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Assistant Commissioner of Income-tax, Circle-43, Kolkata Versus M/s. Jewell India Jewellers

2016 (7) TMI 376 - ITAT KOLKATA

Valuation of closing stock - Investment in the GOLD - LIFO or FIFO method - Held that:- In the instant case, the assessee had furnished the closing stock valuation workings as on 31.3.2006, 31.3.2007, 31.3.2008 and 31.3.2009 before the revenue. On going through the said workings, we are fully convinced with the method of accounting regularly employed by the assessee for valuation of closing stock of Gold and other jewellery. - It is quite natural that jewellery being a fashion industry, the .....

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cause the closing stock cannot be construed as a source of profit for the assessee. We place reliance on the decision of the Hon’ble Supreme Court in the case of Chainrup Sampat Ram vs CIT reported in (1953 (10) TMI 2 - SUPREME Court ) in support of this proposition. - We find that the assessee has been consistently following LIFO method of accounting for valuation of its closing stock of gold which has been accepted by the department in the earlier years even in scrutiny assessment proceedi .....

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X/R-43/20-11-12 dated 08.02.2013. Assessment was framed by Addl. CIT, Range-43, Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2009-10 vide his order dated 27.12.2011. 2. The only issue to be decided in this appeal is as to whether the Learned CITA is justified in deleting the addition made by the Learned AO towards valuation of closing stock in the sum of ₹ 4,29,28,298/- in the facts and circumstances of the case. 3. The brief facts of this is .....

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125,255,449/- (ii) Packing Materials ₹ 43,610/- It was further noted that, as mentioned by the Tax Auditor, the above value is taken by the Auditor as Valued and Certified by the partner. As per the Tax Audit Report, Raw material was valued at cost or market price whichever is lower while the finished Goods was valued at estimated cost or market price whichever is lower. It was noted that the position of various stock of Raw materials and finished goods are reported in Schedule- IV of the .....

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stock of Diamonds of CT. 4775.490, Closing Stock of Colour Stone of Gms. 7267.039, closing Stock of Semi precious stone of Ct. 17549.760 and Closing Stock of Precious Stone of Ct. 18,804.200 covered under "Other Raw Material which was also reported to have been valued at Cost or Market price whichever is lower as per the version of the Tax Audit report. 3.1. The assessee filed the details of valuation of closing stock as on 31.3.2009 as under :- Value of Closing Stock of Gold Total value of .....

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,21,39,703.04 Add: Value Addition 1,05,84,671.50 Total Value including Value Addition 6,27,24,374.54 Total Value Rounded Off to 6,27,24,374.00 The Learned AO worked out the average purchase price of Gold at ₹ 1288.41986 per gram. 3.2. The Learned AO observed that the assessed had produced Register GS -11 and GS -12 in respect of the movement of Gold for verification. During the course of hearing, the assessee was enquired about the various entries made therein. The assessee explained as be .....

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ly sold out or remained in the closing stock at the end of the year. In other words, the Learned AO observed that there was no item wise break up maintained in the said register. Accordingly, he raised a query as to how it can be explained that the Stock of Gold is representing the Gold purchased in FY 2006-07 or FY 2007-08 when no other register is maintained in respect of movement of stock and no sufficient item wise details are available or maintained so as to trace it in sale or in stock. 3. .....

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ingly made an addition of ₹ 4,29,28,298/- towards valuation of closing stock as on 31.3.2009 in the assessment. 4. Before the Learned CITA, the assessee explained that the addition was made by the Learned AO on account of revaluation of closing stock by discarding the LIFO method regularly followed by the assessee and by adopting average cost arrived at by taking the average cost of purchase for the Gold purchased during the year. The assessee argued that by adopting LIFO method , it had d .....

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aken by the assessee. It was argued that the Learned AO had not disputed the value of addition of the making charges embedded in the ornaments which was ₹ 1,05,84,671/-. It was argued that the assessee has been consistently following LIFO method for valuation of closing stock since the inception of the business and such system was consistently followed and accepted in all earlier years including in the scrutiny assessment for the earlier years including in the year in which survey was cond .....

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ned AO was satisfied about the maintenance of books of accounts , stock details, purchase and sales of the assessee and no defect whatsoever was found either in maintenance of stock register or in the quantity of gold. The Learned AO had noted that the total quantity purchased by the assessee during the entire asst year was 50577 grams and that the closing stock was 73752 grams. This proved the fact that the closing stock included the opening stock of gold held by the assessee. The Learned AO ho .....

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in identical issue was considered by the tribunal. The Tribunal in this decision held that LIFO method consistently followed by the assessee was based on accepted principle of accounting and no defect was pointed out by the department in the books of accounts, the LIFO system should have been accepted. The assessee also placed reliance on the decision of the Hon ble Madhyapradesh High Court in the case of CIT vs J.P.Patel reported in 263 ITR 421 (MP), wherein it was held that LIFO method is well .....

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garwal in ITA No. 450/Chd/2010 dated 23.7.2010 in support of its arguments. 5. The Learned CITA held that the Learned AO after detailed analysis had held that the appropriate method of value of gold is LIFO method which has been specifically mentioned by him in para 19 of the assessment order. The Learned AO had confused himself by first accepting the LIFO method but valuing the stock at purchase price of the current year worked out by him at ₹ 1288.41986 per gram which is the average rate .....

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e earlier years and for the current year observed that the assessee had been consistently following the LIFO method which is acceptable and recognized method of accounting and held that the same should be followed. He further held that the Learned AO had not given proper basis on which he had rejected the method of valuation followed by the assessee. He further held that no material evidence was brought on record to prove that the valuation method adopted by the assessee was incorrect or not jus .....

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eing last in first out to first in first out. 2. For that the Ld. CIT(A) erred in deleting the addition in the valuation of Closing Stock when the assessee did not produce sufficient Register or sufficient records to ascertain whether a particular item was sold out or remained as Closing Stock at the end of the year. There was no such register was maintained which represents the gold purchase in the F.Yr. 2006-07 & 2007-08. In absence of proper and complete record the A.O. was justified in m .....

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d AR reiterated the submissions made before the lower authorities and the findings given by the Learned CITA. In addition he placed reliance on the decision of the Cochin Tribunal in the case of ITO vs Sree Padmanabha Jewellery Mart reported in (1986) 19 ITD 816 (Cochin Trib.) in support of his contentions. 7. We have heard the rival submissions and perused the materials available on record. The facts elaborately stated in the arguments advanced by the assessee remain undisputed and hence the sa .....

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n the event of finding out defects in the books of accounts and stock registers maintained by the assessee. Admittedly, no defects were noticed or pointed out by the Learned AO in the books of accounts and stock registers etc furnished before him at the time of assessment proceedings. Infact no discrepancy was noticed on the quantity of gold and other jewellery by the Learned AO. We find that the Learned AO had not recorded any clear finding in his order that the LIFO method of accounting follow .....

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co-ordinate bench decision of Cochin Tribunal in the case of jeweller in ITO vs Sree Padmanabha Jewellery Mart reported in 19 ITD 816 is directly on the point involved in this appeal. In the said case, it was held that :- The manner of valuation of closing stock by the assessee is as under:- The quantity of stock left at the end of any years is first ascertained by reference to the detailed books of accounts maintained by the appellant-firm. From out of this, the quantity of jewellery relatable .....

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007, 31.3.2008 and 31.3.2009 before the revenue. On going through the said workings, we are fully convinced with the method of accounting regularly employed by the assessee for valuation of closing stock of Gold and other jewellery. The value of closing stock of gold as worked out by the assessee are given below :- For 31.3.2006 Grams Rate Value Value of closing stock of FY 2004-05 25234.070 621.00 15670357 Value of Balance stock 31645.550 650.28 20578468 56879.620 36248825 For 31.3.2007 Grams R .....

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is quite natural that jewellery being a fashion industry, the old stocks would most of the times remain with the assessee and the revenue cannot expect the old stocks to be sold out first though it would remain in the wish list of the jeweller. We find that the aforesaid valuation exactly fits into the accepted method of valuation for a jeweller as approved in the case of Cochin Tribunal supra. We also find that the decision of the Chandigarh Tribunal in the case of DCIT vs Vipin Aggarwal in ITA .....

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opening stock valued @ ₹ 482/- per gram. The balance stock available out of the purchases made during the year was 22850 gms which was valued at cost price of ₹ 905/- per gram. The contention of the assessee was rejected by the Assessing Officer as according to the Assessing Officer the assessee was not following one of the methods specified in accounting standard AS-2 issued by the Institute of Chartered Accountants of India for determining the cost of inventories. The explanation .....

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the weights in grams of stocks but had only revalued the stock by adopting a figure higher than rate disclosed by the assessee. We find no merit in the said addition being made by the Assessing Officer where the valuation of closing stock has been changed vis-a-vis its value and not because of any difference in the quantity of stock. The assessee was consistently following a particular method of accounting which is being accepted from year to year and in the absence of any contrary findings by .....

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ing stock is to be valued either at cost or market value, whichever is low. In the facts and circumstances of the present case, we are in conformity with the order of CIT(A) and uphold the same. There is no merit ill adopting the weighted average cost method for valuation of inventory of stock in the circumstances of the case. We confirm the deletion of addition made by the Assessing officer totaling ₹ 52,23,753/-. The ground of appeal raised by the Revenue is thus dismissed. 7.3. In any e .....

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