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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI S. S. GODARA, JM &DR. A.L.SAINI, AM
Per Dr. A. L. Saini: By way of this appeal, the Revenue has challenged the correctness of the order dated 19.08.2016, passed by the ld. Commissioner of Income Tax (Appeals)-4, Kolkata in the matter of assessment u/s 143(3) of the Income Tax Act, 1961(‘the Act’) for the Assessment Year 2011-12.
The grievances raised by the Revenue are as follows:
“1. That in facts and circumstances of the case and in law, the Ld. CIT(A) is erred in giving relief of Rs.14,43,06,995/- stating that the quantitative analysis which has been prepared by Registered Valuer at the time of Survey and what is recorded in stock register has no difference except for 215 gms which is due to mis-weighing of items.
2. That in facts and circumstances of the case and in law, the Ld. CIT(A) is erred in not accepting the accounting standard AS-2 wherein inventory should be valued on FIFO or Weighted Average Method.”
M/s. D. K. BasakJewellers Pvt. Ltd. Assessment Year: 2011-12 3. The brief facts qua the issue are that theassessee filed its return of income for the Assessment Year 2011-12 on 28.09.2011, declaring total income to the tune of Rs.3,98,33,213/-. The return of income of the assessee was processed on 13.01.2012 u/s 143(1) of the Act. Later, the assessee’s case was selected for scrutiny u/s 143(2) of the Act and the Assessing Officer has completed assessment u/s 143(3) by making addition to the tune of Rs.14,43,06,905/- on account difference in valuation of stock. During the course of scrutiny proceeding, it was found that a survey action under section 133A was conducted by ITO and who made specific enquiries and concluded his findings in his final report dated 05.05.2011. The crux of the report as submitted by ITO is as follows:
The assessee is a trader of gold and diamond ornaments. During the courseof survey proceedings value of stock was physically determined at Rs. 25,36,11,394/-. But as perassessee's books closing stock was shown as Rs.10,93,04,489/-. The stock difference comes toRs.11,43,06,905/-.The matter was confronted with the assessee during the time of survey andthe assessee has admitted a stock difference of Rs.8,82,68,862/- and was agreed to pay Rs. 3Crore as additional advance tax. But till today the assessee has only deposited Rs. 1 Crore.
Further statement of Shri Dipak Kumar Basak, director of the company, was recorded onthe date of survey in relation to difference of physical stock with stock recorded in books. Therelevant extracts are reproduced below:
“Q.6. As per the calculation of your stock conducted by the registered valuer Shri Bhikam Chand Bachhawat, the stock value comes to Rs. 252,862,819/- but your books of accounts shows a closing stock of Rs.113,726,138/-. Hence on excess stock of Rs.139,136,681/- is found at yourbusiness premise. Please explain the difference and also state how you are going; to pay your tax liability because of excess stock found at your business premise. Ans: I state that on the date of survey my stock as per books consisting of Gold, diamond, stone jewelleries etc. weighing (Gold: 129110.665 gms), silver 15 kg,Diamonds 723.15 cts.) approx and totaling to Rs. 113,726,138/-. But taking the average cost/revaluation of stock in trade will come to Rs. 20,19,95,000/- as on 25.03.2011 and thus there is stock value difference of Page | 2
M/s. D. K. BasakJewellers Pvt. Ltd. Assessment Year: 2011-12 Rs.88,268,862/- and based on the appreciation value of stock; I am tendering a cheque of Rs. 3 crore as additional income tax.”
5. On verification of audited books of accounts of assessee, it was found that assessee had not accounted the stock difference and not revalued the value of stock, which is contrary to the submission made on the date of survey. Further it was found that assessee has made total tax payment of Rs.13,247,630/- only and retracted from his original assurance of paying Rs.3 Crore additional tax on the basis of discrepancies found on the date of survey. Considering all the points, assessee was summoned u/s 13l on 22.01.2014, along with a show cause notice to appear and explain the discrepancies recorded in Final Survey Report.
In response, the assessee submitted a written submission before the Assessing Officer. The assessee explained that he valued the stock atcost or market price whichever is lower. A reference sheet showing the valuation of the closing stock was also furnished. The assessee submitted that since the stock with him also include stock relating to earlier years for which cost price is to be applied. Therefore, they valued closing stock as at the end of the year consistently the weight ofgold ornaments held since earlier years also. The assessee also submitted that in all the past years, the assessee has been following consistently the same method and stock is being valued at cost price or market price whichever is lower. The assessee also submitted that on the date of survey and subsequent happenings relating to alleged admission and for making payment of Rs.3 crores, it would be appropriate to refer to declaration dated 30th March, 2011 made by Smt. Anita Basak, a director. The assessee’s declaration put stress on the fact that during the survey proceeding she was not in good health and statement given by her was under pressure.
M/s. D. K. BasakJewellers Pvt. Ltd. Assessment Year: 2011-12 6. However, the Assessing Officer did not accept the contention of the assessee because of the following reasons:
(i) Assessee has not followed Accounting Standard – 2, as prescribed by the statutory authorities.The assessee should value the stock at FIFO method or net realizable value in place of LIFO method.
(ii) The assessee did not explain the difference in the quantity of gold and diamond found physically in the course of survey.
(iii) The assessee did not provide any evidence that the valuation by the registered valuer called on the sport in the survey proceeding was having fault in any regard.
(iv) The declaration made by the assessee that undue pressure was used is not acceptable.
Therefore, the Assessing Officer held that the assessee has valued gold on basis of LIFO (Last in First Out).However accountingstandard states that closing stock should be valued at FIFO(First in First Out) or weighted average method. Applying the FIFO method the valuation of stock difference will come to Rs.14,43,06,905/- which is to be added back to total income of assessee.
On appeal by the assessee, the Ld. CIT(A) deleted the addition made by the Assessing Officer. The ld. CIT(A) noted that quantitative analysis which has been prepared by the Registered Valuer at the time of survey and what is recorded in the stock register has no difference except for 215 gms which is due to mis-weighing of items. Further, the valuation of stock made by the assessee was well-established and was consistently being followed by the assessee in the earlier years. The ld. CIT(A) allowed the assessee’s
M/s. D. K. BasakJewellers Pvt. Ltd. Assessment Year: 2011-12 appeal by following the judgment of the Hon’ble ITAT Kolkata in the assessee’s case for Assessment Year 2009-10 in ITA No.51/Kol/2013.
Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us.
The ld. DR for the Revenue submitted before us that as per Companies (Accounting Standard) Rules, 2006, the assessee should follow the Mandatory Accounting Standard No.2 “ Valuation of Inventories”. TheAccounting Standard-2, mandates that the assessee should follow only the first-in, first-out (FIFO) Method or weighted average, as a cost formula to value the inventory. The ld. DR for the Revenue submitted that in assessee’s case under consideration, the stock is being valued by applying the last-in, first-out (LIFO) method which is not a recognized method as per Accounting Standard-2. The LIFO method has been deleted by the Institute of Chartered Accountant of India (ICAI). TheLIFO method is a method which does not follow the accrual basis of Accounting therefore, the Accounting Standard-2, issued by ICAI, does not recognize this method. The LIFO method is not acceptable because it does not disclose true and fair picture for valuation of closing stock. To support his plea, the ld. DR drew our attention towards Para No.25 of Accounting Standard -2 which reads as under:
“25 The cost of inventories, other than those dealt with in paragraph23, shall be assigned by using the first-in, first out (FIFO) or weighted average cost formula. An entity shall use the same cost formula for all inventories having a similar nature and use to the entity. For inventories with a different nature or use, different cost formulas may be justified.” The ld. DR for the Revenue submitted that the valuation of stock done by the assessee is not as per the Companies (Accounting Standard) Rules, 2006 and hence, addition made by the Assessing Officer is to be accepted.
On the other hand, the ld. Counsel for the assessee has submitted before us that ld. CIT(A) provided relief to the assessee based on the Page | 5
M/s. D. K. BasakJewellers Pvt. Ltd. Assessment Year: 2011-12 decision of the Hon’ble ITAT Kolkata in assessee’sown case for Assessment Year 2009-10in ITA No.51/Kol/2013. Apart from this, the ld. Counsel for the assessee submitted before us that the Department has been accepting the method for valuation of closing stock which is regularly followed by the assessee for valuation of closing stock in earlier years. Since, the department has been accepting the method regularly followed by the assessee in earlier years, therefore, based on the principle of consistency the assessee’s claim should be allowed. In addition to this, the ld. Counsel for the assessee has submitted that once adopted accounting policy should be followed consistently and it should not be changed frequently.
