TaxTMI 
TaxTMI 
2018 (9) TMI 1744
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....he valuation of closing stock of old jewellery by taking the cost price of opening stock was not acceptable method though the appellant had filed year-wise quantitative details of opening & closing stock, purchases and sales evidencing that the closing stock represented unsold old design jewellery over the years and after verification of the same, assessment u/s. 143(3) was made. 3. That, the Ld. Pr. CIT further erred in having alleged that the A.O. has erroneously accepted the method of Tower of the cost price and net realizable value' for the purpose of valuation of the stock in spite of the admitted fact that since inception such recognized method has been consistently followed by the appellant and accepted by the department in earlier as well as subsequent years. 4. That, the Ld. Pr. C.I.T. further erred in having assumed jurisdiction u/s.263 of the Act on surmise and conjecture and passed consequential order directing the A.O. to make fresh assessment in spite of the fact that he himself did not point out any irregularity/deficiency in the tax audit certificate about method of valuation prescribed u/s.l45A and having been followed since past and the A.O. ....
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....ed and a show cause dated 17th January, 2017 was issued to the assessee. 4. The assessee submitted that there was no deviation from the method of valuation of the stock prescribed u/s 145 of the I.T.Act. It was stated that the closing stock was valued at cost price or at net realizable value whichever was lower. He further stated that from financial years 2007-08 to 2011-12, the closing stock of ( Gold and Silver) was almost the same since the designs were very old and could not be sold. The sales made during the financial year was out of the purchases of that relevant year. He furnished year-wise opening and closing stock value, purchases and sales along with quantitative details. He also furnished copies of returns of income for Assessment years 2007-08, 2010-11, 2011-12 and 2012-13 alongwith tax audit reports with schedules besides tax audit report with schedules for Assessment years 2008-09 & 2009-10. 5. The Pr. Commissioner of Income Tax-1, Bhubaneswar further observed that the assessee's assertions were gone through. Though the assessee furnished year-wise quantitative details of the opening & closing stock, purchases and sales, the assertion that the closing stock ....
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.... sale bills, the description of the design and the actual jewellery available as stock. (a) The appellant is a manufacturer of gold ornaments out of gold & gold bars purchased from various parties. There are hundreds of designs/samples of varying weight having been manufactured during the long span of jewellery manufacturing business out of those bars purchased for display in the show case for the purpose of attracting the customers. The intending customers have thus avenues in selecting their choice out of those samples displayed and on getting orders, ornaments are manufactured and sold to them. Resultantly. the items of ornaments manufactured only for 14 to 39 Hence inventory of closing stock at cost price of net realizable value whichever is lower' could not be accepted based on the details furnished. display and attracting the customers remained unsold and accounted for as closing stock. At the same time, the Ld. Pr. C.I.T. did not dispute the gold bar purchased, out of which ornaments were manufactured. Purchase invoices of the unsold stock from FY 2005-06 to 2011-12 were submitted and already on record. Therefore, it is the source of material, which matters, ....
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.... the fact that in past and subsequent assessment years, inventory of closing stock was valued consistently at "lower of the cost price and net realizable value ", the assessment for the year under appeal was finally completed u/s.143(3) of the Act. 2.2. Furthermore, as per provisions of sec. 145 A of the Act it is specifically mandated that inventories shall be valued in accordance with the method of accounting regularly employed by the assessee and that this section over rides sec. 145 of the Act. 2.3. To make the above issue more clear, reliance is placed on the following decisions, the ratios of which are clearly applicable to the case of the appellant. * United Commercial Bank vs. CIT (1999) 240ITR 355 (SC) "The principles applicable in valuation of stock are (1) that for valuing the closing stock, it is open to the assessee to value it at the cost or market value, whichever is lower ; (2) In the balance- sheet, if the securities and shares are valued at cost, from that no firm conclusion can be drawn. A taxpayer is free to employ for the purpose of his trade, his own method ofkeepin2 accounts, and for that purpose, to value stock-in-trade ei....
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.... not adopting the method of valuation of stock being consistently followed by the assessee. 7.4. We find that the assessee has been consistently following LIFO method of accounting for valuation of its closing stock of gold which has been accepted by the department in the earlier years even in scrutiny assessment proceedings of the assessee. Then there is no justifiable reason to reject the same method during the year under appeal." * Rupam Jewellers vs. ACIT (ITA No.267/Kol/2017, A. Y. 2013-14 On mere identical facts, the Hon'ble ITAT, Kolkata Tribunal in their recent judgment dated 16.03.2018 in the said has decided the issue of valuation of closing stock in a business of gold ornaments. Some relevant portions of the judgment is relevant to the facts of the appellant's case, which is given below: "8.6.....The formula used in determining the stock of an item of inventory needs to be selected with a view to providing the fairest possible approximation to the cost incurred in bringing the item to its present location and condition. Thus AS-2 does not specifically mention the LIFO method of valuation of closing stock is not an approve....
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....ve issue properly ". From the above allegation which was the basis for initiating proceeding u/s. 263 of the Act, it is evident that the Ld. Pr.C.I.T. himself has not denied enquiry conducted by the A.O., rather he suspected not much investigation which should have been done by the A.O. Therefore, the requisite enquiries conducted by the Ld. A.O. (details of which have been given in para 2 above) would not definitely go to establish the baseless allegation of the Ld. Pr.C.I.T. that the assessment order has been found to be passed without proper enquiry. 5. In the said context, it is further brought to the kind notice of the Hon'ble Bench that the impugned scrutiny assessment was not for reason of any information, search result and directions from higher authorities, rather as a matter of normal proceeding, the assessee's case was selected for scrutiny assessment. The objective of scrutiny assessment u/s. 143(3) was to confirm that the taxpayer has not understated the income or has not computed excessive loss or had not underpaid the tax in any manner. To confirm the above, the Assessing Officer carries out a detailed scrutiny of the return of inco....
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....ot passed without application of mind. The records of the assessment including the order-sheets go to show that appropriate enquiry was made and the Assessee was heard from time to time. In deciding, the question the court has to bear in mind the presumption in law laid down in section 114 clause (e) of the Evidence Act: "that judicial and official acts have been regularly performed. " 86. Therefore, the court has to start with the presumption that the assessment order dated March 28, 2008, was regularly passed. There is evidence to show that the Assessing Officer had required the Assessee to answer 17 questions and to file documents in regard thereto. If the A.O. cannot be shown to have violated any form prescribed for writing an assessment order, it would not be correct to hold that he acted illegally or without applying his mind. " [Emphasis given] 6.2. Even in a case of inadequate enquiry, if at all, as held by Hon'ble Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd. (2011) 332ITR 167 (Del), "if there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Income-....
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....annot be subjected to revision proceedings merely based on change of opinion. It is a settled position in law that provisions of sec. 263 of the Act do not permit substituting one opinion by another opinion. In this connection, reliance is placed on the decision of Hon'ble I.T.A.T., Kolkata in the case of Smt. Juthika Kar vs. ITO [I.T.A. No.ll28/Kol/2009, dated 16.5.2012 J, wherein it has been held as under "8. With the leave and consent of my learned brother, however, I may add a few words to my learned brother 's analysis of Hon'ble Delhi High Court's judgment in the case of Gee Vee Enterprises (supra). Undoubtedly, as noted by their Lordships in that case, an Assessing Officer cannot remain passive in the face of a return which is apparently in order but calls for further enquiry. In such a case, revision proceedings can indeed be initiated and there seems to be no serious controversy in this respect. The fine point, however, one must bear in mind is the distinction between adequate enquiries not having been conducted and the result of such enquiries not having been dealt with by way of a speaking order or not having resulted in the con....
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....Income Tax Officer and a particular view was taken, the mere fact that different view can be taken, should not be the basis for an action under section 263 and it cannot be held to be justified." [Underlining ours] 10. Lastly, it would not be out of the context to rely on the decision of Hon'ble Allahabad High Court (the facts and circumstances of which are not only almost akin to those of the assessee's case rather stronger) in the case of CIT vs. Krishna Capbox (P.) Ltd. (2015) 372 ITR 310 (All). In this case, the facts on record found by the Hon'ble High Court were as under : "The assessee's return for the assessment year 2008-09 was processed under section 143(1) of the Income-tax Act, 1961. Notice under section 143(2) was issued to the assessee. The Assessing Officer made certain queries, to which the assessee replied and after inquiry, and being satisfied with the assessee's answers to the queries, accepted his declared income and passed the assessment order. The Commissioner, however, issued a notice under section 263 on the ground that the Assessing Officer had not made inquiry on certain aspects. The assessee submitted a reply....
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....nts filed by the appellant in relation to the assessment of the impugned assessment year, it is clearly established that the A.O. made requisite enquiries as he deemed proper to frame assessment u/s. 143(3) of the Act by calling supporting evidences and hearing the appellant and after getting himself satisfied, completed the scrutiny assessment. That being so, there is hardly any scope to interfere with such an assessment order by invoking provisions of sec. 263 of the Act in view of the judicial pronouncements cited supra, the ratios of which are squarely applicable to the facts of the appellant's case. Therefore, the action of the Ld. Pr. C.I.T. u/s. 263 of the Act setting aside the assessment on the issue of valuation of closing stock for doing afresh in line with his direction elaborated in the impugned order is clearly outside the purview of sec. 263 of the Act and intention of the Legislature and the order passed u/s. 263 of the Act dated 17/03/2017 shall, accordingly, be liable to set aside. In view of our above submission with relevant evidences, it is prayed before the Hon'ble Bench that the order passed u/s. 263 of the Act by the Ld. Pri....
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....time. In deciding the question the court has to bear in mind the presumption in law laid down in section 114 clause (e) of the Evidence Act: "that judicial and official acts have been regularly performed:" 86. Therefore, the court has to start with the presumption that the assessment order dated March 28, 2008 was regularly passed. There is evidence to show that the AO had required the assessee to answer-17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by him in the annexure to the notice under section 142(1) of the Act could not have been formulated." 14. Further, we find the Kolkata Bench of the Tribunal in the case of Rupam Jewellers vs ACIT in ITA No.267/Kol/2017 for the assessment year 2013-14 order dated 16.3.2016 has held as under: "c) in the case of CIT vs. J.P.Patel 263 ITR 421 (MP) it is held as follows. "that it had not been disputed that in valuing stock the assessee had adopted the last in first out method which is a recognised method. Once a recognised m....