M/S. ASHOK KUMAR & BROTHERS, Khategaon V. THE ITO 1(2), Ujjain

ITA 788/IND/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5694 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-02-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 15-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: S S MUNDRA
• Keywords: Capital asset converted into stock in trade

Judgement Text

M/S ASHOK KUMAR & BROTHERS ITA NO. 788/IND/2014 1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER AND SHRI B.C. MEENA, HONBLE ACCOUNTANT MEMBER ITA NO. 788/IND/2014 A.Y.2006-07 M/S ASHOK KUMAR & BROTHERS KHATEGAON PAN AAJFA 6339F ::: APPELLANT VS INCOME TAX OFFICER 1(2) UJJAIN ::: RESPONDENT APPELLANT BY SHRI S.S. MUNDRA RESPONDENT BY SHRI R.A. VERMA DATE OF HEARING 11.2.2016 DATE OF PRONOUNCEMENT 2 9 .2.2016 O R D E R PER SHRI B.C. MEENA, AM THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE LEARNED CIT(A), UJJAIN, DATED 10.10.2014 . M/S ASHOK KUMAR & BROTHERS ITA NO. 788/IND/2014 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF PURCHASE AN D SALE OF GOLD ORNAMENTS, SILVER ORNAMENTS AND GRAINS. THE RETURN OF INCOME WAS FILED BY THE ASSESSEE DECLARING T OTAL INCOME AT RS.10,40,620/-. THE CASE WAS SELECTED FOR SCRUTINY FOR NON-CORPORATE ASSESSEES VIDE ACTION PLAN FOR THE F.Y. 2007-08. 3. GROUND NOS. 1 & 2 RAISED BY THE ASSESSEE READ AS UNDER :- LOOKING TO THE FACTS AND THE CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT-UJJAIN ERRED IN CONFIRMING THE UNDERLYING ADDITIONS IN DECLARED INCOME SHOWN BY TH E ASSESSEE WITHOUT DISCUSSING THE SUBMISSION MADE BY THE ASSESSEE, THAT WHY IT IS NOT ACCEPTABLE TO HIM, THE SAME IS ARBITRARY AND UNCALLED FOR M/S ASHOK KUMAR & BROTHERS ITA NO. 788/IND/2014 3 (I) RS.5,95,233/- IN SILVER ACCOUNT ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. (II) RS.65,164/- IN GOLD ACCOUNT ON ACCOUNT OF UNDER VALUATION OF GOLD ORNAMENTS STOCK. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE METHOD OF VALUATION O F CLOSING STOCK OF SILVER ORNAMENTS AND GOLD ORNAMENTS ADOPTED BY THE ASSESSEE IS NOT PROPER AND ACCORDINGLY VALUATION OF CLOSING STOCK OF GOLD AND SILVER ORNAMENTS WORKED OUT BY THE ASSESSEE IS AT LOWER RATE AND OBSERVE D THAT THE METHOD OF VALUATION OF CLOSING STOCK ADOPTED B Y THE ASSESSEE IS NOT CLEAR AS THE ACCOUNTS ARE NOT AUDITED . THE ASSESSING OFFICER VALUED THE CLOSING STOCK OF SI LVER AND GOLD ORNAMENTS ON THE BASIS OF CLOSING MARKET RATE AS ON 31.3.2006 REPORTED IN VG MEHTA READY RECKONER AFTER CONSIDERING THE PERCENTAGE OF IMPURITIES. APPLYING T HE MARKET RATE FOR VALUATION OF THE STOCK, THE ASSESSING O FFICER M/S ASHOK KUMAR & BROTHERS ITA NO. 788/IND/2014 4 INCREASED THE GROSS PROFIT BY RS.5,95,223/- IN SILVE R ACCOUNT AND RS.65,164/- IN GOLD ACCOUNT. THE ASSESSING OFFICER ACCORDINGLY MADE THE ADDITIONS. 5. FELT AGGRIEVED WITH THE ACTION OF THE ASSESSING OF FICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LEARNED CIT(A) BUT COULD NOT SUCCEED. NOW THE ASSESSEE IS IN APPEAL BEFOR E US. 5. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO SUBMIT THE BASIS OF VALUATION OF CLOSING STOCK OF SILVER AND GOLD ORNAMENTS WHICH WAS FURNISHED BY THE ASSESSEE WHICH IS SELF EXPLANATORY AND THE LEARNED ASSESSING OFFICER COULD NOT FIND ANY DEFECT THEREIN. IT WAS ALSO SUBMITTED BEFORE US THAT THE ASSESSEE IS FOLLOWING THE METHOD OF VALUING T HE CLOSING STOCK OF SILVER AND GOLD ORNAMENTS AT COST ON FIRST IN FIRST OUT (FIFO) METHOD. THIS METHOD IS BASED ON THE PRINCIPLE OF THE PRUDENCY. IN VIEW OF THE PRUDENCY , THE M/S ASHOK KUMAR & BROTHERS ITA NO. 788/IND/2014 5 APPROPRIATE METHOD OF VALUATION WAS COST AS PER FIFO METHOD OR WEIGHTED AVERAGE COST. THE ASSESSEE HAS BEEN FOLLOWING THIS METHOD OF VALUATION FOR A LONG TIME AND IN EARLIER YEARS THE REVENUE HAS NOT DISLODGED THIS MET HOD OF ACCOUNTING AND HAS ALWAYS ACCEPTED THE VALUATION OF CLOSING STOCK. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SECTION 145(2) OF THE ACT PRESCRIBES ACCOUNTING STANDARD 2 RELATING TO VALUATION OF INVENTORI ES ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA WHICH PRESCRIBES FIFO AND WEIGHTED AVERAGE COST (WAC) METHOD FOR VALUING THE CORRECT VALUE OF INVENTORY AT T HE END OF THE YEAR. THIS METHOD USED BY THE ASSESSEE PROVID ES FAIREST APPROXIMATION TO THE COST IN BRINGING THE ITEM S TO ITS PRESENT LOCATION AND AS SUCH THE ASSESSEE HAS RIGHTLY ADOPTED COST (FIFO) METHOD FOR VALUING THE CLOSING ST OCK OF GOLD AND SILVER ORNAMENTS AS ON 31.3.2006 AND EARLIER YEARS ALSO. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED M/S ASHOK KUMAR & BROTHERS ITA NO. 788/IND/2014 6 RELIANCE ON THE DECISIONS IN CHAINRUP SAMPATRAM VS. CIT (1953) 24 ITR 481 (SC) & ACIT VS. JAGDISHCHAND; DECIS ION OF THE CHANDIGARH A-BENCH OF THE TRIBUNAL REPORTED IN (2004) 90 TTJ CHANDIGARH 943. THE LEARNED COUNSEL FO R THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE HAS RIGHTLY VALUED THE CLOSING STOCK OF GOLD AND SILVER ORNAMENTS. THEREFORE, THE ADDITION MADE BY THE ASSESS ING OFFICER IN GROSS PROFIT OF GOLD AND SILVER ACCOUNT AT RS.65,164/- AND RS.5,95,233/- RESPECTIVELY IS WITHOU T ANY BASIS. 6. ON THE OTHER HAND, THE LEARNED DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT SINCE THE ACCOUNTS OF THE ASSESSEE ARE N OT AUDITED, THE SAME CANNOT BE TREATED TO BE CORRECT AND AS SUCH THE AUTHORITIES BELOW WERE JUSTIFIED IN MAKING AN D CONFIRMING THE ADDITIONS IN QUESTION AND AS SUCH THE ORDERS OF THE AUTHORITIES BELOW NEED TO BE UPHELD. M/S ASHOK KUMAR & BROTHERS ITA NO. 788/IND/2014 7 5. AFTER CONSIDERING THE ARGUMENTS OF THE PARTIES IN THE WAKE OF THE FACTS OBTAINING IN THIS CASE, WE FIND FORCE IN THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE INASMUCH AS THE METHOD OF VALUATION OF CLOSING STOCK H AS BEEN FOLLOWED BY THE ASSESSEE SINCE INCEPTION OF ITS BUSINESS WHICH WAS ACCEPTED BY THE REVENUE IN THE PAST . AFTER ACCEPTING THE METHOD OF VALUATION OF CLOSING STO CK IN THE PAST, THE REVENUE CANNOT BE ALLOWED TO DISLODGE IT S OWN ACTION. WE, THEREFORE, REVERSE THE ORDERS OF THE AUTH ORITIES BELOW WITH THE DIRECTION TO THE ASSESSING OFFICER T O DELETE THE ADDITIONS MADE ON ACCOUNT OF CLOSING STOCK OF SILV ER AND GOLD ORNAMENTS. 8. GROUND NO. 3 RELATES TO DISALLOWANCE OF SALARY PAYMEN T OF RS. 58,000/- TO PARTNERS U/S 40(A) OF THE ACT. 9. DURING THE COURSE OF SURVEY, THE ASSESSEE HAS MADE SURRENDER OF RS.12,72,003/- OUT OF UNDISCLOSED INCO ME. IF THIS INCOME IS EXCLUDED FROM PROFIT AND LOSS ACCOUNT, THERE M/S ASHOK KUMAR & BROTHERS ITA NO. 788/IND/2014 8 WILL BE A LOSS OF RS.2,32,918/- FROM REGULAR BUSINESS . THEREFORE, THE ASSESSING OFFICER RESTRICTED THE SALAR Y TO PARTNERS AT RS. 50,000/- AND DISALLOWED RS. 58,000/-. T HIS ACTION OF THE ASSESSING OFFICER WAS CONFIRMED BY THE LEARNED CIT(A). NOW THE ASSESSEE IS IN APPEAL BEFORE TH E TRIBUNAL. 8. WE HAVE HEARD BOTH THE SIDES. AFTER CONSIDERING TH E ARGUMENTS OF BOTH THE SIDE, WE DO NOT FIND ANY JUSTIF ICATION TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELO W. AS SUCH, THIS GROUND OF THE ASSESSEE STANDS DISMISSED. 9. GROUND NO. 4 RELATES TO DISALLOWANCE OF RS. 7,315/- OUT OF SHOP EXPENSES ON AD HOC BASIS. 10. WE HAVE HEARD BOTH THE SIDES. THE ASSESSING OFFI CER MADE HEAD-WISE COMPARISON OF THE EXPENSES INCURRED DURING THE YEAR UNDER CONSIDERATION AND IN THE PREVIO US YEAR. HE OBSERVED THAT THE ASSESSEE DEBITED MORE EXPEN SES M/S ASHOK KUMAR & BROTHERS ITA NO. 788/IND/2014 9 THAN PREVIOUS YEAR EXPENSES. OUT OF THE TOTAL EXPENSES ON ACCOUNT OF SHOP, TRAVELLING, PETROL, SALARY, ETC. THE ASSESSING OFFICER DISALLOWED 10% OF THE EXPENSES FOR WANT OF PROPER VOUCHERS AND UNVERIFIABLE NATURE OF EXPENSES . THIS ACTION OF THE ASSESSING OFFICER WAS CONFIRMED I N APPEAL BY THE LEARNED CIT(A). NOW THE ASSESSEE IS IN AP PEAL BEFORE THE TRIBUNAL. 11. WE HAVE HEARD BOTH THE SIDES. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS NOMINAL INCREASE I N EXPENSES THIS YEAR AS COMPARED TO THE LAST YEAR BECAUSE OF THE INFLATION. WE HAVE GONE THROUGH THE COMPARABLE CHAR T MADE BY THE LEARNED ASSESSING OFFICER IN THE ASSESSME NT ORDER WHEREFROM WE FIND THAT ONLY SLIGHT INCREASE WAS THERE IN THE EXPENSES AS COMPARED TO THE LAST YEAR AND THAT TO O MAY BE BECAUSE OF INFLATION. WE, THEREFORE, ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE WITH THE DIRECTION TO THE M/S ASHOK KUMAR & BROTHERS ITA NO. 788/IND/2014 10 ASSESSING OFFICER TO ALLOW SHOP EXPENSES AS CLAIMED BY THE ASSESSEE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS P ARTLY ALLOWED. PRONOUNCED IN OPEN COURT ON 29.2.2016 SD/- SD/- (D.T. GARASIA) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED 29.2.2016