2016 (5) TMI 1579 - AT - Income Tax

ITAT Upholds CIT Decision on Tax Case Involving Stock Valuation for Jewelers

The Income Tax Officer Versus M/s Sunny Jewellery House

The ITAT upheld the decision of the CIT (Appeals) in a tax case involving the rejection of books of account, valuation of closing stock, and application ... Rejection of books of accounts u/s 145 - Addition of difference in valuation of closing stock of 4548.679 gms of gold jewellery and another addition being the value of diamond jewellery except the value of stone studded therein - HELD THAT:- As relying on case of Jagdish Chand [2003 (6) TMI 441 - ITAT CHANDIGARH] considering 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 - thus stating that the facts of the present case are identical to the facts of that case CIT (Appeals) was right in deleting the addition. - Decided in favour of assessee. Issues:1. Rejection of books of account under section 145(3) of the Income Tax Act.2. Valuation of closing stock of gold and diamond jewellery.3. Application of FIFO method for valuation of closing stock.4. Appeal against the order of the Commissioner of Income Tax (Appeals).Issue 1: Rejection of books of account under section 145(3) of the Income Tax Act:The Assessing Officer rejected the books of account of the jeweler due to the absence of item-wise inventory of opening and closing stock. This rejection led to additions in the valuation of closing stock. The assessee contested this action, providing detailed submissions during assessment proceedings. The Commissioner of Income Tax (Appeals) allowed the appeal, relying on the consistency of valuation methods followed by the assessee over the years and the order of the ITAT in a similar case. The Department appealed against this decision.Issue 2: Valuation of closing stock of gold and diamond jewellery:The Assessing Officer made additions to the valuation of closing stock based on discrepancies in maintaining item-wise inventory and lack of details regarding stone-studded jewellery. The Department contended that the rejection of books of account was justified due to the unverifiable value of opening and closing stock. The CIT (Appeals) upheld the assessee's valuation method, emphasizing the consistency in accounting practices and the absence of discrepancies in purchase or sale accounts.Issue 3: Application of FIFO method for valuation of closing stock:The Department argued for the adoption of the FIFO method for valuation, claiming that the assessee's assertion of sales from current year's purchases was unsubstantiated. The CIT (Appeals) rejected this argument, highlighting the correctness of the valuation method adopted by the assessee and the lack of evidence supporting the Department's contentions. The ITAT upheld the decision, noting the business reality of the jeweler's trade and market practices.Issue 4: Appeal against the order of the Commissioner of Income Tax (Appeals):The Department appealed the decision of the CIT (Appeals), raising grounds related to the rejection of books of account, valuation of closing stock, and application of accounting methods. The ITAT dismissed the appeal, citing the consistency of valuation methods, judicial decisions, and the similarity of facts between the present case and a previous case. The dismissal was based on the lack of distinguishing factors and the reliance on the previous order.In conclusion, the ITAT upheld the CIT (Appeals) decision, dismissing the Department's appeal and emphasizing the importance of consistent accounting practices and business realities in determining the valuation of closing stock for jewellers.