M/S. B. KANTHILAL BAFNA & CO, VELLORE, CHENNAI vs. ACIT CENTRAL CIRCLE 2(3), CHENNAI

This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-16, Chennai in dated 23.03.2023. The assessment order was framed by the Assistant Commissioner of Income Tax, Central Circle-2(3), Chennai for the assessment year 2015-16

The only issue in this appeal is as regards to the order of CIT(A) confirming the action of AO in estimating the closing value not based on reasonable methodology or supporting evidence but purely on guess work. For this, assessee has raised following effective grounds:- 2. The learned Commissioner of Income Tax (Appeals)-16 ought to have seen that the AO's estimation of closing value is arbitrary and not based on reasonable methodology or supporting evidence leading to inaccurate determination of closing stock.

Brief facts are that the assessee firm is engaged in jewellery business and filed its return of income for the relevant assessment year 2015-16 on 30.09.2015 admitting a total income of Rs.3,87,54,300/-. A search u/s.132 of the Act was carried out on 30.10.2014. During the course of search, physical stock of gold and diamond jewellery and silver articles were inventorized. The statement of one of the partner Shri B. Ganeshmul was recorded during the course of search u/s.132(4) of the Act, wherein he admitted that the rate of jewellery i.e., valuation of gold jewellery is at the rate of Rs.1,500/- but the assessee before the AO contested this claim and stated that closing stock is to be valued at Rs.1,427/- per gram as against proposed by the AO at Rs.1,500/- per gram. The assessee filed details before the AO, which are reproduced in the assessment order at page 10 and the relevant reads as under:- “In the assessment year 2015-16, the assessee has opted to arrive at the cost of the inventory by using Average Cost method and stop LIFO method to arrive at the same. Under, LIFO method the cost of the closing inventory of gold jewellery for AY 2015-16 is Rs.4,95,79,646/- as against the average cost method adopted which is Rs.8,57,42,320/-. The valuation of closing stock of gold jewellery as on 31.03.2015 under LIFO method is as below:

The CIT(A) simpliciter confirmed the action of the AO by stating that there is no proper stock register, two sets of methodology adopted by assessee i.e., one for gold and one for silver, which clearly establishes that the books of accounts maintained by the assessee are not reliable and he confirmed the addition made by the AO on account of difference in closing stock valuation. Aggrieved, assessee is in appeal before the Tribunal.

We have heard rival contentions and gone through the facts and circumstances of the case. First of all, the AO has not rejected the books of accounts, without pointing out any defect just went on estimation on the basis of value told by one of the partner in his statement at the rate of Rs.1,500/- per gram while deposing u/s.132(4) of the Act. We noted from the assessment order that the AO simpliciter estimated the valuation of closing stock on the basis of rate admitted by partner and not on the scientific basis of valuation given by the assessee. The assessee has give the cost of inventory on the scientific basis of Rs.1,427/- per gram. From the assessment order and the order of CIT(A), it is purely seen that estimation is made without resorting to rejection of books of accounts and moreover, just on estimate basis. Hence, we delete

In the result, the appeal filed by the assessee is allowed.