SOHANLAL J. JAIN, MUMBAI V. ASST CIT RG 14(2), MUMBAI

ITA 7416/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8884 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 29-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K KRISHNMOORTHY
• Assessee Lawyers: AJAY NAGPAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH: MUMBAI BEFORE SHRI R.S. SYAL, ACCOUTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 7416/MUM/2010 (ASSESSMENT YEAR : 2007-08) SHRI SOHANLAL J JAIN, C/O. MILAP JEWELLERS, SHOP NO.22, ABHINANDAN MARKET, 215/217 KALBADEVI ROAD, MUMBAI -400 002 PAN: AABPJ 6908 M VS. ASST. COMMISSIONER OF INCOME-TAX - 14(2), EARNEST HOUSE, NARIMAN POINT, MUMBAI-400 021 APPELLANT RESPONDENT APPELLANT BY : SHRI AJAY NAGPAL RESPONDENT BY : SHRI K. KRISHNMOORTHY DATE OF HEARING :28.08.2012 DATE OF PRONOUNCEMENT :05.09.2012 O R D E R PER VIVEK VARMA, JM: THE APPEAL ARISES FROM THE ORDER OF CIT(A) 25, MUMB AI, DATED 23.09.2010, WHEREIN THE ASSESSEE RAISES THE FOLLOWI NG GROUNDS: THE GROUND OR GROUNDS OF APPEAL ARE WITHOUT PREJUDI CE TO ONE ANOTHER. 1.A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS 3,55 ,884/- MADE BY THE AO TO THE INCOME OF THE APPELLANT BY WAY OF INCREAS ING THE VALUATION OF CLOSING STOCK. B) THE LD. AO FAILED TO APPRECIATE THAT:- (I) THE APPELLANT HAS VALUED ITS CLOSING STOCK AT LOWER OF COST OR NET REALISABLE VALUE AND THERE IS CONSISTENCY IN THE METHOD OF VALUATION OF CLOSING STOCK SINCE INCEPTION; (II) THERE IS NO DISCREPANCY IN THE METHOD OF ACCOU NTING FOLLOWING BY THE APPELLANT; SHRI SOHANLAL J JAIN ITA NO.7416/MUM/2010 2 (III) THE NET REALISABLE VALUE IS THE ESTIMATED SELLING PRICE IN THE ORDINARY COURSE OF BUSINESS LESS THE ESTIMATED COSTS OF COMP LETION AND THE ESTIMATED COSTS NECESSARY TO MAKE THE SALE AS PER A S 2 ISSUED BY THE ICAI; AND (IV) THE VARIATION OF CLOSING STOCK NECESSARILY ENJOINS VARIATION, ON THE SAME PRINCIPAL, OF THE OPENING STOCK. C) IN REACHING TO THE CONCLUSION AND MAKING SUCH AD DITION THE LD. AO OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATION S, PRINCIPLES AND EVIDENCES WHILE HE WAS OVERWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FACTORS. 2. THE SOLITARY ISSUE PERTAINS TO ADDITION OF RS. 3 ,55,884 TO CLOSING STOCK. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF DEALING AND MANUFACTURING OF GOLD ORNAMENTS, WHI CH INCLUDES LABOUR CHARGES OF GOLD ORNAMENTS. THE ASSESSEE HAS BEEN VA LUING ITS CLOSING STOCK AT COST PRICE OR NET REALISABLE VALUE WHICHEVER IS LOWER. AS PER THE AO, WHILE VALUING THE CLOSING STOCK, THE ASSESSEE HAS NOT INC LUDED COST OF LABOUR CHARGES PAID FOR MAKING THE JEWELLERY THEREIN. 