGE FOR THE LABO UR BECAUSE WHATEVER GOLD THEY SAVED ON ACCOUNT OF SOLDERING, POLISHING ETC. WAS SUFFICIENT ENOUGH TO COMPENSATE THEM AND THE ASSESSEE HAD ALSO NOT DEBITED ANY LABOUR CHARGES TO ITS PROFIT AND LOSS ACCOUNT. HOWE VER, IN THE INSTANT CASE, THE ASSESSEE HAD DEBITED THE LABOUR CHARGES S INCE THE BILL-WISE ITA NO : 4189/MUM/2009 SHRI. SOHANLAL J. JAIN 7 DETAILS OF LABOUR CHARGES FOR MAKING THE JEWELLERY WAS ALSO GIVEN BY THE ASSESSEE HIMSELF TO THE AO. THEREFORE, THE DECISION RELIED ON BY THE ASSESSEE IS OF NO HELP. HOWEVER, THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE CLOSING STOCK FOR THIS YEAR S HOULD BE CONSIDERED AS OPENING STOCK FOR THE NEXT YEAR FINDS FORCE IN I T. THE LD. CIT(A) HAS ALSO OBSERVED THAT THE EFFECT OF ADDITION ON ACCOUN T OF VALUATION OF CLOSING STOCK FOR THE YEAR UNDER CONSIDERATION WILL AUTOMATICALLY BE GIVEN IN THE SUBSEQUENT YEAR BY WAY OF DEBITING THE TRADING ACCOUNT WITH THE OPENING STOCK, WHICH IS NOTHING BUT THE CL OSING STOCK BROUGHT FORWARD. THEREFORE, THE ASSESSEE MAY TAKE APPROPRIA TE REMEDIAL MEASURE IN ACCORDANCE WITH LAW. WE HOLD AND DIRECT ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY DISMIS SED. 9. IN GROUNDS OF APPEAL NO.2 THE ASSESSEE HAS CHAL LENGED THE LEVY OF INTEREST U/S.234A, 234B AND 234C OF THE I.T. ACT. 10. AFTER HEARING BOTH THE SIDES WE ARE OF THE CONS IDERED OPINION THAT CHARGING OF INTEREST U/S.234A, 234B AND 234C ARE MA NDATORY AND CONSEQUENTIAL IN NATURE. THEREFORE, THIS GROUND BY THE ASSESSEE IS DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF DECEMBER, 2011. S D/ - S D/ - ( N. V. VASUDEVAN ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTAT MEMBER MUMBAI, DT: 30/12/2011 ITA NO : 4189/MUM/2009 SHRI. SOHANLAL J. JAIN 8 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, E- BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI