Income Tax Appellate Tribunal - Chandigarh
Sunny Jewellery House, Patiala vs Department Of Income Tax on 3 May, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI H.L.KARWA, VICE PRESIDENT
AND MS. RANO JAIN, ACCOUNTANT MEMBER
ITA No.196 /Chd/2014
(Assessment Year : 2010-11)
The Income Tax Officer, Vs. M/s Sunny Jewellery House,
Ward 1, 16 AC Market, Adalat Bazar,
Patiala. Patiala.
PAN: AANFS31408
(Appellant) (Respondent)
Appellant by : Shri S.K. Mittal, DR
Respondent by : Shri Rakesh Cajla
Date of hearing : 28.04.2016
Date of Pronouncement : 03.05.2016
O R D E R
PER RANO JAIN, A.M. :
The appeal filed by the Revenue is directed against the order of learned Commissioner of Income Tax (Appeals), Patiala, dated 26.12.2013, relating to assessment year 2010-11, passed under section 250(6) of the Income Tax Act, 1961 (in short 'the Act').
2. The facts of the case are that the assessee is a jeweler. During the course of assessment proceedings, the Assessing Officer rejected the books of account under 2 section 145(3) of the Act. The detailed reasoning for rejecting the books of account are contained in the assessment order. Detailed reply on the objections raised by the Assessing Officer were filed by the assessee during the course of assessment proceedings. However, the Assessing Officer did not accept the same, mainly because item-wise inventory of opening and closing stock was not maintained. The Assessing Officer contended that under said circumstances, FIFO method is to be adopted in place of average rate adopted by the assessee. After rejecting the books of account, the Assessing Officer made an addition of Rs.12,35,287/- being the difference in valuation of closing stock of 4548.679 gms of gold jewellery and another addition of Rs.22,12,836/- being the value of diamond jewellery except the value of stone studded therein. The Assessing Officer further added an amount of Rs.3,37,269/- at 10% of the value of closing stock of gold in the diamond jewellery as estimated by him at Rs.33,73,690/- on the ground that the details of 165.23 carats of stone studded in the diamond jewellery is not furnished.
3. Before the learned CIT (Appeals), the assessee made detailed submissions with regard to the action of the Assessing Officer in rejecting the books of accounts as well as on the merits of the case. The submissions are reproduced by the learned CIT (Appeals) in his order at 3 pages 6 to 22. A Remand Report was also called for by the learned CIT (Appeals) from the Assessing Officer and after considering all this, the learned CIT (Appeals) allowed the appeal of the assessee, mainly relying on the order of the I.T.A.T., Chandigarh Bench in the case of ACIT Vs. Jagdish Chand, 90 TTJ 943 (Chd)
4. Aggrieved by this, the Department has come up in appeal, raising the following grounds of appeal :
"1. In the facts and circumstances of the case, Ld. CIT(A) has erred in not sustaining the action of the AO regarding rejection of books of account u/s 145(3) and thereby deleting the additions of Rs.12,35,287/- in gold ornaments account, Rs.22,12,8367- in diamond jewellery account for low G.P. for undervaluation of closing stock of gold and diamond jewellery and Rs.3,37,2697- for low G.P. for undervaluation of closing stock of stones studded in diamond jewellery, ignoring the fact that no quantitative and qualitative details of opening stock as well as closing stock was maintained or produced by the assessee.
2. In the facts and circumstances of the case, Ld. CIT(A) has erred in not sustaining the action of the AO regarding rejection of books of account u/s 145(3) of the Income Tax Act, 1961, ignoring the fact that the value of opening and closing stock is not verifiable in the absence of item-wise breakup of opening and closing stock and the assessee had also failed to maintain the item-wise inventory of goods and most of the sale bills were issued without names & 4 addresses of the buyers. Further, the assessee could not disclose or prove the basis of valuation of closing stock despite affording adequate opportunities by the AO.
3. 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 AS-2 prescribed WAC method for inventory valuation in cases involving identical goods or items.
4. It is prayed that the order of Ld. CIT(A) be set aside and that of the AO restored.
5. The appellant craves leave to add or amend any grounds of appeal before the appeal is heard and finally disposed of."
5. 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 the books of account and made the addition. 5
6. The learned counsel for the assessee placed before us a copy of the order of the I.T.A.T., Chandigarh Bench in the case of Jagdish Chand (supra) stating that the facts of the present case are identical to the facts of that case. Therefore, the learned CIT (Appeals) was right in deleting the addition. After perusing the order of the learned CIT (Appeals), we see that relevant findings are recorded at pages 4.5 and 4.6 of his order, which read as under :
"4.5 I have considered the submissions.
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 basis of average of opening stock and purchases was consistently followed by the appellant over a number of years. He, therefore, deleted the addition made by the A.O. on the basis of average rate of purchases. This view was confirmed by Hon'ble ITAT. It is held therein that "It is clear from above that the assessee could not sell even the entire stock of gold ornaments lying with the assessee in the opening stock. A part of it was carried to 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) 24ITR 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 6 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 case of Income Tax Officer vs Chokshi Hirachand & Bros. (37 TTJ,
415) wherein it has been held that "when the valuation of closing stock according to the accounting system consistently followed was accepted by the revenue in earlier as well as subsequent assessment year, ITO was not justified in making additions by adopting a different method for assessment year in question." Similar view is taken as in the other cases e.g. in the case of Shantilal Nagardas & Co. (ITA No.3362/Ahd/2009) I.T.A.T. B-Bench Ahmadabad.
4.6 Therefore, in this case firstly, it is contended that same method of accounting is being consistently followed. Secondly, the reason for variance of net profit vis a vis the case of M/s Madan Lal is duly explained by the appellant which is not rebutted by the A.O Further there is no case of any discrepancy in the purchase or sale account. Thirdly, the A.O. in this case has only revalued the stock by adopting a higher figure than the rate disclosed by the appellant on the assumption that only old jewellery has been sold first and fresh jewellery has remained in stock until the old jewellery is exhausted. He has not disputed the quantity of stock or purchase/sale at any point. Thus the stock in weight has been accepted by the A.O. The presumption that the jeweller has kept on purchasing jewellery in the years but have not sold till the old jewellery 7 is exhausted is a mere presumption without any evidence on record. The only contention of the A.O. is that in place of WAC method FIFO method should be adopted. As regards cash sales, in the case of R.B.Jessaram Fatehchand Vs. CIT 75 ITR 33(Bom) ,it is held that non- inclusion of addresses of customers in respect of cash transaction can not be basis for rejection of Books of Account. The fixation of an arbitrary rate by the A.O for the stones/diamond and further adding 10% of gold in diamond jewellery without any evidence, in my opinion is not correct. The appellant is valuing the closing stock on the basis of weighted average cost method consistently. Further, The sale of articles being sold is as per market and customer preference in the type of business of the appellant. Therefore in view of nature of business and trading of items as per customers preference does not leave any possibility of FIFO to be applied in the manner suggested by the A.O Hence, the very presumption of the A.O 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 8 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.
8. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on this 3rd day of May, 2016.
Sd/- Sd/- (H.L.KARWA) (RANO JAIN) VICE PRESIDENT ACOUNTANT MEMBER Dated : 3 r d May, 2016 *Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh