D.C.I.T CIR - 12,KOLKATA., KOLKATA vs. M/S D.K..BASAK JEWELLERS PVT LTD., KOLKATA

ORDER Per Shri M. Balaganesh, AM:

These cross appeals by assessee and revenue are arising out of order of CIT(A)-XII, Kolkata vide appeal No. 331/XII/Cir-12/11-12 dated 09.11.2012. Assessment was framed by DCIT, Circle-12, Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2009-10 vide his order dated 26.12.2011. Both the appeals are taken up together for the sake of convenience.

Addition of Rs. 1,54,73,471/- ; Rs. 36,87,474/- and Rs. 6,28,60,651/- made by the 3. ld AO: The assessee is in the business of manufacture and sale of gold ornaments and it has its sales spots at Rash Behari Avenue (Head Office) and at Bowbazar (Branch). The assessee purchases pure gold which is converted into ornaments of different purities i.e 18 ct, 22 ct

2 & 379/Kol/2013 D.K.Basak Jewellers Pvt. Ltd. AY 2009-10 and 24 ct. The assessee also sells some diamonds studded jewellery and trades in silver ornaments though the sale of diamond studded jewellery and silver jewellery are of miniscule portion of the total sales. The assessee maintains books of accounts along with day to day stock register duly subjected to compulsory audit. A survey operation u/s 133A of the Act was conducted in the case of the assessee on 3.3.2009 and physical inventory of stock was made by the survey party by calling in a Govt panel registered valuer . The ld AO at page 2 of the order had made out the following table :- (i) Rash Behari Avenue Branch for 24 Carat Gold – (F) Physical stock as per Stock as per books Difference of Col (1) – (2) Value of col (3) inventory (gms) of assessee (gms) Nil 1444.816 (-) 1444.816 (-) 2414288/-

For 22 Carat Gold – (A) Physical stock as per Stock as per books Difference of Col (1) – (2) Value of col (3) inventory of assessee 58325.943 (22/22 ct) 78276.683 9809.527 10881709/- 29760.267 (22/20 ct)

For 18 Carat Gold – (G) Physical stock as per Stock as per books Difference of Col (1) – (2) Value of col (3) inventory of assessee 3908.298 12386.621 (-)8478.323 (-)10623339/-

For Diamonds – (B) Physical stock as per Stock as per books Difference of Col (1) – (2) Value of col (3) inventory of assessee 380.09 362.829 17.261 252065/-

For silver – (H) Physical stock as per Stock as per books Difference of Col (1) – (2) Value of col (3) inventory of assessee 20000 25699.632 (-)5699.632 (-)125961.86/-

(ii) Bow Bazar Branch For 22 Carat Gold – (I) Physical stock as per Stock as per books Difference of Col (1) – (2) Value of col (3) inventory of assessee 11540.57 14572.570 (-)3031.804 (-)4641692/-

For 18 Carat Gold – (C ) Physical stock as per Stock as per books Difference of Col (1) – (2) Value of col (3)

For 20 Carat Gold – (D) Physical stock as per Stock as per books Difference of Col (1) – (2) Value of col (3) inventory of assessee 2916.91 nil 2916.91 4060339/-

For Diamonds – (E) Physical stock as per Stock as per books Difference of Col (1) – (2) Value of col (3) inventory of assessee 14.90 5.23 9.67 157173/- 3.1. The ld AO based on the aforesaid table issued show cause as to why the following should not be treated as unexplained investment and undisclosed income :-

(i) excess stock as per inventory over books of assessee – Rs. 1,54,73,471/- which was the addition of (A) + (B) + (C ) + (D ) + (E) as worked out above (ii) excess stock as per books of assessee over inventory is Rs. 1,78,05,281/- which was the addition of (F) + (G) + (H) + (I) as worked out above and applying gross profit @ 20.71% on the same, the undisclosed profit would be Rs. 36,87,474/- representing the sales not recorded in the books.

3.2. The ld AO also found from the closing stock of gold and gold ornaments comprising of 22 ct, 18 ct and 24 ct separately and arrived at the average cost of purchase for each compartment of gold and observed that the stock should be valued only using average cost method instead of LIFO adopted by the assessee.. The ld AO remade the closing stock workings as below:-

Gariahat Head Office Old Stock of 22 ct 2002 - 44796.517 grams 2005 - 7192.222 grams 2006 - 13344.473 grams 2007 - 5929.665 grams 2008 - 4268.287 grams ------------------------ 75531.164 grams Old Stock of 18 ct 2002 - 1425.602 grams 2003 - 1782.367 grams 2004 - 499.463 grams 2005 - 3917.000 grams 2006 - 127.044 grams 2007 - 1077.856 grams 2008 - 2278.616 grams ------------------------ 11107.948 grams Old Stock of 24 ct 2002 - 11.906 grams 2007 - 163.320 grams 2008 - 310.100 grams ------------------------ 485.326 grams The ld AO arrived at the average cost of purchase of each compartment of gold as below:-

For 22 ct gold = Rs. 160202865.30 / 126590.810 grams = Rs. 1265.51 per gram For 24 ct gold = Rs. 3954008.80 / 2988.46 grams = Rs. 1323.09 per gram For 18 ct gold = Rs. 2694723.53 /2227.915 grams = Rs. 1209.52 per gram The ld AO accordingly arrived at the closing stock of Rs 5,66,19,626/- being the difference in valuation of stock between LIFO and average cost method.

BowBazar Branch Stock of 22 ct gold - 2008 – 13408.314 grams The average cost of purchase was worked out as under by the ld AO :- Rs. 8844889.50 / 6650.520 grams = Rs. 1329.95 per gram The ld AO accordingly arrived at the closing stock of Rs 62,41,025/- being the difference in valuation of stock between LIFO and average cost method.

Accordingly the ld AO arrived at the total closing stock difference of Rs. 6,28,60,651/- ( 5,66,19,626 + 62,41,025) and show caused the assessee as to why the same should not be added in the assessment.

3.3. In response to this show cause notice, the assessee replied that the assessee claimed that it had stocks of 24 ct, 22 ct and 18 ct of gold. The ld AO had tabulated the stocks in 5 & 379/Kol/2013 D.K.Basak Jewellers Pvt. Ltd. AY 2009-10 respect of 18 ct, 20 ct and 22 ct of gold. According to the revenue, the assessee had not dealt with the 24 ct of gold as the same was not found on the date of survey. The total quantity of stock recorded by the survey party was 106605 grams whereas the same as per the stock register maintained by the assessee was 106736 grams leading to a difference of 131 grams which is very marginal difference. Accordingly it was claimed that the overall quantity of jewellery found during the survey tallied with the stock register maintained by the assessee. It was claimed that the departmental valuer had proceeded to record the stock by noting 22 ct / 20 ct and 18 ct, whereas in the stock register, there were no 20 ct gold ornaments at all . The assessee replied that a reference to the valuation report prepared by the departmental valuer itself would show that the valuer against item at Sl No. 4 has recorded (assorted gold jewellery 22/ 20 ct) with quantity of 15648 grams. This would show that the entire stock which the departmental valuer took at 69866 grams has been recorded under 22 ct , whereas the assessee had shown the weight of 22 ct gold ornaments at 92849 grams. It was further claimed that as against the recording at 69866 grams by the registered valuer, he had taken out some items on the estimation that the same are of 20 ct and this he has recorded at 32677 grams. Similarly, 18 ct gold ornaments which the assessee possessed were of the quantity of 12442 grams which the valuer has noted at 4061 grams. The above discrepancies in the departmental valuation was pointed out by the assessee before the ld AO . Accordingly it was argued that there was no difference in the quantity of total jewellery found by the survey team apart from a marginal difference of 131 grams which was miniscule portion as compared to the volume of trading carried out by the assessee.

3.4. The assessee also disputed the valuation method adopted by the departmental valuer ignoring the consistent method of valuation adopted by the assessee over the years. The assessee claimed that the closing stock is taken by them at cost price. There are various items of gold ornaments which by passage of time become slow moving which is quite obvious due to the fading design, quantity involved and change in the pattern of manufacturing to cope with changes in styles. On the close of a particular year, what assessee does is that they take note of all the items which they have in stock, make division of those items year wise with reference to year of their manufacture and thus proceed to value the ornaments for the purpose of their accounting with reference to the actual cost with reference to the year in which the same were manufactured. The complete break up of 6 & 379/Kol/2013 D.K.Basak Jewellers Pvt. Ltd. AY 2009-10 closing stock year wise was furnished by the assessee before the ld AO . The assessee contended that the departmental valuer not aware of the method of valuation adopted by the assessee , simply proceeded to multiply the total quantity found by him at the time of survey with the market value of gold on the date of survey and arrived at the value of stock. This has led to the difference in the valuation of stock.

The ld AO ignored the explanations of the assessee and proceeded as per his show cause notice to make additions in the sums of Rs. 1,54,73,471/- ; Rs. 36,87,474/- and Rs. 6,28,60,651/- in the assessment.

3.5. The ld CITA in respect of addition of Rs. 1,54,73,471/- observed in his order as below:- “I have considered the finding of the A.O. and the submission made by the A.R. during the appellate proceeding. I find that since the A.O. himself has accepted that the assessee was maintaining item-wise inventory/stock of gold ornaments in his computer. Therefore, the availability of quantity of gold at the shop premises cannot be differentiated from the stock available as per the stock register. The departmental valuer has pointed out difference in purity of gold items shown by the assessee from valuer's valuation report. Thus, I think the addition by the A.O. should have been on the basis of both difference in a stock in quantity and purity of gold items available at the shop premises. Therefore, it cannot be denied that the gold stock shown in the stock register and gold items available at the shop premises and found during the survey operations are more or less quantity-wise the same except the difference of 131 gms in quantity that the valuer found at the time of survey. In fact the addition by the A.O. should have been on the basis of difference in the quantity of gold available as per stock register from the gold items found during the survey operation as well as on the difference of purity of gold found by the departmental valuer. Thus, on the basis of difference in purity of gold items found by the survey party (as per valuation of the departmental valuer) from the stock register should be made the basis of addition. In fact the total quantity of gold items/jewellery as per the stock register on the date of survey was 106736 gms. as against 106605 gms. found by the survey party. In my opinion, the availability of gold quantity-wise almost there in the shop premises except the difference of 131 gms. The main difference is that of purity of gold items as per the stock register from that of valuer's report. Thus, the total addition should be made on the basis of both these grounds which may be put in a tabular form as follows:

Rash Behari Avenue Branch, Kolkata Purity Physical stock as Stock as per books Difference Conversion into 22 per inventory of the assessee ctr. 24 ctr. Nil 1444.816 (-) 1444.816 (-) 1576.163 22 Ctr. 88086.210 78276.683 9809.527 (+) 9809.527 18 Ctr. 3908.298 12386.621 (-) 8478.323 (-) 6936.810 91994.508 92108.12 (-) 113.312 1296.544 Discrepancy

Thus, value of difference on the basis of discrepancy found at Rash Behari Avenue Branch, Kolkata is Rs. 1438267/-. Similarly, the value of difference on the basis of discrepancy found at Bowbazar Bronch, Kolkata comes to Rs. 24,466/- (as difference found in purity of gold converted into 22 ctrs gold discrepancy basis is 17.576 gms). Thus, the addition made on the 7 & 379/Kol/2013 D.K.Basak Jewellers Pvt. Ltd. AY 2009-10 ground of difference in gold item quantity-wise and purity-wise is restricted to Rs.1438267/- + Rs. 24466/- i.e. Rs. 14,62,733/- only.”

The ld CITA in respect of addition of Rs. 36,87,474/- observed in his order as below:- “Appeal on next ground is against the addition of Rs.3687474/-, on the basis of 20.71 % of the gross profit from excess stock found during the survey operation. The A.R. submitted during the appellate proceeding that once the addition has been made for excess stock found then there is no reason to make addition on the same amount taking gross profit ratio separately. I have considered the finding of the A.O. and the submission made by the A.R in the preceding paragraph above. I have already confirmed additions on the basis of discrepancies found both on quantity basis and purity basis as recorded by the departmental valuer during the course of survey on assessee's premises. Since addition has already been made for excess stock found as well as on difference of purity of gold found during the survey operation from that of assessee's stock register. Therefore. in my opinion, addition of Rs. 3687474/- on the basis of again gross profit is uncalled for. Hence, assessee's appeal on this ground is allowed.”

The ld CITA in respect of addition of Rs. 6,28,60,651/- observed in his order as below:- “I have considered the finding of the A.O. in his assessment order and the written submission filed by the A.R. during the appellate proceeding. I find that after the introduction of Sec. 145A in the I. T. Act the A.O finding on the basis of Sec. 145 does not hold good. Similarly, the case reported in 23 ITD 532 relied upon by the A.O. relates to a case of assessment year 1980-81 when there was no section 145A in the I. T. Act. But after the introduction of Sec. 145A the assessee is entitled to make valuation of his closing stock in the way he has been doing it regularly. Here it is important to note that the department has also accepted assessee's valuation of closing stock in all through in previous assessment years. So in my opinion there is no reason to change the method of valuation of closing stock in one particular assessment year. Therefore, assessee's appeal on this ground is allowed.”

3.6. Aggrieved, both the assessee as well as the revenue are in appeal before us. The assessee has raised the following grounds :- “

3. For that the Ld. CIT(A) erred in confirming addition of Rs.14,62,733/- on the alleged ground of difference in gold items quantity wise and purity wise.

4. For that the Ld. CIT(A) ought to have appreciated and accepted the submissions made by the appellant in the matter of explaining the stock as found in the course of survey operations u/s. 133A and ought not to have held that stock of the value of Rs.14,62,733/- remained unexplained.”

The revenue has raised the following grounds :-

“1.Whether in facts and circumstance, the Ld . CIT(A) was justified In giving In valuation of stock amounting to Rs.1,36,32,712/- and not treating the 24ct, 22ct and l8 ct jewellery as separate.

2. Whether in facts and circumstances, the Ld . CIT(A) was justified in not considering the profit from undisclosed sale of Rs.36,87,474/-.

8 & 379/Kol/2013 D.K.Basak Jewellers Pvt. Ltd. AY 2009-10 3.7. The ld AR argued that the ld AO erred in making addition towards purity difference by ignoring the 24 ct stocks held by the assessee. The ld CITA also erred in converting the 24 ct stocks into 22 ct stock and made an addition of Rs. 14,62,733/- which is not warranted in the facts and circumstances of the case. He argued that the assessee has been maintaining 24 ct stock of gold in all the earlier years and that has been accepted by the revenue and the method of valuing the stocks using LIFO method also was accepted by the revenue in the earlier years. Moreover, the assessee has been consistently following the said method of valuation since its inception. He further argued that LIFO method is also one of the recognized method for valuation of stock and the principles of consistency cannot be ignored by the revenue for this year alone. He argued that the assessee has been consistently maintaining its accounts and following the system of recording the value of closing stock with reference to different compartments which are with reference to the period to which that particular stock belongs and then the cost price of the same is applied year by year. He argued that if any item pertaining to the year say financial year 2004-05 is sold in the year financial year 2007-08, variation in the prices of gold would bring out a very sizable profit to assessee which is always recorded in its books. So it is not a case where one would say that the assessee proceeds to value the stock of gold ornaments in a manner which is not acceptable. He placed reliance on the scrutiny assessment proceedings for the Asst Year 2005-06 wherein the revenue had accepted the fact of assessee holding 24 ct stocks and also the method of valuation of stocks at LIFO method. He also argued that a reference to the order of assessment for Asst year 2005-06, the order of ld CITA and that of this Tribunal would show that the system of accounting and the procedure of valuation being adopted by the assessee year by year has not been disturbed.

With regard to the addition made in the sum of Rs. 6,28,60,651/- towards difference in valuation of closing stock by the ld AO, the ld AR reiterated his arguments that LIFO method had been consistently followed by the assessee over the years since the inception of its business and the action of the ld AO in converting the stock valuation method to FIFO and making an addition of Rs. 6,28,60,651/- is not warranted. The decision relied upon by the ld AO on the Allahabad Tribunal in the case of Jewellers Company vs ITO reported in 23 ITD 532 was rendered in the context of section 145 of the Act and not under section 145A of the Act. He relied on the stock valuation workings contained in the audited financial statements for the years ended 31.3.2005 , 31.3.2006 , 31.3.2007 , 31.3.2008 and 9 & 379/Kol/2013 D.K.Basak Jewellers Pvt. Ltd. AY 2009-10 31.3.2009 which are enclosed in pages 20 to 182 of the Paper Book filed before this tribunal. He further argued that the ld AO did not offer any adverse comments on the addition made towards difference in valuation of stocks and the LIFO method followed by the assessee in his remand report No. DCIT / Cir-12/Kol./Remand Report/D.K.Basak/2012- 13/941 dated 1.10.2012. He further relied on the decision of the Hon’ble Supreme Court in the case of UCO Bank vs CIT reported in 240 ITR 355 (SC) wherein the Hon’ble Apex Court at page 366 of the Judgement had laid down the principles of valuation of stock.

3.8. In response to this, the ld DR argued that the stock discrepancies were found in survey and the Government approved departmental valuer was also present at the time of survey for valuation of stocks found in the survey. The survey team did not find 24 ct stocks of gold during survey. The assessee also did not object anything about this during the course of survey. There is no big difference between the provisions of section 145 and section 145A of the Act as the wordings of both the sections are similar save and except that certain taxes, duties and levies were directed to be included in the valuation of closing stock in section 145A of the Act. Hence the argument advanced by the assessee that the decision of Allahabad Tribunal relied upon by the ld AO was rendered in the context of section 145 of the Act and not in respect of section 145A of the Act does not hold any water. With regard to the reliance placed by the Hon’ble Apex Court in the case of UCO Bank supra, the ld DR argued that the Hon’ble Supreme Court did not permit the assessee to use any method of its choice but instead stated that the method followed by the assessee should be reasonable and in accordance with generally accepted business practices.

3.9. We have heard the rival submissions and perused the materials available on record including the paper book containing 182 pages and the remand report dated 1.10.2012 furnished by the ld AO before the ld CITA. We find that there seems to be a basic dispute as to the existence of 20 ct gold and 24 ct gold with the assessee. We find that the assessee maintains stocks 18ct, 22 ct and 24 ct gold and whereas the department valuer had valued the stocks of gold comprising of 18 ct, 20 ct and 22 ct. We find that the assessee had explained the process of manufacturing of gold before the ld AO as below:- One is by use of cadmium which is noted as 22/22 ct gold. The other method is 22/20 ct which is by use of PAN method. It further claimed that both the gold is 22 ct gold. A letter was issued to the departmental approved valuer who had valued the stock at Rash Behari Avenue , Shri

10 & 379/Kol/2013 D.K.Basak Jewellers Pvt. Ltd. AY 2009-10 Bikram Chand Bachawat. He confirmed that this is the process of manufacturing gold. These facts are submitted by the ld AO also vide para 2.4.2 of his order. Hence the basic argument of the assessee that it does not possess 20 ct gold with it is held in favour of the assessee. We find that for the purpose of framing addition in the sum of Rs. 6,28,60,651/- which is discussed separately hereinbelow, the ld AO had accepted the fact of existence of 24 ct gold stock with the assessee. But while framing the addition in respect of 1,54,73,471/- and Rs. 36,87,474/- , he disbelieves the existence of stock comprising of 24 ct gold. We find from the detailed stock valuation workings given by the assessee which are forming part of the paper book filed before the lower authorities and also filed before us, we find that the assessee had been maintaining stocks of gold and gold ornaments comprising of 18ct , 22 ct and 24ct for several years and had even maintained year wise stocks in each compartment of gold. On an overall quantity of gold as per physical stock and stock as per stock ledger, we find that there is a minor difference of only 131 grams due to difference in weighing methods by each party and which is absolutely miniscule as compared to the volume of trading done by the assessee. We find that the ld AO had not accepted the LIFO method of valuation of stock consistently followed by the assessee over the years since inception of its business. We find that the day to day books and and stock registers were duly maintained and there is no discrepancy on overall stocks found on the date of survey except a miniscule difference of 131 grams. The main difference is only on account of purity which had ultimately led to an addition. It has already been stated above that the ld AO had accepted the existence of 24 ct gold lying with the assessee while making an independent addition of Rs. 6,28,60,651/- which would be discussed at length separately. Once the basic premise on the non-existence of 24 ct gold is defeated, the purity difference also vanishes and there is no need to convert the 24 ct gold into 22 ct gold as done by the ld CITA for sustenance of addition of Rs. 14,62,733/-. Hence we hold that there is only a minor difference of 131 grams on an overall basis on the date of survey and quantity wise reconciliation is also duly filed before the lower authorities which are reproduced in page 2 of the ld AO’s order. We find that there is absolutely no basis for sustenance of addition in the sums of Rs. 1,54,73,471/- and Rs. 36,87,474/- towards difference in stocks on the date of survey in the facts and circumstances of the case.

3.9.1. With regard to the addition of Rs. 6,28,60,651/- towards difference in valuation of stock is concerned, we find that the ld AO though has accepted the quantity analysis of 11 & 379/Kol/2013 D.K.Basak Jewellers Pvt. Ltd. AY 2009-10 items of ornaments consisting of 24 ct, 22 ct & 18 ct as per audited accounts, but he has multiplied the quantity with the average cost of purchase price as on 31.3.2009. This was in total disregard of the valuation which was adopted by the assessee at cost consistently and there being no deviation throughout the past many years which is fully and elaborately detailed in the audited accounts enclosed in the paper book and duly accepted as such by the revenue from year to year without disturbing the same at any stage. We find that the assessee had disclosed the total closing stock of gold and gold ornaments of different carats at Rs. 7,37,04,878/- as on 31.3.2009 as under:-

12 & 379/Kol/2013 D.K.Basak Jewellers Pvt. Ltd. AY 2009-10 We find that in respect of system of valuation of closing stock which the assessee has been following year by year, the assessee had maintained the closing stock with specific bifurcation relating to the year of its acquisition / manufacture by applying the cost price to the same. For example, if the assessee had purchased gold in the financial year 2004-05 and converted the same into gold ornaments, then, in that case, the closing stock is valued at cost price. Now if this particular stock of gold ornaments remains in the stock in the financial year 2005-06, then the assessee had valued this stock at their cost price in the year of manufacture. Going further, if such a stock remains in hand after sale out of the same, then in that case, the cost price as of the year of manufacture is certainly applied. We find that the assessee has been consistently maintaining its accounts and following the system of recording the value of closing stock with reference to different compartments which are with reference to the period to which that particular stock belongs and then the cost price of the same is applied year by year. Hence it cannot be said that the assessee had proceeded to value the stock of gold ornaments in a manner which is not acceptable. We find that the gold available from earlier years as per LIFO method was continuing from year to year and has duly been accepted by the ld AO in all the earlier years. The ld AO however finally adopted his own method of valuation taking average cost price method for whole of the closing stock, rejecting the well recognized LIFO method consistently followed by the assessee and accepted by the department. It was also submitted that LIFO method is a recognized method for the purpose of valuation of closing stock.

3.9.2. It is elementary that the regular system of accounting followed by the assessee could be disturbed only in the event of finding out defects in the books of accounts and stock registers maintained by the assessee. We place reliance on the decision of the Co-ordinate Bench decision of Hyderabad Tribunal in the case of Ramesh Chandra Jewellers vs ITO in wherein identical issue was considered by the tribunal. The Tribunal in this decision held that LIFO method consistently followed by the assessee was based on accepted principle of accounting and when no defect was pointed out by the department in the books of accounts, the LIFO system should have been accepted. We also place reliance on the decision of the Hon’ble Madhyapradesh 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 method has been adopted, there is no reason to discard the same.

3.9.3. We find that the Learned AO had not recorded any clear finding in his order that the LIFO method of accounting followed by the assessee for valuing its closing stock was such that correct profit could not be deduced from the books of account maintained by the assessee. In these circumstances, it would not be justified in rejecting the closing stock valuation regularly adopted by the assessee. Reliance is also placed on the decision of the Hon’ble Calcutta High Court in the case of British Paints India Ltd vs CIT reported in (1978) 111 ITR 53 (Cal). The Head notes is reproduced below:- Accounts – valuation of closing stock – closing stock of goods in progress and finished goods valued by assessee at raw material cost – Same formed 84.49% of cost including overhead expenses – Method had been consistently and regularly followed on commercial practice and bona fide having regard to the nature of the particular business – That method could not be rejected on a routine application of the principle of cost or market price, whichever is lower.

We also find that the Cochin Tribunal had an occasion to consider this aspect of valuation of jewellery in the case of ITO vs Sree Padmanabha Jewellery Mart reported in 19 ITD 816 which is directly on the point involved in this appeal. In the said case, it was held that :- The manner of valuation of closing stock by the assessee is as under:- “The quantity of stock left at the end of any years is first ascertained by reference to the detailed books of accounts maintained by the appellant- firm. From out of this, the quantity of jewellery relatable to the stock carried forward from the previous year is ascertained and isolated. Any excess over the last year’s stock is considered to be out of current year’s purchase. The last year’s stock is valued at its cost to business. The current year’s left over is valued at a moving average which represents the average price paid for all purchases made by the firm in the year of account.”

In the instant case, the assessee had furnished the closing stock valuation workings as on 31.3.2005, 31.3.2006, 31.3.2007, 31.3.2008 and 31.3.2009 before us which are forming part of the paper book vide pages 20 -182 . On going through the said workings, we are fully convinced with the method of accounting regularly employed by the assessee for valuation of closing stock of Gold and other jewellery using LIFO method.

3.9.4. 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

14 & 379/Kol/2013 D.K.Basak Jewellers Pvt. Ltd. AY 2009-10 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 ITA No. 450/Chd/2010 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 was 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 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 in 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.”

3.9.5. 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. 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

15 & 379/Kol/2013 D.K.Basak Jewellers Pvt. Ltd. AY 2009-10 366. The Hon’ble Apex Court had held that for valuing the closing stock, a taxpayer is free to employ for the purpose of his trade, his own method of keeping accounts and the method of accounting so adopted consistently and regularly cannot be discarded by the departmental authorities on the view that the assessee should have adopted a different method of keeping accounts or of valuation. The quintessence of this apex court judgement was that the concept of real income is certainly applicable in judging whether there has been income or not, but, in every case, it must be applied with care and within their recognized limits. 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)

3.9.6. We find that the ld AO had placed reliance on the decision of the Co-ordinate Bench of Allahabad Tribunal in the case of Jewellers Company vs ITO reported in 23 ITD 532 dated 19.6.1987 wherein only FIFO method had been accepted as the proper method for valuing stock in the case of a Jeweller. We find from the various aforesaid decisions relied upon which are in favour of the assessee and hence when two views are possible on an issue, the Hon’ble Apex Court in the case of CIT vs Vegetable Products Ltd reported in (1973) 88 ITR 192 (SC) had held that the view that is favourable to the assessee should be adopted. Respectfully following the same, we are not inclined to follow the decision of Allahabad Tribunal on the impugned issue.

3.9.7. 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 have no hesitation in completely deleting the additions made in the sums of Rs. 1,54,73,471/- ; Rs. 36,87,474/- and Rs. 6,28,60,651/- . Accordingly the Ground Nos. 3 & 4 raised by the assessee are allowed and the Ground Nos. 1 , 2 & 3 raised by the revenue are dismissed.

16 & 379/Kol/2013 D.K.Basak Jewellers Pvt. Ltd. AY 2009-10 in entire set up of our business when we take note of various items of gold ornaments and this is due to some shortage, breakage etc which is hardly 0.30% which is quite negligible. The ld AO not convinced with this reply proceeded to make an addition of Rs. 3,53,004/- for the difference of 230.571 grams. This addition was confirmed by the ld CITA on first appeal. Aggrieved, the assessee is in appeal before us on the following ground :- “5. For that the Ld. CIT(A) erred in confirming addition of Rs.3,53,004/- made on the basis of difference of gold in stock register vis-à-vis physical inventory.”

4.1. The ld AR argued that on an overall basis there is only a small difference of 131 grams between the physical stocks found by the survey team and stocks as per the records of the assessee. The ld AO having made separate addition on account of purity differences in the sum of Rs. 1,54,73,471/- ought not to have made another addition in the sum of Rs. 3,53,004/- towards the difference in stock between the gold ledger and item wise stock register. The ld DR vehemently relied on the orders of the lower authorities.

4.2. We have heard the rival submissions. We find that this addition of Rs. 3,53,004/- was made by the ld AO due to identifying difference of 230.571 grams between the stock as per gold ledger and stock as per item wise register. The assessee had not filed any reconciliation statement for the same before the lower authorities and even before us. In these circumstances, we find no reason to interfere with the order of the ld CITA in this regard. Accordingly, the ground no. 5 raised by the assessee is dismissed.

17 & 379/Kol/2013 D.K.Basak Jewellers Pvt. Ltd. AY 2009-10 “6.a) For that the Ld. CIT(A) erred in confirming the following additions made by the Assessing Officer: (a) Rs.5,19,315/- on the basis of impounded books DKB (R) - 15”

5.1. We have heard the rival submissions. We find that this addition of Rs. 5,19,315/- was made by the ld AO based on the impounded document DKB (R ) -15 found during the survey representing receipt of gold of 410.36 grams from Shri Sunil Karmakar. We find that the assessee did not adduce any evidence apart from stating that the same represent gold received from karigar but had not corroborated the same with reference to the regular books maintained by the assessee. Hence we hold that the ld CITA had rightly confirmed this addition of Rs. 5,19,315/-. Accordingly, the ground no. 6 a) raised by the assessee is dismissed.

18 & 379/Kol/2013 D.K.Basak Jewellers Pvt. Ltd. AY 2009-10 6.1. We have heard the rival submissions. We find that this addition of Rs. 1,24,020/- was made by the ld AO based on the impounded purchase voucher no. 2239 [DKB (R ) -4] found during the survey representing purchase of gold of 98 grams from Shri Anil Kr Gupta. We find that the assesee had primarily proved that the visit of Shri Anil Kr Gupta on 7.7.2008 to the showroom had been duly corroborated with reference to the regular books maintained by the assessee. But the assessee should have obtained confirmation from Shri Anil Kr Gupta confirming the stand of the assessee that he did not sell any gold weighing 98 grams to the assessee on 6.7.2008 to prove the case beyond doubt. Hence we find that the assessee had not discharged its primary onus on this aspect. Hence in these circumstances, we hold that the ld CITA had rightly confirmed this addition of Rs. 1,24,020/-. Accordingly, the ground no. 6 b) raised by the assessee is dismissed.

7.1. We have heard the rival submissions. We find that this addition of Rs. 94,837/- was made by the ld AO based on the impounded purchase voucher no. 2666 dated 19.11.2008 found during the survey representing purchase of gold of 74.94 grams. We find that the ld AO had observed that the assessee had not denied the basic fact that the said purchase voucher is not part of the regular books maintained by the assessee. Hence in these circumstances, we hold that the ld CITA had rightly confirmed this addition of Rs. 94,837/-. Accordingly, the ground no. 6 c) raised by the assessee is dismissed.