ARJUNLAL KHEMRAJ KOTHARI, MUMBAI V. DCIT 23(2), MUMBAI

ITA 819/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3530 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2007-2008
• Appeal Filed On: 28-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DEVENDRA H JAIN
• Keywords: Valuation report

Judgement Text

, INCOME TAX APPELLATE TRIBUNA L MUMBAI - I BENCH MUMBAI . . , / ! ! ! ! , BEFORE S/SH.B.R.MITTAL,JUDICIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 819/M/2011, ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 SH.ARJUNLAL KEHMRAJ KOTHARI SHOP.NO.9 BOKDE BLDG. SVP ROAD, MULUND (WEST) MUMBAI-400080 VS. DCIT 23(2), B K C,BANDRA(EAST) MUMBAI-400051 PAN: AABPK7705P ( $% / ASSESSEE ) ( &'$% / RESPONDENT) $% $% $% $% ( (( ( ) ) ) ) / ASSESSEE BY : DEVENDRA H JAIN &'$% ( ) /RESPONDENT BY :MS.NEERAJA PRADHAN ' ' ' ' ( (( ( +, +, +, +, / DATE OF HEARING : 1 3 .06.2013 -.# ( +, / DATE OF PRONOUNCEMENT :19 .06.2013 ' ' ' ' , 1961 ( (( ( 254 )1( +/+ +/+ +/+ +/+ 0 0 0 0 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,A.M: CHALLENGING THE ORDER DTD.28.10.2010 OF THE CIT(A)- 33,MUMBAI,ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: 1.THE CIT(A) HAS ERRED IN CONFIRMING ACCOUNT OF VALUATION OF STOCK ON FIFO METHOD. 2.THE CIT(A) HAS ERRED IN CONFIRMING ADDITION OF RS .5,27,606/- MADE BY THE AO ON ACCOUNT OF GROSS PROFIT ON ACCOUNT OF EXCESS STOCK OF 14 KT. G OLD FOUND DURING THE COURSE OF SURVEY AS AGAINST RS 2,47,781/- COMPUTED BY THE APPELLANT. FACTS OF THE CASE: ASSESSEE,AN INDIVIDUAL,ENGAGED IN THE BUSINESS OF S ELLING GOLD AND SILVER JEWELLERY,FILED HIS RETURN OF INCOME ON 31.10.2007 DECLARING TOTAL INCO ME OF RS.21,22,914/-.ASSESSING OFFICER (AO) FINALISED THE ASSESSMENT ORDER U/S.143(3) OF THE AC T,ON 31.12.2009,DETERMINING THE TOTAL INCOME AT RS.62,46,560/-.IN THIS CASE SURVEY U/S.133A OF T HE ACT WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 07.11.2006 THAT RESULTED IN DETE CTION OF DIFFERENCE BETWEEN THE PHYSICAL STOCK AND THE BOOK-STOCK.STATEMENTS OF SON OF THE ASSESSE E ,WHO WAS OVERALL IN-CHARGE OF THE BUSINESS, WERE RECORDED AND HE ADMITTED THAT UNACCOUNTED STOC K WORKED OUT TO RS.55.59 LAKHS.HE OFFERED THE SAID AMOUNT FOR TAXATION. 2. FIRST GROUND OF APPEAL PERTAINS TO ADDITION MADE ON ACCOUNT OF FIFO METHOD OF VALUATION OF STOCK,AMOUNTING TO RS.22.86 LAKHS.DURING THE ASSESS MENT PROCEEDINGS,AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ,AO HELD THAT PLEA OF T HE ASSESSEE FOR NOT FOLLOWING FIFO METHOD OF VALUATION WAS UNREASONABLE,THAT LIFO METHOD OF VALU ATION WAS PROHIBITED BOTH UNDER AS-2 AND IAS-2.HE APPLIED FIFO METHOD FOR VALUING CLOSING ST OCK AND MADE AN ADDITION OF RS.22.86 LAKHS TO THE INCOME OF THE ASSESSEE . 