Income Tax Appellate Tribunal - Ahmedabad
Ravi Diamonds,, Surat vs Department Of Income Tax on 28 August, 2007
IN THE INCOME TAX APPELLATE TRIBUNAL : D' BENCH : AHMEDABAD
Camp at Surat
(Before Hon'ble Shri T.K. Sharma, J.M. & Hon'ble Shri D.C. Agrawal , A.M.)
I.T.A. No. 4103/AHD./2007
Assessment Year : 2004-2005
Income Tax Officer, Ward-6(3), Surat -vs.- M/s. Ravi Diamonds, Surat
(PAN : AADFR 1521 Q)
(Appellant) (Respondent)
Appellant by : Shri Sanjeev Kashyap, Sr. D.R.
Respondent by : N o n e (written submission filed)
ORDER
Per Shri T.K. Sharma, Judicial Member :
This appeal filed by the Revenue is against the order dated 28.08.2007 of Learned Commissioner of Income Tax(Appeals)-IV, Surat deleting the addition of Rs.25,76,153/- made by the Assessing Officer on account of undervaluation of closing stock for the assessment year 2004-05.
2. Briefly stated the facts are that the assessee is a firm engaged in the business of manufacturing and export of diamond. During the course of assessment proceedings, the Assessing Officer noticed that there was a fall in gross profit as compared to last year. The assessee had shown total turnover of Rs.64,63,412/- with gross profit of Rs.5,87,151/- i.e. 9.08% as against the sales of Rs.2,92,23,498/- with gross profit of Rs.30,32,220/- i.e. 12.5%. The Assessing Officer asked the assessee to explain the reasons for fall in gross profit by supporting evidence. The assessee submitted that there was a depression in the international Diamond Market and due to competition with China, the margin of profit decreased compared to last year. The Assessing Officer did not accept the explanation and held that the main reason for fall in gross profit was due to un-established method of valuation of closing stock. The valuation of closing stock of finished goods made by the assessee considering the estimated gross profit which has played main role in suppressing the profit and for that reason, the gross profit has gone down. According to Assessing Officer, from the cost of the diamond, the assessee has reduced sales minus estimated gross profit, which do not affect on the trading result. The assessee had 2 ITA No.4103/AHD/2007 valued the closing stock of 3551.97 carat at Rs.5948/- per carat which comes to Rs.2,11,21,738/-. According to method of valuation, the closing stock should be valued at cost price or market price, whichever is less. The Assessing Officer rejected the book result under section 145 of the Act and valued the closing stock at Rs.6671.76 per carat which comes to Rs.2,36,97,891/- as against the valuation of Rs.2,11,21,738/- and the addition of Rs.25,76,153/- is made by adopting actual price of the polished diamonds.
3. On appeal, the Learned Commissioner of Income Tax(Appeals) stated that in the assessment year 2003-04, in assessee's own case, this type of addition made was confirmed by him. However, on further appeal by the revenue, ITAT, Ahmedabad vide order dated 25.05.2007 in ITA No. 416/AHD/2007 deleted the addition. He, therefore, following the order of Tribunal in assessee's own case for the assessment year 2003-04 (supra) deleted the addition. Aggrieved by the order of Learned Commissioner of Income Tax(Appeals), the Revenue is in appeal before the Tribunal.
4. On the date fixed for hearing, none was present from the side of the assessee. However, written submissions were filed, wherein it was contended that the issue is squarely covered by the decision dated 25.05.2007 of ITAT, Ahmedabad in ITA No. 416/AHD/2007 in assessee's own case for the assessment year 2003-04. In that year, Tribunal deleted the addition, which was made by the Assessing Officer on account of valuation of stock and confirmed by Learned Commissioner of Income Tax(Appeals), the copy of the decision of the Tribunal dated 25.05.2007 is enclosed with the written submission.
5. On the other hand, Shri Sanjeev Kashyap, Sr. D.R. appearing on behalf of the Revenue before us contended that the Department has not accepted the decision of ITAT for the assessment year 2003-04 as a substantial question of law arises which requires to be considered by the Hon'ble Gujarat High Court. To keep the issue of valuation of closing stock alive, the order of the Learned Commissioner of Income Tax(Appeals) is not acceptable.
6. After hearing the ld. Departmental Representative, we have carefully gone through the orders of authorities below as well as the material available on record. It is pertinent to note that similar addition was made by the Assessing Officer in the assessment year 2003-04, which was confirmed by the Learned Commissioner of Income Tax(Appeals). However, on further appeal 3 ITA No.4103/AHD/2007 by the assessee, it was deleted by the Tribunal. The reasoning given by the Tribunal vide order dated 25.05.2007 in ITA No. 416/AHD/2007 is contained in para 6, which reads as under :-
"6. We have carefully considered the rival submissions and perused the material available on record and have also gone through the aforesaid decisions. It is true that the value may differ from asset to asset and place to place with different person and the value of the closing stock cannot be mathematically calculated. The money value attributed to the stock should be decided and estimated by the concerned authority in a reasonable and judicial manner on the basis of the facts and circumstances of the case available before him. Here the question is whether actual cost as worked out by the A.O. on value of opening stock plus purchases and minus cost of sale can be said to be wrong. In normal circumstances, it is not. In this case, however, the assessee is consistently following a system of value of closing stock at sale price of the stock minus the G.P. and that cannot be faulted. The G.P., however, returned by assessee is 12.5% which was in the list. This year G.P. is 8% and, therefore, the sale price is to be reduced by this G.P. of 8% as against 12.5%. We direct accordingly to value the closing stock at sale price as returned by gross profit @ 8%".
7. Since in the impugned order, the Learned Commissioner of Income Tax(Appeals) has followed the decision of ITAT, Ahmedabad in ITA No. 416/AHD/2007 in assessee's own case for the assessment year 2003-04, we following the same inclined to uphold the order of Learned Commissioner of Income Tax(Appeals).
8. In the result, the appeal filed by the Revenue is dismissed.
The Order was pronounced in the Court on 11.06.2010
Sd/- Sd/-
(D.C. Agrawal) (T.K. Sharma)
Accountant Member Judicial Member
DATED : 11/ 06 / 2010
Copy of the order is forwarded to :
1) The Assessee
(2) The Department.
3) CIT(A) concerned, (4) CIT concerned, (5) D.R., ITAT, Ahmedabad.
True Copy By Order Deputy Registrar, ITAT, Ahmedabad Laha/Sr.P.S.