TaxTMI 
TaxTMI 
2016 (7) TMI 1491
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....by the ld AO: The assessee is in the business of manufacture and sale of gold ornaments and it has its sales spots at Rash Behari Avenue (Head Office) and at Bowbazar (Branch). The assessee purchases pure gold which is converted into ornaments of different purities i.e 18 ct, 22 ct and 24 ct. The assessee also sells some diamonds studded jewellery and trades in silver ornaments though the sale of diamond studded jewellery and silver jewellery are of miniscule portion of the total sales. The assessee maintains books of accounts along with day to day stock register duly subjected to compulsory audit. A survey operation u/s 133A of the Act was conducted in the case of the assessee on 3.3.2009 and physical inventory of stock was made by the survey party by calling in a Govt panel registered valuer . The ld AO at page 2 of the order had made out the following table :- (i) Rash Behari Avenue Branch for 24 Carat Gold - (F) Physical stock as per inventory (gms) Stock as per books of assessee (gms) Difference of Col (1) - (2) Value of col (3) Nil 1444.816 (-) 1444.816 (-) 2414288/- For 22 Carat Gold - (A) Physical stock as per inventory Stock as ....
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....e valued only using average cost method instead of LIFO adopted by the assessee.. The ld AO remade the closing stock workings as below:- Gariahat Head Office Old Stock of 22 ct 2002 - 44796.517 grams 2005 - 7192.222 grams 2006 - 13344.473 grams 2007 - 5929.665 grams 2008 - 4268.287 grams ------------------------ 75531.164 grams Old Stock of 18 ct 2002 - 1425.602 grams 2003 - 1782.367 grams 2004 - 499.463 grams 2005 - 3917.000 grams 2006 - 127.044 grams 2007 - 1077.856 grams 2008 - 2278.616 grams ------------------------ 11107.948 grams Old Stock of 24 ct 2002 - 11.906 grams 2007 - 163.320 grams 2008 - 310.100 grams ------------------------ 485.326 grams The ld AO arrived at the average cost of purchase of each compartment of gold as below:- For 22 ct gold = Rs. 160202865.30 / 126590.810 grams = Rs. 1265.51 per gram For 24 ct gold = Rs. 3954008.80 / 2988.46 grams = Rs. 1323.09 per gram For 18 ct gold = Rs. 2694723.53 /2227.915 grams = Rs. 1209.52 per gram The ld AO accordingly arrived at the closing stock of Rs. 5,66,19,626/- being the difference in valuation of stock between LIFO and average cost method. BowBazar Branch Stock of 22 ct gold - 2008 - 13408.314 gr....
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....d by the survey team apart from a marginal difference of 131 grams which was miniscule portion as compared to the volume of trading carried out by the assessee. 3.4. The assessee also disputed the valuation method adopted by the departmental valuer ignoring the consistent method of valuation adopted by the assessee over the years. The assessee claimed that the closing stock is taken by them at cost price. There are various items of gold ornaments which by passage of time become slow moving which is quite obvious due to the fading design, quantity involved and change in the pattern of manufacturing to cope with changes in styles. On the close of a particular year, what assessee does is that they take note of all the items which they have in stock, make division of those items year wise with reference to year of their manufacture and thus proceed to value the ornaments for the purpose of their accounting with reference to the actual cost with reference to the year in which the same were manufactured. The complete break up of closing stock year wise was furnished by the assessee before the ld AO . The assessee contended that the departmental valuer not aware of the method of valuat....
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.... of valuer's report. Thus, the total addition should be made on the basis of both these grounds which may be put in a tabular form as follows: Rash Behari Avenue Branch, Kolkata Purity Physical stock as per inventory Stock as per books of the assessee Difference Conversion into 22 ctr. 24 ctr. 22 Ctr. 18 Ctr. Nil 88086.210 3908.298 91994.508 1444.816 78276.683 12386.621 92108.12 (-) 1444.816 9809.527 (-) 8478.323 (-) 113.312 (-) 1576.163 (+) 9809.527 (-) 6936.810 1296.544 Discrepancy Thus, value of difference on the basis of discrepancy found at Rash Behari Avenue Branch, Kolkata is Rs. 1438267/-. Similarly, the value of difference on the basis of discrepancy found at Bowbazar Bronch, Kolkata comes to Rs. 24,466/- (as difference found in purity of gold converted into 22 ctrs gold discrepancy basis is 17.576 gms). Thus, the addition made on the ground of difference in gold item quantity-wise and purity-wise is restricted to Rs. 1438267/- + Rs. 24466/- i.e. Rs. 14,62,733/- only." The ld CITA in respect of addition of Rs. 36,87,474/- observed in his order as below:- "Appeal on next ground is against the addition of Rs. 3687474/....
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.... the matter of explaining the stock as found in the course of survey operations u/s. 133A and ought not to have held that stock of the value of Rs. 14,62,733/- remained unexplained." The revenue has raised the following grounds :- "1.Whether in facts and circumstance, the Ld . CIT(A) was justified In giving In valuation of stock amounting to Rs. 1,36,32,712/- and not treating the 24ct, 22ct and l8 ct jewellery as separate. 2. Whether in facts and circumstances, the Ld . CIT(A) was justified in not considering the profit from undisclosed sale of Rs. 36,87,474/-. 3. Whether in facts and circumstances of the case, Ld.CIT(A) was justified in giving the relief in the valuation of closing stock of Rs. 6,28,60,651/- relying on LIFO instead by FIFO." 3.7. The ld AR argued that the ld AO erred in making addition towards purity difference by ignoring the 24 ct stocks held by the assessee. The ld CITA also erred in converting the 24 ct stocks into 22 ct stock and made an addition of Rs. 14,62,733/- which is not warranted in the facts and circumstances of the case. He argued that the assessee has been maintaining 24 ct stock of gold in all the earlier years and....
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.....3.2007 , 31.3.2008 and 31.3.2009 which are enclosed in pages 20 to 182 of the Paper Book filed before this tribunal. He further argued that the ld AO did not offer any adverse comments on the addition made towards difference in valuation of stocks and the LIFO method followed by the assessee in his remand report No. DCIT / Cir-12/Kol./Remand Report/D.K.Basak/2012- 13/941 dated 1.10.2012. He further relied on the decision of the Hon'ble Supreme Court in the case of UCO Bank vs CIT reported in 240 ITR 355 (SC) wherein the Hon'ble Apex Court at page 366 of the Judgement had laid down the principles of valuation of stock. 3.8. In response to this, the ld DR argued that the stock discrepancies were found in survey and the Government approved departmental valuer was also present at the time of survey for valuation of stocks found in the survey. The survey team did not find 24 ct stocks of gold during survey. The assessee also did not object anything about this during the course of survey. There is no big difference between the provisions of section 145 and section 145A of the Act as the wordings of both the sections are similar save and except that certain taxes, duties and levies we....
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....ntaining stocks of gold and gold ornaments comprising of 18ct , 22 ct and 24ct for several years and had even maintained year wise stocks in each compartment of gold. On an overall quantity of gold as per physical stock and stock as per stock ledger, we find that there is a minor difference of only 131 grams due to difference in weighing methods by each party and which is absolutely miniscule as compared to the volume of trading done by the assessee. We find that the ld AO had not accepted the LIFO method of valuation of stock consistently followed by the assessee over the years since inception of its business. We find that the day to day books and and stock registers were duly maintained and there is no discrepancy on overall stocks found on the date of survey except a miniscule difference of 131 grams. The main difference is only on account of purity which had ultimately led to an addition. It has already been stated above that the ld AO had accepted the existence of 24 ct gold lying with the assessee while making an independent addition of Rs. 6,28,60,651/- which would be discussed at length separately. Once the basic premise on the non-existence of 24 ct gold is defeated, the p....
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....m of recording the value of closing stock with reference to different compartments which are with reference to the period to which that particular stock belongs and then the cost price of the same is applied year by year. Hence it cannot be said that the assessee had proceeded to value the stock of gold ornaments in a manner which is not acceptable. We find that the gold available from earlier years as per LIFO method was continuing from year to year and has duly been accepted by the ld AO in all the earlier years. The ld AO however finally adopted his own method of valuation taking average cost price method for whole of the closing stock, rejecting the well recognized LIFO method consistently followed by the assessee and accepted by the department. It was also submitted that LIFO method is a recognized method for the purpose of valuation of closing stock. 3.9.2. It is elementary that the regular system of accounting followed by the assessee could be disturbed only in the event of finding out defects in the books of accounts and stock registers maintained by the assessee. We place reliance on the decision of the Co-ordinate Bench decision of Hyderabad Tribunal in the case of Ram....
