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TMI Blog2021 (8) TMI 646X X X X Extracts X X X X X X X X Extracts X X X X ..... onal income. (iii) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A)has not erred in deleting the addition of Rs. 2,44,30,607/- made by the AO on account of difference in stocks(3,41,00,000 - revised return Rs. 96,69,393/-) when the assessee had admitted during survey to non- maintenance of proper stocks register/inventory/physical tally, which would have enabled the survey team to verify the correctness of whether the difference in stock was due to rate or quantity ? (iv) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has not erred in deleting the addition of Rs. 2,44,30,607/- made by the AO on account of difference in stocks when the assessee himself admitted and offered Rs. 3,41,00,000/- during survey as his additional income and a statement made voluntarily can form the basis of assessment as held in 91 ITR 18 (SC) and other judicial precedents especially when the taxpayer has not discharged burden to prove it was wrong or given under coercion . (v) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has not erred in deleting the addition of Rs. 2,44,30,607/- whereas the assessee himself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck 138177497.38 Packing material 200755 Gross profit 12573204.41 3.1 The A.O. asked the assessee to submit its books of account including stock register and cash book, he also asked to show cause as to where the surrendered amount had been declared in the books / ITR and as to whether or not the tax on the said surrendered amount had been paid. In response the assessee submitted as under: "Regarding effect of surrender amount during survey on the business premises of the assessee, it is submitted that a sum of Rs. 3410000/- was offered for taxation during survey proceedings u/s 133A. This surrender was based on valuation of stock arrived on by the registered valuer of the Income Tax Department, which was based on market price, as on 11.11.2013 i.e. the date of survey. It is further submitted that no difference in stock was found by the survey team of the Income Tax Department. However the income Tax Return for A. Y. 2014-15 i.e. F.Y.2013-14 has been filed by the assessee firm taking into consideration gross profit arrived at by adopting average rate of purchases & sales on day to day basis, which is recognized method of calculation of gros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her litigation and advance tax or other dues shall be paid accordingly." 3.4 The A.O. observed that even during the course of survey proceedings the partner of the assessee firm had admitted that the inventory of stock was not maintained properly and voluntarily surrendered the amount of Rs. 3,41,00,000/- which was basically the difference in the stock as recorded in the books of account and the value of stock determined by the registered valuer of the Department. The A.O. further observed that in the trading account furnished by the assessee as on 11/11/2013 the assessee had declared stock of Rs. 96,69,393.47 over and above the stock which was appearing in the books of accounts. He therefore made the addition of Rs. 2,44,30,607/-(Rs. 3,41,00,000/-(-) Rs. 96,69,393/-). 4. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under: "It is submitted that the assessee is following average cost rate method of accounting since inception which is an accepted norm and has been accepted by the department. During the course of survey, the departmental valuer applied the market price to arrive at the valuation and not the regularly applied method adopted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racted application of some other method of valuation. It is, therefore, stated that when the quantitative details are not in dispute, the difference has to be worked out following identical scale. The fact also remains that that the method of accounting regularly followed by the assessee requires to be adopted. Reliance is placed on the decision of the Hon'ble ITAT rendered in the case of Shri Kuldeep Chand Jain for the said proposition. This decision has been approved by the Hon'ble High Court vide its order dated 08.09.2015." 4.1 Apart from the aforesaid submission the assessee further submitted as under: "On last hearing, it was submitted that the assessee has been following the same method of accounting for valuation of stock since inception. Copies of the audit report for AY 2011-12 and 2012-13 are annexed herewith to corroborate this contention. Attention is drawn to pages 286 and 302 of the paper book wherein it is specifically mentioned in the notes on account that closing stock is valued on average cost method. Further as per AS1 of the accounting standards as issued by the ICAI, it is accepted as a fundamental accounting assumption that accounting policies ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order as 10,93,70,975/- which has been calculated on the basis of average cost method. For this purpose attention was drawn to the Trading account placed at Page 17 of the paper book wherein Opening Stock has been taken at Rs. 10,93,70,975/-. Further reliance was placed on audit report placed in the paper book with specific thrust on page 15 specifying the method of valuation of closing stock as average cost method. I have perused the audit reports for the assessment years and it is seen that the method of valuation of stock has consistently been average cost method. Assessee has placed in the paper book at Pages 127-129 justification in respect of difference in stock valuation as per valuer's report and as per books as on the date of survey. This difference has arisen only because of the method of valuation as adopted by the appointed valuer of the department having applied the market rate while reaching at value of the stock. The assessing officer has nowhere rebutted this contention of the assessee. It is also seen that the assessee has not disputed the quantity of stock found at the time of survey for the purpose of valuation. There cannot be two methods adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of Rs. 26 lacs as deemed income. In the course of assessment proceedings, the assessee informed the AO, that LIFO method of accounting was followed in valuation of closing stock. The contention of the assessee was not found acceptable by the AO. The AO, referred to A.S.