ACIT 33(3), MUMBAI V. UDAY M GHARE, MUMBAI

ITA 4594/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0887 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Department
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 06-08-2015
• Court: TRIBUNAL
• Department Lawyers: B S BIST

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE S/ SHRI B.R. BASKARAN (AM) & SANDEEP GOSAIN (JM) I.T.A. NO. 4594 /MUM/20 15 (ASSESSMENT YEAR 20 11 - 12 ) I.T.A. NO. 4595/MUM/2015 (ASSESSMENT YEAR 2012 - 13) ACIT 33(3) ROOM NO. 409 4 TH FLOOR C - 13 , PRATYAKSHA KAR BHAVAN BKC, BANDRA EAST MUMBAI - 400 051. VS. SHRI UDAY M. GHARE 1, SANDESH BHAWAN BAJAJ CROSS ROAD KANDIVALI WEST MUMBAI - 400 0067. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAKPG5305N ASSESSEE BY MS. NEELAM JADHAV DEPARTMENT BY SHRI B .S. BIST DATE OF HEARING 2 5 . 4 . 201 7 DATE OF PRONOUNCEMENT 25 . 4 . 201 7 O R D E R PER B.R. BASKARAN (AM) : - BOTH THE APPEALS FILED BY THE REVENUE FOR A.YS. 2011 - 12 & 2012 - 13 ARE DIRECTED AGAINST THE ORDER PASSED BY THE LEARNED CIT(A) - 45, MUMBAI . BOTH THE APPEALS WERE HEARD TOGETHER SINCE THE ISSUE URGED THEREIN IS IDENTICAL IN NATURE. 2. IN BOTH THE APPEALS , THE REVENUE IS AGGRIEVED BY THE DECISION OF THE LEARNED CIT(A) IN DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS SUPPRESSION OF PROFIT AND UNDERVALUATION OF CLOSING STOCK. 3. WE HAVE HEARD PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF JEWELLERY. THE ASSESSEE IS FOLLOWING AVERAGE COST METHOD FOR THE PURPOSE OF VALUING ITS STOCK. THE 2 ASSESSING OFFICER TOOK THE VIEW THAT THE ASSESSEE IS SUPPRESSING ITS PROFIT BY ADOPTING AVERAGE COST METHOD OF VALUATION. HE FURTHER TOOK THE VIEW THAT FIRST IN FIRST OUT (FIFO) METHOD WOULD BE ID EA L FOR THE ASSESSEE TO ARRIVE AT THE CORRECT PRO FIT. HE TOOK THE VIEW THAT THE GROSS PROFIT DECLARED BY THE ASSESSEE DOES NOT REFLECT TRUE PROFIT. HENCE BY FOLLOWING FIFO METHOD, THE ASSESSING OFFICER TOOK THE VIEW THAT THE ASSESSEE WOULD HAVE SOLD ENTIRE OPENING STOCK AND REMAINING SALES WERE OUT OF P URCHASES MADE DURING THE YEAR . ACCORDINGLY, THE ASSESSING OFFICER WORKED OUT THE GROSS PROFIT IN BOTH THE YEARS BY FOLLOWING FIFO METHOD OF VALUATION . S INCE THE PROFIT SO ARRIVED AT BY THE ASSESSING OFFICER WAS IN EXCESS OF THE PROFIT DECLARED BY THE ASSE SSEE, THE ASSESSING OFFICER ADDED THE DIFFERENCE AS SUPPRESSED PROFIT. 4. THE ASSESSING OFFICER ALSO REVALUED CLOSING STOCK BY ADOPTING FIFO METHOD IN BOTH THE YEARS UNDER CONSIDERATION AND ADDED THE DIFFERENCE IN THE VALUE OF STOCK. 5. THE LEARNED CIT( A) NOTICED THAT THE IDENTICAL ADJUSTMENTS HAVE BEEN MADE BY THE ASSESSING OFFICER IN A.Y. 2009 - 10 AND THE TRIBUNAL HAS DELETED THE ADDITIONS MA DE BY THE ASSESSING OFFICER, VIDE ITS ORDER DATED 19.7.2013 PASSED IN ITA NO. 4125/MUM/2012. ACCORDINGLY, BY FOLL OWING THE DECISION RENDERED BY THE TRIBUNAL, THE LEARNED CIT(A) DELETED BOTH THE ADDITIONS MADE BY THE ASSESSING OFFICER IN BOTH YEARS. AGGRIEVED, THE REVENUE HAS FILED THESE APPEALS BEFORE US. 6. LEARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE DECISION RENDERED BY THE TRIBUNAL IN A.Y. 2009 - 10 WAS FOLLOWED BY THE COORDINATE BENCH IN A.Y. 2010 - 11 ALSO. HE FURTHER SUBMITTED THAT THE DECISION RENDERED BY THE TRIBUNAL IN A.Y. 2009 - 10 HAS SINCE BEEN UPHELD BY HON'BLE BOMBAY HIGH COURT VIDE ITS OR DER DATED 6.3.2017 PASSED IN ITA NO. 297 OF 2014. 3 7. WE HAVE HEARD LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE RECORD. WE NOTICED THAT THE COORDINATE BENCH OF THE TRIBUNAL HAS CONSIDERED IDENTICAL ISSUE S IN A.Y. 2009 - 10 IN ITA NO. 4125/MUM/2012 A ND HAS DELETED THE ADDITIONS WITH THE FOLLOWING OBSERVATIONS : - 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ADDITIONS MADE BY AO ON ACCOUNT OF METHOD OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE A ND ON ACCOUNT OF VALUATION OF CLOSING STOCK. THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURING AND TRADING OF JEWELLERY. THE ASSESSEE HAD MAINTAINED PROPER BOOKS OF ACCOUNTS AND HAD MAINTAINED QUANTITATIVE DETAILS. THE ASSESSEE HAD FOLLOWED AVERAGE COST ME THOD OF VALUATION OF CLOSING STOCK TAKING AVERAGE OVER THE OPENING STOCK AND THE PURCHASES. THE AO HAS NOT ACCEPTED THE METHOD FOLLOWED AND HELD THAT LIFO METHOD IS REQUIRED TO BE FOLLOWED. HE HAS THEREFORE TAKEN THE ENTIRE OPENING STOCK AS SOLD AND THE AV ERAGE COST HAS BEEN COMPUTED ONLY OVER THE PURCHASES. HE HAS ALSO REJECTED THE ACCOUNTING RESULTS AND HAS PROCEEDED TO COMPUTE THE PROFIT IN RESPECT OF OPENING STOCK AND PURCHASES SEPARATELY WHICH HAVE RESULTED INTO SUBSTANTIAL ADDITIONS. IN OUR VIEW THE A PPROACH ADOPTED BY THE AO IS NOT CORRECT. THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNTS IN WHICH NO DEFECTS HAVE BEEN POINTED OUT BY THE AO EITHER IN THE PURCHASES OR IN THE SALES. THE ACCOUNTING RESULTS AS PER THE PROFIT/LOSS AND TRADING ACCOUNT PR EPARED BY THE ASSESSEE COULD NOT BE REJECTED UNLESS SOME DEFECTS ARE POINTED OUT IN THE BOOKS OF ACCOUNTS. THE AO HAS NOT ACCEPTED THE METHOD OF VALUATION OF CLOSING STOCK, WHICH WAS THE AVERAGE COST BASIS. THE ASSESSEE HAS EXPLAINED THE DIFFICULTY IN FOLL OWING THE FIFO OR FIFO METHOD AS IN THE SALE BILLS ONLY THE NET RATE AND VALUE HAVE BEEN GIVEN AND IT WAS NOT POSSIBLE TO CORRELATE VARIOUS ITEMS OR INPUTS WHICH HAVE GONE INTO THE MANUFACTURING OF JEWELLERY. IN SUCH A SITUATION THE AVERAGE COST METHOD HAS BEEN FOLLOWED. THE AVERAGE COST METHOD IS ONE OF THE ACCEPTED METHODS OF VALUATION OF AS HELD BY THE TRIBUNAL IN CASE OF ACIT VS. JAGDISH CHAND (SUPRA). SUCH METHOD HAS ALSO BEEN HELD VALID IN SEVERAL OTHER CASES. SECONDLY IN THIS CASE, THE AO HIMSELF HAS ACCEPTED THE AVERAGE COST METHOD IN THE EARLIER YEARS AS WELL AS IN THE SUBSEQUENT YEAR AS CLAIMED BY THE ASSESSEE WHICH HAS NOT BEEN CONTROVERTED BEFORE US. IT IS A SETTLED LEGAL POSITION THAT THE PROFIT HAS TO BE COMPUTED AS PER THE METHOD OF ACCOUNTING REGULARLY FOLLOWED B THE ASSESSEE. THEREFORE, ONCE THE AVERAGE METHOD HAS BEEN ACCEPTED IN THE EARLIER YEAR AS WELL AS IN SUBSEQUENT ITA YEARS, THE SAME CANNOT BE REJECTED IN THE INTERVENING PERIOD. THE AO HAS ALSO NOT PLACED ON RECORD ANY MATERIAL TO SHO W THAT GROSS PROFIT RATE OR NET PROFIT RATE DECLARED BY THE ASSESSEE WAS LOWER COMPARED TO IN THE EARLIER YEARS OR IN RELATION TO SIMILAR COMPARABLE CASES. IN THESE CIRCUMSTANCES WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF CIT (A) DELETING THE ADDITION MAD E BY AO. THE ORDER OF CIT (A) IS ACCORDINGLY UPHELD. 4 WE NOTICE THAT THE CO - ORDINATE BENCH HAS FOLLOWED THE ABOVE DECISION IN THE ASSESSEES OWN CASE IN AY 2010 - 10 ALSO. 8. WE NOTICED THAT THE LEARNED CIT(A) HAS FOLLOWED THE DECISION OF THE COORDINATE BEN CH IN A.Y. 2009 - 10 IN DECIDING THE IMPUGNED ISSUES IN FAVOUR OF THE ASSESSEE AND HENCE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER PASSED BY THE LEARNED CIT(A). 9. IN THE RESULT, BOTH THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER HAS BE E N PRONOUNCED IN THE COURT ON 25 . 4 .201 7. SD/ - SD/ - (SANDEEP GOSAIN ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 25 / 4 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI