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Department represented by Shri Ashok B Koli, CIT-DR Assessee represented by Shri Mehul K Patel, Advocate Date of hearing 21/02/2023 Date of pronouncement 30/03/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. These two appeals by the Revenue are directed against the separate orders of learned Commissioner of Income Tax (Appeals)-2, Surat (in short, the ld. CIT(A)) dated 21/08/2019 and 28/02/2019 for the Assessment Year (AY) 2012-13 and 2013-14 respectively. In for A.Y. 2012-13, the revenue has challenged the order of ld. CIT(A) in deleting penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 (in short, the Act) and in ITA No. 265/Srt/2019, the revenue has challenged the order of ld. CIT(A) in accepting the plea of assessee for enhancing opening stock of A.Y. 2013-14. The facts of both the appeals are interconnected, thus, both the appeals ITA No.493 & 265/Srt/2019 ACIT Vs M/s D. Khushalbhai Jewellers are clubbed, heard together and are decided by consolidated order. In penalty appeal in A.Y. 2012-13, the revenue has raised following grounds of appeal:
“1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) is justified in deleting the penalty U/s 271(1)(c) of the Act, levied on account of addition of Rs. 3,71,03,941/- confirmed in first appeal, in respect of undisclosed stock found during survey proceedings.
2. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified in deleting the penalty U/s 271(1)(c) of Rs. 3,71,03,941/- holding that addition due to difference of valuation cannot be held as concealment of income without appreciating that the valuation was correctly made by the A.O. adopting average purchase price of the year, since, no quantitative records were maintained by the assessee to explain the item wise correct purchase price of the undisclosed stock so that it could be linked to the cost price to adopt the average cost price for valuation of the stock? 3. It is, therefore, prayed that the order of the ld. CIT(A) may be set aside and that of assessing officer may be restored to the above extent.”
Brief facts of the case are that the Assessing Officer while passing the assessment order under Section 143(3) of the Act on 31/03/2015 made two additions i.e. (i) valuation of undisclosed item of Rs. 3,71,03,941/- and (ii) value of closing stock as on 31/03/2012 of Rs. 5,10,42,463/-. The addition on which penalty was levied is of Rs. 3,71,03,941/-. The facts leading for making such addition in the assessment order are that the assessee is a partnership firm and engaged in business of trading and manufacturing of cold, silver, diamond studded jewellery. The assessee filed its return of income for the A.Y. 2012-13 on 30/09/2012 declaring income of Rs. 12.96 crores (approximately Rs. 13.00 crores). The case of 2 & 265/Srt/2019 ACIT Vs M/s D. Khushalbhai Jewellers assessee was selected for scrutiny. During the assessment, the Assessing Officer noted that a survey was carried out under Section 133A on business premises of assessee on 06/03/2012. During survey, various discrepancies were found particularly with regard to gold and diamond studded jewelleries. Inventory of jewellery found during the survey was prepared and its valuation was made by approved valuer for Rs. 62.93 crores. The assessee accepted the correctness of inventory with regard to quantity. However, the assessee disputed valuation of approved valuer on the ground that the same was valued on the basis of market price. On the basis of discrepancy in the stock of gold and diamond jewellery with other unrecorded sales, the assessee offered amount of Rs. 8.10 crores as additional income in its disclosure. The assessee valued the unrecorded investment in stock considering the average rate. As recorded above, the survey party valued the inventory on the basis of market rate. On the basis of valuation of assessee vis a vis the valuation made by approved valuer, there was a difference of Rs. 3.71 crores which was added as unexplained investment under Section 69B of the Act. The assessing officer also made other addition of Rs. 5.10 Crore on account of value of closing stock as on 31/03/2012. On further appeal in quantum assessment, the addition of Rs. 3.71 crore was upheld, however, the addition of Rs. 5.10 crore was deleted vide order dated 17/01/2017. No further appeal before the Tribunal was filed by the assessee in quantum assessments. The Assessing Officer while passing the assessment order, 3 & 265/Srt/2019 ACIT Vs M/s D. Khushalbhai Jewellers initiated penalty under Section 271(1)(c) of the Act for concealment of income. The Assessing Officer after dismissal of quantum appeal, issued show cause notice under Section 271(1)(c) r.w.s. 274 of the Act vide notice dated 17/01/2018. The Assessing Officer recorded that no reply was filed by assessee. The Assessing Officer levied penalty under section 271(1)(c) @ 100% of tax sought to be evaded on the addition of Rs. 3.71 crores. The Assessing Officer worked out the penalty of Rs. 1.14 crore in his order dated 23/08/2018.
Aggrieved by the order of penalty, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee submitted that during the assessment, the assessee submitted the details of undisclosed stock and its valuation and valued undisclosed stock at Rs. 8.10 crores. The assessee declared the disclosure of same amount. The assessee furnished details of breakup of stock disclosure on 09/03/2012 with its valuation of Rs. 7,64,47,187/- as per the following details: Item name Godown Quantity Rate Amount Destination (Production) Gold (22 Cts) Main Location 31,489.000 1,657.00 gms 5,21,77,273.00 gms Platinum Main Location 132.000 gms 3,4,58.00 gms 4,56,456.00 Gold (18 Cts) Main Location 4,571.000 gms 1,448.00 gms 66,18,808.00 Diamond (18 Main Location 1,122.000 cts 15,325.00 cts 1,71,94,650.00 Cts Studded Jewellery) 7,64,47,187.00 4. The Assessing Officer while passing the assessment order, worked out the valuation of undisclosed stock in the following manner: & 265/Srt/2019 ACIT Vs M/s D. Khushalbhai Jewellers S. No. Undisclosed Stock Excess found Average purchase Amount in Rs. Valuation during survey rate of the year 1. 22 Carat Gold 31,489 Grams 2438.54 7,67,87,186 2. 18 Carat Gold 4571 Grams 2701.25 1,24,38,833 3. 18 Carat studded 1122 Carat 21273.31 2,38,68,653 diamond 4. Platinum 13.200 Grams 3458.80 4,56,456 Total ..Rs. 11,35,51,128 5. On the basis of both the valuation, there was a difference of Rs. 3.71 crore, which was considered as unexplained difference in valuation and was added back to the income of assessee. The assessee further explained that during the assessment, the assessee made compliance of all notices. There was a difference of opinion in the method of valuation of stock. The departmental valuer considered the market value of jewellery made from gold, diamond, platinum as well as silver. However, it is the long practice of assessee to make the valuation at the cost or market price whichever is lower. The assessee firm as well as their associate concerned conveniently followed the weighted average cost price method for valuation of stock which is done at the end of every financial year. On the date of survey, when asked by the survey party, the assessee submitted the computer generated stock statement in gms/carats and rupees. The valuation shown in the said statement also reflect weighted average price except diamond studded jewellery wherein manual working is required. The assessee is valuing its stock on average price from last seven years. The stock declared in the survey proceedings was included in closing stock of regular inventory maintained by the assessee and the same was valued at the average method of valuation. 5 & 265/Srt/2019 ACIT Vs M/s D. Khushalbhai Jewellers The Assessing Officer made addition by adopting other method of valuation in closing stock. The ld. CIT(A) deleted the addition of Rs. 5.10 crores and accepted the fact that average rate method of valuation is correct method. The assessee submitted that the quantity of stock was same, simply the difference is on account of method of valuation. Thus, the assessee has not furnished inaccurate particulars of income, quantity remains the same and prayed to drop the proceedings. To support its submission, the assessee relied on the decision of Allahabad Tribunal in Vishwa Nath Agarwal Vs ACIT (2001) 71 TTJ 668 (All. Trib), Hon’ble Supreme Court decision in Dilip Shroff Vs CIT & Anr. (2007) 291 ITR 519 (SC)/161 Taxman 218 (SC) and Hon’ble Bombay High Court decision in CIT Vs Aarkay Saree Museum (1991) 187 ITR 147 (Bom).
The ld. CIT(A) after considering the submissions of assessee held that the Assessing Officer not disputed the quantity of undisclosed stock declared in the return of income. However, the valuation of said stock was not accepted by the Assessing Officer. The assessee valued its stock by average price method which was continuously followed. The Assessing Officer rejected the average price method on the ground that item wise quantitative details were not maintained and stock should be valued at market price. The Assessing Officer applied market price and added Rs. 3.71 crores. The addition was confirmed in quantum appeal for want of quantitative records. Before him, the assessee submitted that the addition is based on difference of opinion in method of valuation. The government 6 & 265/Srt/2019 ACIT Vs M/s D. Khushalbhai Jewellers approved valuer undertaken physical verification of stock of each and every item. While valuing the items, the government valuer considered the market value of jewellery of gold, diamond, platinum and silver. The assessee valued its stock at cost price or market price whichever was low. The ld. CIT(A) after referring the decision of Hon’ble Apex Court in Dilip Shroff Vs CIT & Anr (supra) held that a duty may be enjoined on the assessee to make and correct disclosure of income, but if such disclosure is based on the opinion of an expert, who is otherwise also a registered valuer having been appointed in terms of a statutory scheme, only because his opinion is not accepted or some other expert has given another opinion, the same by itself may not be sufficient for arriving at a conclusion that the assessee has furnished inaccurate particulars. The ld. CIT(A) specifically recorded that there is no dispute about the undisclosed stock and its item but the dispute is only about the method of valuation which leads to addition of Rs. 3.71 crores. Such addition is a result of difference in valuation which cannot be held as concealment of income as has been held by Hon’ble Supreme Court in Dilip Shroff Vs CIT (supra) and other decisions of Hon’ble High Courts. On the basis of such observation, the ld. CIT(A) deleted the entire penalty. Aggrieved by the order of ld. CIT(A), the revenue has filed present appeal before this Tribunal.
We have heard the submissions of learned Commissioner of Income Tax- Departmental Representative (ld. CIT-DR) for the Revenue and the 7 & 265/Srt/2019 ACIT Vs M/s D. Khushalbhai Jewellers learned Authorised Representative (ld. AR) of the assessee and have gone through the orders of the lower authorities carefully. The ld. CIT-DR for the revenue supported the order of the Assessing Officer. The ld. CIT-DR submits that the ld. CIT(A) failed to appreciate the fact that the assessee himself admitted during the survey that no quantitative records were maintained by the assessee to explain the item wise correct purchase price of the undisclosed stock. The ld. CIT-DR submits that the ld. CIT(A) has also failed to appreciate the fact that the quantum addition made on account of undisclosed stock has been sustained by the ld. CIT(A). The ld. CIT-DR for revenue further submits that the assessee had disclosed the unaccounted stock during survey proceedings and thereby concealed its actual income.
On the other hand, the ld. AR of the assessee has vehemently supported the order of ld. CIT(A). The ld. AR of the assessee submits that there was a difference of opinion in the method of valuation of stock. The departmental valuer considered the market value of jewellery made from gold, diamond, platinum as well as silver. However, it is the long practice of assessee to make the valuation at the cost or market price whichever is lower. The assessee firm as well as their associate concerned conveniently followed the weighted average cost price method for valuation of stock which is done at the end of every financial year. On the date of survey, when asked by the survey party, the assessee submitted the computer generated stock statement in gms/carats and rupees. The 8 & 265/Srt/2019 ACIT Vs M/s D. Khushalbhai Jewellers valuation shown in the said statement also reflect weighted average price except diamond studded jewellery wherein manual working is required. The assessee is valuing its stock on average price from last seven years. The ld. AR for the assessee submits that the stock declared in the survey proceedings was included in closing stock of regular inventory maintained by the assessee and the same was valued at the average method of valuation. The Assessing Officer made addition by adopting other method of valuation in closing stock. The ld. AR of the assessee submits that the ld. CIT(A) deleted the addition of Rs. 5.10 crores and accepted the fact that average rate method of valuation is correct method. The assessee reported that the quantity is same, simply the difference is on account of method of valuation. Thus, the assessee has not furnished inaccurate particulars of income, quantity remains the same. The ld. AR of the assessee has relied on various case laws as cited in earlier paras of this order.
We have considered the submissions of both the parties and have gone through the orders of the lower authorities carefully. We have also deliberated upon the case laws as relied upon by the ld. AR of the assessee. There is no dispute that the addition of Rs. 3.71 crore was made on account of adopting different method of valuation by assessee and the government valued valuer. We find that the ld CIT(A) deleted the entire penalty on the basis of decision of Hon’ble Supreme Court in Dilip Shroff Vs CIT(Supra) wherein it was held that addition, which is a result 9 ITA No.493 & 265/Srt/2019 ACIT Vs M/s D. Khushalbhai Jewellers of difference in valuation cannot be held as concealment of income. Further, Hon’ble Bombay High Court in CIT Vs Aarkay Saree Musium (supra) held that when certain additions were made in trading account by the Assessing Officer, it did not necessarily follow that the assessee had concealed the income. And held that Tribunal was right in cancelling the penalty order. Thus, we do not find any reason to differ with the finding of the ld CIT(A), which we affirm. In the result, the grounds of appeal
raised by the revenue are dismissed.
10. In the result, this appeal of the revenue is dismissed. for A.Y. 2013-14
11. In this appeal, the Revenue has raised following grounds of appeal: “1. On the facts and circumstances of the case and in law, the ld. CIT(A) has accepted the contention of the assessee to enhance the opening stock of A.Y. 2013-14 based on the undisclosed stock found during survey in the previous A.Y. 2012-13 on wrong footings by relying upon the decision of the Hon’ble Apex Court in the case of V.K.J. Builders & Contractors (P) Ltd. (2009) 184 taxmann 357 (SC) wherein the issue was factually different. In that case, the AO has enhanced the closing stock whereas in the present case, there was no change made in the closing stock for A.Y. 2012-13. Only unexplained investments in stock was unearthed during the course of survey proceedings which was accepted by the assessee and tax was paid by the assessee.
2. It is, therefore, prayed that the order of the ld. CIT(A) may be set aside and that of Assessing Officer may be restored to the above extent.
3. The appellant craves leave to add, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal.”
12. Facts in brief are that when the addition of Rs. 3.71 crores made on account of difference of valuation vis a vis the assessee’s own valuation and the valuation of approved valuer was upheld by the ld. CIT(A) in AY 10 & 265/Srt/2019 ACIT Vs M/s D. Khushalbhai Jewellers 2012-13, the assessee filed application before the Assessing Officer that amount of Rs. 3.71 crores may be added in the opening stock for A.Y. 2013-14. In the application, the assessee relied upon the decision of Hon’ble Apex Court in V.K.J. Builders & Contractors (P) Ltd. Civil Appeal No. 5197/2009/(2009) 184 TAXMAN 357 (SC). The application of assessee was rejected by the Assessing Officer vide order dated 03/10/2017 by holding that the facts of the case law relied by the assessee is not applicable on the facts of the present case. In the said case, the Assessing Officer made addition in closing stock which was accepted by the assessee in KVS Scheme, 1998.
13. Aggrieved by the rejection of application under Section 154 of the Act, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee stated that the assessment for AY 2012-13 was completed under Section 143(3) wherein the addition of Rs. 3.71 crores towards the valuation of undisclosed excess investment under Section 69, was made. The Assessing Officer also made addition of Rs. 5.10 crores towards value of closing stock. The addition of valuation of closing stock was deleted by the ld. CIT(A). However, the addition on account of difference of valuation of undisclosed excess stock was upheld by the ld. CIT(A) vide order dated 17/01/2017. After receipt of order of ld. CIT(A), the assessee requested the Assessing Officer to give effect the order of ld. CIT(A). The Assessing Officer refused to give effect of the said order, therefore, the assessee filed application under Section 154 and assessee relied upon 11 & 265/Srt/2019 ACIT Vs M/s D. Khushalbhai Jewellers the decision of Hon’ble Apex Court in V.K.J. Builders & Contractors (P) Ltd. (supra) wherein it was held that fundamental principle of accountancy is that the figure of closing stock of earlier years has to form the opening stock of next accounting year. The assessee also relied upon the decision of Rajkot Bench of Tribunal in ITO Vs Jamanadas Muljibhai (2006) 99 TTJ 197 (Rajkot), Hon’ble Karnataka High Court in CIT Vs. S.K. Srigiri & Bros (2008) 171 Taxman 264 (Kar.).
14. The ld. CIT(A) after considering the decision of Hon’ble Supreme Court in V.K.J. Builders & Contractors (P) Ltd. (supra) held that once the assessee’s valuation of undisclosed stock for A.Y. 2012-13 is changed due to addition by the Assessing Officer and finally confirmed by the ld. CIT(A) thereby the closing stock of A.Y. 2012-13 will increase by Rs. 3.71 crores and the same effect has to be given for opening stock of current assessment year/A.Y. 2013-14. On the basis of such observation, the ld. CIT(A) directed the Assessing Officer to increase the opening stock of A.Y. 2013-14 by Rs. 3.71 crores. Aggrieved by the order of ld. CIT(A), the revenue has filed the present appeal before this Tribunal.
15. We have heard the submissions of ld. CIT-DR for the revenue and the ld. AR of the assessee. The ld. CIT-DR for the revenue supported the order of Assessing Officer. The ld. CIT-DR submits that the assessee misrepresented before the ld. CIT(A) that the amount was taken in the closing stock. The assessee has neither shown such amount in closing stock of A.Y. 2012-13 nor opening stock of A.Y. 2013-14. 12