-2, that specifies of only three methods of determining the cost of inventories i.e. specific identification method, FIFO and Weighted average cost method. The AO made an addition of Rs. 32,08,977/ - following the weighted average cost method of the closing stock. The Id. CIT(A), on appreciation of the case laws and submissions filed before her, gave her findings in para 5.2 of the appellate order, which are reproduced here under "5.2 I have carefully considered the submission filed by the appellant, it was informed that the AO has accepted the calculation error in the closing stock valuation and has rectified the same by passing order u/s 154 dated30.06.2010 vide which the difference in stock stand reduced from Rs. 32,08,977/- to seen that during the A.Y. 2003-04,2005-06 and 2006-07 assessment for which was completed u/s 143(3), the method of Valuation of closing stock has been accepted by the AO includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the assessee. Having regard to the fact-situation of the case, decision of the Hon'ble jurisdictional High Court, relied upon by the Id. CIT(A), and the relevance of consistency principle in the matter, we do not find any infirmity, in the findings of the CIT(A), and hence, the same are upheld. Thus, the ground of appeal of the revenue is dismissed." There is merit in the appellant's submissions that the principle o f judicial discipline requires that the order o f Higher Appellate Authority should be followed unreservedly by the subordinate authorities. Therefore, in view o f the above stated facts, assessee having consistently employed the same method o f valuation o f closing stock and AO having not" questioned the same and in fact having accepted it in previous years, it is held that the method o f valuation of closing stock could not be refected. Therefore, the addition made by the AO which by her order o f rectification u/s 154 stands reduced to Rs. 19,45,073/- on account o f difference in valuation o f closing stock is deleted. This ground o f appeal is allowed. The relevant extract of the judgement of ITAT, Chandigarh in case of Talwarsons Jewellers in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the books of accounts, nor any adverse findings on the system of accounting followed by the assessee. ' Coming to the issue of difference in the stock of gold, the excess stock of gold @ Rs. 1380 per gm for 22 ct as well as gold bullion melted as taken by the Valuer, works out to 9952.20 gms (9897 gms of 18 ct and 55.20 gms of 22 ct) which is the accepted difference in weight as per Valuation and as per books. Aside, the 18 ct gold where in no difference was found (in fact the books showed 2.904 gm more) was valued by the valuer @ Rs. 1200 per gm. On therefore applying the rate as done by the valuer, the value comes to Rs. 13,58,37,331/-. I find that the value of the gold as per the books of account has been worked out at Rs. 10,10,49,782/- The ensuing difference, thus, comes to Rs. 3,47,87,549/~. However, on applying the cost price to the excess gold stock, the value comes to Rs. 1,37,51,760/-. Thus the difference which had been added by the Ld AO of Rs. 2,08,35,789/- is therefore found to be arising due to difference on account of valuation only as assessee has valued his stock at cost while the valuer has valued at the market rate at the time of search. This excess stock val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s recorded in the books of accounts, the only difference was in the method of valuation of stock adopted by the valuer of the department and followed by the assessee. It was contended that the assessee was following the average cost price method for valuation of the closing stock, consistently from year to year which had been accepted by the department. However, the valuer of the department applied the market rate while valuing the stock found during the course of survey and worked out the difference in valuation at Rs. 3,41,00,000/- but the actual difference in valuation was Rs. 96,69,393/-, which was offered by the assessee for taxation, therefore the balance addition amounting to Rs. 2,44,30,607/- was rightly deleted by the Ld. CIT(A). It was also submitted that the Ld. CIT(A) while deleting the arbitrary addition made by the A.O. followed the decision of the ITAT Chandigarh Bench in the case of M/s Talwarsons Jewellers Vs. ACIT in ITA Nos. 1313 to 1317/Chd/2012 & ITA No. 81/Chd/2013 for the A.Y. 2004-05 to 2006- 07 and 2009-10 to 2010-11 vide order dt. 30/09/2013 and the judgment of the Hon'ble Jurisdictional High Court in the case of CIT, Panchkula Vs. Shri Kuldeep Chand J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation. (4) the concept of real income is certainly applicable in judging whether there has been income or not, but, in every case, it must be applied with care and within their recognized limits. (5) Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation. (6) Under section 145 of the Act, in a case where accounts are correct and complete but the method employed is such that in the opinion of the Income-tax Officer, the income cannot be properly deduced therefrom, the computation shall be made in such manner and on such basis as the Income-tax Officer may determine." 8. Following the aforesaid pronouncement, a Division Bench of this Court in Sant Ram Mangat Ram's case (supra) had held as follows: "It is an admitted position that from the inception of its business, the assessee had continuously adopted the same method of valuation of the closing stock and no objection was raised by the Department in any of the previous years. Rather, the competent authority acce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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