Khumji Dayabhai Jewellers, Baripada V. ITO, Baripada

ITA 501/CTK/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65175 (ITAT-CUTTACK)
• Duration Of Justice: 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 15-10-2012
• Court: TRIBUNAL
• Department Lawyers: N K NEBS C MOHANTY DRS
• Assessee Lawyers: D K SHETHM SHETH ARS

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , H ONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 501/CTK/2012 / ASSESSMENT YEAR 2008 - 09 KHIMJI DAYABHAI JEWELLERS, WARD NO.4, LALBAZAR, BARIPAD 757 001 PAN: AAFFK 9358 L - - - VERSUS - INCOME - TAX OFFICER, WARD 1, BARIPADA. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI D.K.SHETH/M.SHETH,ARS / FOR THE RESPONDENT: / SHRI N.K.NEB/S.C.MOHANTY, DRS / DATE OF HEARING: 13.12.2012 / DATE OF PRONOUNCEMENT: 14 .12.2012 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THIS APPEAL BY THE ASSESSEE IS ON THE SOLITARY ISSUE OF ENHANCEMENT IN THE VALUATION OF STOCK BY AN AMOUNT OF 2,41,826 AS SEPARATELY COMPUTED BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A). 2. THE LEARNED COUNSEL OF THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THE BRIEF FACTS THAT THE ASSESSEE BEING A MANUFACTURER OF GOLD AND SILVER JEWELLERY FILED RETURN FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING A LOSS OF 1,81,3852 WHEN IT WAS SUBJECTED TO SCRUTINY U/S.143(3). THE ASSESSING OFFICER TOOK UPON HIMSELF TO VALUE THE CLOSING STOCK WHICH APPEARED TO HIM NOT IN ACCORDANCE WITH THE AS - 2 AS PROMULGATED BY THE GUIDELINES OF THE INSTITUTE OF CHARTERED ACCOUNTS OF INDIA. HE HELD A VIEW THAT THE ASSESSEE HAD ADOPTED AVERAGE METHOD FOR VALUING ITS CLOSING STOCK VIS - - VIS THE FOUR METHOD OF VALUING THE STOCK WHICH SPEAK ON EITHER I.T.A.NO. 501/CTK/2012 2 WEIGHTED AVERAGE TO BE ADOPTED O R FIFO METHOD ADOPTED INSOFAR AS THE PRICE OF GOLD WAS EVER INCREASING DURING THE YEAR. HE RECOMPUTED THE CLOSING STOCK VALUATION BY MAKING AN ADDITION OF 2,41,826 WHICH WAS APPEALED BEFORE THE FIRST APPELLATE AUTHORITY. THE LEARNED CIT(A) OBSERVED THAT IT WAS NOT POSSIBLE TO VALUE THE CLOSING STOCK OF GOLD BY SPECIFIC METHOD THEREFORE WAS TO BE VALUED AT FIFO METHOD AND CONFIRMED THE DIFFERENCE IN CLOSING STOCK BEING THE VALUATION OF CLOSING STOCK BY AN AMOUNT OF 2,41,826. THE LEARNED CIT(A) SUPPLEMENTED THE ASSESSING OFFICERS FINDING THAT FIFO METHOD IS MORE LIKELY TO GIVE A TRUE PICTURE OF PRO FIT EARNED BY THE ASSESSEE AND I T CLOSELY RESEMBLES THE REALI TY OF THE INCREASE IN PRICE OF GOLD OVER A PERIOD OF ONE YEAR. 3. THE LEARNED COUNSEL OF THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THAT THE PRICE OF GOLD HAS BEEN CONTINUOUSLY VALUED AT THE LOWER OF COST OR MARKET VALUE BY THE ASSESSEE WHEN NO SUCH E NHANCEMENT HAS BEEN MADE IN THE OPENING STOCK FOR THE ASSESSMENT YEAR 20 0 9 - 10. IT CLEARLY INDICATES THAT THE AUTHORITIES BELOW HAVE TRIED TO DERIVE A PROFIT ON THE BASIS OF VALUATION DURING THE YEAR IN ACCORDANCE WITH FIFO METHOD WHEN THE AS - 2 ALSO DEFINES THAT THE ADOPTION OF A PARTICULAR METHOD FOR VALUE OF STOCK HAS TO BE AT LOWER OF COST OR NET REALIZABLE VALUE. IN OTHER WORDS, THE AUTHORITIES BELOW HAVE THEMSELVES AGREED TO THE PROPOSITION THAT THE CLOSING STOCK INCLUDED THE MARGIN WHICH THEY WOULD HAV E EARNED IN THE YEAR WAS NOT ACTUALLY EARNED BY THE ASSESSEE BUT WAS HELD BY THE ASSESSEE IN THE STOCK ONLY. THIS CLEARLY INDICATES THAT THE GUIDELINES OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA HAS BEEN PARTLY ADOPTED FOR THE PURPOSE OF TAXING THE INCOME IN THE IMPUGNED ASSESSMENT YEAR, WHEN THE SAME INCOME HAS TO BE REDUCED FROM THE OPENING STOCK OF THE SUBSEQUENT YEAR. THE ASSESSING OFFICER HAS THEREFORE TAXED THIS INCOME IN THE SUBSEQUENT YEAR AS WELL WHICH I.T.A.NO. 501/CTK/2012 3 IS UNJUSTIFIED, ILLEGAL AND IMPROPER. HE SUBMITTED THAT EVEN ASSUMING BUT NOT ACCEPTING THE VALUATION IN ACCORDANCE WITH FIFO METHOD HAS TO BE ADOPTED STANDS TO A NULLITY INSOFAR AS THE PROFIT SO ENHANCED IN THE CLOSING STOCK STOOD IDENTIFIED BY THE ASSESSING OFFICER ITSELF IN THE FORMULATION AS CAN BE PERUSED IN THE FOLLOWING TABLE. IF THE INDIVIDUAL ITEMS FOR ENHANCEMENT ARE TO BE CONSIDERED IT WOULD CLEARLY INDICATE THE ASSESSING OFFICER HAS ALSO NOT ADOPTED THE VALUE IN ACCORDANCE WITH THE GUIDELINES OF THE INSTITUTE OF CHARTERED ACCOUNT ANTS OF INDIA INSOFAR AS PROFIT MARGIN CANNOT BE TAXED AT THE END OF THE YEAR. THE VALUATION HAS TO BE LOWER OF COST OR MARKET VALUE BEING THE REALIZABLE VALUE WHEN THE PRICE OF GOLD IS EVER INCREASING AND IT IS NOBODYS CASE THAT STOCK HAS TO BE SOLD ON D AY TO DAY BASIS. THEREFORE, THE ADOPTION OF A PARTICULAR METHOD BY THE ASSESSING OFFICER WAS FAULTY TO THE EXTENT THAT THE ASSESSEE HAD RETURNED THE VALUATION AS FOLLOWS, I.T.A.NO. 501/CTK/2012 4 WHICH WAS THE BASIS OF ACTUAL REALIZATION VALUATION AND MAKING CHARGES WHICH ARE TO BE REIMBURSED FROM THE CUSTOMERS AS EXPENDITURE AND NOT PROFIT MARGIN. THEREFORE, ON A SPECIFIC QUERY BY THE BENCH WHETHER FOR THE ASSESSMENT IN THE SUBSEQUENT YEAR ACCEPTING THE VALUE AS RETURNED BY THE ASSESSEE BEING THE CLOSING STOCK VALUED IN THE IMPU GNED ASSESSMENT YEAR HAS ALSO BEEN RE - VALUED, THE LEARNED COUNSEL OF THE ASSESSEE FOR THE ASSESSEE REPLIED IN NEGATIVE. THE LEARNED COUNSEL OF THE ASSESSEE CONCLUDED HIS ARGUMENT BY SUBMITTING THAT THE VALUE OF CLOSING STOCK AS RETURNED BY THE ASSESSEE MAY KINDLY BE DIRECTED TO BE ACCEPTED AND THE ADDITION OF 2,41,126 IN THE IMPUGNED ASSESSMENT YEAR MAY KINDLY BE DIRECTED TO BE DELETED. 4. THE LEARNED DR OPPOSED THE CONTENTIONS OF THE LEARNED COUNSEL OF THE ASSESSEE INDICATING THAT THE INHERENT PROFIT HAS BEEN DERIVED BY THE ASSESSING OFFICER CANNOT BE DELETED BECAUSE THE PRICE OF GOLD IS EVER INCREASING. ADOPTION OF FIF O METHOD WAS THEREFORE PROPER INSOFAR AS THE ASSESSEE HAS TRIED TO CORRELATE THE UNSOLD ITEMS AMONGST THE BROUGHT FORWARD STOCK W HEN OLD GOLD WAS ALSO PURCHASED DURING THE YEAR. THE ASSESSING OF FICER AND THE LEARNED CIT(A) HAVE RIGHTLY POINTED OUT THAT THE GOLD ONCE IT IS CONVERTED INTO JEWELLERY BY INCURRING EXPENDITURE OF MAKING CHARGES OUGHT TO BE AT ENHANCED VALUE WHEN THE ASSESSEE STATED ITS INABILITY TO VALUE THE STOCK ITEM - WISE. HE FULLY S UPPORTED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW FOR HIS PART OF SUBMISSIONS. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINED TO FIND THE CONTENTION OF THE LEARNED COUNSEL O F THE ASSESSEE JUSTIFIED AND REASONABLE TO THE EXTENT THAT TINKER ING OF THE CLOSING STOCK WHICH CONSISTENTLY HAS BEEN VALUED AT LOWER OF COST OR MARKET VALUE WAS IN ACCORDANCE WITH THE GUIDELINES SET OUT I.T.A.NO. 501/CTK/2012 5 BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA T RIED TO BE UNDERSTOOD BY THE ASSESSING OFFICER THAT IN VIEW OF THE ASSESSEE HAVING VARIOUS ITEMS OF J E WELLERY AND ALSO THAT THE PRICE OF THE GOLD CONTE T IN THE J E WELLERY ITEMS EVER INCREASING WAS A HANDI - WORK OF THE ASSESSEE TO CONVERT ITS VALUATION UNDER LIFO WAS NOT PROPER. IN OTHER WORDS, THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER HOLDING A VIEW THAT THE INHERENT PROFIT HAD BEEN ALREADY MADE BY THE ASSESSEE DURING THE TRADING IN THE JWELLERY ITEM IN THE COURSE OF THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. WE ARE UNABLE TO SATISFY OURSELVES TO THIS PROPOSITION AND LOGIC CONSIDERED BY THE AUTHORITIES BELOW INSOFAR AS THE ASSESSEE CANNOT BE SAID TO BE MAKING PROFIT AS AN INVESTMENT IN GOLD B UT VALUE D ITS STOCK WHEN TH E PURCHASES AND SALES HAVE BEEN DOCUMENTED INDICATING THE CONTENT OF GOLD CONSIDERED BY THE ASSESSEE AFTER INCLUDING MAKING CHARGES AND ALLOY THEREIN. THEREFORE, IT WAS A HALF - HEARTED COMPUTATION OF THE VALUATION BY THE ASSESSING OFFICER INSOFAR AS THE LEA RNED COUNSEL OF THE ASSESSEE HAS ALREADY SUBMITTED THE METHOD OF VALUATION AS INSCRIBED ABOVE INSOFAR AS THE GOLD ORNAMENTS HAVE BEEN VALUED BY THE ASSESSEE AT A RATE WHICH INDICATES THE GOLD CONTENT TO WHICH MAKING CHARGES HAVE BEEN ADDED IN ORDER TO CIRC UMVENT THE ITEM WISE INVENTORY TO BE VALUED AT A PARTICULAR VALUE ON THE DATE OF VALUATION. THE DATE OF VALUATION IS 31 ST MARCH, THEREFORE, IT WAS NOBODYS CASE THAT THE ASSESSEE WAS TO ADOPT LIFO TO SHOW THE TRUE PROFIT OR WHETHER BECAUSE IT IS GOLD WAS TO APPLY FIFO MET HOD TO HOLD BACK A PROFIT IF ANY REMAINING DISCREET IN THE EVER INCREASING PRICE OF GOLD EVEN AFTER ASSUMING BUT NOT ACCEPTING THAT THE JEWELLERY ITEMS REMAIN ED UNSOLD THROUGHOUT THE YEAR WAS MELTED AND WAS TO BE VALUED ON FIFO METHOD. TH EREFORE, IN ANY CAS E, THE ASSESSING OFFICER HAS ADOPTED THE VALUE OF THE OPENING STOCK FOR THE SUBSEQUENT ASSESSMENT YEAR AS THE VALUE RETURNED BY I.T.A.NO. 501/CTK/2012 6 THE ASSESSEE INDICATED THE AUTHORITIES BELOW PREFERENCE NOT TO TAX THE SAME IN THE LATER YEAR CLINCHES THE ISSUE IN FAVOUR OF TH E ASSESSEE THAT INHERENT PROFIT OUGHT TO HAVE BEEN EARNED DURING THE YEAR COULD NOT BE TAXED ON THE LAST DAY OF THE YEAR. IN THIS VIEW OF THE MATTER, WE FIND THE CONTENTION OF THE LEARNED COUNSEL OF THE ASSESSEE JUSTIFIED AND THEREFORE, WE DIRECT DELETION OF THE ADDITION OF 2,41,148 MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LEARNED CIT(A) ON THIS COUNT. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. SD/ - SD/ ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 14 .12.2012 - COPY OF THE ORDER FORWARD ED TO: 1 . / THE APPELLANT : KHIMJI DAYABHAI JEWELLERS, WARD NO.4, LALBAZAR, BARIPAD 757 001 2 / THE RESPONDENT: INCOME - TAX OFFICER, WARD 1, BARIPADA. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / D R, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 13.12.2012 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 14.12.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14.12.2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER .. ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY.