A.C.I.T. 21(2), MUMBAI V. SUN DIAM, MUMBAI

ITA 4553/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71165 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 05-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Corroborative evidences; Deemed export
• Section: 145

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI .. , !'# $ $ $ $ ! %, & !'# !' BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG, J M !./ I.T.A. NO. 4553 /MUM/2012 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEAR : 2009-10) ASSTT. COMMISSIONER OF INCOME TAX 21(2), ROOM NO. 508, C-10, 5 TH FLOOR, B.K.C., BANDRA (E), MUMBAI 400 051. ) ) ) ) / VS. M/S SUNDIAM, C-1, VIRESHWAR CHHAYA, TEJPAL ROAD, VILE PARLE (EAST), MUMBAI -57. #+ !./ PAN : AAKFS6974P ( +, / // / APPELLANT ) .. ( -.+, / RESPONDENT ) +, / 0 ! / APPELLANT BY : SHRI JAVED AKHTAR -.+, / 0 ! / RESPONDENT BY : SHRI DEEPAK TRALSHAWALA !)$ / / // / DATE OF HEARING : 08-08-2013 12* / / DATE OF PRONOUNCEMENT : 18-09-2013 '3 / O R D E R PER P.M. JAGTAP, A.M . : .. , !'# THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) 32, MUMBAI DTD. 30-04-2012 FOR A.Y. 2009-1 0 WHEREBY HE DELETED THE ADDITION OF RS. 43,47,333/- MADE BY THE A.O. ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. 2. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSH IP FIRM WHICH IS ENGAGED IN THE BUSINESS OF TRADING OF CUT AND POLISHED DIAM ONDS. THE RETURN OF INCOME ITA 4553/MUM/2012 2 FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 18-9-2009 DECLARING TOTAL INCOME OF RS. 30,66,950/-. IN THE PROFIT AND LOSS ACCOUNT FILED ALONG WITH THE SAID RETURN, CLOSING STOCK OF 2031.32 CARATS OF DIA MONDS WAS SHOWN BY THE ASSESSEE AT THE VALUE OF RS. 66,84,292/-. WHEN THE AO ASKED THE ASSESSEE TO FURNISH THE BASIS OF VALUATION OF THE CLOSING STOCK , IT WAS SUBMITTED THAT THE ASSESSEE HAS MADE THE VALUATION AS PER THE ACCOUNTI NG STANDARDS AS-2 AT COST OF MARKET VALUE WHICHEVER IS LOWER. IT WAS ALS O STATED THAT ASSESSEE IS FOLLOWING FIFO METHOD AND THE STOCK HAS BEEN VALUED AS PER THE QUALITY OF THE DIAMOND PURCHASED. COPIES OF THE PURCHASE BILLS TO SUPPORT THE COST PRICE OF THE DIAMOND APPEARING IN THE CLOSING STOCK WERE ALS O FURNISHED. THE ASSESSEE ALSO FURNISHED THE QUALITY WISE DETAILS OF VALUE OF THE DIAMOND LYING IN THE STOCK AS ON 31-03-2008 AS WELL AS ON 31-03-2009 TO SHOW THAT MOST OF THE STOCK AS ON 31-03-2009 WAS OUT OF THE STOCK WHICH W AS ALSO APPEARING AS ON 31-03-2008 IN BALANCE SHEET OF ASSESSEE. THE AO HOW EVER DID NOT AGREE WITH THE ASSESSEE AS HE DID NOT FIND IT POSSIBLE TO IDEN TIFY THE QUALITY OF THE DIAMOND PURCHASED ON THE BASIS OF RELEVANT BILLS PR ODUCED BY THE ASSESSEE. HE, THEREFORE, ISSUED A SHOW CAUSE NOTICE TO THE AS SESSEE PROPOSING TO VALUE THE ENTIRE STOCK AS PER THE LAST BILL PRESUMING THA T THE EARLIER STOCK WAS SOLD FIRST AS PER FIFO METHOD AND THE STOCK AVAILABLE AS PER CLOSING STOCK WAS OUT OF LAST PURCHASES ONLY. IN RESPONSE TO THE SHOW CAU SE NOTICE, THE ASSESSEE PRODUCED A LOT WISE STOCK REGISTER REFLECTING THE D ETAILS OF STOCK MOVEMENT OF EACH QUALITY TO PROVE AS TO THE QUALITY OF ITEMS LY ING IN THE CLOSING STOCK WITH CORRESPONDING PURCHASE BILLS IN SUPPORT OF VALUATIO N THEREOF. ACCORDINGLY, THE ASSESSEE OBJECTED TO THE METHOD PROPOSED BY THE AO TO VALUE THE CLOSING STOCK ON THE BASIS OF LAST PURCHASE BILL IGNORING T HE FACT THAT THE STOCK WAS OUT OF LAST YEAR STOCK ITSELF. IN THE ASSESSMENT OR DER, THE A.O. ALSO OBSERVED THAT THE CLOSING STOCK SHOWN BY THE ASSESSEE COVERE D THE ENTIRE OPENING STOCK AND TWO OTHER PURCHASES MADE DURING THE YEAR ON 14- 08-2008 AND 13-01- 2009 AND ACCEPTED THAT THE OPENING AND CLOSING STOC K WAS THE SAME EXCEPT FOR 341.8 CARATS OF DIAMOND WHICH WERE OUT OF THE P URCHASES MADE DURING THE ITA 4553/MUM/2012 3 CURRENT YEAR. BUT, HE CONCLUDED THAT THE METHOD ADO PTED BY THE ASSESSEE WAS NEITHER FIFO NOR LIFO. IT WAS FURTHER NOTED BY AO T HAT THE PURCHASE BILLS PRODUCED BY THE ASSESSEE DID NOT MENTION THE QUALIT Y OF THE DIAMOND AND THEREFORE THE ASSESSEE WAS PURCHASING DIAMOND BY QU ANTITY AND NOT BY THE QUALITY. HE, THEREFORE, REJECTED THE STOCK VALUATIO N SHOWN BY THE ASSESSEE AND VALUED THE ENTIRE STOCK OF 2031.31 CARATS ON THE BA SIS OF LAST PURCHASE BILL RATE AT RS.1,10,31,625/-. ACCORDINGLY ADDITION OF R S.43,47,333/- (11031625- 6684292) WAS MADE BY THE AO ON ACCOUNT OF UNDER VAL UATION OF STOCK. 3. THE ADDITION MADE BY THE A.O. ON ACCOUNT OF UNDE R VALUATION OF CLOSING STOCK WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL F ILED BEFORE THE LD. CIT(A) AND THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF O F THE ASSESSEE BEFORE THE LD. CIT(A) IN SUPPORT OF THE STAND THAT THE SAID AD DITION MADE BY THE A.O. WAS NOT SUSTAINABLE: THE LEARNED ASSESSING OFFICER MADE VALUATION OF CL OSING STOCK RS. 11031625/- INSTEAD OF CLOSING STOCK AS PER AUDITED BOOKS OF AC COUNT RS. 6684292/-. 1. THE LEARNED ASSESSING OFFICER HAS NOT GIVEN THE CALCULATION SHEET FOR ARRIVING THE CLOSING STOCK VALUATION OF RS. 1103 16 25/-(ONE CRORE TEN LACS THIRTY ONE THOUSAND & SIX HUNDRED TWENTY FIVE ONLY). 2. THE LEARNED ASSESSING OFFICER HAS NOT CONSIDERED THE LETTER FILED ON 20.12.11 REGARDING THE LOT WISE MAINTENANCE OF STOC K REGISTER. ` 3. THE APPELLANT IS MAINTAINING THE PROPER STOCK RECORDS REGARDING THE PARTICULAR PURCHASES AND THE LOT WISE STOCK IS MAIN TAINED SEPARATELY. FURTHER THE GOODS ARE NOT MIXED WITH THE OTHER QUAL ITY GOODS WHICH IS NOT MATCHING THE SAME STANDARD AND QUALITY AS WELL AS RATE. THE LOT WISE GOODS ARE SOLD DURING THE YEAR WHICH MAY BE NO TICED FROM PAGE NO 8 MONTH WISE STOCK SUMMARY. 4. THE LEARNED ASSESSING OFFICER HAS NOT OBJECTED T HE OPENING STOCK VALUATION & SAME WAS ACCEPTED. THE OPENING STOCK WA S CARRY FORWARD NON MOVING STOCK RELATING TO MARCH 2005,2006,2007 & 2008 THE TOTAL AMOUNT OFRS.5212169/- DURING THE COURSE OF ASSESSME NT PROCEEDING THE APPELLANT SUBMITTED THE NECESSARY EVIDENCES LIK E PURCHASE BILL & OTHERS SUPPORTING TO CLAIM THE SAME. THE LEARNED AS SESSING OFFICER IGNORED THE SAME & ARBITRATORY VALUATION OF RS.L 10 3 1625/- WITHOUT ASSIGNING ANY FULL PROOF SUPPORTING, WHICH IS BAD I N LAW & AGAINST ITA 4553/MUM/2012 4 NATURAL JUSTICE. THEREFORE THE NET ADDITION ON ACCO UNT OF CLOSING STOCK RS.4347333/- BE DELETED. 5. THE LEARNED ASSESSING OFFICER HAS NOT REJECTED T HE AUDITED BOOKS OF ACCOUNTS & MADE THE ADDITION ON ACCOUNT OF VALUATIO N OF CLOSING STOCK WHICH IS BAD IN LAW & AGAINST NATURAL JUSTICE. 6. THE APPELLANT HAD SUBMITTED ALL THE NECESSARY EV IDENCES IN SUPPORT OF CLOSING STOCK DISPOSED DURING THE YEAR ENDED 3LM ARCH 2010 & THE CLOSING STOCK WAS NIL. FURTHER THE APPELLANT HAD SOLD OUT 2030.71 CTS TOTA L PRIZE OF RS.6905943/- THE TOTAL PROFIT ON THAT PARTICULAR LO T WORKS OUT TO RS.221651/-(TWO LACS TWENTY ONE THOUSAND SIX HUNDRE D FIFTY ONE ONLY).THE APPELLANT HAD ALREADY SUBMITTED AUDITED B ALANCE SHEET & SALES INVOICE WIDE PAPER BOOK DATED 19/4/20 12. REASONS FOR NON MOVEMENTS OF GOODS OF PREVIOUS YEAR S. THE APPELLANT HAD FOLLOWING GOODS WHICH WERE NON MO VING. I. LB PK 11 720.7L CTS. 2. DLB PK 11 968.8L CTS. 3. LC PK 11 341.80 CTS. THE MOVING GOODS FOR THE CURRENT YEAR WAS UNDER. 1. S11 ` 2. S12 3. S13 4. LI 5. L2 6. PK3 7. L L2 MIX 8. FULL CUT WHITE 9. FULL CUT ROUND 10. S1 S2 MIX 11.J VS1 12.I VSI 13. G VVS2 14. VS DURING THE YEAR NON MOVING GOODS RELATED TO MARCH 2 005,2006,2007 & 2008 WAS NOT IN MUCH DEMAND & THE APPELLANT COULD NOT C LICK THE DEAL. DURING THE YEAR ENDED 3LMARCH 2010 THE SAME QUALITY OF GOODS WAS IN DEMAND & SAME WAS SOLD WITH PROFIT. THE APPELLANT H AS ALSO PROVED THE SAME BY SUPPORTING DOCUMENTARY EVIDENCES. ITA 4553/MUM/2012 5 THE APPELLANT SUBMITTING HERE WITH THAT THE TOTAL S ALES DURING THE YEAR ARE AS UNDER. CTS RS. 1) DEEMED EXPORTS 1613.76 16037771/- 2) LOCAL SALES IN US$ 42.19 4957264/- 3) EXPORTS 864.29 16290714/- 4) LOCAL SALES 51.25 313 125/- TOTAL 2571.49 37598874 /- THE APPELLANT IS SUBMITTING HERE WITH ITEMWISE & QU ALITY WISE GROSS PROFIT EARNED WHICH IS RS.3180612/- DURING THE YEAR AS PER EXCEL SHEET PAGE NO 1 TO 7. FURTHER IN ADDITION TO GROSS PROFIT THE APPELLANT H AS EARNED FOREIGN EXCHANGE FLUCTUATION PROFIT ON ACCRUAL BASES WHICH IS RS.216 3412/-(TWENTY ONE LACS SIXTY THREE THOUSAND FOUR HUNDRED TWELVE) AS PER EX