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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: Dr. B. R. R. KumarSh. Yogesh Kumar US
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the Revenue against the order of the ld. CIT(A)-34, New Delhi, dated 29.03.2019.
The operative part of the order of the ld. CIT(A) is as under:
“6.1 Appellant has filed the quantitative details chart of the stock during the assessment proceedings. It is observed by the AO that appellant has showing gold jewellery sample weighing 21795.095 grams and value of which has been disclosed at Rs.97,64,202/- @ Rs.448/- per gram both as opening balance and closing balance which indicates that no sales have been made out of such jewellery since its purchase. It was further observed by the AO that weight of such sample jewellery is more than the opening balance of new gold
2 Dhawan Jewellers Pvt. Ltd. jewellery weighing 11146.533 grams. As per the audit report inventory has been valued as cost. The AO taken a view that the assessee has under the sizable portion of its inventory i.e. 21795.095 grams at Rs.97,64,202/- by valuing the same at Rs.448/- per gram claiming the same as old one whereas the other new gold jewellery purchased by the assessee has been valued @ Rs.2306.54/- per gram. The appellant has submitted that jewellery worth 21795.095 gram as sample jewellery displayed in show cases since 2004-05. The appellant kept this gold jewellery in window and kept buying fresh jewellery for sale. The company has been valuing this stock at cost. The assessments for the AY 2005-06 and 2006-07 has been assessed u/s 143(3) and AO has accepted the values after due verifications. The AO has not accepted the contention of the appellant on the basis that in the fast change in fashion scenario, the viability and profitability of old jewellery cannot remained fruitful to the assessee and appellant failed to produce documentary evidences in respect of purchases of it at a price of Rs.440/- per gram. The appellant has following FIFO method for valuation of stock. Therefore stock of gold jewellery purchased in earlier years has already been sold and stock as on 31.03.2012 represents the stock purchased during the year. Considering the above fact AO has valued the stock of gold jewellery sample @ Rs.2306.54/- per gram and added Rs. 4,05,06,991/- in the taxable income of the appellant.
6.2 During the course of appellate proceedings, appellant has filed written submission which is reproduced as under:
Ground Nos. 6, 7 and 8 are in respect of addition to the dosing stock made in a sum of Rs. 4,05,06,991/-. During assessment the Ld. AO from the quantitative chart of gold jewellery, it was noticed that 21,795.095 grams of sample jewellery had been valued at Rs. 97,64,202/- at the rate of Rs.448/- per gram. The Ld.
3 Dhawan Jewellers Pvt. Ltd. AO confirms that the same quantity at the same value had been shown both for opening and dosing stock. The Ld. AO's hunch was that the assessee was blocking sizable jewellery weighing 21795.095 grams on the pretext of samples while the purchases and sales did not augur favourably on comparison with that figure. The assessee's explanation that the said quantity of 21795.095 grams represented sample of jewellery retained in show-cases since 2004-05 was not believed by the Ld. AO who otherwise thought that no prudent business person would block substantial amount of stock for such a long time on the pretext that the same was being used as sample. He further conjectured that the samples had also to be sold in the face of the fast changing fashion scenario and so he took the value of the quantity of sample jewellery at the current rates of Rs. 2,306.59 per gram and brought the differential to tax in a sum of Rs.4,05,06,991/-.
The action of the Ld. AO is grossly erroneous and totally being untenable must be struck down. The Ld. AO should not have forced on the Appellant a valuation of sample jewellery retained in the show windows at the current market rates. The assessee's accepted method of valuation should not have been distorted by the Ld. AO. Further the principle of valuation of stock is that both opening and dosing stock have to be measured on the same index. If the Ld. AO's thought process was correct then a two way adjustment was imperative. The retention of samples in the show windows is a normal and well accepted business practice and such practice having consistently been accepted in the Appellant's own case, should not have been ignored or disturbed by the 4 Dhawan Jewellers Pvt. Ltd. Ld. AO. He could not have ascribed to the sample items in the show-windows the current market value for computation of closing stock valuation. Sample jewellery could be brought to tax only if sold in the absence of any sale. The Ld. AO had no authority to tinker or hamper with their valuation. Similar action taken in the case of another jeweller for sample jewellery, in an earlier assessment order, stands quashed by the Tribunal on the ground of it being improper and erroneous. A copy of that order is enclosed.
The addition of Rs. 4,05,06,991/- made is palpably erroneous and against the fundamental accounting principles and accepted business practice and therefore must be quashed with directions for total relief. Pleaded accordingly.
6.3 During the course of appellate proceedings, appellant has submitted that it have been valued sample jewellery of 21795.095 gram @ Rs.448/- per gram at Rs.97,64,202/-. The appellant has further submitted that valuation has been done as per well accepted business practice and having consistently been accepted in the appellant's own case. In the case of valuation of stock both opening and closing stock have to be measured on the same index. Sample jewellery could be brought to taxed only if sold in the absence of any sale.
6.4 I have considered the facts of the case, finding of the AO and submissions of the appellant. The AO has made the valuation of the sample jewellery on the current rate of the gold not accepting the contention of the appellant of the valuation of the sample jewellery at purchase cost. The method of valuation of stock in the case of the appellant is cost. If valuation of the closing stock is made at the market rate than opening stock is required to be valued on the same
5 Dhawan Jewellers Pvt. Ltd. rate. Moreover, even if the appellant has valued the sample jewellery at purchase cost it will be brought to tax whenever any sale is made by the appellant. If addition is made on the account of valuation of closing stock, it will affect the opening stock of the next FY and having nullifying effect and will not increase the income of the appellant. Considering the above facts, addition made by the AO at Rs.4,05,06,991/- is not sustainable and it is hereby deleted.”
Heard the arguments of both the parties and perused the material available on record.
The only issue in this case pertains to valuation of the closing stock at the market rate or at cost price. The AO has valued the show window jewellery at current market rate instead of cost price. The stock has been consistently shown at the same price over the period of years at cost price. Hence, we decline to interfere with the reasonably considered order of the ld. CIT(A).
In the result, the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 28/06/2022.