M.P. JEWELLERS (CALCUTTA) & CO.,KOLKATA vs. JCIT, RANGE - 40, KOLKATA, KOLKATA

The captioned appeal filed by the Assessee pertaining to assessment year 2011- 12, is directed against an order passed by the learned Commissioner of Income Tax (Appeals)-13, Kolkata (in short the ld. CIT(A)], which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 ( in short the Act) dated 18.03.2014.

The grounds of appeal raised by the assessee are as follows:

The ground nos. 1 and 2 raised by the assessee relates to the issue of disallowance of depreciation claimed by the assessee to the tune of Rs. 1,24,397/- on office building.

The brief facts qua the issue are that during the assessment proceedings, the Assessing Officer observed that assessee claimed depreciation on residential building, since it was a residential building for the purpose of residence therefore depreciation should not be allowed @ 10%. The Assessing Officer has also noted that the aforesaid building was used for the staff member and the partners of the firm as and when required. Since the building was not used for business purposes. Page | 2

On appeal, the ld. CIT(A) confirmed the addition made by the Assessing Officer. During the appellate proceedings, the assessee was asked to furnish the confirmation of resident welfare association of the building but he did not submit any proof. The assessee has also not submitted the employee and employer contract agreement which proves that the aforesaid facility has not been reflected as a perk, in the hands of employees. Therefore, since the assessee has not established that the perquisite of the same has not been shown in the hands of the employees; and the building has been used for business purposes; hence depreciation should not be allowed.

Aggrieved the assessee is in appeal before us.

We have heard both the parties and perused the material available on record. We note that the ld. Counsel for the assessee submitted before us that the assessee in any case is entitled to claim depreciation @ 5% of Rs. 24,87,942/-. Since the building was used for less than 180 days during the previous year, relevant to assessment year, therefore the assessee is entitled to claim depreciation @ 2.5% of Rs. 24,87,942/-, which comes to the tune of Rs. 62,199/-. On the other hand, the ld. DR for the revenue has fairly agreed that since it is a residential building which qualifies for depreciation @ 5% and since the building has been used by the employees during the previous year, relevant to the assessment year for less than 180 days therefore the assessee is entitled to claim the depreciation @ 2.5% of Rs. 24,87,942/- which comes to the tune of Rs. 62,199/-. We note that the ld. DR for the revenue has fairly agreed with the propositions canvassed by the ld. Counsel for the assessee that the assessee is entitled to claim the depreciation to the tune of Rs. 62,199/- @ 2.5% of Rs. 24,87,942/-. We note that depreciation rate on residential building is 5%, therefore we direct the Assessing Officer to allow the depreciation to the tune of Rs. 62,199/-.

The brief facts qua the issue are that during the assessment proceedings, the assessee was asked to furnish the details of gain from melting of old gold and accordingly the assessee furnished the statement showing gain amount, out of melting to the tune of Rs. 277.702 grams in quantity. The Assessing Officer noted that the same gain was not shown by the assessee in the tax audit report. The assessee was requested to explain the gain of 277.702 grams of gold. In response the assessee submitted that it is established practice in the jewellery industry that all old ornaments are purchased from customers, in exchange of sale of finished jewellery, after Assessing the purity by in-house tester with the help of touch stone and on the basis of his observation. Thereafter, all the old ornaments are sent for melting for recycling into 24 K old gold, to distinguish from 24 k bullion, in the process of melting there may arise an actual gain / loss in quantity. The accumulated old gold of 24K irrespective of gain / loss post melting is issued to smiths, who in turn fabricate jewellery in pieces. All such pieces are received as unique stock number against serially numbered voucher(s). Notwithstanding the 24 k old post melting, is very much part of assessee’s stock. This has already been considered as input at the time of issue to the smiths and also included in the finished jewellery received back from the smiths thereby duly recognized in the books and reflects in the financial statement. However the Assessing Officer rejected the contention of the assessee and noted that audit report and profit & loss account of the assessee did not consider the said gain of 277.702 grams of gold, so the value of 277.702 grams of gold as on 31.03.2011 was added back to the stock and therefore Rs. 5,75,648/- was added back to the total income of the assessee.

Aggrieved by the order of the Assessing Officer the assessee filed an appeal before the CIT(A) who has confirmed the addition made by the Assessing Officer.

Aggrieved the assessee is in appeal before us.

The ld. Counsel for the assessee submitted before us that the assessee has followed correct accounting practice which is prevailing in the jewellery market / manufacturing process of jewellery by taking old ornaments from the customers. On the other hand, ld. DR for the revenue has primarily reiterated the stands taken by the Assessing Officer which we have already noted in our earlier para and the same is not being reiterated for the sake of brevity.

We have given a careful consideration to the rival submissions and perused the material available on record. We note that so far the quantity reconciliation and accounting treatment is concerned the assessee in the appeal under consideration has followed the practices prevailing in the jewellery manufacturing process in case of old jewellery received from the customers during the course of business. So far the quantity reconciliation is concerned, we are of the view that old gold from customers in the form of Bangles, Ring, Ear-ring, Necklace etc. were purchased from customers. The 24 k of this gold is estimated on the basis of touchstone for the purpose of making payments to the customers. The cost so incurred is debited to the profit & loss account. Periodically this old gold purchased, say during a week or fortnight from the customers are sent to the Melters for melting. After melting the identity of gain or loss from a particular item of purchase is lost. After melting, the quantity obtained from the melters were compared to the estimated quantity at the time of purchase and the difference may be either gain or loss. Actually, this is not a gain arising from melting. This is the difference between the earlier estimated quantity of jewellery purchased with the actual quantity obtained from melters. That excess or short is not separately identifiable but embaded in the melted piece in the form of bar, strip etc. So far the accounting treatment is concerned, we are of the view that as detailed in Page 5 of the Paper Book the month wise cost of old gold purchased (with quantity tallied with Tax Audit Report) has been debited in the Profit & Loss A/c. Aggregate of Month-wise Sales was credited in the Profit & Loss Account (page 5

In the result, the appeal of the assessee is allowed.