CEL SHEET PAGE NO 10. THEREFORE THE TOTAL GROSS PROFIT EARNED ON TOTAL SA LES OF RS.37598874/- OF RS.5351605/- WHICH COMES TO 14.23% THE GROSS PROFIT RATIO OF LAST 3YEARS ARE AS UNDER: YEAR SALES GP NP 2005-2006 13851958/- 7.66% 3.39% 2006-2007 9120265/- 10.31% 3.83% 2007-2008 19853030/- 9.36% 4.82% 2008-2009 37598873/- 8.46 % 8.14% LOOKING ABOVE FACTS & EVIDENCES ON RECORDS THE ADDI TION ON ACCOUNT OF CLOSING STOCK RS.434733/- BE DELETED. 4. THE LD. CIT(A) FOUND MERIT IN THE SUBMISSIONS M ADE ON BEHALF OF THE ASSESSEE AND DELETED THE ADDITION MADE BY THE A.O. ON ACCOUNT OF ALLEGED UNDER VALUATION OF STOCK FOR THE FOLLOWING REASONS GIVEN IN PARA 3.3 OF HIS IMPUGNED ORDER:- 3.3. I HAVE CONSIDERED THE ARGUMENTS OF THE LD. AR AND PERUSED THE ASSESSMENT ORDER. THE APPELLANT HAS BEEN FOLLOWING THE METHOD OF VALUATION CONSISTENTLY SINCE EARLIER YEARS. THOUGH IT IS TRUE AT THE PURCHASE BILLS DO NOT MENTIONED THE QUALITY OF DIAM OND BUT THE APPELLANT HAS GIVEN NECESSARY DETAILS INCLUDING THE LOT WISE STOCK MOVEMENT REGISTER AND CORRESPONDING PURCHASE AND SA LE BILLS BEFORE THE ASSESSING OFFICER TO ESTABLISH THE NEXUS BETWEE N THE PARTICULAR LOT ITA 4553/MUM/2012 6 OF DIAMOND PURCHASED AND SOLD TO PROVE THAT THE ST OCK AVAILABLE IN THE CLOSING STOCK WAS MOSTLY OUT OF OPENING STOCK ONLY EXCEPT 341.8 CTS, A FACT WHICH HAS BEEN ADMITTED BY AO ALSO IN THE ASST T ORDER. THE APPELLANT IS NOT A RETAILER BUT A WHOLESALER IN EXP ORT OF DIAMONDS AND THE DIAMONDS ARE PURCHASED IN LOTS AND THEN THEY AR E SOLD OR EXPORTED IN LOTS AFTER ASSIGNING PARTICULAR QUALITY TO THE D IAMOND OUT OF THE LOTS. IT IS ONLY ELEMENTARY TO HOLD THAT THE VALUE OF A D IAMOND WOULD DEPEND ON QUALITY OF THE PARTICULAR LOT OF DIAMOND AND THU S DIAMONDS PURCHASED AS PER DIFFERENT LOTS MAY HAVE DIFFERENT VALUES. THEREFORE ONE CANNOT COMPARE ALL DIAMONDS TO BE OF SAME VALUE UNL ESS THERE ARE SUPPORTING EVIDENCES TO SUPPORT THE VALUE. THE APPE LLANT HAS VALUED THE DIAMONDS AS PER THE COST PRICE FOR WHICH THE SA ID LOT WAS PURCHASED WHEREAS THE AO HAS VALUED THE ENTIRE STOCK COMPRISI NG OF DIAMONDS PURCHASED IN DIFFERENT LOTS IN DIFFERENT YEARS FOR VARYING PRICES, AT SINGLE RATE AS PER THE PRICE OF LAST LOT PURCHASED BY ASSE SSEE DURING THE YEAR. ONCE THE AO HAS HIMSELF ACCEPTED AFTER DETAILS GIVE N BY APPELLANT THAT EXCEPT FOR TWO ITEMS OF DIAMOND WEIGHING 341.8 CARA TS, ALL OTHER DIAMONDS ARE OUT OF THE OPENING STOCK ONLY I.E PURC HASED IN EARLIER YEARS THEN IT IS ILLOGICAL TO APPLY THE LAST PURCHA SE PRICE OF THIS YEAR TO THE DIAMONDS PURCHASED IN EARLIER YEARS JUST BECAUS E THE ASSESSEE HAS STATED THAT IT FOLLOWED F1FO METHOD AND THAT THERE WAS NO QUALITY MENTIONED IN THE PURCHASE BILLS. ONCE THE VALUE OF A PARTICULAR LOT OF DIAMOND IN EARLIER YEARS HAVE BEEN ACCEPTED AND IT IS ALSO ADMITTED THAT IT WAS THE SAME LOT WHICH IS APPEARING IN CLOS ING STOCK AS ON 31/3/09 ALSO, THEN THE AO CANNOT CHANGE THE BASED O N CURRENT YEAR PRICES WITHOUT GIVING A FACTUAL FINDING THAT THE VA LUE ADOPTED IN LAST YEAR WAS INCORRECT. THE AO CANNOT DISTURB THE VALUE OF OPENING STOCK WITHOUT ALTERING THE VALUE OF CLOSING STOCK OF EARL IER YEAR. AS REGARDS DISPUTE THAT WHETHER THE METHOD ADOPTED BY APPELLAN T WAS FIFO OR LIFO, IT IS IRRELEVANT IN THE PRESENT FACTS BECAUSE THESE MERE RELEVANT ONLY WHEN THE SAME KIND OF STOCK IS PURCHASED & SOL D AS WELL APPEARING IN THE CLOSING STOCK THAT THE CONCEPT OF FIFO OR LIFO, COMES INTO PLAY. BUT IN CASE OF APPELLANT SINCE EACH LOT OF DIAMOND PURCHASED HAS DIFFERENT QUALITY, ITS VALUE WILL BE DIFFERENT AND THEREFORE IT IS NOT CORRECT TO VALUE ALL LOTS OF DIAMONDS AT ANY ONE RA TE IF IT IS PROVED THAT THEY WERE PURCHASED AT DIFFERENT, VALUE AND THEY WE RE OF DIFFERENT QUALITY AND MOREOVER THEY ARE NOT PURCHASED OR SOLD DURING THE YEAR. THUS IN CASE OF APPELLANT VALUATION OF DIAMONDS AS PER THE PURCHASE PRICE OF THE LOT AS PER WHICH THEY WERE PURCHASED I S THE LOGICAL AND CORRECT METHOD. FURTHER, THE AO HAS NEITHER REJECTE D THE BOOKS OF A/C U/S 145 NOR FOUND ANY DISCREPANCY IN THE LOT WISE STOCK REGISTER AND THE PURCHASE AND SALE SHOWN BY ASSESSEE, THEN IT CA NNOT BE SAID THAT THE DIAMONDS APPEARING IN THE OPENING STOCK WAS SOL D AND IT WAS THE DIAMONDS PURCHASED DURING THE CURRENT YEAR ONLY ARE IN THE CLOSING STOCK. HENCE ON THIS LOGIC ALSO THERE IS NO REASON TO VALUE THE OPENING STOCK AT PER LAST PURCHASE PRICE OF CURRENT YEAR. T HUS THE AO ALSO CANNOT PRESUME THE AS PER FIFO METHOD THE OPENING S TOCK WAS DEEMED TO BE SOLD THOUGH WHEN HE HIMSELF GIVES A CATEGORIC AL FINDING IN ASSTT ORDER THAT THE VERY SAME OPENING STOCK WAS STILL LY ING IN CLOSING STOCK ITA 4553/MUM/2012 7 AS ON 3 1/3/2009 ALSO WHEN THE ASSESSEE HAS ALREADY PRODUCED ALL THE NECESSARY DETAILS BEFORE AO TO PROVE THAT THE OP ST OCK OF DIAMONDS WILL BE AVAILABLE AND HAVE NOT AT ALL BEEN SOLD DURING T HE YEAR. MERE ABSENCE OF QUALITY OF DIAMONDS IN THE PURCHASE BIL LS DOES NOT BY ITSELF MAKES AN ACCOUNT INCOMPLETE OR INCORRECT AS THE TRA DING IN A PARTICULAR COMMODITY IS DONE AS PER BUSINESS PRINCIPLES, OTHER WISE IN CASE OF MANUFACTURER OF GARMENTS, THE A/S WOULD HAVE TO BE REJECTED MERELY BECAUSE HIS PURCHASES ARE IN METERS AND THE SALES A RE IN NUMBERS OR PRICES. FURTHER, THE VALUATION METHOD ADOPTED BY TH E ASSESSEE IS REASONABLE AND CONSISTENT. THE VALUATION OF STOCK BY AO IS UNREALISTIC WHICH IS EVIDENT FROM THE FACT THAT DUE TO THE VAL UATION OF STOCK OF STOCK AT RS 1,10,31,625 BY THE AO AS AGAINST RS 66, 84,292 SHOWN BY APPELLANT, HAS RESULTED IN ABNORMAL