M/s Jewellers N.N. Aggarwal, Ambala City V. ACIT, Patiala

ITA 805/CHANDI/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9817 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 17-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 805/CHD/2016 (ASSESSMENT YEAR : 2010-11) M/S JEWELLERS N.N. AGGARWAL, VS. THE A.C.I.T., SHOP NO.39-40, HUDA CENTRAL CIRCLE, SHOPPING COMPLEX, PATIALA. OPP. BAL BHAWAN ROAD, AMBALA CITY. PAN: AAFN7359M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ROHIT GOEL RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 20.07.2016 DATE OF PRONOUNCEMENT : 22.07.2016 O R D E R THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-5, LUDHIANA DATED 18.4.2016 FOR ASSESSMEN T YEAR 2010-11 ON THE FOLLOWING GROUNDS : 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND FACTS IN CONFIRMING AN ADDITION OF RS.17,11,176 /- BE ESTIMATING GP RATE ON SALE @ 16% IN PLACE OF 12.68% AS PER BOOKS OF ACCOUNTS. 2. THAT LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE ADDITION OF FALL IN GP RATE WITHOUT A APPRECIATING THE FACTS THAT COMPLETE STOCK REGISTER IS MAINTAINED AND METHOD OF VALUATION OF STOCK HAS BEEN CONSISTENTL Y BEEN FOLLOWED AND IS THE ONLY RECOGNIZED METHOD OF VALUATION OF STOCK. 2 3. THAT LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE REJECTION OF BOOKS OF A CCOUNTS OF THE ASSESSEE U/S 145/145A. 4. THAT APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR TO SUBSTITUTE THE ABOVE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIM E OF HEARING OF CASE. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASS ESSING OFFICER MADE ADDITION OF RS.37,70,700/- AFTER REJEC TING THE BOOKS OF ACCOUNT OF THE ASSESSEE AND APPLYING GP RA TE OF 20% AS AGAINST 12.68% DECLARED BY THE ASSESSEE. THE AS SESSING OFFICER HAS MENTIONED THAT THE GP RATE IN THE CURRE NT YEAR IS LESS THAN THE GP RATE OF 16.41% DECLARED IN THE LAS T YEAR. THE ASSESSING OFFICER MENTIONED THAT THE ASSESSEE WAS A SKED TO FURNISH THE BASIS OF VALUATION OF CLOSING STOCK. T HE ASSESSING OFFICER AFTER CONSIDERING THE REPLY OF THE ASSESSEE , OBSERVED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT R ELIABLE TO DEDUCE THE CORRECT BUSINESS INCOME OF THE ASSESSEE. ACCORDINGLY, THE BOOKS WERE REJECTED. THE ASSESSIN G OFFICER HELD THAT THE ASSESSEE HAS SUPPRESSED THE PROFIT BY SHOWING THE SALE FROM THE CURRENT PURCHASES INSTEAD OF ACTU ALLY EFFECTED SALES FROM THE CLOSING STOCK. THE ASSESSI NG OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAS SUPPRESSED TH E GP RATE AND KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE COMPARABLE CASE, APPLIED GP RATE OF 20% MAK ING THE ABOVE ADDITION. THE ASSESSING OFFICER MENTIONED TH AT NO SEPARATE ADDITION ON ACCOUNT OF UNDER-VALUATION OF CLOSING STOCK IS BEING MADE. 3. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LEARNED CIT (APPEALS) AND WRITTEN SUBMISSION OF THE ASSESSEE 3 IS REPRODUCED IN THE IMPUGNED ORDER, IN WHICH THE A SSESSEE BRIEFLY EXPLAINED THAT THE ASSESSEE IS A PARTNERSHI P FIRM ENGAGED IN THE RETAIL AND WHOLESALE TRADING OF GOLD ORNAMENTS, BULLION AND DIAMOND JEWELLERY. IN ADDITION TO ABOV E, PURE GOLD IS GOT CONVERTED INTO JEWELLERY THROUGH KARIGA RS. THE ASSESSEE MAINTAINED PROPER BOOKS OF ACCOUNT ON DAY- TO-DAY BASIS WHICH ARE DULY AUDITED UNDER SECTION 44AB OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASS ESSEE IS REGISTERED WITH HARYANA VAT TAX AND FILING QUARTERL Y RETURN AND ALSO AVAILED CC LIMIT FROM STATE BANK OF INDIA, WHERE STOCK STATEMENTS ARE FILED FROM TIME TO TIME, WHICH ARE ALSO SUBJECT TO INSPECTION BY THE BANK. IT WAS SUBMITTE D THAT MAIN REASON FOR FALL IN GP RATE WAS DUE TO COMPOSITION O F THE PORTION OF OPENING STOCK QUANTITY AND PORTION OF PU RCHASE QUANTITY OF JEWELLERY SOLD. IT WAS SUBMITTED THAT THE ASSESSEE MENTIONED IN THE AUDIT REPORT THAT THE VALUATION OF THE CLOSING STOCK IS AS PER COST PRICE OR MARKET PRICE, WHICHEVER IS LESS, WHICH IS SETTLED BY LAW. IT WAS SUBMITTED TH AT THE ASSESSEE ADOPTED THE SAME SYSTEM REGULARLY. IT WAS ALSO SUBMITTED THAT THE ASSESSING