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Income Tax Appellate Tribunal, ‘B’ BENCH,
Before: Shri P.M.Jagtap & Shri S.S.Viswanethra Ravi
This appeal by the Revenue is directed against the order dated 13-11-2014 of the Commissioner of Income Tax(Appeals),XXX, Kolkata for the assessment year 2011-12.
In this appeal, the Revenue has raised the following effective grounds:-
(i) That on the facts and in the circumstances of the case Ld. CIT(A) has erred in deleting the addition on undervaluation of closing stock for Rs.8,73,46,711/- without considering the fact that the assessee has never claimed the value of stock of gold for the F. Yr. 2004-05, 2005-06 in the valuation of closing stock for the A. Yr. 2009-10 during the course of assessment proceedings for the A. Yr. 2009-10. But the same was claimed M/s. Jewel India Jewellers 1 in the course of Assessment proceedings for the A. Yr. 2011-12 in the valuation of closing stock. This discrepancy is of a very serious nature and contradicts the claim made by the assessee that it has consistently followed the UFO method of closing stock. (ii) That on the facts and in the circumstances of the case Ld. CIT(A) has erred in not considering the fact that the assessee has attributed the entire value addition to the stock of financial year 2010-11 but the assessee has not given any conclusive proof that no value addition was made to the stock of financial year 2004-05, 2005-06 and 2006-07. (iii) That the petitioner craves leave to add, amend and withdraw any ground of appeal at the time of hearing.
Brief facts of the case are that the assessee is a firm and manufacturer of jewellery of gold, diamond and other precious and semiprecious stones. The Assessee filed its return declaring total income of Rs.87,80,980/-for the assessment year 2011-12 on 31-08-2011. Under scrutiny notice u/s 143(2) and thereafter, notice u/s. 142(1) were issued, in response to which the assesse filed written submissions and documents.
During such proceedings, the AO found from the tax Audit Report the value of closing stock was disclosed at Rs.14,26,62,442/- and further noticed that the raw material was valued at lower of cost or market price and finished goods was valued at lower of estimated cost or market price. The AO was of the view that the Assessee under valued closing stock and in this regard the assessee furnished the corresponding valuation of closing stock as on 31-03-2011 is as under:
Particulars Quantity Amount (in Rs.) Gold 68084.120 grams 65,694,587.00 Diamond 5660.298 ct. 69,936,269.00 M/s. Jewel India Jewellers 2
Ruby 9722.480 ct 3,100,822.00 Emerald 4498.475 ct. 1,966,376.00 Pearls 8039.979 grams 606,345.00 Blue Sapphire 3190.980 ct. 546,735.00 Multi Sapphire 3340.580 ct 291,518.00 Semi Precious 11372.620 278,995.00 Imitation Stone 5086.449 ct. 202,795.00 Total 142,624,442.00
Basing on above information as provided by the Assessee, the AO summarized the valuation of stock as under:
Total value of stone & other items Rs. 7,69,29,855/- Add: Gold Value Rs. 6,56,94,587/- Total value of stock Rs.14,26,24,442/ Total Gold stock in terms of pure 107167.19 grams Gold Less : Gold deposit as claimed by the 39083.07 grams Assessee Net gold stock in terms of pure gold 68084.12 grams
The AO was of the view, that the assessee deliberately undervaluing stock by following LIFO method of valuation of gold stock and proposed FIFO method of valuation of stock of gold to be appropriate for valuation of gold stock. M/s. Jewel India Jewellers 3
In reply to proposition as made by the AO, The Assessee submitted that it purchases gold and stones, manufactures jewellery from such gold, also dismantles jewellery already manufactured and manufactures fresh jewellery out of the same since designs goes out of market within very short time.
The assessee also submitted that it consistently following LIFO method for valuation of closing stock since its inception. This system is consistently followed and accepted in all earlier years including in the scrutiny assessment for the earlier years including the assessment year 2006-2007 in which survey was conducted.
According to AO, the assessee has shown the value addition to the stock of F.Y. 2010-11, but the assessee has not provided any conclusive proof that no value addition was made to the stock of F.Y’s 2004-05, 2005-06 and 2006-07. The AO opined that the old receipt of gold or gold ornaments was not subjected to the above value addition.
But during the entire course of assessment proceedings the assessee has failed to submit any such Register by which the assessee can establish that the value of gold stock of the F. Y’s. 2004-05, 2005-06, 7006-07 and so on was lying as closing stock. He also failed to provide sufficient evidence and proof regarding as to how the rates for F.Y’s 2004-05, 2005- 06 and 2006-07 were derived by the assessee. In the absence of any documentary proof it is not possible to accept the rates pertaining to F.Y’s 2004-05, 2005-06 and 2006-07 as claimed by the assessee. Further, it is seen during the course of assessment proceeding for the A.Yr. 2009-10 the assessee has claimed the value of closing stock comprising only of closing stock of rate of F.Y.- 2006-07 and F.Y.- 2007-08 and not of F.Y. - 2004-05 and 2005-06. The same was duly reflected in para no. 11 of assessment order u/s.143(3) dated 27/12/2011, the same is reproduced as below. The scanned copy of the relevant page of the assessment order as well as the scanned copy of M/s. Jewel India Jewellers 4 annexure page 3 on which para 11 of Asstt. Order of A.Yr. 2009-10. Hence, it is crystal clear that the assessee has not consistently followed the LIFO method of valuation of closing stock as 'is claimed by the assessee. From the above submission it is seen hat the assessee has never claimed the value of stock of gold for the F. Yr. 2004-05, 2005-06 during the assessment proceedings relating to assessment year 2009-10 but in the F.Yr. 2010-11 the assessee considered the value of stock of gold for F. Yr. 200:4-05 & 2005-06. This discrepancy is of a very serious nature and contradicts the claim made by the assessee that he has consistently followed the LIFO method of closing stock.
The AO did not accept the submission of the assessee regarding application of LIFO method for valuation of stock of gold. The AO applied gold rate as it was existing in F.Y 2010-11 Rs.1993.50 per gram and modified the value of gold stock at Rs.8,73,46,711/- and added the same to the total income of the assessee on account of under valuation of stock.
The CIT-A observed that the AO did not give any reason for rejection of LIFO method for valuation of gold stock and also found fault with the application of rate of gold per gram in F.Y.2010-11 to FY’s 2004-05, 2005-06, 2006-07 and 2010-11 and found the assessment order made without any basis. The CIT-A deleted the addition of Rs.8,73,46,711/-as made by the AO by following the first appellate order dt:08-02-2013 for A.Y.2009-10.
Having aggrieved by the order of CIT-A, the Revenue before this Tribunal by raising aforementioned grounds. The Ld. DR relied on the order of AO. M/s. Jewel India Jewellers 5
At the time of hearing, the Ld.AR submits that the appellant Revenue challenged the order of CIT-A passed for A.Y 2009-10 before this Tribunal and submitted that the Tribunal upheld the order of CIT-A.
Heard rival submissions and perused the material evidence on record. We find that the observation of the Coordinate Bench that the AO did not give any justifiable reason for rejection of LIFO method which has been followed consistently by the Assessee and which method the Revenue has been accepting for earlier years. The relevant portion of which is reproduced herein below:
7.2. It is quite natural that jewellery being a fashion industry, the old stocks would most of the times remain with the assessee and the revenue cannot expect the old stocks to be sold out first though it would remain in the wish list of the jeweller. We find that the aforesaid valuation exactly fits into the accepted method of valuation for a jeweller as approved in the case of Cochin Tribunal supra. We also find that the decision of the Chandigarh Tribunal in the case of DCIT vs Vipin Aggarwal in dated 23.7.2010 wherein it was held that :- “6. We have heard the rival contentions and perused the records. The issue arising in the present appeal is with regard to the valuation of closing stock. The assessee is a jeweler and had declared closing stock of Rs. 3,79,84,232/- as on 31.3.2007. The contention of the assessee was that it was valuing the closing stock at cost. Out of the total closing stock of 54,756 gms, the assessee claims that gold weighing 31,905 gms was its opening stock valued @ Rs. 482/- per gram. The balance stock available out of the purchases made during the year was 22850 gms which was valued at cost price of Rs. 905/- per gram. The contention of the assessee was rejected by the Assessing Officer as according to the Assessing Officer the assessee was not following one of the methods specified in accounting standard AS-2 issued by the Institute of Chartered Accountants of India for determining the cost of inventories. The explanation of the assessee in this regard was that the opening stock of 31950 gms was valued at Rs. 482/- per gram and similar value be adopted to work out the value of closing stock. It as further explained that the said jewellery being old conventional jewellery was not sold during the year and was available at the close of the year. The balance stock was out of the purchases made during the year less sales made by the ITA No. 202/Kol/15 M/s. Jewel India Jewellers 6 assessee. The Assessing Officer while re-computing the value of stock has accepted the weights in grams of stocks but had only revalued the stock by adopting a figure higher than rate disclosed by the assessee. We find no merit in the said addition being made by the Assessing Officer where the valuation of closing stock has been changed vis-a-vis its value and not because of any difference in the quantity of stock. The assessee was consistently following a particular method of accounting which is being accepted from year to year and in the absence of any contrary findings by the Assessing Officer, there is no merit in not adopting the method of valuation of stock being consistently followed by the assessee. Further we find support from the ratio laid down by the Hon'ble Supreme Court in Chainrup Sampat Ram Vs. CIT 24 ITR 481 (SC) (supra) wherein it has been held that the value of stock cannot be appreciated higher than the cost because the closing stock is not the source of profit for the assessee. It has also been held by the Hon’ble Supreme Court that the closing stock is to be valued either at cost or market value, whichever is low. In the facts and circumstances of the present case, we are in conformity with the order of CIT(A) and uphold the same. There is no merit ill adopting the weighted average cost method for valuation of inventory of stock in the circumstances of the case. We confirm the deletion of addition made by the Assessing officer totaling Rs.52,23,753/-. The ground of appeal raised by the Revenue is thus dismissed.”
7.3. In any event, we hold that no addition could be made towards value of stock because the closing stock cannot be construed as a source of profit for the assessee. We place reliance on the decision of the Hon’ble Supreme Court in the case of Chainrup Sampat Ram vs CIT reported in 24 ITR 481 (SC) in support of this proposition.
7.4. We find that the assessee has been consistently following LIFO method of accounting for valuation of its closing stock of gold which has been accepted by the department in the earlier years even in scrutiny assessment proceedings of the assessee. Then there is no justifiable reason to reject the same method during the year under appeal. In this regard, we place reliance on the decision of the Hon’ble Apex Court in the case of United Commercial Bank vs CIT reported in 240 ITR 355 (SC) wherein the principles were laid down for valuation of assets at page 366. We find that the following decisions also support the case of the assessee:-
CIT vs Sant Ram Mangat Ram reported in (2005) 275 ITR 312 (P&H) CIT vs Ema India Ltd reported in (2006) 296 ITR 510 (All) CIT vs Jagatjit Industries Ltd reported in (2011) 339 ITR 382 (Del) CIT vs Shah Doshi & Co reported in (1982) 133 ITR 23 (Guj)
M/s. Jewel India Jewellers 7
7.5. In view of the aforesaid findings in the facts and circumstances of the case and respectfully following the various judicial precedents relied upon hereinabove, we do not find any reason to interfere with the order of the Learned CITA. Accordingly the grounds raised by the revenue are dismissed.
The Coordinate while dealing with the issue on hand discussed the decision of Cochin Tribunal in the case of jeweller in ITO vs Sree Padmanabha Jewellery Mart reported in 19 ITD 816 as relied by the Assessee wherein it approved the LIFO method. The Coordinate bench also discussed the decision of the Chandigarh Tribunal in the case of DCIT vs Vipin Aggarwal in dated 23.7.2010 which found no merit in not adopting the method of valuation of stock being consistently followed by the assessee which is being accepted from year to year in the absence of any contrary findings by the Assessing Officer. In view of the finding of the Coordinate Bench for A.Y 2009-10, we hold that no addition is maintainable made on account of value of closing stock and the order of the CIT-A is justified and the grounds raised are dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order Pronounced in the Open Court on 4th October, 2016