INCREASE OF THE GP OF THE APPELLANT TO 20% WHICH IS MORE THAN TWICE THE GP SHOWN BY APP ELLANT AT 7.6% IN AY 2006-07,10.3% IN AY 2007-08, & 9.3% IN AY 2008- 09. THE FACT THAT THE STOCK OF 2031.32 CTS HAVE BEEN SOLD IN AY 2010 FOR 69,05,947 AS AGAINST THE VALUE OF SUCH STOCK AT RS 66,84,292 AS ON 31 /3/2009 IS ALSO SUGGESTIVE THAT THE VALUE OF STOCK AS ON 31/03 /2009 WAS FAIR AND REASONABLE BECAUSE IF THE VALUATION OF RS 1,10,3 1 ,625 AS ESTIMATED BY AO WERE TO BE TAKEN AS CORRECT, THEN ON A SALE PRIC E OF 69,05,947 IT WOULD HAVE RESULTED IN GROSS TRADING LOSS OF MORE T HAN 53% WHICH IS UNEXPECTED IN A TRADE OF DIAMOND. HENCE EVEN ON THE BASIS, THERE CAN BE NO DOUBT ABOUT THE CORRECTNESS OF THE VALUATION OF DIAMONDS DONE BY THE APPELLANT, WHICH IS FAIR AND REASONABLE & DULY SUPPORTED BY THE LOT STOCK REGISTERS. UNDER THESE CIRCUMSTANCES ADDITION OF R .43,47,333 ON ACCOUNT OF UNDER VALUATION OF STOCK IS NOT JUSTIFIE D AND THE SAME IS DIRECTED TO BE DELETED. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVE NUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. THE LD. D.R. STRONGLY RELIED ON THE ORDER OF TH E A.O. IN SUPPORT OF THE REVENUES CASE ON THE ISSUE RAISED IN THIS APPEAL. HE SUBMITTED THAT THE METHOD OF VALUATION OF STOCK FOLLOWED BY THE ASSESS EE WAS NOT FOUND TO BE PROPER BY THE A.O. ON THE BASIS OF SPECIFIC REASONS GIVEN IN THE ASSESSMENT ORDER. HE CONTENDED THAT THE LD. CIT(A), HOWEVER, ACCEPTED THE METHOD OF VALUATION OF CLOSING STOCK FOLLOWED BY THE ASSESSEE AND DELETED THE ADDITION MADE BY THE A.O. ON ACCOUNT OF UNDER VALUATION OF S TOCK OVERLOOKING THE SPECIFIC ADVERSE FINDINGS RECORDED BY THE A.O. IN T HE ASSESSMENT ORDER. ITA 4553/MUM/2012 8 6. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, STRONGLY SUPPORTED THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE A DDITION MADE BY THE A.O. ON ACCOUNT OF ALLEGED UNDER VALUATION OF THE CLOSING S TOCK. HE SUBMITTED THAT EVEN THOUGH THE QUALITY OF DIAMONDS WAS NOT MENTION ED IN THE PURCHASE BILLS, IT WAS DULY RECORDED BY THE ASSESSEE IN THE BOOKS O F ACCOUNT AND EVEN THE QUANTITATIVE DETAILS WERE ALSO MAINTAINED IN RESPEC T OF EACH QUALITY OF DIAMONDS SEPARATELY. HE SUBMITTED THAT THESE DETAI LS WERE FURNISHED BY THE ASSESSEE BEFORE THE A.O. AND IT WAS ALSO PLEADED BE FORE THE A.O. THAT KEEPING IN VIEW THE DIFFERENT QUALITY OF DIAMONDS DEALT WIT H BY THE ASSESSEE, THE FIFO METHOD WAS BEING FOLLOWED QUALITY-WISE I.E IN RESPE CT OF EACH QUALITY OF DIAMONDS. HE CONTENDED THAT THE A.O., HOWEVER, COU LD NOT PROPERLY APPRECIATE THIS IMPORTANT ASPECT OF THE VALUATION O F CLOSING STOCK MADE BY THE ASSESSEE BY FOLLOWING A PARTICULAR METHOD CONSISTEN TLY AND MADE THE ADDITION ON ACCOUNT OF ALLEGED UNDER VALUATION OF CLOSING ST OCK BY MAKING