TaxTMI 
TaxTMI 
2009 (8) TMI 127
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee had been engaged in the manufacture and sale of gold jewellery apart from its purchase and sale on wholesale basis. The assessee had set up this business in the month of November, 1999. The assessee for asst. yrs. 2000-01 to 2005-06, filed returns of income under s. 139(1) which were processed under s. 143(1) of the IT Act, 1961. A search and seizure operation under s. 132 was carried out on9th Dec., 2005at the business premises of the assessee i.e., 1245, Kucha Mahajani, Chandni Chowk,Delhi. The assessee in response to notice under s. 153A(1) filed the returns of income for asst. yrs. 2000-01 to 2005-06 at lower income as compared to the original returns of income filed under s. 139(1) of the Act. In the returns filed under s. 153A, the assessee valued the closing stock of gold jewellery on "average cost" basis as against "cost" which resulted in lowering of income as compared to the original returns filed by the assessee. The details are as under: ------------------------------------------------------------- Asst. Income originally Income returned Difference due to yr. returned under s. under s. 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of closing stock and he added the difference in the valuation of closing stock as mentioned above in relevant assessment years. 4. On appeal before CIT(A), it was argued that previously the assessee was valuing the closing stock on ad hoc basis (cost or market price whichever is lower), but afterwards when the returns were filed under s. 153A, the valuation of closing stock was revised by valuing the closing stock on "average cost" basis. The CIT(A) after considering the submissions made by the assessee observed that original returns filed by the assessee under s. 139 were already accepted by the Department and the assessee had never revised the returns. After the search at the time of filing of the returns under s. 153A, the assessee all of a sudden revised the basis of valuation of closing stock. He further noted that had the search not taken place, the assessee would have continued with the old method of valuation of closing stock at cost price or market price whichever was lower. The method of accounting of valuation of closing stock could not be allowed to be changed to reduce the profits. He placed reliance on the decision of Hon'ble Supreme Court in the case of CIT vs....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to identify a particular item of jewellery when it was purchased and at what rate. Therefore, the correct method of valuation of jewellery will be on average cost method which has been followed by the assessee while valuing the closing stock in returns filed under s. 153A of the Act. He further submitted that the closing stock of a particular year has to be taken as opening stock of next assessment year. Therefore, there is no loss of revenue. The assessee had relied on the judgment of Travancore & Cochin High Court in the case of Concordia Corporation Ltd. and judgment of Madras High Court in the case of CIT/CEPT vs. Chari & Ram (1949) 17 ITR 1 (Mad). Further, the assessee had relied on the judgment of Hon'ble apex Court in the case of CIT vs. Britsh Paints India Ltd. (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC). In that case, the Hon'ble apex Court had held that income had to be computed in accordance with the settled principles of accounting, no matter that the same had been computed on a different basis and had been accepted by the Department in the preceding year. The Hon'ble apex Court further held that the AO was justified in working out the value of opening ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....losing stock on cost or market price whichever was lower. 7. We have heard both the parties and gone through the material available on record. During the course of hearing, it was clarified by the learned Authorised Representative of the assessee that for asst. yrs. 2001-02 to 2005-06, the books of account were audited by the auditors. The tax audit report in Form No. 3CD has been placed on record. It was also submitted that for asst. yr. 2000-01, no tax audit was carried out by the auditors. The assessee himself had valued the closing stock for asst. yr. 2000-01 at cost. We have gone through the tax audit report for asst. yr. 2001-02. As per the tax audit in Form No. 3CD, the method of valuation of closing stock employed in the asst. yrs. 2001-02 to 2005-06 was "at cost". 8. The original returns of income for asst. yrs. 2000-01 to 2005-06 were within the time allowed filed under s. 139(1) of the Act. The search under s. 132 of the Act in the case of the assessee was carried out on9th Dec., 2005and assessee filed return of income in response to notice under s. 153A on2nd Nov., 2007for asst. yrs. 2000-01 to 2005-06. Further, the assessee could have revised returns within the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted or any order of assessment or reassessment made under sub-s. (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-s. (1) or s. 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-s. (1), shall stand revived with effect from the date of receipt of the order of such annulment by the CIT: Provided that such revival shall cease to have effect, if such order of annulment is set aside. Explanation: For the removal of doubts, it is hereby declared that,- (i) save as otherwise provided in this section, s. 153B and s. 153C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year." 9. Sec. 153A(1) contains non obstante clause and hence provisions of this section will override the provisions of s. 139, s. 147, s. 148, s. 149, s. 151 and s. 153 of the Act. Under s. 153A(1) the AO is empowered to issue notices to the assessee searched for a per....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... view of second proviso to s. 153A(1) of the Act. From the facts given above it is clear that the assessee had changed the method of valuation of the closing stocks for six assessment years to reduce the profits and hence the change in the method of valuation is not bona fide. As regards the contention of the assessee that it is impossible to value the closing stock at cost price in the case of jewellers, this is a sweeping generalization without having any material on records to prove. The assessee had not filed any evidence to support its contention and hence deserves to be rejected. 11. The provisions of s. 153A are directed to assess or reassess the income for six assessment years based on search proceedings and hence the assessment proceedings under s. 153A are beneficial to the Revenue. In other words the proceedings under s. 153A are initiated to assess or reassess the undisclosed income. In the case of CIT vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC) Hon'ble Supreme Court has held that s. 147 being for the benefits of the Revenue and not for the assessee, assessee cannot be permitted to convert the reassessment proceedings into....