DCIT, Ambala V. Sh.Vipin Aggarwal, Ambala Cantt.

ITA 450/CHANDI/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5061 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 03-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S S KHEMWAL
• Keywords: Cost of acquisition
• Section: 133A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 450/CHD/2010 ASSESSMENT YEAR: 2007-08 THE DCIT, VS. SHRI VIPIN AGGARWAL, AMBALA PROP M/S MUSSADI LAL HARI KISHAN DASS, AMBALA CANNT PAN NO. ABIPA6889L (APPELLANT) (RESPONDENT) APPELLANT BY :SHRI S.S.KHEMWAL RESPONDENT BY: SHRI TEJ MOHAN SINGH ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE REVENUE IS AGAINST THE ORDER OF CIT(A), PANCHKULA DATED 25.2.2010 RELATING TO ASSESSMENT Y EAR 2007-08, AGAINST THE ORDER PASSED UNDER SECTION 143 (3) OF THE I.T. ACT. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND OF APPEAL;- ON THE BASIS OF THE FACT AND IN THE CIRCUMSTANCES O F THE CASE, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 52,23,753/- ON ACCOUNT OF VALUATION OF CLOSING STOCK OF BY IGNORING THE FACT THAT THE LIFO METHOD ADOPTED BY THE ASSESSEE FOR VALUATION OF CLOSING STOCK OF JEWELLERY WAS NOT SPECIFIED BY THE ACCOUNTING STANDARD ISSUED BY ACCOUNTING STANDARD BOARD OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDI A FOR VALUATION OF INVENTORY AND THAT THE WEIGHTED AVERAGE COST METHOD WAS BEING EMPLOYED BY PROMINENT JEWELERS AS REVEALED FROM GENERAL ENQUIRY. FURTHER, NO STOCK REGISTER ITEM WISE OR DETAILED ITEM-WISE STOC K INVENTORY OR ANY EVIDENCE REGARDING THE OLD CONVENTIONAL JEWELLERY HAVING REMAINED WITH THE ASSESSEE THROUGHOUT THE YEAR WAS PRODUCED BY THE ASSESSEE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A JEWELER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER REQUISITIONED THE ASSESSEE TO FURNISH THE DETAILS OF CLOSING STOC K ALONG WITH THE METHOD OF VALUATION OF CLOSING STOCK. THE TOTAL VALUE OF CLOSING STOCK OF GOLD ORNAMENTS AS ON 31.3.2007 WAS SHOWN BY THE ASSESSEE AT RS. 3,60,67,612/- THE ASSESSEE VIDE REPLY DATED 22.12.2009 STATED THA T THE CLOSING STOCK IS VALUED AT COST PRICE. IT WAS FURTHER CLARIFIED TH AT OPENING STOCK OF 31904 GMS OF GOLD WAS VALUED AT RS. 1,53,85,902/-, COST P RICE OF WHICH WAS RS. 482/- PER GRAM. THE ASSESSEE CLAIMED THAT THE OPEN ING STOCK COMPRISED OF OLD CONVENTIONAL JEWELLERY, WAS IN LEAST CIRCULATIO N AND TOTALLY FORMED PART OF CLOSING STOCK. IT WAS FURTHER EXPLAINED T HAT OUT OF THE TOTAL JEWELLERY ACQUIRED AND PURCHASED DURING THE YEAR, 6 0% WAS SOLD DURING THE YEAR AND BALANCE WAS PART OF CLOSING STOCK, WEI GHTING APPROXIMATELY 22850 GMS, WHICH WAS VALUED @ RS. 905/- PER GM. TH E ASSESSING OFFICER OBSERVED THAT AS PER AS-2, THE ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA, FOR VALUATION OF INVENTORY, SPECIFIES THREE METHODS FOR DETERMINING THE