We have given a careful consideration to the rival submissions and perused the materials available on record, we note that Companies (Accounting Standard) Rules, 2006, mandates a company to follow accounting standards. There are two important cost formula prescribed in Accounting Standard – 2 which are (i) First in first out method (FIFO) and (ii) weightage average method. However, the assessee may adopt any other cost formula to value the closing stock if the nature of the product is specific, where these two cost formula do not apply. So far the valuation of closing stock is concerned; the principle is that it should be valued at cost or net reliable value whichever is lower. We note that so far the method of valuation of closing stock is concerned, the assessee has been following the norm to compute the value of closing stock at cost and net reliable value whichever is lower by applying the LIFO method. We note that quantitative analysis which has been prepared by the Registered Valuer at the time of survey and what is recorded in the stock register has no difference except for 215 gms which is due to mis-weighing of items. We note that the valuation of stock made by the assessee was well-established and was consistently being followed by the assessee in the earlier years. Once adopted method of valuing closing stock should be followed consistently unless there is cogent Page | 6
M/s. D. K. BasakJewellers Pvt. Ltd. Assessment Year: 2011-12 reason to change it. We note that it is a well settled legal position that factual matters which permeate through more than one assessment year, if the Revenue has accepted a particular's view or proposition in the past, it is not open for the Revenue to take a entirely contrary or different stand in a later year on the same issue, involving identical facts unless and until a cogent case is made out by the Assessing Officer on the basis of change in facts. For that we rely on the order of the Hon’ble Supreme Court in RadhaSoamiSatsang vs. CIT 193 ITR 321 (SC).
We note that the ld. CIT(A) has given relief to the assessee by following the assessee’s own case for Assessment Year 2009-10 in ITA No.51/Kol/2013. We also note that the judgment of the Coordinate bench in in the case of M/s RoopshreeJewellers (P) Ltd. dated 17.04.2018 is identical and similar to the facts of the assessee`s case under consideration, wherein it was held as follows:
4.2. The ld AO observed that the value of the Gold jewellery at the commencement of the year was much less than its value at the end of the year. The assessee stated that the details of stock had been maintained in terms of weight only and not in terms of pieces and items of jewellery. The ld AO observed that the assessee could not able to locate as to which items of jewellery were there in the opening stock, purchase and closing stock. Hence the assessee pleaded that it was not possible to say as to whether the items sold during the year were items of opening stock or were the items that had been purchased during the year. In other words, in the absence of the details, the assessee could not tell as to whether the items left in the closing stock or were out of the ones which has been purchased / manufactured during the year, it is just a assumption that the jewellery, which was purchased last, was the first to be sold and on this basis what was left was out of the earlier purchase. This is Last in First Out (LIFO) method of valuation of stock. The ld AO raised a specific question to the assessee as under:-
Please note that as per accounting standard of ICAI i.e AS-2 , inventory should have been valued on FIFO basis or weighted average method basis. Provision of section 145A of the Act, 1961 also prescribed for such method of valuation."
The assessee stated that the inventory valuation is governed by the provisions of section 145A of the Act which starts with a non-obstante clause 'Notwithstanding anything contained in any other provisions of this Act' ............The ld AO had not stated that the assessee had not complied with the provisions of section 145A of the Act. The assessee has been maintaining LIFO method from the inception of the company which is not in dispute. There is no deviation in the method of accounting employed during the year as could be evident from the tax audit report, wherein the tax auditor had not reported any deviation adopted by the assessee. It was submitted that the valuation of the closing stock of last year which was the opening stock this year was duly accepted by the ld AO in the earlier year and therefore cannot be disturbed. The increase during this year has been valued at LIFO method taking the value of purchase during the year and such method was also followed from year to year and every year. Therefore there was no reason to disturb the valuation of closing stock. It was further submitted that LIFO method is a recognized method for the purpose of valuation of Page | 7
M/s. D. K. BasakJewellers Pvt. Ltd. Assessment Year: 2011-12 the closing stock. The assessee placed reliance on the decision of Hon'ble Madhya Pradesh High Court in the case of CIT vs J.P.Patel reported in 263 ITR 421 (MP) wherein it was held that LIFO method is well recognized method and once a recognized method has been taken recourse to and the same has been adopted , there is no reason to discard the same.”
As the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in the case of M/s Roopshree Jewellers (P) Ltd, cited (supra) and in assessee`s own case cited (supra) and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the ld. CIT(A) and the ld. CIT(A) has allowed the appeal of the assessee by following the judgment of the Tribunal in assessee’s own case for Assessment Year 2009-10 in ITA No.51/Kol/2013. We find no reason to interfere in the said order of the ld. CIT(A) and the same is hereby upheld and, therefore, this ground of appeal of the Revenue is dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order is pronounced in the open court on 27.07.2018.