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....ined and isolated. Any excess over the last year's stock is considered to be out of current year's purchase. The last year's stock is valued at its cost to business. The current year's left over is valued at a moving average which represents the average price paid for all purchases made by the firm in the year of account." In the instant case, the assessee had furnished the closing stock valuation workings as on 31.3.2005, 31.3.2006, 31.3.2007, 31.3.2008 and 31.3.2009 before us which are forming part of the paper book vide pages 20 -182 . On going through the said workings, we are fully convinced with the method of accounting regularly employed by the assessee for valuation of closing stock of Gold and other jewellery using LIFO method. 3.9.4. It is quite natural that jewellery being a fashion industry, the old stocks would most of the times remain with the assessee and the revenue cannot expect the old stocks to be sold out first though it would remain in the wish list of the jeweller. We find that the aforesaid valuation exactly fits into the accepted method of valuation for a jeweller as approved in the case of Cochin Tribunal supra. We also find that the decision of the C....
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.... higher than the cost because the closing stock is not the source of profit for the assessee. It has also been held by the Hon'ble Supreme Court that the closing stock is to be valued either at cost or market value, whichever is low. In the facts and circumstances of the present case, we are in conformity with the order of CIT(A) and uphold the same. There is no merit in adopting the weighted average cost method for valuation of inventory of stock in the circumstances of the case. We confirm the deletion of addition made by the Assessing officer totaling Rs. 52,23,753/-. The ground of appeal raised by the Revenue is thus dismissed." 3.9.5. In any event, we hold that no addition could be made towards value of stock because the closing stock cannot be construed as a source of profit for the assessee. We place reliance on the decision of the Hon'ble Supreme Court in the case of Chainrup Sampat Ram vs CIT reported in 24 ITR 481 (SC) in support of this proposition. 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 proc....
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....ngly the Ground Nos. 3 & 4 raised by the assessee are allowed and the Ground Nos. 1 , 2 & 3 raised by the revenue are dismissed. 4. Addition of Rs. 3,53,004 made by the ld AO The ld AO observed that the assessee maintains item wise stock in computer. The ld AO observed that the assessee had maintained 78276.683 grams of gold stock as per gold ledger and whereas the same as per item wise register was 78507.254 grams leading to a difference of 230.571 grams. The assessee replied stating that such a difference in quantity does arise in entire set up of our business when we take note of various items of gold ornaments and this is due to some shortage, breakage etc which is hardly 0.30% which is quite negligible. The ld AO not convinced with this reply proceeded to make an addition of Rs. 3,53,004/- for the difference of 230.571 grams. This addition was confirmed by the ld CITA on first appeal. Aggrieved, the assessee is in appeal before us on the following ground :- "5. For that the Ld. CIT(A) erred in confirming addition of Rs. 3,53,004/- made on the basis of difference of gold in stock register vis-à-vis physical inventory." 4.1. The ld AR argued that on a....
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....from stating that the same represent gold received from karigar but had not corroborated the same with reference to the regular books maintained by the assessee. Hence we hold that the ld CITA had rightly confirmed this addition of Rs. 5,19,315/-. Accordingly, the ground no. 6 a) raised by the assessee is dismissed. 6. Addition of Rs. 1,24,020/- made by the ld AO The ld AO noted that the entry of purchase voucher No. 2239 [DKB(R )-4] dated 6.7.2008 could not be found in the purchase ledger maintained by the assessee. This document represented 98 grams of gross weight of 22 ct gold received from karigar. The assessee replied that on 6.7.2008, one Mr Anil Kr Gupta , resident of 215C, Picnic Garden Road, Kolkata - 700039 visited the showroom of the assessee with used gold which was taken at gross weight of 98 grams and net weight of 89 grams and later he left the showroom with a promise that he would visit the showroom the next day. Again on 7.7.2008, the said person visited the showroom and brought items of weight of 119.50 grams and 33 grams used gold ornaments, but however, the mistake committed by the assessee was that the order memo prepared on 6.7.2008 was not scratched bu....