COST OF INVENTORI ES I.E. SPECIFIC IDENTIFICATION COST METHOD, FIRST IN FIRST OUT, (FI FO) METHOD AND WEIGHT AVERAGE COST METHOD. THE ASSESSING OFFICER FURTHER OBSERVED THAT AS-2 DOES NOT SPECIFY LIFO METHOD AS A PROPER METHOD OF VALUATION OF INVENTORY. ACCORDINGLY, IT WAS HELD THAT THE APPLIC ATION OF RATE OF RS. 482/- PER GRAM ON 31905 GMS OF GOLD WAS NOT ACCEPTA BLE BECAUSE A) THE ASSESSEE HAVING FAILED TO PRODUCE ANY EVIDENCE THAT THE OLD JEWELLERY REMAINED WITH THE ASSESSEE THROUGHOUT THE YEAR ; B) NO STOCK REGISTER OR ITEM WISE STOCK INVENTORY WAS MAINTAINED OR PRODUCE D BY THE ASSESSEE; C) EVEN IF IT WAS OLD JEWELLERY, THE SAME COULD BE CON VERTED INTO LATEST DESIGNS. FURTHER, THE ASSESSING OFFICER MADE GENER AL ENQUIRIES FROM PROMINENT JEWELERS OF THE CITY, WHICH REVEALED THAT THEY HAD BEEN EMPLOYING WEIGHTED AVERAGE COST METHODS FOR VALUATI NG THE INVENTORY AND FROM THE PHOTOCOPIES OF PURCHASE BILLS RELATING TO MARCH 2007, THE AVERAGE COST OF GOLD WAS AROUND RS. 900 PER GRAM, S ILVER RS. 105 PER GRAM AND DIAMOND RS. 7000 PER CARAT IN DECEMBER 2006. T HE ASSESSING OFFICER REVALUED THE CLOSING STOCK BY ADOPTING WEIG HTED AVERAGE COST METHOD AT RS. 4,31,99,512/-. THE WORKING BY THE AS SESSING OFFICER IS INCORPORATED AT PAGE 4 OF THE ASSESSMENT ORDER. THE VALUE OF CLOSING STOCK OF PEARL WAS TAKEN AT RS. 8,473/-. THE VALUE OF TOTAL STOCK SHOWN BY THE ASSESSEE WAS RS. 3,79,84,232/- AS AGAINST RS. 4 ,32,07,985/- WORKED OUT BY THE ASSESSING OFFICE AND AN ADDITION OF RS. 52,23,753/- WAS MADE AS INCOME OF THE ASSESSEE. 4. BEFORE THE CIT(A), THE PLEA OF THE LEARNED COUNS EL FOR THE ASSESSEE WAS THAT THE ASSESSEE WAS VALUING ITS STOCK AT COS T FOLLOWING LIFO METHOD, WHICH WAS BEING FOLLOWED REGULARLY FROM YE AR TO YEAR. IN RESPECT OF THE INCREASED STOCK, THE SAME WAS VALUED AT COST PRICE. IT WAS POINTED OUT TO THE CIT(A) THAT THE ASSESSMENTS FOR ASSESSMENT YEAR 2005- 06 AND 2006-07 WERE COMPLETED U/S 143 (3) OF THE AC T, IN WHICH THE VALUATION OF CLOSING STOCK WAS ACCEPTED AS DECLARED BY THE ASSESSEE. IT WAS FURTHER POINTED OUT THAT AS-2 ACCOUNTING STANDA RD WAS NOT BINDING ON THE ASSESSEE WHO WAS REGULARLY AND CONSISTENTLY FOL LOWING THE METHOD FOR VALUATING HIS STOCK. FURTHER, SECTION 145 A OF THE ACT WAS INTRODUCED W.E.F. ASSESSMENT YEAR 1999-2000, WHICH HAD OVERRID ING EFFECT OVER SECTION 145 REGARDING VALUATION OF STOCK AND AS PER THE SAID SECTION, THE INVENTORY SHALL BE IN ACCORDANCE WITH THE METHOD OF ACCOUNTED REGULARLY FOLLOWED BY THE ASSESSEE. FURTHER, THE ASSESSEE PO INTED OUT THAT COMPLETE BOOKS OF ACCOUNT REFLECTED THE DAY TO DAY PURCHASES , SALES AND STOCK INVENTORY AND THE CONVERSION OF OLD JEWELLERY TO NE W JEWELLERY WOULD NOT INCREASE THE COST OF ACQUISITION OF JEWELLERY. R ELIANCE WAS PLACED ON THE RATIO LAID BY THE HON'BLE SUPREME COURT IN CHAINRUP SAMPAT RAM (24 ITR 481) FOR THE RATIO THAT THE CLOSING STOCK IS TO BE VALUED EITHER AT COST OR MARKET VALUE, WHICHEVER IS LOWER AND THE VALUE OF S TOCK CANNOT BE APPRECIATED HIGHER THAN THE COST BECAUSE THE CLOSIN G STOCK IS NOT THE SOURCE OF PROFIT. FURTHER, IN CASE THE VALUE OF CL OSING STOCK IS TO BE INCREASED, THE VALUE OF OPENING STOCK HAS TO BE INC REASED TO REFLECT THE TRUE PROFITS. THE ASSESSEE POINTED OUT THAT SURVEY U/S 133A OF THE ACT WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSE E ON 23.6.2009 AND THE DIFFERENCE MAINLY ON ACCOUNT OF WEIGHT OF JEWELLERY AND NOT ON ACCOUNT OF RATE OF THE JEWELLERY FOUND, BEING RS. 1,01,15,788/ - WAS DECLARED AS ADDITIONAL INCOME FOR ASSESSMENT YEAR 2010-11. THE ENTIRE CLOSING STOCK WAS REVALUED AT THE CURRENT PURCHASE PRICE AND THE SAME INCLUDED THE JEWELLERY AS ON 1.4.2007. THE PLEA OF THE ASSESSE E IN THIS REGARD WAS THAT REVALUATION IN THE PRESENT YEAR WOULD AMOUNT TO DO UBLE TAXATION. THE CIT(A) OBSERVED THAT THE ASSESSEE WAS CONSISTENTLY FOLLOWING THE METHOD OF ACCOUNTING WHICH COULD NOT BE DISTURBED AND THE VALUATION OF CLOSING STOCK COULD NOT BE A SOURCE OF PROFIT. THE CIT(A) FURTHER OBSERVED THAT IN CASE THE VALUATION OF CLOSING STOCK WAS DISTURBED, THE VALUE OF OPENING OF STOCK SHOULD CORRESPONDINGLY BE ADJUSTED AND IN THE PRESENT CASE, THE ASSESSING OFFICER HAD CHANGED THE VALUE OF CLOSING STOCK BUT NOT THAT OF OPENING STOCK. IN VIEW OF THE DECLARATION OF ADDIT IONAL INCOME BY THE ASSESSEE DURING SURVEY CONDUCTED ON 23.6.2009, IT W AS HELD THAT FURTHER ADDITION IN THE YEAR WOULD RESULT IN DOUBLE ADDITIO N. ACCORDINGLY, THE ASSESSING OFFICER WAS DIRECTED TO DELETE THE ADDITI ON OF RS. 52,23,753/-. REVENUE IS IN APPEAL AGAINST THE SAID ORDER. 5. THE LEARNED DR FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. THE LEARNED AR FOR THE ASSESSE E POINTED OUT THAT SAME METHOD OF VALUING THE CLOSING STOCK WAS BEING FOLLO WED BY THE ASSESSEE AND NO DEFECTS WERE POINTED OUT IN THE METHOD OF AC COUNTING FOLLOWED BY THE ASSESSEE. THE LEARNED AR FURTHER POINTED OUT TH AT THE ASSESSEE MADE THE SURRENDER FOR UNDER VALUATION OF STOCK PURSUANT TO THE SURVEY CONDUCTED ON 24.6.2009 AND ADDITIONAL INCOME OF RS. 1.35 CRORES WAS OFFERED AND TAXES PAID AS PER THE COMPUTATION FILED AT PAGE 69 OF THE PAPER BOOK. THE LEARNED AR FURTHER SUBMITTED THAT SIMILA R METHOD OF VALUATION OF CLOSING STOCK HAS BEEN ACCEPTED IN ASSESSMENT YE ARS 2005-06 AND 2006-07 VIDE ORDER PASSED U/S 143 (3) OF THE ACT. IT WAS POINTED OUT THAT SIMILAR METHOD OF VALUATION OF CLOSING STOCK WAS BE ING ADOPTED IN THE EARLIER YEARS. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ISSUE ARISING IN THE PRESENT APPEAL IS WITH REGARD TO THE VALUATION OF CLOSING STOCK. THE ASSESSEE IS A JEWELER AND HAD D ECLARED CLOSING STOCK OF RS. 3,79,84,232/- AS ON 31.3.2007. THE CONTENTIO N OF THE ASSESSEE WAS THAT IT WAS VALUING THE CLOSING STOCK AT COST. OUT OF THE TOTAL CLOSING STOCK OF 54,756 GMS, THE ASSESSEE CLAIMS THAT GOLD WEIGHI NG 31,905 GMS WAS ITS OPENING STOCK VALUED @ RS. 482/- PER GRAM. THE B ALANCE STOCK AVAILABLE OUT OF THE PURCHASES MADE DURING THE YEAR WAS 22850 GMS WHICH WAS VALUED AT COST PRICE OF RS. 905/- PER GRAM. THE CO NTENTION OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER AS ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE WAS NOT FOLLOWING ONE OF THE M ETHODS SPECIFIED IN ACCOUNTING STANDARD AS-2 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA FOR DETERMINING THE COST OF INVENTORIES. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT THE OPENING STOCK OF 31950 GMS WAS VALUED AT RS. 482/- PER GRAM AND SIMILAR VALUE BE ADOPTED TO WORK OUT THE VALUE OF CLOSING STOCK. IT AS FURTHER EXPLAINED T HAT THE SAID JEWELLERY BEING OLD CONVENTIONAL JEWELLERY WAS NOT SOLD DURIN G THE YEAR AND WAS AVAILABLE AT THE CLOSE OF THE YEAR. THE BALANCE STO CK WAS OUT OF THE PURCHASES MADE DURING THE YEAR LESS SALES MADE BY T HE ASSESSEE. THE ASSESSING OFFICER WHILE RE-COMPUTING THE VALUE OF S TOCK HAS ACCEPTED THE WEIGHTS IN GRAMS OF STOCKS BUT HAD ONLY REVALUED TH E STOCK BY ADOPTING A FIGURE HIGHER THAN RATE DISCLOSED BY THE ASSESSEE. WE FIND NO MERIT IN THE SAID ADDITION BEING MADE BY THE ASSESSING OFFICER W HERE THE VALUATION OF CLOSING STOCK HAS BEEN CHANGED VIS-A-VIS ITS VALUE AND NOT BECAUSE OF ANY DIFFERENCE IN THE QUANTITY OF STOCK. THE ASSESSEE WAS CONSISTENTLY FOLLOWING A PARTICULAR METHOD OF ACCOUNTING WHICH I S BEING ACCEPTED FROM YEAR TO YEAR AND IN THE ABSENCE OF ANY CONTRARY FIN DINGS BY THE ASSESSING OFFICER, THERE IS NO MERIT IN NOT ADOPTING THE METH OD OF VALUATION OF STOCK BEING CONSISTENTLY FOLLOWED BY THE ASSESSEE. FURTH ER WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN CHAINRUP SAMPAT RAM VS. CIT (SUPRA) WHEREIN IT HAS BEEN HELD THAT THE VALUE OF STOCK CANNOT BE APPRECIATED HIGHER THAN THE COST BECAUSE THE CLOSING STOCK IS NOT THE SOURCE OF PROFIT FOR THE ASSESSEE. IT HAS ALSO BEEN HELD BY THE HON'BLE SUPREME COURT THAT THE CLOSING STOCK IS TO BE VALUE D EITHER AT COST OR MARKET VALUE, WHICHEVER IS LOW. IN THE FACTS AND C IRCUMSTANCES OF THE PRESENT CASE, WE ARE IN CONFORMITY WITH THE ORDER O F CIT(A) AND UPHOLD THE SAME. THERE IS NO MERIT IN ADOPTING THE WEIGH TED AVERAGE COST METHOD FOR VALUATION OF INVENTORY OF STOCK IN THE C IRCUMSTANCES OF THE CASE. WE CONFIRM THE DELETION OF ADDITION MADE BY THE ASSESSING OFFICER TOTALING RS. 52,23,753/-. THE GROUND OF APPEAL RAI SED BY THE REVENUE IS THUS DISMISSED 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF JULY, 2010. SD/- SD/- (G.S.PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23 RD JULY, 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR