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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: Shri P.M. Jagtap
This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals), Asansol dated 29.10.2014 for the assessment year 2009-10 and the solitary issue arising out of the same relates to the addition of Rs.6,76,256/- made by the Assessing Officer and sustained by the ld. CIT(Appeals) on account of alleged under valuation of closing stock.
The assessee in the present case is a partnership firm, which is engaged in the business of manufacturing and trading of gold ornaments. The return of income for the year under consideration was filed by it on 18.09.2009 declaring total income of Rs.4,74,510/-. In the balance-sheet ./2015 Assessment year: 2009-2010 Page 2 of 4 filed along with the said return, closing stock of jewellery of 9841.25 gms was shown by the assessee at Rs.78,73,000/-. During the course of assessment proceedings, the details of closing stock furnished by the assessee were verified by the Assessing Officer and on such verification, he found that finished jewellery kept for free sale of 2031.82 gms and raw gold under production of 630.39 gms were valued by the assessee at the rate of Rs.1,162/- per gram. According to the Assessing Officer, raw gold required for making finished jewellery of 2031.82 gms was purchased by the assessee during the period from 06.03.2009 to 28.03.2009, while the raw gold under production of 630.39 gms was purchased during the period from 29.03.2009 to 31.03.2009. He, therefore, worked out the average rate of gold purchased by the assessee during the period from 06.03.2009 to 31.03.2009 at Rs.1,417/- per gram and held that the rate of Rs.1,162/- per gram adopted by the assessee was much lower than the actual cost. He also noted that labour charges incurred by the assessee for production of 2031.82 gms of gold should have been minimum of Rs.3,35,250/- calculated at the rate of Rs.165/- per gram. Accordingly, by applying the rate of Rs.1,417/- per gram to the stock of finished jewellery kept for free sale of 2031.82 gms and adding labour charges of Rs.3,35,250/-, the value of finished jewellery kept for free sale was determined by the Assessing Officer at Rs.32,22,012/-. Similarly the stock of raw gold under production of 630.39 gms was valued by him at Rs.8,85,298/- by applying the rate of Rs.1,417/- per gram. The valuation of these items of jewellery lying in the closing stock thus was determined by the Assessing Officer at Rs.41,07,310/- as against Rs.30,95,704/- shown by the assessee and the difference of Rs.10,11,606/- was added by him to the total income of the assessee in the assessment completed under section 143(3) vide an order dated 24.11.2011.
Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) disputing the addition of Rs.10,11,606/- made by the ./2015 Assessment year: 2009-2010 Page 3 of 4 Assessing Officer on account of alleged under valuation of stock. Before the ld. CIT(Appeals), it was contended on behalf of the assessee that the valuation of closing stock of jewellery was being done by the assessee by following this particular method of valuation over the years and there was no justification on the part of the Assessing Officer to change the said method in the year under consideration. The ld. CIT(Appeals) did not find merit in this contention of the assessee. According to him, the valuation of closing stock of jewellery was done by the Assessing Officer at the actual cost, which was worked out by him by taking the average rate of the raw gold purchased by the assessee during the relevant period, i.e. March, 2009. He, however, did not find the enhancement made by the Assessing Officer in the valuation of closing stock by including labour charges. Accordingly, he sustained the addition of Rs.10,11,606/- made by the Assessing Officer on account of alleged under valuation of closing stock to the extent of Rs.6,76,256/-. Still aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
I have heard the arguments of both the sides and perused the relevant material available on record. As submitted by the ld. Counsel for the assessee, the valuation of closing stock of jewellery was made by the assessee at the average rate of purchase of gold made during the period of last six months and this method adopted by the assessee was consistently followed in the earlier years as well as in the subsequent years. The Assessing Officer, however, adopted the average rate of purchase of gold made by the asseessee during the last one month, i.e. March, 2009 and enhanced the value of closing stock of jewellery thereby making the impugned addition. In this regard, ld. Counsel for the assessee has relied on the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT –vs.- Sant Ram Mangat Ram reported in 275 ITR 312, wherein it was held that the assessee having continuously adopted one method of valuation of closing stock consistently from the inception of its business and the same having been accepted by the Department in the earlier years, it could not be rejected for particular assessment year. ./2015 Assessment year: 2009-2010 Page 4 of 4 Keeping in view the ratio of this decision of the Hon’ble Punjab & Haryana High Court in the case of CIT –vs.- Sant Ram Mangat Ram, we restore the issue involved in this appeal to the file of the Assessing Officer with a direction to verify the claim of the assessee of having followed the same method of valuation of closing stock in the earlier years as well as in subsequent years. If the assessee is found to have followed the same method of valuation of closing stock, the Assessing Officer shall delete the addition made in the year under consideration by changing the said method consistently followed by the assessee.
In the result, the appeal of the assessee is treated as allowed for statistical purposes. Order pronounced in the open Court on October 19, 2015.