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TMI Blog2012 (7) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... s valued the silver gained on account of wastage in doing job work at Rs.6670 per kg., however, as per the AO the rate of silver on 31.o3.2004 was Rs.11770 per kg. When asked as to why silver should not be valued @Rs.11770 per kg., it was submitted before the AO that no purchases were made and the valuation is done on cost or market price, whichever is lower. Therefore, it was submitted before the AO that as the cost was NIL, therefore, the same should be taken at NIL, as there was no cost but instead of taking the value at NIL the assessee had taken the value of opening stock of silver and actual profit will be derived on consumption / sale of stock. However, the AO did not agree with the submission of the assessee and valued the silver at Rs. 11770/- per kg. and, accordingly, made the addition of Rs. 21,07,555/-. 2.1 The addition was challenged before the ld. CIT(A) and the assessee filed written submissions, which is incorporated in the impugned order and reads as under : 1.1 The appellant company is manufacturer of Silver Chains and Components on job work for others. The main source of income is job charges received against manufacturing of silver jewellery. Nature of busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the year under consideration as has been adopted in the preceding year. Hon'ble Supreme Court in the case of Chainrup Sampatram vs. CIT 24 ITR 481 and in the case of Kika Bhai Prem Chand vs. CIT 24 ITR 506 has held that if any accounting principle is recognized and has been accepted than the stock valued according to that method is to be accepted. 1.8 That the option to adopt any system of accounting lies with the assessee. Hon'ble Supreme Court in the case of investment Ltd. vs. CIT 77 ITR 533 has held "A tax payer is free to employ for the purpose of his trade his own method of keeping accounts and for that purpose to value his stock in trade either at cost or market price. A method of accounting adopted by the trader consistently and regularly cannot be disturbed by the Departmental Authorities on the view that he should have adopted a different method of keeping account or of valuation. 1.9 Hon'ble Supreme Court in the case of CIT vs. Biharilal Investment (P) Ltd. 168 Taxmann 95 has held "Assessee company was subscribing to chits as its business activity - In context of 'chit discount' it was following 'completed contract method' of accounting which was earlier accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e method of valuation, there is bound to be some distortion in the calculation of profits in the year in which the change takes place. But if, the change is brought about bonafide and is in accordance with the normally accepted accounting practice, there is no reason why such a change should not be permitted. The change has to be affected by adopting the new method for valuing the closing stock which will, in its turn, become the value of the opening stock of the next year. If, instead, a procedure is adopted for changing the value of the opening stock also, it will lead to chain reaction of changes in the sense that the closing value of the stock of the year preceding will also have to change and correspondingly the value of opening stock of that year and so on". ii) CIT vs. Bengal Jute Mills Co. Ltd 107 CTR 34 (Calcutta) "Valuation Closing Stock - Value of closing stock of any year becomes the value of opening stock of the next year - Thus, where the ITO revalues the closing stock of earlier years at the market rate rejecting assessee's valuation, he must also value the opening stock in a similar manner - Otherwise, the figure of profit will get highly distorted which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgments cited before the ld. CIT(A) as noted above. He has submitted that apart from the assessee being engaged in the business of manufacturing of silver chains and components, the assessee company is also doing job work for others and out of the job work, the assessee had gained silver and the AO had made notional addition for the same despite no purchase has been made by the assessee in the year under consideration. Copy of trading and profit and loss account is filed in support of the same. He has also submitted that the assessee consistently followed the same method of accounting of valuing the gained silver, in which no defects have been pointed and whenever such gained silver was sold, it was offered for taxation. He submitted that if the valuation of closing stock as per the assessee is taken and that the stock is sold subsequently, the difference would be subjected to tax at higher rate and the Revenue would not be at loss at all. Therefore, either the valuation of closing stock is taken at higher rate or the sales have been shown at higher price, would not make any difference. He submitted that the assessee gained silver while doing the job work and no actual profit i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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