TMI Blog2016 (7) TMI 1491X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of items of ornaments consisting of 24 ct, 22 ct 18 ct as per audited accounts, but he has multiplied the quantity with the average cost of purchase price as on 31.3.2009. This was in total disregard of the valuation which was adopted by the assessee at cost consistently and there being no deviation throughout the past many years which is fully and elaborately detailed in the audited accounts enclosed in the paper book and duly accepted as such by the revenue from year to year without disturbing the same at any stage AO had not recorded any clear finding in his order that the LIFO method of accounting followed by the assessee for valuing its closing stock was such that correct profit could not be deduced from the books of account maintained by the assessee. In these circumstances, it would not be justified in rejecting the closing stock valuation regularly adopted by the assessee. In the instant case, the assessee had furnished the closing stock valuation workings as on 31.3.2005, 31.3.2006, 31.3.2007, 31.3.2008 and 31.3.2009 before us which are forming part of the paper book vide pages 20 -182 . On going through the said workings, we are fully convinced with the method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirming the stand of the assessee that he did not sell any gold weighing 98 grams to the assessee on 6.7.2008 to prove the case beyond doubt. Hence we find that the assessee had not discharged its primary onus on this aspect. Hence in these circumstances, we hold that the ld CITA had rightly confirmed this addition - Decided against assessee Addition on the basis of entry in the purchase voucher - Held that:- We find that this addition of ₹ 94,837/- was made by the ld AO based on the impounded purchase voucher no. 2666 dated 19.11.2008 found during the survey representing purchase of gold of 74.94 grams. AO had observed that the assessee had not denied the basic fact that the said purchase voucher is not part of the regular books maintained by the assessee. Hence in these circumstances, we hold that the CITA had rightly confirmed this addition - Decided against assessee - I.T.A No. 51/Kol/2013, 379/Kol/2013 - - - Dated:- 20-7-2016 - Shri M. Balaganesh And Shri S. S. Viswanethra Ravi, JJ. For the Assessee: S/Shri S. L. Kochar Anil Kochar, Advocates For the Revenue: Shri Rajat Kumar Kureel, JCIT, Sr. DR ORDER Shri M. Balaganesh, These cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee Difference of Col (1) (2) Value of col (3) 3908.298 12386.621 (-)8478.323 (-)10623339/- For Diamonds (B) Physical stock as per inventory Stock as per books of assessee Difference of Col (1) (2) Value of col (3) 380.09 362.829 17.261 252065/- For silver (H) Physical stock as per inventory Stock as per books of assessee Difference of Col (1) (2) Value of col (3) 20000 25699.632 (-)5699.632 (-)125961.86/- (ii) Bow Bazar Branch For 22 Carat Gold (I) Physical stock as per inventory Stock as per books of assessee Difference of Col (1) (2) Value of col (3) 11540.57 14572.570 (-)3031.804 (-)4641692/- For 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ams ------------------------ 485.326 grams The ld AO arrived at the average cost of purchase of each compartment of gold as below:- For 22 ct gold = ₹ 160202865.30 / 126590.810 grams = ₹ 1265.51 per gram For 24 ct gold = ₹ 3954008.80 / 2988.46 grams = ₹ 1323.09 per gram For 18 ct gold = ₹ 2694723.53 /2227.915 grams = ₹ 1209.52 per gram The ld AO accordingly arrived at the closing stock of ₹ 5,66,19,626/- being the difference in valuation of stock between LIFO and average cost method. BowBazar Branch Stock of 22 ct gold - 2008 13408.314 grams The average cost of purchase was worked out as under by the ld AO :- ₹ 8844889.50 / 6650.520 grams = ₹ 1329.95 per gram The ld AO accordingly arrived at the closing stock of ₹ 62,41,025/- being the difference in valuation of stock between LIFO and average cost method. Accordingly the ld AO arrived at the total closing stock difference of ₹ 6,28,60,651/- ( 5,66,19,626 + 62,41,025) and show caused the assessee as to why the same should not be added in the assessment. 3.3. In response to this show cause notice, the assessee replied that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the pattern of manufacturing to cope with changes in styles. On the close of a particular year, what assessee does is that they take note of all the items which they have in stock, make division of those items year wise with reference to year of their manufacture and thus proceed to value the ornaments for the purpose of their accounting with reference to the actual cost with reference to the year in which the same were manufactured. The complete break up of closing stock year wise was furnished by the assessee before the ld AO . The assessee contended that the departmental valuer not aware of the method of valuation adopted by the assessee , simply proceeded to multiply the total quantity found by him at the time of survey with the market value of gold on the date of survey and arrived at the value of stock. This has led to the difference in the valuation of stock. The ld AO ignored the explanations of the assessee and proceeded as per his show cause notice to make additions in the sums of ₹ 1,54,73,471/- ; ₹ 36,87,474/- and ₹ 6,28,60,651/- in the assessment. 3.5. The ld CITA in respect of addition of ₹ 1,54,73,471/- observed in his order as below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8478.323 (-) 113.312 (-) 1576.163 (+) 9809.527 (-) 6936.810 1296.544 Discrepancy Thus, value of difference on the basis of discrepancy found at Rash Behari Avenue Branch, Kolkata is ₹ 1438267/-. Similarly, the value of difference on the basis of discrepancy found at Bowbazar Bronch, Kolkata comes to ₹ 24,466/- (as difference found in purity of gold converted into 22 ctrs gold discrepancy basis is 17.576 gms). Thus, the addition made on the ground of difference in gold item quantity-wise and purity-wise is restricted to ₹ 1438267/- + ₹ 24466/- i.e. ₹ 14,62,733/- only. The ld CITA in respect of addition of ₹ 36,87,474/- observed in his order as below:- Appeal on next ground is against the addition of ₹ 3687474/-, on the basis of 20.71 % of the gross profit from excess stock found during the survey operation. The A.R. submitted during the appellate proceeding that once the addition has been made for excess stock found then there is no reason to make addition on the same amount taking gross profit ratio separately. I have considered the finding of the A.O. and the submission made by the A.R in the preced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and l8 ct jewellery as separate. 2. Whether in facts and circumstances, the Ld . CIT(A) was justified in not considering the profit from undisclosed sale of ₹ 36,87,474/-. 3. Whether in facts and circumstances of the case, Ld.CIT(A) was justified in giving the relief in the valuation of closing stock of ₹ 6,28,60,651/- relying on LIFO instead by FIFO. 3.7. The ld AR argued that the ld AO erred in making addition towards purity difference by ignoring the 24 ct stocks held by the assessee. The ld CITA also erred in converting the 24 ct stocks into 22 ct stock and made an addition of ₹ 14,62,733/- which is not warranted in the facts and circumstances of the case. He argued that the assessee has been maintaining 24 ct stock of gold in all the earlier years and that has been accepted by the revenue and the method of valuing the stocks using LIFO method also was accepted by the revenue in the earlier years. Moreover, the assessee has been consistently following the said method of valuation since its inception. He further argued that LIFO method is also one of the recognized method for valuation of stock and the principles of consistency cannot be ignored by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further relied on the decision of the Hon ble Supreme Court in the case of UCO Bank vs CIT reported in 240 ITR 355 (SC) wherein the Hon ble Apex Court at page 366 of the Judgement had laid down the principles of valuation of stock. 3.8. In response to this, the ld DR argued that the stock discrepancies were found in survey and the Government approved departmental valuer was also present at the time of survey for valuation of stocks found in the survey. The survey team did not find 24 ct stocks of gold during survey. The assessee also did not object anything about this during the course of survey. There is no big difference between the provisions of section 145 and section 145A of the Act as the wordings of both the sections are similar save and except that certain taxes, duties and levies were directed to be included in the valuation of closing stock in section 145A of the Act. Hence the argument advanced by the assessee that the decision of Allahabad Tribunal relied upon by the ld AO was rendered in the context of section 145 of the Act and not in respect of section 145A of the Act does not hold any water. With regard to the reliance placed by the Hon ble Apex Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iniscule as compared to the volume of trading done by the assessee. We find that the ld AO had not accepted the LIFO method of valuation of stock consistently followed by the assessee over the years since inception of its business. We find that the day to day books and and stock registers were duly maintained and there is no discrepancy on overall stocks found on the date of survey except a miniscule difference of 131 grams. The main difference is only on account of purity which had ultimately led to an addition. It has already been stated above that the ld AO had accepted the existence of 24 ct gold lying with the assessee while making an independent addition of ₹ 6,28,60,651/- which would be discussed at length separately. Once the basic premise on the non-existence of 24 ct gold is defeated, the purity difference also vanishes and there is no need to convert the 24 ct gold into 22 ct gold as done by the ld CITA for sustenance of addition of ₹ 14,62,733/-. Hence we hold that there is only a minor difference of 131 grams on an overall basis on the date of survey and quantity wise reconciliation is also duly filed before the lower authorities which are reproduced in pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the gold available from earlier years as per LIFO method was continuing from year to year and has duly been accepted by the ld AO in all the earlier years. The ld AO however finally adopted his own method of valuation taking average cost price method for whole of the closing stock, rejecting the well recognized LIFO method consistently followed by the assessee and accepted by the department. It was also submitted that LIFO method is a recognized method for the purpose of valuation of closing stock. 3.9.2. It is elementary that the regular system of accounting followed by the assessee could be disturbed only in the event of finding out defects in the books of accounts and stock registers maintained by the assessee. We place reliance on the decision of the Co-ordinate Bench decision of Hyderabad Tribunal in the case of Ramesh Chandra Jewellers vs ITO in ITA No. 65/Hyd/06, wherein 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 when no defect was pointed out by the department in the books of accounts, the LIFO system should have been acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the closing stock valuation workings as on 31.3.2005, 31.3.2006, 31.3.2007, 31.3.2008 and 31.3.2009 before us which are forming part of the paper book vide pages 20 -182 . 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 using LIFO method. 3.9.4. It 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 No. 450/Chd/2010 dated 23.7.2010 wherein it was held that :- 6. We have heard the rival contentions and perused the records. The issue arising in the present appeal is with regard to the valuation of closing stock. The assessee is a jeweler and had declared closing stock of ₹ 3,79,84,232/- as on 31.3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erit in 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. 3.9.5. In any event, we hold that no addition could be made towards value of stock because 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 24 ITR 481 (SC) 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 proceedings of the assessee. Then there is no justifiable reason to reject the same method during the year under appeal. In this regard, we place reliance on the decision of the Hon ble Apex Court in the case of United Commercial Bank vs CIT reported in 240 ITR 355 (SC) wherein the principles were laid down for valuation of assets at page 366. The Hon ble Apex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same as per item wise register was 78507.254 grams leading to a difference of 230.571 grams. The assessee replied stating that such a difference in quantity does arise in entire set up of our business when we take note of various items of gold ornaments and this is due to some shortage, breakage etc which is hardly 0.30% which is quite negligible. The ld AO not convinced with this reply proceeded to make an addition of ₹ 3,53,004/- for the difference of 230.571 grams. This addition was confirmed by the ld CITA on first appeal. Aggrieved, the assessee is in appeal before us on the following ground :- 5. For that the Ld. CIT(A) erred in confirming addition of ₹ 3,53,004/- made on the basis of difference of gold in stock register vis- -vis physical inventory. 4.1. The ld AR argued that on an overall basis there is only a small difference of 131 grams between the physical stocks found by the survey team and stocks as per the records of the assessee. The ld AO having made separate addition on account of purity differences in the sum of ₹ 1,54,73,471/- ought not to have made another addition in the sum of ₹ 3,53,004/- towards the difference in stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the ld AO The ld AO noted that the entry of purchase voucher No. 2239 [DKB(R )-4] dated 6.7.2008 could not be found in the purchase ledger maintained by the assessee. This document represented 98 grams of gross weight of 22 ct gold received from karigar. The assessee replied that on 6.7.2008, one Mr Anil Kr Gupta , resident of 215C, Picnic Garden Road, Kolkata 700039 visited the showroom of the assessee with used gold which was taken at gross weight of 98 grams and net weight of 89 grams and later he left the showroom with a promise that he would visit the showroom the next day. Again on 7.7.2008, the said person visited the showroom and brought items of weight of 119.50 grams and 33 grams used gold ornaments, but however, the mistake committed by the assessee was that the order memo prepared on 6.7.2008 was not scratched but the receipt on 7.7.2008 was duly entered in the books of accounts of the assessee. The ld AO observed that the assessee had not denied the basic fact that the voucher is not part of the regular books maintained by the assessee. The ld AO further observed that the mere fact that the entry in name of same person is recorded in ledger on very next da ..... X X X X Extracts X X X X X X X X Extracts X X X X
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