2.1. AGAINST THE ORDER OF THE AO,ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER HE HELD THAT ASSESSEE WAS TRYING TO REFLECT THAT HE WAS FOLLOWI NG AVERAGE RATE OF STOCK,THAT LIFO METHOD WAS PROHIBITED BY ACCOUNTING STANDARDS,THAT STAND TAKEN BY THE ASSESSEE OF NOT FOLLOWING LIFO METHOD WAS UNSUBSTANTIATED AND WITHOUT ANY SUPPORT, THAT INCREASED VALUE HAD TO BE CONSIDERED FOR VALUATION OF STOCK FOR NEXT AY,THAT ASSESSEE H AD NOTHING TO LOOSE ON ACCOUNT OF VALUATION. FINALLY,FAA UPHELD THE ORDER OF THE AO. 2.2. BEFORE US, AUTHORISED REPRESENTATIVE(AR) SUBMITTED THAT A HAD FILED HIS RETURN OF INCOME FOR THE AY UNDER CONSIDERATION INCLUDING SALES OUT OF T HE EXCESS STOCK FOUND DURING SURVEY ACTION, THAT BALANCE UNSOLD STOCK AS ON LAST DAY OF THE ACC OUNTING PERIOD WAS ALSO CONSIDERED WHILE FILING THE RERURN,THAT CORRESPONDING PURCHASE PRICE OF THE EXCESS STOCK FOUND WAS NOT INCLUDED IN THE COMPUTATION OF STOCK,THAT NET PROFIT ON EXCESS STOC K WAS INCLUDED IN THE VALUE OF EXCESS STOCK FOUND DURING THE SURVEY,THAT ASSESSEE AGREED THAT NET PROFIT MIGHT BE ADOPTED @2.59% FOR NORMAL BUSINESS ACTIVITY,THAT AO MADE ADDITION ON A CCOUNT OF GROSS PROFIT ON SALES OUT OF THE EXCESS JEWELLERY FOUND DURING SURVEY,THAT VALUATION REPORT FROM AN INDEPENDENT GOVERNMENT VALUER WAS OBTAINED FOR THE EXCESS STOCK FOUND DURI NG SURVEY,THAT ADDITION WAS MADE ON ACCOUNT OF REPORT OF THE VALUER,THAT AO MADE FURTHER ADDITI ON OF RS.22.86 LAKHS BY VALUING STOCK ON FIFO METHOD, THAT AO HAD ESTIMATED PROFIT BY ADOPTING RE JECTING BOOKS OF ACCOUNTS ON ONE HAND AND FURTHER MADE ADDITIONS BY CHALLENGING THE METHOD FO LLOWED BY THE ASSESSEE ,THAT ONCE BOOKS WERE REJECTED AND INCOME WAS ESTIMATED ON BASIS OF GP/NP BASIS NO FURTHER ADDITION COULD BE MADE ON ANY OTHER BASIS,THAT ADDITION ON ACCOUNT OF VALUATION OF CLOSING STOCK ON FIFO METHOD WOULD GIVE RISE TO ABNORMALLY HIGH GROSS PROFIT RAT E I.E.46.2%,THAT AVERAGE GP RATE FOR LAST THREE YEARS WAS19.71%. HE RELIED UPON THE JUDGMENTS OF IN DWELL CONSTRUCTION(232ITR776),MADDI SUDARSANAM OIL MILLS CO.(37ITR369)DELIVERED BY THE HONBLE ANDHRA PRADESH HIGH COURT.HE ALSO REFERRED TO THE ORDER OF THE C BENCH OF ITAT C HENNAI DELIVERED IN THE CASE OF LAKSHMI INDUSTRIES(49SOT119).DEPARTMENTAL REPRESENTATIVE (D R) SUPPORTED THE ORDERS OF THE AO AND THE FAA. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT IN THE CASE UNDER CONSIDERATION AO HAS ARRIVED AT THE TOTA L INCOME OF THE ASSESSEE BY MAKING CERTAIN ADDITIONS. HE ADOPTED NET PROFIT RATE OF 2.59% ON S ALES MADE DURING THE YEAR I.E.ON RS.1.15 CRORES.HE ALSO ADDED GP@23.03% ON THE SALES OUT OF EXCESS STOCK OF GOLD JEWELLERY FOUND DURING SURVEY ACTION.VALUES OF EXCESS STOCK(GOLD,SI LVER AND DIAMOND)WAS ALSO ADDED TO THE INCOME OF THE ASSESSEE .AFTER MAKING ABOVE ADDITION S HE FURTHER ADDED RS.22.86 LAKHS UNDER THE HEAD DIFFERENCE ON ACCOUNT OF CLOSING STOCK.FROM TH E FACTS AND CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION IT BECOMES CLEAR THAT AO HAD ADOPTED CERTAIN GP RATES FOR REGULAR SALES AND THE ALLEGED SALE OF EXCESS STOCK.THUS,HE HAS REJECTED T HE GP RATE SHOWN BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS AND MADE ADDITION ON ESTIMATE.IN OUR OI NION PRESENT CASE IS COVERED BY THE RATIO OF CASES RELIED UPON BY THE AR.ONCE THE AO HAD NOT ACC EPTED THE BOOK RESULTS OF THE ASSESSEE AND HAD ADOPTED PARTICULAR METHOD OF DETERMINING HIS IN COME,IT WAS NOT JUSTIFIABLE TO MAKE FURTHER ADDITION.WE FIND THAT IN THE CASE OF LAKSHMI INDUST RIES(SUPRA)ITAT CHENNAI HAS HELD THAT ONCE INCOME IS ESTIMATED ON BASIS OF GP THEN NO ADDITION CAN BE MADE ON BASIS OF BOOKS OF ACCOUNTS.AS AO HAS ESTIMATED THE INCOME OF THE ASSE SSEE ON PARTICULAR RATES OF GROSS PROFITS,SO ADDITION MADE BY HIM FOR VALUATION OF CLOSING STOCK WAS NOT PROPER.WE ARE NOT CONVINCED BY THE ARGUMENT OF THE FAA THAT ENHANCED VALUE WOULD BE RE FLECTED IN THE OPENING STOCK OF THE NEXT AY.HERE,THE QUESTION WAS NOT ABOUT REFLECTION OF OP ENING STOCK OF A PARTICULAR AY-BASIC QUESTION TO BE DECIDED WAS ABOUT WAS JUSTIFICATION OF ADDITION MADE BY THE AO.AS STATED EARLIER, WE ARE NOT INCLINED TO UPHOLD THE ORDERS OF THE AO AND THE FAA IN THIS REGARD.SO, CONSIDERING PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE WE REV ERSE THE ORDER OF THE FAA. GROUND NO.1 IS DECIDED IN FAVOUR OF T HE ASSESSEE . 3. NEXT GROUND OF APPEAL PERTAINS TO ADDITION MADE ON ACCOUNT OF EXCESS GOLD STOCK FOUND DURING THE SURVEY PROCEEDINGS.DURING THE COURSE OF HEARING BEFORE US,AR SUBMITTED THAT THE ASSESSEE WAS NOT INTERESTED IN PURSUING GROUND NO.2.THEREFOR E,SAID GROUND IS DECIDED AGAINST THE ASSESSEE AS NOT PRESSED. AS A RESULT,APPEAL FILED B Y THE ASSESSEE STANDS PARTLY ALLOWED. 1 +2 '1+ 3 4 ( / 50 6 7 ( + 89 . ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JUNE,2013 . 0 ( -.# : ;' 1 9 7' , 2013 . ( / @ SD/- SD/- ( . . . B.R.MITTAL ) ( ! ! ! ! / RAJENDRA ) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, ;' /DATE: 1 9 TH ,JUNE,2013 0 0 0 0 ( (( ( &+A &+A &+A &+A B A#+ B A#+ B A#+ B A#+ / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT (A) / C D 4. THE CONCERNED CIT / C D 5. DR I BENCH, ITAT, MUMBAI / AE/ &+' , . . . 6. GUARD FILE/ / F 'A+ &+ //TRUE COPY// 0' / BY ORDER, G / 8 DY./ASST. REGISTRAR , /ITAT, MUMBAI