The Income Tax Officer, Bathinda V. Sh. Davinder Kumar Jain Prop., Bathinda

ITA 70/ASR/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85918 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 06-04-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 07-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P N ARORA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. B.P. JAIN, ACCOUNTANT MEMBER I.T.A. NO. 70 (ASR)/2014 ASSESSMENT YEAR: 2010-11 PAN: AAMPJ2911P THE INCOME TAX OFFICER, WARD-II (I) KUMAR JAIN, POST OFFICE BAZAR BATHINDA VS. SH. DAVINDER KUMAR JAIN PROP. M/S ROSHAN LAL DAVINDER KUMAR JAIN, POST OFFICE BAZAR, BATHINDA (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. RATINDER KAUR, DR RESPONDENT BY: SH. P.N.ARORA, ADV. DATE OF HEARING: 03.03.2015 DATE OF PRONOUNCEMENT: 11.03.2015 ORDER PER A.D. JAIN, J.M. 1. THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2010-11, TAKING THE FOLLOWING SOLE GROUND OF APPEAL, AGAINST THE ORDER DATED 04.11.2013, PASSED BY THE LEARNED CIT(A), BATHINDA. 2. THE GROUND IS REPRODUCED AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS.22,56,313/- MADE BY THE AO ON ACCOUNT OF UNDERVALUATION OF THE CLOSING STOCK; IGNORING THE FACT 2 I.T.A. NO. 70 (ASR)/201 4 ASSESSMENT YEAR: 2010-11 THAT THE ASSESSEE HAS UNDERVALUED THE CLOSING STOCK BY WAY OF ADOPTING AVERAGE COST METHOD WHICH IS NOT A RECOGNIZED METHOD AND THE ASSESSEE HAS ALSO DEVIATE D FROM THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM. 3. THE ASSESSEE INDIVIDUAL, DURING THE YEAR, WAS ENGAG ED IN THE BUSINESS OF PURCHASE AND SALE OF GOLD ORNAMENTS. TH E ASSESSMENT WAS COMPLETED VIDE ORDER DATED 26.03.201 3, U/S 143(3) OF THE IT ACT, AT AN INCOME OF RS.31,78,800/ -, AS AGAINST THE RETURNED INCOME OF RS.8,34,780/-. THE A O MADE AN ADDITION OF RS.22,56,313/- ON ACCOUNT OF UNDERVALUA TION OF THE CLOSING STOCK. WHILE DOING SO, THE AO OBSERVED THAT DURING THE YEAR, THE ASSESSEE HAD CHANGED HIS METHOD OF AC COUNTING WITHOUT SUFFICIENT CAUSE. 4. BY VIRTUE OF THE IMPUGNED ORDER, THE LEARNED CIT(A ) DELETED THE ADDITION MADE BY THE AO. 5. CHALLENGING THE IMPUGNED ORDER, THE LEARNED DR HAS CONTENDED THAT THE LEARNED CIT(A) HAS ERRONEOUSLY D ELETED THE ADDITION CORRECTLY MADE BY THE AO; THAT WHILE DOING SO, THE LEARNED CIT(A) HAS FAILED TO TAKE INTO CONSIDERATIO N THE FACT THAT THE ASSESSEE HAD UNDERVALUED THE CLOSING STOCK BY WAY OF 3 I.T.A. NO. 70 (ASR)/201 4 ASSESSMENT YEAR: 2010-11 ADOPTING THE AVERAGE COST, METHOD, WHICH IS NOT A RECOGNIZED METHOD AND THAT THE ASSESSEE HAD ALSO DE VIATED FROM THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM; AND THAT, THEREFORE, THE ORDER PASSED BY THE LEARNE D CIT(A) NEEDS TO BE REVERSED WHILE ALLOWING THE APPEAL FILE D BY THE DEPARTMENT. 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. IT HA S BEEN CONTENDED, AS BEFORE THE TAXING AUTHORITIES, THAT T HE ASSESSEE MAINTAINED HIS BOOKS OF ACCOUNTS IN THE REGULAR COU RSE OF HIS BUSINESS, BY FOLLOWING THE MERCANTILE SYSTEM OF ACC OUNTING; THAT THE CLOSING STOCK WAS VALUED ON COST OR MARKET PRICE, WHICH EVER WAS LESS; THAT THIS METHOD OF ACCOUNTING HAD BEEN CONSISTENTLY ADOPTED BY THE ASSESSEE SINCE LONG, FO R THE EARLIER YEARS, AS WELL AS IN THE SUCCEEDING YEARS; THAT THE AUDITED BALANCE SHEETS FOR ASST. YRS. 2007-08 TO 2012-2013 WERE FILED BEFORE THE TAXING AUTHORITIES; THAT IN ORDER TO WOR K OUT THE COST TO VALUE THE CLOSING STOCK, THE ASSESSEE TOOK THE A VERAGE OF THE OPENING PRICE AND THE PURCHASES MADE DURING THE YEA R; THAT THIS METHOD OF WORKING THE COSTS HAD BEEN CONSISTEN TLY FOLLOWED BY THE ASSESSEE IN THE EARLIER YEARS; THAT THIS METHOD 4 I.T.A. NO. 70 (ASR)/201 4 ASSESSMENT YEAR: 2010-11 WAS ALSO FOLLOWED BY THE ASSESSEE IN THE SUCCEEDING YEARS; THAT THIS METHOD IS A RECOGNIZED METHOD, I.E., THE AVERAGE OF THE OPENING PRICE PLUS THE PURCHASE PRICE DURING TH E YEAR; THAT THE AO WAS WRONGLY OF THE OPINION THAT THE COST PRI CE SHOULD BE THE AVERAGE OF THE PURCHASE PRICE ONLY; THAT THE AO HAD WRONGLY OBSERVED THAT THE ASSESSEE HAD CHANGED HIS METHOD OF ACCOUNTING DURING THE YEAR; THAT THE METHOD TO WORK OUT THE COST BY ADOPTING THE AVERAGE COST METHOD IS A RECOG NIZED METHOD AS PER AS-2 PRESCRIBED BY THE INSTITUTE OF C HARTERED ACCOUNTANTS OF INDIA; THAT THIS METHOD HAS ALSO BEE N RECOGNIZED IN JUDICIAL DECISIONS AND IT HAS ALSO BE EN ACCEPTED BY THE DEPARTMENT; AND THAT THE LEARNED CIT(A) HAS CORRECTLY DELETED THE ADDITION WRONGLY MADE. 7. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. THE METHOD ADOPTED BY THE ASSESSEE, FOLL OWING THE MERCANTILE SYSTEM OF ACCOUNTING, VALUING HIS CLOSIN G STOCK ON COST OR MARKET PRICE, WHICHEVER IS LESS, IS NOT DIS PUTED. FOR WORKING OUT THE COST, THE ASSESSEE TOOK THE AVERAGE OF THE OPENING PRICE AND THE PURCHASES MADE DURING THE YEA R. THIS METHOD IS UNDISPUTEDLY IN ACCORDANCE WITH ACCOUNTIN G STANDARD-2, AS PRESCRIBED BY THE INSTITUTE OF CHART ERED 5 I.T.A. NO. 70 (ASR)/201 4 ASSESSMENT YEAR: 2010-11 ACCOUNTANTS OF INDIA. THIS METHOD HAS BEEN ADOPTED BY THE ASSESSEE ALL THROUGH, I.E., IN THE PRECEDING AS WEL L AS IN THE SUCCEEDING YEARS. THUS, THERE IS NO GROUND TO HOLD THAT THE ASSESSEE CHANGED HIS METHOD OF ACCOUNTING DURING TH E YEAR. SO MUCH SO, THE AO HIMSELF WORKED OUT THE COST PRICE B Y TAKING THE AVERAGE OF THE PURCHASES MADE BY THE ASSESSEE D URING THE YEAR. HE, HOWEVER, WRONGLY IGNORED THE OPENING STOC K. IN THIS REGARD, AS WRONGLY OBSERVED BY THE AO, IN THE MERCA NTILE METHOD OF ACCOUNTING, THERE IS NO CONCEPT OF VALUAT ION OF CLOSING STOCK BY TAKING AVERAGE OF OPENING STOCK PL US VALUE OF PURCHASES MADE DURING THE YEAR. THE METHOD ADOPTED BY THE ASSESSEE HAS BEEN ACCEPTED AND HELD TO BE AN APPROV ED METHOD, INTER ALIA, IN THE FOLLOWING CASES: 1. ASSISTANT COMMISSIONER OF INCOME TAX VS. JAGDHIS CHAND (2004) 90 TTJ (CHD) 943. 2. ASSISTANT COMMISSIONER OF INCOME TAX VS. GOPALDAS VALLABHDAS (1997) 59 TTJ (IND) 3. ADDITIONAL COMMISSIONER OF INCOME TAX, BATHINDA VS. M/S SUNDER LAL RAAJ KUMAR JAIN, BATHINDA BEARING ITA NO.390(ASR)/2009 DATED 30-10-2009 4. CIT VS. FAZIKA CO-OPERATIVE SUGAR MILLS LTD. (2002) 255 ITR 411 (P&H) 6 I.T.A. NO. 70 (ASR)/201 4 ASSESSMENT YEAR: 2010-11 5. M/S SINGHAL JEWELLERS, BATHINDA VIDE APPEAL NO.58-IT/CIT(A)/BTI/13-14 DATED 12-09-2013. THE LEARNED CIT(A) HAS CORRECTLY FOLLOWED THE DECIS ION OF THE HONBLE JURISDICTIONAL HIGH COURT IN COMMISSIONER OF IN COME TAX VS. SANT RAM MANGAT RAM, 275 ITR 312 (P&H), WHEREIN, IT HAS BEEN HELD THAT WHERE THE ASSESSEE HAS CONTINUOUSLY ADOPTED THE SA ME METHOD OF VALUATION OF THE CLOSING STOCK AND NO OBJECTION WAS RAISED BY THE DEPARTMENT IN ANY OF THE EARLIER YEARS, SUCH METHOD OF VALUATION OF CLOSING STOCK CANNOT BE REJECTED IN A PARTICULAR YE AR. 8. THUS, THE IMPUGNED ORDER HAS BEEN PASSED BY THE LEA RNED CIT(A) BY TAKING INTO CONSIDERATION ALL THE ABOVE-DISCUSSED F ACTS DULY INTO CONSIDERATION. THE SAID ORDER IS FOUND TO BE A WELL REASONED ORDER, CALLING FOR NO INTERFERENCE BY US. THEREFORE, THE GRIEVANCE OF THE DEPARTMENT IS FOUND TO BE UNJUSTIFIED AND IS REJECTED AS SUCH. TH E ORDER OF THE LEARNED CIT(A) IS HEREBY CONFIRMED. 9. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MARCH, 2015. SD/- SD/- (B.P. JAIN) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11 .03.2015 /PK/ 7 I.T.A. NO. 70 (ASR)/201 4 ASSESSMENT YEAR: 2010-11 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: SH. DAVINDER KUMAR JAIN, PROP. M/S RO SHAN LAL DAVINDER KUMAR JAIN, POST OFFICE BAZAR, BATHINDA. 2. THE INCOME TAX OFFICER, WARD-11(1), BATHINDA. 3. THE CIT(A), 4. THE CIT, 5. THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.