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TMI Blog2016 (11) TMI 1714X X X X Extracts X X X X X X X X Extracts X X X X ..... il of jewellery purchased and sold was maintained as also opening and closing stock. As per the Assessing Officer, in the absence of item-wise detail, the items sold could not be corelated to the corresponding purchases, it was not verifiable as to which items constituted closing stock. Further, the adoption of Weighted Average Cost (WAC) method for valuation of stock was found incorrect and the FIFO method was found to be appropriate as a consequence, the stock of gold was found undervalue by Rs. 13,13,487/-. Similarly, since the purity of diamond was mentioned in the sales bills and no explanation was given for adopting different rate for diamond jewellery sold, the highest sale rate of Rs. 7500/- per carat was adopted and suppression of sales worked out amounting to Rs. 2,09,277/-. Also, while the assessee was found to have shown GP rate of 18.71%, another jeweller M/s Walaiti Ram Madan Lal who was in the same business was found to have shown GP of 38.23% and no plausible reason was found to have been given by the assessee for the low GP rate. Therefore, the books of the assessee were rejected and GP rate of 35% as shown by another jewellery M/s Walaiti Ram Madan Lal was applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's firm is in existence in several years and engaged in the business of jewellery. The return of income was duly supported by audited annual account and accompanying documents. The valuation of closing stock is done on the basis of weighted average cost method. The appellant has submitted that this method has been constantly followed since last many years and rather since inception and such practice has been accepted by the A.O. in various years including under order passed u/s 143(3) in A.Y. 2005-06. Further the A.O. has talked about the discrepancies generally but has not pointed out any specific discrepancy in the accounts giving any positive evidence of suppression of sales or bogus purchase etc. There is no discrepancy in quantity of purchase and sale and the issue is that instead of weighted average method applied by the appellant, FIFO method should be applied and by way of application of FIFO method, the A.O. has contended that closing stock is not correctly shown and therefore Books of accounts should be rejected. 4.6 In the case of ACIT vs. Jagdish chand 90 TTJ (Chd) 943, the appellant was jeweller. The Id. CIT(A) held that the valuation worked out on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no application in the case of the appellant, being a jeweler having hundred and thousands of items in stock with there clearly being no specific identification of the stock with reference to the specific cost assigned to it. The paragraph 14 of AS-2 (Revised) will apply only to specific kind of industries and cannot have general or blanket application. For example, a dealer of cars can separately identify each and every car lying in stock with reference to the specific cost attached to it. This is because the cars are not interchangeable and are separately identifiable with reference to the chassis number assigned which is also clearly mentioned on the face of the invoice and other documents. The car dealer cannot, thus, go by average cost method of valuation of stock and has to go by determining the product specific cost at the end of the year. Even in this situation, it is not open for the A.O. to replace this valuation by the market price, as done by the A.O. Since the case of the appellant is clearly not covered under para 14 of AS-2 (Revised), it will undoubtedly be covered by Para.16 which clearly provides that the cost of inventories other than those dealt with in Para.14, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ryana High Court in the case of Vikash Chemi Gum, 276 ITR 32 held that "source of income in earlier year not challenged by the revenue department, it is not open to challenged by the revenue department, it is not open to challenge the same source of income in subsequent assessment year. "The Hon'ble Supreme Court in the case of Satish Pannala Shah, 249 ITR 221 deprecated the practice of the department in accepting the correctness of the judgment in particular case and in the challenging its question in another case. The Id. Counsel for the assessee also relied on the Assessment order in the case of the assessee u/s 143(3) dated 16.12.2009 (PB-106) for assessment year 2007-08 in which also the A.O. Accepted same method of valuation of closing stock. This order is passed by Shri Ravi Prakash, ACIT, Circle-2, Bhavnagar, who has filed the present departmental appeal before the Tribunal on 22.12.2009. IT is, therefore, clear that Revenue Department not only in past but in subsequent years also accepted the claim of the assessee. This stand of the A.O. would demolish all arguments of the Id. DR. The findings of the Id. CIT(A)on correct method of valuation orders of the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the closing 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. " 4.8 Considering the submissions, in this case firstly it is observed that the method of accounting has been accepted in scrutiny order for A.Y. 2005-06. The closing stock in A.Y. 2005-06 has a bearing in the following assessment years Secondly, there is no discrepancy in the quantity of stock. The stock has only been revalued by adopting a higher figure than the rate disclosed by the appellant on the assumption that only old jewellery has been sold and fresh jewellery has remained in stock until the old jewellery is exhausted and on that basis books of accounts were rejected. This presumption that the jeweller has kept on purchasing jewellery in the years but has not sold till the old jewellery is exhausted has no basis and without any evidence brought on record. Sales and purchase and stock tally in weight. There is nothing on record to show any quantitative discrepancy in the quantitative tally of items in purchase, sale or stock account. Thirdly, the gross profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s maintained or produced by the assessee. 2. In the facts and circumstances of the case, Ld. CIT(A) has erred in not confirming the action of the AO in applying FIFO method for valuation of the closing stock ignoring the fact that assessee's claim that sales made were out of current year's purchases remains unproved and unsubstantiated. Further, the assessee had not maintained any stock register on day to day basis which renders the identification of purchases impossible and since the assessee was dealing in so many items differ in weight, purity, design, specification, material & brand, the application of WAC method was not possible as even the AS2 prescribed WAC method for inventory valuation in cases involving identical goods or items. 3. It is prayed that the order of Ld. CIT(A) be set aside and that of the AO restored." 5. Before us, the learned D.R. vehemently argued the case of the Revenue relying on the order of the Assessing Officer and further stated that the Assessing Officer has very meticulous being able to bring on record the fact that there are so many discrepancies in the books of account maintained by the assessee and only after that he has rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the closing stock of the year under consideration. There is no justification for applying purchase rate to above stock, as the assessee could not be said to have earned any profit from the above carry forward stock. But, if average rate of purchases of this year is applied even to above stock, then some addition automatically follows in the income of the assessee. It is not permissible and is contrary to the decision of Hon'ble Supreme Court in the case of Chainrup Sampatram vs. CIT (1953) 24 ITR 481 (SC). The average cost of opening and purchases is also an accepted method of valuation at cost approved by the accounting standards issued by the Institute of Chartered Accountant of India. In the present case, it is further not contested by the Revenue that similar method of accounting was followed by the assessee in earlier year. For all the above reasons, we are of the view that the method of valuation adopted by the assessee was correct and addition made on account of enhancement of value of stock is no justified. The Id. CIT(A) rightly deleted the addition. His action is hereby confirmed. " In this connection, reliance may be made on the decision of ITAT Ahmedabad in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not in terms of business reality of appellant's trade. Therefore, relying on the facts of the case, consistency of method of valuations and judicial decision the rejection of Books of account and the valuation of jewellery by the A.O. is held as not correct and the addition made by the AO is unsustainable in law and on facts. Therefore, ground no.1 to 4 and is allowed 5. Ground no. 5 and 6(ii) are consequential in nature and A.O. is directed to charge interest as per law. Ground no. 7 is general in nature and, therefore, no comments are made. 6. In the result, appeal is allowed." 7. On perusal of the same, we do not find any infirmity as the reliance has been placed on the order of the I.T.A.T., Chandigarh Bench in the case of Jagdish Chand (supra), a copy of which was also placed on record before us. After going through the same, we see that the facts and circumstances of that case are identical to the facts of the present case and no distinguishing factors being brought to our notice, respectfully following the order of the Coordinate Bench we are inclined to dismiss the appeal of the Revenue." 9. Since the facts in the present case are identical to that in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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