D.C.I.T. C.C.-1, MUMBAI V. SOUL JEWELS, MUMBAI

ITA 5448/MUM/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9252 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 13-01-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 30-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Keywords: Cost of acquisition; Onus to prove
• Section: 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARO RA, AM ./ I.T.A. NO. 5448/MUM/2012 ( / ASSESSMENT YEAR: 2006-07) DY. CIT, CENTRAL CIRCLE-1, ROOM NO. 902, 9 TH FLOOR, OLD CGO BUILDING, ANNEXE, M. K. ROAD, MUMBAI-400 020 / VS. SOUL JEWELS, 306, PRASAD CHAMBERS, OPERA HOUSE, MUMBAI-400 004 ./! ./PAN/GIR NO. AAFVS 1684 H ( ' /APPELLANT ) : ( #$ ' / RESPONDENT ) ' % & / APPELLANT BY : SHRI KISHAN VYAS #$ ' % & / RESPONDENT BY : SHRI ANANT N. PAI ' ()* % +, / DATE OF HEARING : 13.01.2015 -./ % +, / DATE OF PRONOUNCEMENT : 27.03.2015 0 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-36, MUMBAI (CIT(A) FOR SH ORT) DATED 21.06.2012, ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) R/W S. 153A OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2006-07 VIDE ORDER DATED 27.12.2011. 2. THE ASSESSEE, A PARTNERSHIP FIRM IN THE BUSINESS OF EXPORT OF STUDDED JEWELLERY, WAS OBSERVED BY THE ASSESSING OFFICER (A.O.) DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS TO HAVE SOLD 436.1 CARATS (CTS.) OF POL ISHED DIAMONDS, WHICH COMPRISED ITS OPENING STOCK AS ON 01.04.2005, AT A BOOK VALUE OF RS.23,45,002/- , TO ITS SISTER CONCERN, 2 ITA NO. 5448/MUM/2012 (A.Y. 2006-07) DY. CIT VS. SOUL JEWELS M/S. POOJA EXPORTS, MUMBAI, ON 05.07.2005, AND WHIC H HAD IN TURN EXPORTED THE SAME ON 18.11.2005 AT RS.64,78,736/- . THERE HAD THUS BEEN AN UNDER REPORTING OF PROFIT BY IT, BY RS.41,33,734/- (RS.64,78,736 - RS.23,45,002). THE D IAMONDS HAD IN FACT BEEN PURCHASED BY THE ASSESSEE FIRM AT A COST OF RS.42,29,594/- DU RING THE FINANCIAL YEAR (F.Y.) 2004-05, AND TOWARD WHICH THE A.O. TABULATED THE LATEST BILL S (PRIOR TO 31.03.2005), AGGREGATING TO 436.10 CTS., FOR THAT YEAR. THE ASSESSEE HAD THUS I N FACT UNDER-VALUED ITS CLOSING STOCK AS ON 31.03.2005 BY THE DIFFERENCE OF RS.18,84,592/- ( I.E., RS.42,29,594 - RS.23,45,002/-), BOOKING A LOSS TO THAT EXTENT FOR THAT YEAR. ASSESS MENT WAS COMPLETED BY MAKING AN ADDITION FOR THE IMPUGNED SUM OF RS.41.34 LACS TO T HE RETUNED INCOME OF RS.3,05,910/-. IN APPEAL, THE ASSESSEE FOUND FAVOUR WITH THE LD. C IT(A), WHO DECIDED THE MATTER THUS: 5.5 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT AND THE ORDER OF THE AO. I AGREE WITH THE CONTENTION OF THE APPELLAN T THAT METHOD OF VALUATION ADOPTED BY THE LEARNED AO IS INCORRECT. I N DIAMOND INDUSTRY THE GRADE QUALITY OF EACH PIECE OF DIAMOND IS DIFFERENT SO FIFO METHOD CAN BE APPLIED ON IDENTICAL ITEMS AND NOT SIMILAR ITEMS. I N CASE OF IDENTICAL ITEMS, ITS FIRST VALUE SHOULD BE AS PER SPECIFIC IDENTIFIC ATION METHOD I.E. THE ACTUAL COST AND IF THE ACTUAL COST IS NOT AVAILABLE THAN I T HAS TO BE VALUED FOLLOWING FIFO METHOD. IN CASE OF APPELLANT, THE ACTUAL COST IS AVAILABLE AND THE APPELLANT HAS RIGHTLY VALUED THE SAME. IT HAS ALSO BEEN POINTED OUT THAT THESE POLISH DIAMONDS WERE PURCHASED AS A TRADING COMMODI TY AND HENCE THE SAME WAS VALUED ON THE BASIS OF ACTUAL PURCHASE COS T. THE SAID INVENTORY WAS A DIRECT PURCHASE FROM M/S. NAVKAR DIAMONDS DAT ED APRIL 23, 2004 AND TRANSFER OF THE SAME INVENTORY WAS MADE TO THE SISTER CONCERN AT COST AND NOT LOWER OF THE PURCHASE PRICE AS WORKED OUT B Y THE AO. FURTHER, THE GOODS ARE SOLD TO M/S. POOJA EXPORTS WHO HAS PAID T HE TAXES ON SAME INCOME. THE CA CERTIFICATE TO THAT EFFECT HAS BEEN SUBMITTED BY THE APPELLANT; HENCE THE SAME INCOME CANNOT BE TAXED TW ICE. SO I HEREBY DELETE THE ADDITION OF RS.41,33,734/-. THE GROUNDS OF APPE AL OF THE APPELLANT ARE ALLOWED. AGGRIEVED, THE REVENUE IS IN APPEAL, RAISING THE FO LLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A SSESSING OFFICER BEING DIFFERENCE IN VALUATION OF CLOSING STOCK FOR A.Y. 2 005-06 WITHOUT APPRECIATING THAT THE ASSESSEE, INSPITE OF ADEQUATE OPPORTUNITY BEING PROVIDED, FAILED TO DISCHARGE THE ONUS OF BURDEN OF PROOF AND COULD NOT BE SUBSTANTIATE ITS CLAIM WITH RELEVANT DOCUMENTARY EV IDENCES. 3 ITA NO. 5448/MUM/2012 (A.Y. 2006-07) DY. CIT VS. SOUL JEWELS 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE ASSESSEE HAS A CLOSING STOCK OF POLISHED DIAMONDS AS ON 31.03.2005 AND, CONSEQUENTLY, AN OPENING STOCK (AS ON 01.04.2005) THEREOF AT 436.10 CTS., VALUED A T RS.23,45,002/- (PB PGS. 4, 7), WHICH IT HAS IDENTIFIED AS PURCHASED ON 26.03.2004, I.E., DURING THE FINANCIAL YEAR 2003-04, FROM M/S. NAVKAR DIAMONDS, MUMBAI, FOR RS.23,45,002/-, V IDE THEIR BILL NO. ND/PD/MAR/07/2003-04 (PB PG.2). THE SAME, THEREFORE , CONTINUED TO BE IN THE ASSESSEES STOCK SINCE, I.E., TILL ITS SALE IN JULY , 2005. THE REVENUE HAS NOT IMPUGNED THIS FACT, AS BY SHOWING THE ASSESSEES STOCK (AT 858.27 CTS. AS ON 31.03.2004) TO HAVE FALLEN BELOW THE LEVEL OF 436.10 CTS. AT ANY TIME AFTER 26 .03.2004 (THE SAID DATE BEING WRONGLY MENTIONED BY THE LD. CIT(A) AS 23.04.2004). SURELY, THE FIFO (I.E., FIRST IN FIRST OUT) METHOD OF VALUATION COULD ONLY BE APPLIED IN THE AB SENCE OF A DIRECT IDENTIFICATION AND, TWO, ONLY SEPARATELY FOR THE DIFFERENT QUALITIES OR GRADES OF DIAMONDS. WE MAY THOUGH ADD THAT WHERE THE ASSESSEES ACCOUNTS DO NOT EXHIB IT THE SAID DIFFERENT GRADES, THE ONUS TO ESTABLISH THE SAME IS ONLY ON IT. NO UNDER-VALUATIO N, HOWEVER, HAS BEEN SHOWN BY THE REVENUE, WITH THE ASSESSEE ADVERTING TO THE RELEVAN T GOODS AS BEEN SOURCED FROM M/S. NAVKAR DIAMONDS EVEN BEFORE THE A.O. (VIDE ITS LETT ER DATED 20.10.2011), SO THAT IT CANNOT BE SAID TO BE A CASE OF AN AFTER-THOUGHT, I. E., BEFORE THE LD. CIT(A), OR OF THE ASSESSEE BEING UNABLE TO SUBSTANTIATE ITS CLAIM/S B EFORE THE A.O., AS ALLEGED BY THE REVENUE PER ITS GROUND/S OF APPEAL. THOUGH AN ISSUE AS TO THE SAID GOODS WITNESSING NO INCREASE IN PRICE FROM MARCH, 2004 TO JULY, 2005, W HILE CORRESPONDINGLY AN ABNORMAL INCREASE BETWEEN JULY, 2005 TO NOVEMBER, 2005, DOES ARISE, NO COMPARATIVE VALUATION FOR THE PERIOD, I.E., FOR WHICH THE ASSESSEE HELD THE S TOCK, IS ON RECORD, SO AS TO CONTEND UNDER- SELLING. THE SAME, EVEN IF SO, COULD ONLY BE INFERR ED BY APPLYING THE GP RATE (WHICH IS ON SALE VALUE, AND COULD THEREFORE BE WORKED OUT ON CO ST AS WELL), WHICH HAS BEEN ASSESSED BY THE DEPARTMENT AT 6.55% FOR A.Y. 2005-06 (PB PGS . 9-10) AND AT 2.43% FOR THE CURRENT YEAR, WHICH SHOWS BOTH ITS EXTENT AS WELL A S OF IT BEING NOT CONSTANT, BUT SUBJECT TO VARIATION. THE ASSESSEE HAVING OSTENSIBLY BOUGHT TH E RELEVANT GOODS AT MARKET VALUE, AN ENQUIRY INTO THE ABNORMAL PROFIT OF RS.4.134 LACS ( BEING AT 63.81% OF THE SALE PRICE), DISCLOSED ON THE TRANSACTION BY M/S. POOJA EXPORTS, ONLY COULD HAVE, IF AT ALL, LED TO ANY 4 ITA NO. 5448/MUM/2012 (A.Y. 2006-07) DY. CIT VS. SOUL JEWELS FINDING QUA UNDER-SELLING BY THE ASSESSEE, WHICH IS THE REVENUE S CASE AND CHARGE IN SUBSTANCE. NO CASE OF UNDER-SELLING IS MADE OUT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THAT BEING THE CASE, REFERENCE TO THE SALE VA LUE FETCHED BY POOJA EXPORTS, WHICH DEFINITELY IS FAR IN EXCESS (OF THE PURCHASE COST), AND THUS TO ITS PROFITS, IS OF LITTLE CONSEQUENCE. THAT THE SAID PROFIT STANDS TAXED IN T HE HANDS OF POOJA EXPORTS, AS CLAIMED BY THE ASSESSEE WITH REFERENCE TO ITS ASSESSMENT OR DERS FOR THE CURRENT YEAR (PB PGS. 13- 18), THOUGH NOT OF ANY DIRECT RELEVANCE TO THE ASSE SSEE, DOES TAKE AWAY ANY TAX MOTIVE FROM THE IMPUGNED UNDER-SELLING. FURTHER, THERE B EING NO FACTUAL BASIS TO THE REVENUES CASE, EXAMINING THE SAME ON THE LEGAL ASPECTS, ALSO SOUGHT TO BE RAISED BY THE ASSESSEE, DOES NOT ARISE. THE REVENUES CASE IS ACCORDINGLY D ISMISSED. 4. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . 1/+2 ) % 1 % + 3 ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 27, 201 5 SD/- SD/- (JOGINDER SINGH) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ' 4* MUMBAI; 5( DATED : 27.03.2015 ).(. ./ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$ ' / THE RESPONDENT 3. ' 6+ ( ) / THE CIT(A) 4. ' 6+ / CIT - CONCERNED 5. 9): #+(; , , ;/ , ' 4* / DR, ITAT, MUMBAI 6. => ?* / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , ' 4* / ITAT, MUMBAI