4. THE ASSESSEE GAVE A DETAILED REPLY THAT IT HAD B EEN FOLLOWING AS2 FOR COMPUTATION OF ITS CLOSING STOCK, WHICH IS PRESCRIB ED BY THE ICAI AND ALSO THAT HE HAD GOT HIS BOOK AUDITED U/S 44AB, EVEN THE CA HAS NOT QUALIFIED ITS REPORT ON THIS ISSUE. HE, THEREFORE, PLEADED THAT T HE VALUE OF CLOSING STOCK SHOULD NOT BE ALTERED. THE ASSESSEE, HOWEVER PROPOS ED, WITHOUT PREJUDICE, THAT IF THE CLOSING STOCK IS BEING ALTERED, THEN TH E CORRESPONDING ALTERATION BE ALLOWED IN THE OPENING STOCK FOR THE SUCCEEDING YEAR. 5. THE AO DID NOT AGREE WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND WENT ON TO MAKE THE ADDITION OF RS 3,55,844. TH E AO, DID NOT RECORD ANY OBSERVATION ON THE ALTERNATE PLEA ADVANCED BY T HE ASSESSEE. AS A RESULT, THE ADDITION OF RS. 3,55,884 WAS MADE, WHICH IS A S TAND ALONE ADDITION, WITHOUT ANY CORRESPONDING ADJUSTMENTS. SHRI SOHANLAL J JAIN ITA NO.7416/MUM/2010 3 6. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A), WHO SUSTAINED THE ADDITION, FOLLOWING HIS PREDECESSORS ORDER IS ASSESSMENT YEAR 2005-06. 7. AGGRIEVED, THE ASSESSEE IS NOW BEFORE THE ITAT. 8. BEFORE US, THE AR PLACED COPY OF ORDER OF ITAT I N ITA NO. 4189/MUM/2009, IN THE ASSESSEE OWN CASE, WHERE, THE ITAT HAD SUSTAINED THE ADDITION BUT ALLOWED THE CORRESPONDING VALUATIO N OF SUCCEEDING YEARS OPENING STOCK, WHICH READS AS UNDER : HOWEVER, THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE CLOSING STOCK FOR THIS YEAR SHOULD BE CONSIDERED AS OPENING STOCK OF THE NEXT YEAR FINDS FORCE IN IT. THE LD. CIT (A) HAS ALSO OB SERVED THAT THE EFFECT OF ADDITION ON ACCOUNT OF VALUATION OF CLOSING STOCK F OR THE YEAR UNDER CONSIDERATION WILL AUTOMATICALLY BE GIVEN IN THE SU BSEQUENT YEAR BY WAY OF DEBITING THE TRADING ACCOUNT WITH THE OPENING STOCK , WHICH IS NOTHING BUT THE CLOSING STOCK BROUGHT FORWARD. 9. THE AR ARGUED THAT THOUGH THE ISSUE, ON FACTS, H AS BEEN HELD AGAINST HIM BUT, HE, IN ANY CASE PLEADED THAT THE VALUATION OF CLOSING STOCK BEING CORRECT, AND IN THE ALTERNATIVE, HE ARGUED THAT COR RESPONDING EFFECT IN THE NEXT YEARS OPENING STOCK MAY BE ALLOWED. 10. THE DR RELIED ON THE ORDER OF THE REVENUE AUTHO RITIES. 11. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E IMPUGNED ORDER AND THE ORDER OF THE CO-ORDINATE BENCH AT MUMBAI IN THE ASSESSEES OWN CASE IN ITA NO. 4189/MUM/2009, WHEREIN THE HONBLE BENCH HAD SUSTAINED THE ADDITION BUT HAD ALLOWED THE CORRESPONDING ADJU STMENT TO BE MADE IN THE SUCCEEDING YEARS OPENING STOCK. 12. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH, WE WOULD ALSO TAKE A SIMILAR DECISION, I.E. WE SUSTAIN THE A DDITION OF LABOUR CHARGES TO SHRI SOHANLAL J JAIN ITA NO.7416/MUM/2010 4 THE CLOSING STOCK AND ALSO DIRECT THE AO TO ALLOW T HE CORRESPONDING ADJUSTMENT IN THE NEXT YEARS OPENING STOCK. 13. IN THE RESULT, WE SET ASIDE THE ORDER OF THE CI T(A) AND DIRECT THE AO TO ALLOW THE CORRESPONDING ADJUSTMENT IN THE SUCCEEDIN G YEARS OPENING STOCK. 14. THE APPEAL OF THE ASSESSEE IS THUS TREATED AS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 0 5/09/2012 SD/- ( R.S. SYAL ) ACCOUTANT MEMBER SD/- ( VIVEK VARMA ) JUDICIAL MEMBER MUMBAI, DATE: 05/09/2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-25, MUMBAI. 4) THE CIT-14, MUMBAI. 5) THE D.R. E BENCH, MUMBAI. 6) COPY TO GUARD FILE. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN