M/S THE KESHAB JEWELLERS,NORTH 24 PARGANAS vs. I.T.O WD - 50(2),KOLKATA, KOLKATA

Ground No. 1 raised by the assessee in this appeal is general, while Ground No. 2 challenging the addition of Rs.93,612/- made by the Assessing Officer and sustained by the ld. CIT(Appeals) on account of unverifiable purchase of gold has not been pressed by the ld. Counsel for the assessee at the time of hearing before us. The same is accordingly dismissed. ./2013 Assessment year: 2009-2010 Page 2 of 8

The issue raised in Ground No. 3 relates to the disallowance of Rs.93,889/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) being 5% of the expenses incurred by the assessee on packing materials.

The assessee in the present case is a partnership firm, which is engaged in the business of manufacturing of jewellery. A survey under section 133A was carried out in the business premises of the assessee on 25.03.2009. Thereafter the return of income for the year under consideration was filed by it on 21.09.2009 declaring total income of Rs.4,95,389/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that the claim of the assessee for expenditure of Rs.19,97,784/- incurred on packing material was partly supported by self-made vouchers. He, therefore, made a disallowance of 5% of such expenditure claimed by the assessee. On appeal, the ld. CIT(Appeals) confirmed the said disallowance.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As rightly submitted by the ld. Counsel for the assessee, the disallowance of 5% out of packing material expenditure is made by the Assessing Officer and confirmed by the ld. CIT(Appeals) merely on the ground that the claim of the assessee for the said expenditure is partly supported by self-made vouchers without pointing out any specific or material defects therein to show how the expenditure claimed by the assessee was not verifiable. In our opinion, in the absence of such specific or material defects pointed out in the supporting bills/ vouchers maintained by the assessee, the disallowance made by the Assessing Officer to the extent of 5% and confirmed by the ld. CIT(Appeals) merely on the basis of self-made vouchers maintained by the assessee cannot be sustained. We, therefore, delete the same and allow Ground No. 3 of the assessee’s appeal. ./2013 Assessment year: 2009-2010 Page 3 of 8

In Ground No. 4, the assessee has challenged the addition of Rs.28,83,274/- made by the Assessing Officer on account of under- valuation of closing stock, which has been enhanced by the ld. CIT(Appeals) to Rs.32,68,177/-.

During the course of survey, the stock of jewellery of 12717.844 gms found was valued by the Departmental Valuer at Rs.1,86,77,034/-. Gold of 2003.912 gms available with the karigars was also valued at Rs.41,81,633/- @ Rs.1,440/- per gram. During the course of assessment proceedings, the purchases made by the assessee after the date of survey till 31.03.2009 were added by the Assessing Officer to the value of stock as found during the course of survey and after substracting the sales of gold ornaments during the post-survey by the assessee, the value of closing stock as on 31.03.2009 was worked out by him at Rs.2,32,41,451/- Since the value of closing stock as on 31.03.2009 was shown by the assessee in the Profit & Loss Account at Rs.1,71,06,744/-, the Assessing Officer required the assessee to explain the difference. In reply, the following explanation was offered by the assessee:- “We had kept in stock of gold ornaments on first day of April, 2008 weight 3611.832 gram. Out of opening stock 14,083.210 gram which was continuing oin shop for display to the customers and the value of that stock 3611.832 gram is calculated at the rate of cost price of 01.04.2008.

(ii) And due to fluctuation of market price of gold in the financial year 2008-09 the stock of gold 10227.226 gram is calculated at the average rate of cost price.

The above explanation of the assessee was not found acceptable by the Assessing Officer for the following reasons:- “The assessee could not produce the documents related to the purchase of gold found as closing stock on the date of survey. Hence, the assessee could not determine the value of closing stock as per cost price.

For the reasons given above, the Assessing Officer held that the value of closing stock was suppressed by the assessee to the extent of Rs.27,21,290/- (Rs.1,98,28,034/- minus Rs.1,71,06,744/-) and after adding making charges of Rs.1,61,984/- incurred by the assessee, the total suppression in the value of closing stock was worked out by him at ./2013 Assessment year: 2009-2010 Page 5 of 8 Rs.28,83,274/- and addition to the extent was made by him to the total income of the assessee.

The addition of Rs.28,83,274/- made by the Assessing Officer on account of under-valuation of closing stock was challenged by the assesese in the appeal filed before the ld. CIT(Appeals), and a detailed submission was made on behalf of the assessee before the ld. CIT(Appeals) to support and substantiate the valuation of closing stock as made by it as follows:- Closing stock quantity (gms.) as on 31.3.2006 31.3.2007 31.3.2008 31.3.2009 Raw 2788.100 3063.810 2290.110 1200.500 materials Finished 10291.090 12756.120 11793.100 14778.878 goods Total 13079.190 15819.930 14083.210 15979.378 Closing stock value (Rs.) as on 31.3.2006 31.3.2007 31.3.2008 31.3.2009 Raw 1922,185.00 2729,179.00 materials Finished 7923.894.00 11941.124 goods Total 9846.079.00 14670,303.00 15602,490.00 17106,744.00

The submissions made by the assessee were forwarded by the ld. CIT(Appeals) to the Assessing Officer seeking the latter’s comments. In the remand report submitted to the ld. CIT(Appeals), the Assessing Officer offered his comments on the issue as under:- “The AO had rightly taken the rate of Closing Stock as put forward by the assesse during the hearing stage but not the quantity of Closing Stock which would be 15979.378 gm. upto 31.3.2009, as put forward by the assesse, As was discussed in para no.6(a), 6(b), 6(c) & 7 of the assessment order, the AO had taken valuation of part of Closing Stock of 4225.737 gm. @ ./2013 Assessment year: 2009-2010 Page 6 of 8

On the basis of valuation made by the Assessing Officer in the remand report, enhancement notice was issued by the ld. CIT(Appeals) to the assessee and adopting the valuation as made by the Assessing Officer in the remand report, the addition of Rs.28,83,274/- made by the Assessing Officer on account of undervaluation of closing stock was enhanced by the ld. CIT(Appeals) to Rs.32,68,177/-.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that there is no dispute as regards the quantity of jewellery lying in the closing stock of the assessee as on 31.03.2009 and the dispute is only as regards the valuation of said jewellery. In the valuation made by the assessee, the rates of purchase of jewellery as prevailing in the earlier years are adopted by the assessee as if it is following LIFO method and the same is not correct as agreed even by the ld. Counsel for the assessee. Keeping in view the various transactions regularly entered into by the assessee of purchase and sale of jewellery during the subsequent period ./2013 Assessment year: 2009-2010 Page 7 of 8 including the year under consideration, we are of the view that even the method adopted by the Assessing Officer for determining the value of closing stock of jewellery by taking into consideration the valuation of jewellery made during the course of survey and by taking average rate of purchase of jewellery for the post-survey period is not correct and this position is not disputed even by the ld. D.R. In our opinion, a uniform method is required to be followed to value the closing stock of jewellery and as agreed by the ld. Representatives of both the sides, weighted average method is the one, which can appropriately be followed keeping in view the nature of product dealt with by the assessee, the value of which is always variable. They have also agreed that weighted average of one year should be considered for determining the value of jewellery lying in the closing stock as on 31.03.2009. Keeping in view these averments made by the ld. Representatives of both the sides, we set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for determining the value of closing stock of jewellery on the basis of weighted average cost of one year. The assessee is directed to prepare and furnish the working in this regard before the Assessing Officer, who shall verify the same and decide this issue in accordance with law. Ground No. 4 is accordingly treated as allowed for statistical purposes.