AMAR JEWELLERS,THANE vs. ASST CIT CIR 2, MUMBAI

This is an appeal filed by the assessee. The relevant assessment year is 2013-14. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-3, Thane [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).

The grounds of appeal

The Ld. CIT(A) erred in upholding the assessment order passed by the AO without adjudicating the ground relating to rejection of the audited books of accounts of the appellant without assigning any cogent reasons. 3. Briefly stated, the facts of the case are that the assessee filed its return of income for the assessment year (AY) 2013-14 on 21.08.2013 declaring total income of Rs.34,14,580/-. It is engaged in the business of sale of gold and silver armaments. It has disclosed gross profit of Rs. 1,09,50,564/- [ @ 10.80% on turnover of Rs.10,13,64,064/-]. During the course of assessment proceedings, the assessee filed before the Assessing Officer (AO) the quantitative details of gold and silver. In the audit report, the method of valuation of stock was stated to be cost price or market price whichever is lower. The AO worked out the valuation of closing stock and found that the value of stock of gold and silver is Rs.3,26,37,005/- and Rs.11,41,020/- respectively. In response to a query raised by the AO, the assessee submitted that since this method is being regularly followed, there is no loss to the Revenue, as in the case of undervaluation of stock, the opening stock carried forward to the next financial year (FY) will increase by this amount and ultimately, the profit in FY 2013-14 relevant to the AY 2014-15 would be low. Therefore, the assessee pleaded before the AO that the valuation of stock as shown in the books of accounts be accepted. However, the AO was not convinced with the above explanation of the assessee and made an addition of Rs.25,18,006/- towards under valuation of closing stock (Rs.23,96,203/- for gold and Rs.1,21,803/- for silver).

Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The assessee submitted before him that the AO, being not satisfied with the trading account filed before him, worked out and recast on his own the trading account by adopting average rate for the purpose of closing stock value only without giving the corresponding effect to the opening stock and then made an addition of Rs.25,18,006/-. Thus the assessee argued before the Ld. CIT(A) that the method of valuation adopted for closing stock should have been applied by the AO for the opening stock also. However, the Ld. CIT(A) was not convinced with the above explanation of the assessee and held as under: “In this case, the appellant has shown closing stock of gold at Rs.3,02,40,302/- on 12,295.260 gms. However, the AO has worked out the average rate of gold at Rs.2654.46 per gm and arrived the valuation at Rs.3,26,37,005/- and accordingly, the difference amount of Rs.23,96,203/- has been added as income of the appellant by the AO. In this regard, the AO has valued the closing stock as per the accounting principles and therefore, the addition made by the AO is confirmed. The appellant has also not disputed the average valuation of closing stock for silver, therefore, the same analogy is applied in the valuation of gold. As a result, the addition of Rs.25,18,006/- on account of undervaluation of Gold and Silver is confirmed and the appeal of the appellant on this ground is rejected. However, the AO is direct to allow the carry forward of the valuation of closing stock as opening stock in the subsequent year i.e. AY 2014-15.”

Before us, the Ld. counsel of the assessee submits that during the course of assessment proceedings, the assessee had filed before the AO the working of valuation of stock with the help of audit report and also certificate issued by the Chartered Accountant. The assessee is