BENUD BEHARI DUTT,KOLKATA vs. THE ACIT, CIR-50, KOLKATA, KOLKATA

ORDER Per M.Balaganesh, AM

Benud Behari Dutt A.Yr.2008-09 income of Rs 1,80,27,095/-. The assessee produced the books of accounts and the documents as called for before the ld AO from time to time. A survey u/s 133A of the Act was conducted in the busiess premises of the assessee at BE-103, Sector -1, Salt Lake City, Kolkata – 700064 on 18.3.2008. During the course of survey, books of accounts, both manual and computerized were found and inventorised which were marked as BBD-1 to BBD-12. The ld AO observed that during the course of hearing, books of accounts for the Asst Year 2007-08 were produced by the assessee and the same were examined and tallied with the impounded books of accounts and documents. The ld AO showcaused the assessee firm to explain whether the undisclosed stock of Rs 2.49 crores found in the course of survey was considered or not. In reply the assessee stated that a statement was recorded from partner of the firm Shri Kanak Dutt at the time of survey on 18.3.2008 and he had admitted to the undisclosed income of Rs 1.80 crores towards undisclosed trading stock of gold ornaments and diamonds. The assessee stated that the undisclosed trading stock of gold ornaments and diamonds has been brought into books and thus recorded in its regular books of accounts and entered in the stock books also to that effect. All these facts were duly disclosed in the Tax Audit Report as well as in the audited profit and loss account for the year ended 31.3.2008. It was pleaded that a sum of Rs 1,80,27,095/- was declared as returned income for the Asst Year 2008-09 as against Rs 5,76,027/- declared in the return for the Asst Year 2007-08 and had paid all taxes with interest in the sum of Rs 63,29,782/- before filing of the return. The departmental valuer valued the stock of jewellery as on 18.3.2008 at Rs 3,21,59,196/- . The assessee objected to the valuation carried out by the departmental valuer on the day of survey itself which is quite evident from the statement recorded from the partner of the assessee. The assessee made several objections to the valuation method adopted by the departmental valuer and reiterated the same before the ld AO in the assessment proceedings also. The ld AO however did not heed to the contentions of the assessee and made an addition of Rs 2,49,00,000/- towards undisclosed stock in the assessment. 2

Benud Behari Dutt A.Yr.2008-09 4. The ld CITA observed that physical stock of net weight of gold in 22 carats found was 19314 grams and in 18 carats was 700 grams, as against the corresponding entry in the stock register at 3980.358 grams and 10.044 grams respectively. This led to the discrepancy of 15333.672 grams in 22 carats and 689.956 grams in 18 carats. Apart from this, Gold in 24 carats were not found physically during survey but were found recorded in the stock books at 765.49 grams. There was some discrepancy in diamonds to the tune of 93.82 carats and 152 grams in gold ornaments. The assessee had agreed to all these discrepancies in quantities and had offered a sum of Rs 1.80 crores in Asst Year 2008-09 and this offer was made during survey itself which was not retracted in the return and all due taxes with interest were paid. The assessee reiterated its objections in the difference in valuation method adopted by the departmental valuer which has been relied upon by the ld AO while framing the addition. The assessee pleaded before the ld CITA that closing stock was computed by the assessee at cost or market price whichever is lower and this method has been consistently followed by the assessee over the years. The ld CITA observed that it is common knowledge that the unaccounted stock is accumulated over a long period which can go beyond one year or two years or even more. But the addition to the income is made in the year in which the excess stock is detected by the department. Hence if the assessee does not disclose any amount as additional income in earlier year/s , then the same logic should be followed in the current year also. As the date of purchase of unaccounted stock is not known, the cost of excess jewellery found during the survey cannot be ascertained. Hence it can only be assessed at the market value on the date on which it was detected. Hence the ld CITA held that the valuation of excess stock should have been done at market rates prevalent on the date of survey. Thus the addition to the value of stock in the books of the assessee should have been Rs 2,49,57,583/- and not Rs 1,60,87,435/- as done by the assessee. Accordingly, the ld CITA upheld the addition to the tune of Rs 88,70,148/- ( 2,49,57,583 – 1,60,87,435). Aggrieved, the assessee is in appeal before us on the following ground:- 3

Benud Behari Dutt A.Yr.2008-09

1. That, on the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in rejecting the method of accounting, regularly followed by the assessee for the purposes of valuation of its stock, and determining the value of its unaccounted trading stock of jewellery at Rs. 2,49,57,583/- as against the value of Rs. 1,60,87,435/- voluntarily disclosed by the assessee and thereby confirming the addition to the extent of Rs. 88,70,148/- relying on the report of the Departmental Valuer dated 18.03.2008, which suffered from incurable defects therein.

5.1. Further we find merit in the submission of the ld Counsel for the assessee that if the closing stock is disturbed then corresponding adjustment has to be made to the opening stock. We find force in the submission of the ld.Counsel for the assessee that the closing stock balance of this year becomes the opening stock balance of next year and therefore it becomes revenue neutral. Since the method followed by the assessee is an accepted method of valuation of closing stock and since the Revenue in the past as well as subsequent year has accepted the method followed by the assessee without disturing the method of valuation 4

Benud Behari Dutt A.Yr.2008-09 of closing stock of rough diamonds and cut and polished diamonds and since the A.O. has not made corresponding adjustments for valuing the opening stock of rough diamonds and cut and polished diamonds, therefore, we are of the considered opinion that the average method of valuation followed by the A.O. in the instant case is erroneous and not in accordance with law. Further when the entire closing stock of rough diamonds consists of purchases from one party namely Mamta Exports for which bills were furnished before the A.O., there was no justification in adopting the average cost method. In this view of the matter we hold that the valuation of closing stock adopted by the assessee in the instant case should not have been disturbed. The ground of appeal No. 2 by the assessee is accordingly allowed. Since the assessee succeeds on merit as per ground of appeal No. 2, the first ground of appeal challenging the validity of reassessment proceedings on account of audit objection becomes academic in nature and therefore the same is not being adjudicated.

5.1. Respectfully following the aforesaid decision, we hold that the addition made towards closing stock in the differential sum of Rs 88,70,148/- for the Asst Year 2008-09 should be given benefit as opening stock in Asst Year 2009-10. Accordingly, the ground raised by the assessee is dismissed subject to directions given above.

Order pronounced in the Court on 07.03.2018