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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH
Before: Shri Rajpal Yadav & Shri Amarjit Singh
Revenue by: Shri Vidhyut Trivedi, Sr. D.R. Assessee by: Shri Sakar Sharma, A.R. Date of hearing : 17-10-2019 Date of pronouncement : 15-11-2019 आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
These two assessee’s appeals for A.Y. 2012-13, arise from order of the CIT(A)-6, Ahmedabad dated 30-03-2016 & 12-10-2018, in proceedings under section 143(3) & 271(1)(c) of the Income Tax Act, 1961; in short “the Act”.
The assessee has raised following grounds of appeal:-
2381/Ahd/2018 A.Y. 2012-13 Page No 2 Shri Kantilal Shivlal Zaveri (Kantilal Shivlal Shah HUF) vs. Dy. CIT “1. The Ld. CIT (A) erred on facts and in law in upholding action of Assessing Officer in substituting consistently followed method of valuation of closing stock from Market value or weighted average cost-whichever is lower' to 'FIFO' for the purpose of assessment.
2. The Ld. CIT (A) erred on facts and in law in confirming addition of Rs. 1,28,62,290/- on account of alleged undervaluation of closing stock.”
The fact in brief is that assessee has filed return of income declaring income of Rs. 4,12,39,620/- on 11th December, 2012. The case was selected for scrutiny by issuing of notice u/s. 143(2) of the act on 4th Sep, 2013. The assessee was in the business of manufacturing and purchase and sale of jewellery. During assessment, the assessing officer has noticed that assessee has not maintained consumption and production register and also not filed item wise inventory of opening and closing stock. The quantity detail filed by the assessee was worked out on the basis of derivative method. The assessing officer has observed that in absence of the detailed inventory, the assessee has not carried out physical inventory of the stock at the end of the year. The assessing officer has further noticed that assessee has followed FIFO method, however, applied the average weighted cost method for valuation of stock. The assessee has worked out the average cost of stock after taking into account the opening stock and the entire purchases made during the year and the weighted method of average cost has not determined the true profit of the business. The assessing officer has observed that closing stock as per FIFO would comprise of the last purchases made or cost of last items manufactured by the assessee. Therefore, the assessing officer has stated that the cost of closing stock worked by the assessee has not given the correct picture of the business. Therefore, the same is not acceptable. The assessing officer has further observed that object of stock valuation is of correct determination of P & L Account and arbitrary valuation of closing stock on the basis of weighted average cost without recognized practice of 2381/Ahd/2018 A.Y. 2012-13 Page No 3 Shri Kantilal Shivlal Zaveri (Kantilal Shivlal Shah HUF) vs. Dy. CIT valuation either by cost or market price deserved to be rejected. Therefore, the assessing officer has recomputed the valuation of closing stock after adopting FIFO method which resulted in addition of Rs. 1,28,62,290/-.
Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee.
We have heard rival contentions and perused the material on record. During the course of assessment, the assessing officer has noticed from the audit report that assessee has not maintained consumption register and production register and the assessee has also not filed item wise inventory of opening and closing stock. The assessing officer has also observed that assessee has arbitrarily followed weighted average method which does not give true and correct picture of the closing stock and the weighted cost was also not estimated properly. Consequently, the assessing officer has rejected the method of valuation adopted by the assessee. After considering the above facts, we observed that assessee could not substantiate the correctness of following the weighted average method arbitrarily for valuation of closing stock with relevant supporting evidences. We also consider that Hon’ble Supreme Court in case of CIT Vs. British Paints India Ltd. 188 ITR 44 held and observed that any system of accounting which excluded valuation of closing stock of costs other than the cost of raw materials for the goods in process and finished products was likely to result in a distorted pictures of two states of business for the purpose of computing the chargeable income. Under the above circumstances, we consider that the action of the assessing 2381/Ahd/2018 A.Y. 2012-13 Page No 4 Shri Kantilal Shivlal Zaveri (Kantilal Shivlal Shah HUF) vs. Dy. CIT officer of computing the valuation of closing after taking into consideration the purchases as per FIFO method is justified. However, during the course of appellate proceedings before us, the ld. counsel has brought to our notice that Hon’ble High Court of Gujarat in the case of Veera Exports Vs. ACIT (2017) 82 taxman.com 448 (Guj) has held that where revenue had modified or substituted method of valuation of closing stock in particular year, same methodology would also have to be applied for valuation of opening stock for that year. In the light of decision of Hon’ble Jurisdictional High Court, we consider that since in the case of the assessee, the assessing officer has modified the method of valuation of closing stock of the assessee during the year under consideration to arrive at the correct valuation of closing stock, therefore, it is necessary that the same methodology to be applied for computing the opening stock for the year under consideration. In view of the above, we set aside this case to the file of assessing officer for deciding the issue afresh after adopting the same method of valuation for opening stock pertaining to the year under consideration. Therefore the case is restored to the file of the assessing officer for deciding afresh as directed above after providing adequate opportunity to the assessee. In the result, the appeal of the assessee is allowed for statistical purposes.
Since the quantum addition has been restored to the file of assessing officer for deciding afresh as above, therefore, the penalty levied u/s 271(1)(c) in the case of the assessee has become infructuous. However, the 2381/Ahd/2018 A.Y. 2012-13 Page No 5 Shri Kantilal Shivlal Zaveri (Kantilal Shivlal Shah HUF) vs. Dy. CIT assessing officer is at liberty to decide the same afresh on the outcome of the set aside proceedings.