THE VALUATION OF CLOSING STOCK ON THE BASIS OF THE RATE CHARGED FOR THE DIAMONDS IN THE LAST BILL. HE CONTENDED THAT THE LD. CIT(A), HO WEVER, CORRECTLY UNDERSTOOD AND APPRECIATED THE METHOD CONSISTENTLY FOLLOWED BY THE ASSESSEE AND DELETED THE ADDITION MADE BY THE A.O. ON ACCOUNT OF UNDER V ALUATION OF CLOSING STOCK AFTER HAVING FOUND ON THE BASIS OF QUANTITATIVE DET AILS FURNISHED BY THE ASSESSEE THAT THE VALUATION OF CLOSING STOCK SHOWN BY THE ASSESSEE AS PER THE METHOD CONSISTENTLY FOLLOWED WAS TRUE AND CORRECT. HE, THEREFORE, URGED THAT THE IMPUGNED ORDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE MAY BE UPHELD. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE DETAILS OF STOCK AS ON 31-3-2008 AND 31-3-2009 WERE FURNISHED BY THE ASSES SEE BEFORE THE A.O. AND THE SAME AS REPRODUCED BY THE A.O. IN THE ASSESSMEN T ORDER WERE AS UNDER:- ITA 4553/MUM/2012 9 OPENING STOCK WORKING AS ON 31 ST MARCH, 2008 CARATS DATE COST PRICE OR MARKET PRICE WHICHEVER IS LOWER AMOUNT 180.71 26.02.2005 3822.14 690701.60 329.90 12.10.2005 3822.14 1260923.99 210.10 04.03.2006 3822.14 803031.61 410.00 30.05.2007 2515.00 1031150.00 212.94 27.07.2007 2750.00 585585.00 282.14 10.09.2007 2500.00 705350.00 63.73 02.08.2007 2125.00 135426.25 1689.52 5212168.45 OPENING STOCK WORKING AS ON 31 ST MARCH, 2009 CARATS DATE COST PRICE OR MARKET PRICE WHICHEVER IS LOWER AMOUNT 180.71 26.02.2005 3822.14 690701.60 329.90 12.10.2005 3822.14 1260923.99 210.10 04.03.2006 3822.14 803031.61 410.00 30.05.2007 2515.00 1031150.00 212.94 27.07.2007 2750.00 585585.00 282.14 10.09.2007 2500.00 705350.00 63.73 02.08.2007 2125.00 135426.25 98.73 14.08.2008 3550.01 350492.00 243.07 13.01.2009 4614.44 1121631.58 2031.32 6684292.03 8. A PERUSAL OF THE DETAILS OF CLOSING STOCK OF TH E ASSESSEE AS ON 31-3-2008 AND 31-3-2009 AS GIVEN ABOVE SHOWS THAT SEVEN OUT O F NINE ITEMS OF CLOSING STOCK AS ON 31-3-2009 WERE THE SAME AS LYING IN THE CLOSING STOCK OF THE ASSESSEE AS ON 31-3-2008. THE SAID ITEMS THUS HAD NOT MOVED AT ALL DURING THE YEAR UNDER CONSIDERATION AND THIS POSITION IS N OT IN DISPUTE. SINCE THE VALUATION OF THE SAID ITEMS AS SHOWN BY THE ASSESSE E AS ON 31-3-2008 AT COST WAS ACCEPTED BY THE A.O. IN A.Y. 2008-09, WE FIND O URSELVES IN AGREEMENT WITH THE LD. CIT(A) THAT THERE WAS NO JUSTIFIABLE R EASON TO CHANGE THE SAID VALUATION IN THE YEAR UNDER CONSIDERATION. THE REM AINING TWO ITEMS OF THE CLOSING STOCK AS ON 31-3-2009 OF 341.80 CARATS OF DIAMONDS WERE FROM THE NEW PURCHASES MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION ITA 4553/MUM/2012 10 AND THE SAME WERE VALUED BY THE ASSESSEE AT THE ACT UAL PURCHASE VALUE AS IS EVIDENT FROM THE RELEVANT QUANTITATIVE DETAILS PLAC ED AT PAGE 134 OF THE ASSESSEES PAPER BOOK. THE VALUATION OF CLOSING ST OCK OF DIAMONDS AS ON 31- 3-2009 THUS WAS MADE BY THE ASSESSEE AT COST AS PER THE METHOD OF VALUATION CONSISTENTLY ADOPTED BY IT BEING COST OR MARKET PRI CE WHICHEVER IS LESS. THE A.O., HOWEVER, APPEARS TO HAVE NOT PROPERLY APPRECI ATED THE METHOD FOLLOWED BY THE ASSESSEE FOR VALUATION OF CLOSING STOCK AS O N 31-3-2009 AND GOT HIMSELF CONFUSED ON THE BASIS OF FIFO METHOD STATED TO BE F OLLOWED BY THE ASSESSEE. IN THIS REGARD, HE OVERLOOKED THE FACT THAT THE ASS ESSEE WAS DEALING IN DIFFERENT QUALITIES OF DIAMONDS AND MADE THE VALUAT ION OF CLOSING STOCK ON THE WRONG ASSUMPTION THAT ALL THE DIAMONDS DEALT BY THE ASSESSEE WERE OF THE SAME QUALITY. THE DETAILS FURNISHED BY THE ASSESSE E AT PAGE 129 TO 134 OF THE PAPER BOOK CLEARLY SHOW THAT THE QUANTITATIVE DETAI LS IN RESPECT OF EACH QUALITY OF DIAMONDS WERE SEPARATELY MAINTAINED BY T HE ASSESSEE AND EVEN THE VALUATION OF CLOSING STOCK AS ON 31-3-2009 WAS MADE BASED ON SUCH QUANTITATIVE DETAILS. THE RELEVANT DETAILS OF SUCH VALUATION GIVEN ON PAGE 134 OF THE PAPER BOOK SHOW IT CLEARLY THAT THE VALUATIO N OF NON-MOVING ITEMS OF DIAMONDS CARRIED FORWARD FROM THE EARLIER YEAR WAS MADE BY THE ASSESSEE AT THE SAME COST AS DONE ON 31-3-2008 WHICH WAS ACCEPT ED IN A.Y. 2008-09 WHEREAS THE ITEMS OF DIAMONDS PURCHASED DURING THE YEAR UNDER CONSIDERATION AND LYING IN THE CLOSING STOCK AS ON 31-3-2009 WAS DONE AT THE ACTUAL PURCHASE RATES BEING COST TO THE ASSESSEE. IN OUR OPINION, THE VALUATION OF CLOSING STOCK AS ON 31-3-2009 OF 341.8 0 CARATS OF DIAMONDS THUS WAS MADE BY THE ASSESSEE CORRECTLY AS PER THE METHO D CONSISTENTLY FOLLOWED BY IT BEING COST OR MARKET PRICE WHICHEVER IS LOW A ND THE LD. CIT(A) IS FULLY JUSTIFIED IN ACCEPTING THE SAID VALUATION AND DELET ING THE ADDITION MADE BY THE A.O. ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK . IN THAT VIEW OF THE MATTER, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT (A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS THE APPEAL FILED BY THE REVENUE. ITA 4553/MUM/2012 11 9. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED 4 5 #$ / 4 / 67 ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEPTEMBER, 2013. . '3 / 12* 8')5 18-09-2013 2 / SD/- SD/- (SANJAY GARG) (P.M. JAGTAP ) & !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 8') DATED 18-09-2013 $.&).!./ RK , SR. PS '3 / -&9: ;:* '3 / -&9: ;:* '3 / -&9: ;:* '3 / -&9: ;:*/ COPY OF THE ORDER FORWARDED TO : 1. +, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. < () / THE CIT(A)- 32, MUMBAI 4. < / CIT CITY 21, MUMBAI 5. :$? -&&) , , / DR, ITAT, MUMBAI E BENCH 6. @% A / GUARD FILE. '3)! '3)! '3)! '3)! / BY ORDER, !.: -& //TRUE COPY// B B B B/ // /!6 !6 !6 !6 ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI