TMI Blog2018 (9) TMI 1744X X X X Extracts X X X X X X X X Extracts X X X X ..... sold stock at the close of an accounting period is a necessary part of the process of determining the trading results of that period, and can in no sense be regarded as the "source" of such profits.” Thus the impugned order passed by Pr. Commissioner of Income Tax-1, Bhubaneswar cannot be sustained - Decided in favour of assessee. - ITA No.108 /CTK /2018 - - - Dated:- 12-9-2018 - S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER Assessee by : Sri S.K.Tulsiyan, AR Revenue by : Shri Saad Kidwai, CIT DR ORDER Per N.S.Saini, AM This is an appeal filed by the assessee against the order of the Pr. Commissioner of Income Tax-1, Bhubaneswar dated 17.3.2017 for the assessment year 2012-13. 2. The assessee has raised the following grounds of appeal: 1. That, the Ld. Principal CIT, on the facts and circumstances of the case, erred in law in having assumed jurisdiction u/s. 263 of the Act in order to substitute his subjective view in place of judicious view taken by the A.O. on the same set of facts, method of valuation evidences on record, by holding that the order passed u/s. 143(3) of the Act dated 31.03.2015 was erroneous and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that from the records, it is found that in the profit and loss account, the assessee has shown closing stock at ₹ 5,54,19,940/-, which included gold jewellery of ₹ 5,20,66,830/- and silver jewellery of ₹ 33,26,990/-. As per Tax Audit Certificate, method of valuation of closing stock employed during the previous year relevant to assessment year 2012-13 was 'at cost price or net realizable value whichever is lower' and, therefore, there was no deviation from the method of valuation prescribed u/s 145 A of the Act. From the details of closing stock as submitted by the assessee, it was seen that the valuation of closing stock was made taking cost price as on 01.04.2012 {Opening price of gold @ 657.51 per gram and Silver @ 10.17per gram) instead of taking the average of opening and purchase price (gold @ 1928.43 per gram and silver @ 33.14 per gram). The valuation of closing stock by taking the cost price of opening stock was not an acceptable method for valuation of closing stock, where purchases had been made during the year. Further, there was no material available on record to substantiate the basis on which the rates of closing inventory were arrived. Whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k, in support of his invoking jurisdiction u/s.263 of the Act and relevant facts in relation thereof in the following table: Observation of Pr. C.I.T. Appellant's stand as per evidence on record P/B Page From the records it was found that in the P L account the assessee had shown closing stock at ₹ 5,54,19,940/- comprising of gold jewellery of ₹ 5,20,66,830/-and silver jewellery of ₹ 33,26,990/-. As per Tax Audit Certificate method of valuation of closing stock employed was at cost price or net realizable value whichever is lower' and there was no deviation from the method of valuation prescribed u/s.145AoftheAct. The Ld. Pr. C.I.T. has rightly observed the facts, as would be evident from details of Gold Silver opening closing stock with quantity, value, rate per gram, value of closing stock/unsold stock etc. In the audited accounts of the year under appeal, details of closing stock in quantity of gold and silver comprising of opening stock, purchase, sale and resultant closing stock and closing stock in value have been given and verified by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of closing stock of silver. The valuation of closing stock by taking the cost price of opening stock was not an acceptable method for valuation of closing stock where purchases had been made during the year a) There is no dispute on facts that the appellant had valued its closing stock by following LIFO method which is an accepted and recognized method of valuation of stock. b) There is also no dispute that this method of valuation of stock is being followed year after year and the revenue has been accepting the same. Hence the regular system of accounting being followed by the appellant cannot be disturbed unless there is a finding that there are defects in the books of accounts or the stock register maintained by the assessee. There is no such finding. On the other hand, the Ld. A.O. after thorough examination has accepted the book results and has not rejected the books u/.s.l45 of the Act. c) There is no finding either from the A.O. or from the Ld. Pr. C.I.T. that the stock register containing purchase and sales details maintained by the appellant are not reliable. In fact, the quantitative details maintained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly deduced therefrom, the computation shall be made in such manner and on such basis as the Income-tax Officer may determine. [Emphasis supplied] CIT vs. British Paints India Ltd. (1991) 188 ITR 44 (SC) The question to be determined by the Assessing Officer in exercise of his power under section 145 is whether or not income can properly be deduced from the accounts maintained by the assessee, even if the accounts are correct and complete to the satisfaction of the Officer and the income has been computed in accordance with the method regularly employed by the assessee. What is to be determined by the Officer is a question of fact, i.e., whether or not income chargeable under the Act can properly be deduced from the books of account, and he must decide the question with reference to the relevant material and in accordance with the correct principles. ACIT vs. M/s. Jewel India Jewellers (ITA No.2085/Kol/2013, order dated 01.06.2016) By following the decisions of Hon'ble Apex Court in the case of United Commercial Bank vs. CIT (supra); CIT vs. Sant Ram Mangat Ram (2005) 275 ITR 312 (P H); CIT vs. Ema India Ltd. (2006) 296 ITR 510 (All.) etc. ... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the opening stock of the assessee. This gives absurd results. The opening stock of the assessee should also be valued in the same manner in which the closing stock of the assessee is valued. Thus, by not valuing the opening stock of the assessee by employing weighted average stock method, the revenue authorities committed a mistake. Hence on this ground also the addition is bad in law. 3. Next, without any prejudice to the above, undersigned would further submit that as stated above in para 2 of the Statement of facts of the Appellant, entire detailed enquiry was conducted by the Ld. A.O. during the course of the scrutiny assessment proceedings and all the documents/information as per requisitions during the course of scrutiny assessment proceeding were filed/produced by the appellant. The same are enclosed herewith with this Submission before your Honours. Also the details of the same, which have been extracted above are all placed in the paper book as pointed out in the above para 2. There is, therefore, no denying the fact that the Ld. A.O. had duly conducted required enquiries and was satisfied about the maintenance of books of accounts, stock details, purchase a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned assessment and after hearing the appellant on several dates got himself satisfied on his own perceptions about the correctness or otherwise of the return of income filed by the appellant. Therefore, the exercise aimed at ascertaining the correct income of the appellant has been fulfilled by the Ld. A.O. by exercising his quasi-judicial functions vis-a-vis passing the impugned assessment order u/s. 143(3) of the Act. 6. Therefore, on the facts and in the circumstances of the case and submissions made above, the case of the appellant is evidently not a case of 'No Enquiry' although the Ld. Pr.C.I.T. has alleged not proper examination on his wrong notion and without examining the case in true and proper perspective, warranting possible different view. Therefore, certainly it is not even a case wherein adequate enquiries at the assessment stage were not carried out, far less 'no enquiry'. Hence the very initiation of proceeding u/s. 263 was void ab initio and thus order passed on such invalid notice is liable to be quashed. 6.1. In this regard reliance is also placed on the decision of Hon'ble Calcutta High Court in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken from the decision of Hon'ble Delhi High Court in the case of CIT vs. Vikas Polymers (2012) 341 ITR 537 (Del). Relevant part of the observation in this regard reads as under : This is for the reason that if a query is raised during the course of scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer was reflected in the assessment order, that would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. [Emphasis supplied] 8. Further, according to the decision of Hon'ble I.T.A.T., Hyderabad in the case of Manisha Agri Biotech P. Ltd. vs. CIT (2014) 36 ITR (Trib.) 42- The respondent had no different or new material to take a different view from the one taken by the Assessing Officer and the reasons given by him to reopen the assessment and sustain the revision are totally unacceptable. The respondent is not vested with any power under section 263 to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. 9. Next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iations in the perceptions of the Assessing Officer vis-a- vis that of the Commissioner, cannot render an order erroneous and prejudicial to the interest of the revenue. 9. Viewed in this perspective, and having noted that the Commissioner has subjected the assessment order mainly on the ground that the Assessing Officer did not reach the right conclusions as a result of his enquiry, the impugned revision order is indeed unsustainable in law. It is not a case in which adequate enquiries has not been carried out. [Emphasis supplied] Also it would be apt to refer to the decision of Hon'ble Gujarat High Court in the case of CIT vs. Arvind Jewellers (2003) 259ITR 502 (Guj.) wherein it has been held as under : Coming to the facts of the present case, it is the finding of fact given by the Tribunal that the assessee has produced relevant material and offered explanation in pursuance of the notices issued under section 142(1) as well as section 143(2) and after considering those materials and explanation; the Income Tax Officer has come to a definite conclusion. The Commissioner did not agree with the conclusion reached by the Income Tax Officer. Section 263 does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot discussion of the queries and reply received from the assessee, in the assessment order, was necessary, the Tribunal held that once inquiry was made, a mere non-discussion or non-mention thereof in the assessment order could not lead to the assumption that the Assessing Officer did not apply his mind or that he had not made inquiry on the subject and this would not justify interference by the Commissioner by issuing notice under section 263. The Tribunal allowed the assessee's appeal. [Underlining ours] On further appeal, the Hon'ble Allahabad High Court after referring to the decision in CIT v. Fine Jewellery (India) Ltd. [2015] 372 ITR 303 (Bom) upheld the order of the Tribunal by observing as under: Held, dismissing the appeal, that though the Revenue sought to re-argue before the court that no inquiry had been made by the Assessing Officer with respect to the queries set up in the notice issued under section 263 , when his attention was drawn to the order passed by the Tribunal recording contrary findings, he could not place anything to show that the findings recorded by the Tribunal were perverse or contrary to the record. [Emphasis given] 11. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment dated 31.3.2015 as erroneous as well as prejudicial to the interest of the revenue and set aside the same on the ground that the Assessing Officer has failed to examine the issue of valuation of closing stock properly and directed to examine the issue afresh and do the assessment denovo. 10. Ld A.R. of the assessee contended before us that the consistent followed system of valuation of closing stock at cost or net realisable value, whichever is less, cannot be disturbed merely because in the opinion of the Pr. Commissioner of Income Tax-1, Bhubaneswar, the weighted average of opening stock and purchase should have been adopted for valuing the closing stock. He also contended that it is not a case of lack of enquiry and, therefore, no order u/s.263 of the Act could have been validly passed. 11. On the other hand, ld D.R. supported the order of the Pr. Commissioner of Income Tax-1, Bhubaneswar. 12. We find from Question No.17 of notice dated 22.9.2014 issued u/s.142(1) of the Act by the Assessing Officer that the Assessing Officer has made enquiries in respect of valuation of closing stock. 13. The Hon ble Calcutta High Court in the case of CIT vs. J.L. Morriso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he section supports the above view expressed by us and also overrides section 145 of the Act. The act mandates that the valuation of inventory should be made in accordance with the method of accounting regularly employed by the assessee. Thus the AO, is wrong in disturbing the method of accounting regularly employed by the assesee for valuation of closing stock. Hence the addition is bad in law. 8.8. Even otherwise, the AO as well as the Id. CIT(A) have committed an error by revaluing of the closing stock only by adopting weighted average method of costing and arrived at the profits of the year without doing the same method of valuation to the opening stock of the assessee. This gives absurd results. The opening stock of the assessee should also be valued in the same manner in which the closing stock of the assessee is valued. Thus, by not valuing the opening stock of the assessee by employing weighted average stock method, the revenue authorities, committed a mistake. Hence on this ground also the addition is bad in law. 15. In the instant case, we find that it is not in dispute that the assessee is consistently following the same method of valuation of closing stock whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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