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Facts
A search and seizure operation was conducted on the assessee, involved in gold, silver ornaments, and share trading. The assessee accepted undisclosed income, and the assessment order sustained additions. The CIT(A) partly allowed the appeal, deleting a significant portion of the stock valuation addition. The revenue appealed to the ITAT, which set aside the matter for verification of excess unsold stock.
Held
The Tribunal held that the issue of stock valuation, in this case, was essentially a matter of deferment and revenue-neutral, citing the Hon'ble Apex Court's decision in CIT v. Excel Industries Ltd. The Tribunal further noted that the AO did not provide any finding that the assessee's valuation method distorted profits.
Key Issues
Whether the addition on account of stock valuation is sustainable when it is reduced to a lower amount in subsequent proceedings and whether the department has discharged the burden of proving that the method adopted by the assessee distorts profit.
Sections Cited
250, 143(3), 254, 132(1), 132(4), 142(1), 115BBE, 28(iv)
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Income Tax Appellate Tribunal, JAIPUR BENCH “A”, JAIPUR
Before: SHRI GAGAN GOYAL & SHRI NARINDER KUMAR
This appeal by assessee is directed against the order of CIT(A) -04, Jaipur dated 28.02.2024 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’). The assessee has raised the following grounds of appeal: -
1. On the facts and the circumstances of the case, Ld. CIT(A) has grossly erred in confirming the order of the Ld. AO sustaining the additions of Rs. 90,77,377/- so made vide order passed u/s. 143(3) r.w.s. 254 of the Income Tax Act, 1961.
1.1 That, Ld. CIT(A) has further grossly erred in confirming the addition of Rs. 90,77,377/-on account of alleged excess stock, so made by Ld.AO vide order passed u/s. 143(3) r.w.s.254,despite the fact that this amount was not "excess stock not shown" but it was due to reduction in the value of unsold excess stock which remained as on 31.03.2013 and thus addition so made is without properly following the specific directions given by the Hon'ble ITAT, Jaipur Bench, Jaipur in and rather is contrary to the directions of Hon'ble ITAT. Appellant prays that addition so made is not in accordance with law and deserves to be deleted.
That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal.
2. The brief facts of the case are that the Late assessee was involved in the trade of gold, silver ornaments and share trading. A search and seizure operation under section 132(1) of the Act was carried out at various premises of the Harsh Group. Residential premises of the assessee was also covered in this exercise vide search dated:23.01.2013. The assessee had accepted undisclosed income to the tune of Rs. 10 Cr. In his statement u/s. 132(4) of the Act. Notice u/s. 142(1) of the Act was issued to the assessee vide dated: 19.12.2013, in response to this notice the assessee furnished his return of the income on 30.09.2013 declaring total income at Rs. 9,43,99,690/-. After a detailed deliberation between the assessee and the AO, the case of the assessee was finally assessed at Rs. 12,09,86,280/- [Figures of additions amounting to Rs. 2,65,86,591/- as per para 11 of the original assessment order, as provided vide page 26 of the PB (Internal page no. 15)]. The assessee being aggrieved with the same preferred an appeal before the Ld. CIT(A), who in turn partly allowed the appeal of the assessee and major addition of Rs. 2,32,09,339/- on account of valuation of stock as on 31.03.2013 was deleted.
3. Because of this relief given by the Ld. CIT(A) in first round of proceedings, the revenue felt aggrieved and preferred an appeal before the coordinate bench at that time. The coordinate bench, Jaipur Benches vide its order dated: 31.05.2017 (ITA No. 643/JPR/2017) set aside the matter back to the file of the AO for limited purposes, i.e. verification of excess stock left unsold as on 31.03.2013 as under:
Therefore, so far as the applicability of amended provisions of section 115BBE of the Act is concerned, the same is applicable w.e.f. 01.04.2017 and not prior to that. However, the question arises whether the entire stock which was found excess at the time of search/survey remained unsold till 31st March 2013. So that the assessee can take the benefit of reduction in the prevailing price of the gold against the surrendered income on account of unexplained investment in the stock. Since this issue was not considered by the authorities below as the AO disallowed the claim of the assessee by placing reliance on section 115BBE of the Act and the Ld. CIT(A) has accepted the prevailing price of the gold as on 31.03.2013 without verifying the actual details of the remaining stock out of the excess stock found at the time of survey, therefore this factual aspect of the matter is required to be verified and examined by considering all the relevant details at the level of the AO. Accordingly, we set aside this issue for limited purposes of verification and examination of the quantity of stock which remained unsold as on 31st March 2013 out of the total excess stock found at the time of the survey.
4. In pursuance to the order of the coordinate bench again the matter was assessed by the JAO u/s. 143(3) r.w.s. 254 of the Act and an addition of Rs. 90,77,377/- was made on account of difference in valuation as on the date of search/survey vis-à-vis 31.03.2013. The assessee being aggrieved with the same again preferred the appeal before the Ld. CIT(A), who in turn this time confirmed the working done by the AO and dismissed the appeal of the assessee as none appeared on behalf of the assessee and substantial arguments and submissions were not placed before the Ld. CIT(A). Against this order of the Ld. CIT(A), the assessee being aggrieved preferred the present appeal before us.
5. We have gone through the original and subsequent order of the AO, order of the Ld. CIT(A) in first round and subsequent order also and order of the coordinate bench as discussed (supra). Before we proceed to adjudicate the matter, it is brought to our notice by the registry that the appeal filed is time barred by 138 days and for this the legal heirs of the assessee filed an application for condonation of delay alongwith duly attested affidavit. Before coming to the merits of the case we need to examine and confirm that the delay was non- intentional/negligence and there was genuine reason behind the same. We have gone through the application of the assessee alongwith the affidavit filed before us. It is submitted by the legal heirs of the assessee that the order of the Ld. CIT(A) was served on the previous address of the assessee, i.e. Maniram Ji Ki Kothi Ka Rasta, Ramganj Bazar, Jaipur, whereas the legal heirs were shifted from this address to 462, Ekta Block, Mahaveer Nagar, Tonk Road, Amer Clark Hotel, Jaipur – 302 018. Hence the order was not received by the assessee as the same was delivered on the old address. Although the change in address was duly updated on Income Tax Department return filing portal. The assessee further claimed that evidence of change in address intimation duly enclosed with this application for our perusal. Although no such copy of address updating intimation is there on our record. We have further gone through the Form No. 35 filed before the Ld. CIT (A) and found that there also the same address was there, i.e. Maniram Ji Ki Kothi Ka Rasta, Ramganj Bazar, Jaipur – 302 003. Then the assessee further submitted that she came to know about the appealable order only after the passing of penalty order and consequential appeal filing of the same.
6. There is no evidence before us that on which address the penalty order was sent and received by the assessee. But, despite of all the facts as discussed above (absence of relevant evidence as claimed by the assessee), it is observed that the assessee is participating at all the forums and willing to be part of the proceedings going against her, hence her bonafides can’t be questioned and it can be reasonably assumed that delay was certainly unintentional. In view of the above, giving benefit of doubt to the assessee because of her past conduct, delay in filing of the appeal is condoned.
7. Now the question before us is of two-fold, i.e. whether the earlier directions issued by the coordinate bench have been followed in its true spirit or not and whether the absence of the assessee in the proceedings before the Ld. CIT(A) requires restoring the matter back to the file of the Ld. CIT(A) or based on material on record the Tribunal can decide the matter. It is observed that the initial dispute on the valuation was Rs. 2,32,09,339/- and presently the matter before us is reduced to Rs. 90,77,377/-. It implies that a major relief has already been passed on the assessee and there is no appeal by the department against the earlier order of the coordinate bench. Secondly, the quantity of metals is not under challenge by either side as on 31.03.2013. The only dispute here is whether still, there is any quantity left as on 31.03.2013 out of the undisclosed stock declared on 23.01.2013 at the time of search.
8. Certainly, it is established on record that the earlier order of the Ld. CIT(A) against which the revenue preferred the appeal before the coordinate bench was almost correct, i.e. at that time the addition made was to the tune of Rs. 2,32,09,339/- and now the same AO calculated the figure at Rs. 90,77,377/-. Neither the AO nor the Ld. CIT (A) considered this fact that why this difference arisen in the figures of valuation for the purposes of addition. Notwithstanding the figures presented by the assessee and analysed by the AO, on identical issue the Hon’ble Apex Court in the case of CIT v. Excel Industries Ltd. [2013] 358 ITR 295 (SC) held as under:
Income—Benefit under Advance licenses and duty entitlement pass book—Year in which Taxable—In its return, assessee claimed deduction of advance license benefit receivable and duty entitlement pass book benefit receivable—These benefits related to entitlement to import duty free raw material under relevant import and export policy by way of reduction from raw material consumption—AO stated that taxability of benefits was covered u/s 28(iv) which provides that value of any benefit or perquisite, whether convertible into money or not, arising from a business or a profession is income—According to AO, along with an obligation of export commitment, assessee gets benefit of importing raw material duty free—CIT(A) followed conclusion of ITAT in A.Ys. 1999-2000 and 2000-01 and held that advance benefits ought not to be taxed in this year—ITAT upheld view of CIT(A)—Held, applying three tests laid in various decisions, namely, whether income accrued to assessee is real or hypothetical; whether there is a corresponding liability of other party to pass on benefits of duty free import to assessee even without any imports having been made; and probability or improbability of realisation of benefits by assessee considered from a realistic and practical point of view, it was quite clear that in fact no real income but only hypothetical income had accrued to assessee and Section 28(iv) would be inapplicable—Secondly, consistent view had been taken in favour of assessee, starting with A.Y. 1992-93, that benefits under advance licenses or under duty entitlement pass book do not represent real income of assessee—Thus, there was no reason to take a different view unless there are very convincing reasons, none of which had been pointed out by revenue— Thirdly, there was no dispute that in subsequent FY, assessee did make imports and did derive benefits under advance license and duty entitlement pass book and paid tax thereon— Therefore, it was not as if revenue has been deprived of any tax—Rate of tax remained same— There was, thus, no need for revenue to continue with this litigation
In view of the above in every case of substitution of one method by another method, the burden is on the Department to prove that the method in vogue is not correct, and it distorts the profits of a particular year. Under the mercantile system of accounting based on the concept of accrual, the method of accounting followed by the assessees is relevant. In the present case, there is no finding recorded by the Assessing Officer that the valuation method adopted by the assessee distorts the profits of the year under consideration. Moreover, as held in various judgments, the valuation method is one integrated scheme spread over a period on a going concern basis and as per our examination computation of tax effect in these cases is revenue neutral, i.e. the lower value of closing stock of this year will ultimately, reduce the value of opening stock for next year and will enhance the profits for the succeeding year. In a nutshell at the max, it’s a matter of deferment and that issue has already been dealt with and pronounced in favour of the assessee in the case of Excel Industries Ltd. (supra).As the dispute was only as to the year of taxability and as the rate of tax remained the same the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merit) but also that it may not have added anything much to the department.
In view of the above discussion, the question before us was legal in nature and respectfully following the authority of Hon’ble Apex Court in the case of Excel Industries Ltd. (supra), grounds raised by the assessee are allowed.
In the result the appeal of the assessee is allowed.
The order is pronounced in the open court on the 17th Day of April 2025.