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Income Tax Appellate Tribunal, CUTTACK
Before: SHRI N.S SAINI
This is an appeal filed by the assessee against the order of CIT(A)-
Cuttack, dated 27.2.2015, for the assessment year 2007-08.
The last hearing of the appeal was fixed on 5.4.2017 on which date,
the Authorised Representative of the assessee requested for adjournment
of the hearing, which was granted in the court, which was noted by the
Authorised Representative of the assessee. It was also pointed out that
this is the last opportunity to the assessee and no further adjournment will
be granted.
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In spite of this, when the case was called for hearing, none was
present on behalf of the assessee and neither any adjournment application
was filed. It is observed from the record that the appeal was adjourned at
the request of ld Authorised Representative of the assessee on 24.10.2016,
24.11.2016, 21.12.2016, 12.1.2017, 8.3.2017, 15.3.2017 & 22.3.2017. As
sufficient adjournments were granted to the assessee, the appeal was
heard exparte qua the assessee and disposed of considering the submission
of ld Departmental Representative and materials available on record.
In Ground No.1 of the appeal, the grievance of the assessee is that
the CIT(A) erred in confirming the disallowance of Rs.2,41,788/-
u/s.40A(3) of the Act.
I have heard the ld Departmental Representative and perused the
orders of lower authorities and materials available on record. In the instant
case, the Assessing Officer found that there have cash purchases
exceeding Rs.20,000/- on several occasions totaling to Rs.12,08,790/- in
violation of section 40A(3) of the Act. The Assessing Officer added 20% of
the amount being Rs.2,41,758/- to the total income of the assessee
u/s.40A(3) of the Act.
Before the CIT(A), it was submitted by the assessee that since this
was the first year of tax audit with a turnover of more than Rs.40 lakhs,
the assessee was not aware of the provisions of section 40A(3) of the Act.
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The CIT(A) confirmed the action of the Assessing Officer on the
ground that the assessee cannot get immunity because of ignorance of law.
On perusal of the order of the CIT(A), I find no specific error in the
findings of the CIT(A). Therefore, I do not find any good and justifiable
reason to interfere with the order of the CIT(A), which is hereby confirmed
and ground of appeal of the assessee is dismissed.
In Ground No.2, the grievance of the assessee is that the CIT(A) erred
in confirming the addition Rs.10,53,283.13 made in closing stock.
I find that the ld CIT(A) has adjudicated and decided the above
ground of appeal as under:
“The AO during scrutiny found that the closing stock of the assessee was valued at cost of the ornaments of the previous year. The AO further found that though the assessee produced quantitative details of closing stock valuation, quantitative details of opening stock, purchases and sales could not be produced. No stock register was produced for verification. In the absence of the same the correctness of assessee's valuation of closing stock was neither reliable nor accepted by the AO. The AO issued a show-cause notice regarding why closing stock valuation should not be determined on average basis i.e. opening stock plus purchases (amount) divided by opening stock plus purchases (quantity) multiplied by closing stock (quantity). In the average method of valuation of closing stock the difference in closing stock came to Rs.10,53,283.13 as determined by the AO. The AO added the same to the total income of the assessee. The appellant submitted that the valuation of closing stock was in FIFO method and should be done at cost of purchase for the previous year. It is evident that the valuation of closing stock as per Section 145A(a)(T) of the Act the closing stock should be valued at cost or market price whichever is lower. Some other concerns also follow LIFO method (Last in First Out] and FIFO method (First in First out}.
Keeping in mind that the quantity of closing stock as shown by the appellant, has been accepted by the AO, it is to be valued at a price in conformity with the procedures and law. It may be noted that following a particular system like FIFO & LIFO does not actually clarify the closing stock
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position of the business in gold jewellery. In this context the below mentioned decisions of the Hon'ble ITAT, Cuttack Bench may be discussed: In the case of M/s.Bhogilal & Co. v. ITO,Ward-2,Balasore, ITA No.407/CTK/20H the Hon'ble ITAT in their order dated 21.10.2011 deleted the addition made to the closing stock by the AO where the AO had valued the closing stock of gold jewellery at the average .-chase price for the year. The appellant in this case had valued the closing stock as opening stock amount as it is and the balance of purchase at average purchase price.
In the case of Khimji Dayabhai jewellers v. ITO,Ward-l,Baripada, ITA No.501/CTK/2012 for AY 2008-09 the Hon'ble ITAT in their order dated 14.12.2012 expressed that in the gold ornament business valuation of closing stock as per LIFO method or FIFO method would not hold good. The Hon'ble ITAT deleted the addition to the closing stock made by the AO by valuing the same as per FIFO method. The Hon'ble ITAT, Cuttack accepted the weighted average price method of valuation of closing stock as has been done by the appellant.
Considering the case of the appellant and the above two judgments of the Hon'ble ITAT; I am of the opinion that weighted average price method of valuation of closing stock is more appropriate for valuation of gold ornaments as the price of gold is ever changing. The AO has exactly done so. I therefore sustain the action of the AO.
In Ground No.3 of the appeal, the grievance of the assessee is that
the CIT(A) erred in confirming the addition of Rs.8,00,000/- u/s.68 of the
Act.
I find that the CIT(A) has adjudicated and decided the issue as under: “The AO during scrutiny found that the capital a/c. of the assessee is credited by an amount of Rs.8,00,000/-. The AO then requested the assessee to furnish the details of such capital introduction such as source and mode of such credit. The assessee replied that "addition of Rs.8,00,000/- was introduction of capital from personal account to firm account through ledger entry. The AO found the explanation furnished by the assessee neither clear nor comprehensive. It did not shed any light asked regarding the source of such credit and mode of introduction. Neither the ledger copy of the capital account was furnished nor the dates of the credit entries were clearly specified. Without these details the AO could not ascertain whether these credits are through bank or through cash. No cashflow statement was furnished by the assessee, the AO believed the credits were not routed through the bank account and therefore the genuineness of the transactions and the creditworthiness of the assessee were not proved beyond reasonable doubt. The AO therefore treated the
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same as unexplained cash credit u/s.68 of the Act and added the same to the total income of the appellant.
Though during scrutiny proceedings the assessee could not come out with any gent reasons for introduction of Rs.8,00,000/- to the capital account, in the grounds of appeal the appellant submitted that the amount was through cheque transaction; the bank account of such a back period was not available with the assessee and the bank declined to give statement for the said period. Rs.8,00,000/- are received as gifts from the relatives of the assessee namely Smt. Puspa Karmakar amounting to Rs.4,00,000/- and Sri Dinabandhu Karmakar amounting to Rs.4,00,000/-. The appellant had stated the dates of extending the gifts in cheque, cheque Nos. and the names of the banks from which such cheques were issued.
During appeal hearing the appellant corroborated his statement as above through Xerox copy of affidavit from the above two persons. However the appellant failed to produce the bank account copies of the two persons extending the gifts and the bank account copy of the appellant for the relevant financial year. Therefore the evidence as above was not treated as complete by me and was not forwarded to the AO for further verification. Under the circumstances, I con firm the action of the AO and sustain the addition.”
I am fully satisfied and in agreement with the order of the ld CIT(A)
quoted above and do not find any good and justifiable reason to interfere
with the order of ld CIT(A). Hence, I confirm the order of the ld CIT(A) and
dismiss the ground No.2 & 3 of the appeal of the assessee.
In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on 11/04/2017..
Sd/- (N.S Saini) ACCOUNTANT MEMBER Cuttack; Dated 11/04/2017 B.K.Parida, SPS
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Copy of the Order forwarded to : 1. The Appellant : Sidharth Shankar Pramalik, C/O. Kalinga Jewellery, Dolmundai, Buxibazar, Cuttack-01 2. The respondent: ITO, Ward 2(3), Cuttack 3. The CIT(A) Cuttack 4. Pr.CIT, Cuttack 5. DR, ITAT, Cuttack 6. Guard file. BY ORDER, //True Copy//
SR.PRIVATE SECRETARY ITAT, Cuttack