OFFICER HAS IGNORED AL L OTHER PERMISSIBLE METHODS OF VALUING CLOSING STOCK AT COS T PRICE. AS PER THE ACCOUNTING STANDARD-2, VALUATION OF CLOSING STOCK ISSUED BY ICAI, TWO TYPES OF VALUATION METHODS ARE PERMISSIBLE, I.E. FIFO AND WEIGHTED AVERAGE PRICE M ETHOD. THE ASSESSEE HAS APPLIED THE SECOND METHOD OF VALUA TION, I.E. WEIGHTED AVERAGE PRICE METHOD CONSISTENTLY FOR THE LAST MANY YEARS. IN THE JEWELLERY BUSINESS, THE ASSESSEE CAN NOT USE FIFO METHOD AS IT IS NOT PRACTICAL METHOD. COMPLET E DETAILS 4 OF CLOSING STOCK HAVE BEEN MAINTAINED BY THE ASSESS EE. THEREFORE, THE ASSESSEE CANNOT INCREASE/DECREASE TH E VALUATION OF THE CLOSING STOCK. THE ASSESSEE SUBMI TTED THAT THE WEIGHTED AVERAGE PRICE METHOD HAS BEEN ADOPTED BY THE ASSESSEE REGULARLY AND CONSISTENTLY, THEREFORE, NO ADDITION COULD BE MADE. THE LEARNED CIT (APPEALS) DID NOT A CCEPT THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ADDITI ON, IN PRINCIPLE, HOWEVER, DIRECTED TO APPLY GP RATE OF 16 % AS AGAINST 20% AND REDUCED THE ADDITION TO RS.17,11,17 6/-. THE APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED. 4. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE HAS REFERRED TO PAPER BOOK PAGE NOS.90 TO 92 AND REFERR ED TO THE TRADING ACCOUNT WHERE QUANTITY AND DETAILS OF STOCK HAVE BEEN MAINTAINED BY THE ASSESSEE. HE HAS SUBMITTED THAT SAME METHOD OF VALUATION OF CLOSING STOCK I.E. WEIGHTED AVERAGE PRICE METHOD HAVE BEEN FOLLOWED BY THE ASSESSEE CON SISTENTLY. THEREFORE, THE ASSESSING OFFICER CANNOT CHANGE THE METHOD OF ACCOUNT OF CLOSING STOCK TO FIFO. HE HAS SUBMITTED THAT THE ASSESSING OFFICER DID NOT DISTURB THE OPENING STOCK . THEREFORE, NO ADDITION COULD BE MADE AGAINST THE AS SESSEE. HE HAS RELIED UPON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. KULDEEP CHAND JA IN (HUF), ITA NO.165 OF 2014 (O&M) DATED 8.9.2015, IN WHICH THE DEPARTMENTAL APPEAL WAS DISMISSED, OBSERVING TH AT IN EARLIER YEARS, REVENUE HAD ACCEPTED THE LIFO METHOD FOR 5 VALUATION OF CLOSING STOCK OF THE ASSESSEE . THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN ALLOWING THE RELIEF TO TH E ASSESSEE. 5. ON THE OTHER HAND, THE LEARNED D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 6. I HAVE CONSIDERED THE RIVAL CONSIDERATIONS AND DID NOT FIND ANY JUSTIFICATION TO SUSTAIN THE PART ADDI TION. THE ASSESSEE, ADMITTEDLY, HAS BEEN FOLLOWING WEIGHTED A VERAGE PRICE METHOD FOR VALUATION OF CLOSING STOCK, WHICH IS ONE OF THE METHODS APPROVED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA FOR VALUATION OF THE CLOSING S TOCK. THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE FOR VA LUING THE CLOSING STOCK HAS NOT BEEN DISTURBED IN EARLIER YEA RS. THE ASSESSEE ALSO EXPLAINED THAT IN THE JEWELLERY BUSIN ESS, FIFO METHOD AS FOLLOWED BY THE ASSESSING OFFICER, IS NOT PRACTICAL. THIS ASPECT HAS BEEN IGNORED BY THE AUTHORITIES BEL OW. THE ASSESSEE MAINTAINED COMPLETE DETAILS OF CLOSING STO CK IN WHICH NO DEFECTS HAVE BEEN POINTED OUT. THE ASSESS EE MAINTAINED PROPER BOOKS OF ACCOUNT, WHICH ARE ALSO AUDITED, IN WHICH ALSO, NO SPECIFIC DEFECTS HAVE BEEN POINTE D OUT. THEREFORE, THERE WAS NO JUSTIFICATION FOR THE ASSES SING OFFICER TO CHANGE THE METHOD OF VALUATION OF CLOSING STOCK ADOPTED BY THE ASSESSEE. FURTHER, IF ADDITION TO THE CLOSING STOCK HAS TO BE MADE, THE OPENING STOCK OF THE NEXT YEAR SHALL H AVE TO BE DISTURBED, OTHERWISE IT WOULD AMOUNT TO DOUBLE ADDI TION AGAINST THE ASSESSEE. THE ASSESSING OFFICER HAS NO T GIVEN ANY CORRESPONDING BENEFIT TO THE ASSESSEE. THEREFORE, NO ADDITION COULD BE MADE AGAINST THE ASSESSEE. MERE FALL IN G P RATE BY 6 ITSELF IS NO GROUND TO REJECT THE BOOKS OF ACCOUNT OF THE ASSESSEE TO MAKE THE ADDITION. THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KULDEEP CHAND JAIN (HUF) (SUPRA) SUPPORTS THE CONTENTION OF LEARN ED COUNSEL FOR THE ASSESSEE. IN THIS VIEW OF THE MATTER, I SE T ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTI RE ADDITION. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED : 22 ND JULY, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH