TaxTMI 
TaxTMI 
2021 (8) TMI 646
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....s. 3.41 crores on account of difference in stock as additional income. (iii) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A)has not erred in deleting the addition of Rs. 2,44,30,607/- made by the AO on account of difference in stocks(3,41,00,000 - revised return Rs. 96,69,393/-) when the assessee had admitted during survey to non- maintenance of proper stocks register/inventory/physical tally, which would have enabled the survey team to verify the correctness of whether the difference in stock was due to rate or quantity ? (iv) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has not erred in deleting the addition of Rs. 2,44,30,607/- made by the AO on account of difference in stocks when the assessee himself admitted and offered Rs. 3,41,00,000/- during survey as his additional income and a statement made voluntarily can form the basis of assessment as held in 91 ITR 18 (SC) and other judicial precedents especially when the taxpayer has not discharged burden to prove it was wrong or given under coercion . (v) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has not er....
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.... Purchases 69711162 Labour charges 896275 Closing stock packing material 25000 Cartage and freight 5468 Closing stock 138177497.38 Packing material 200755 Gross profit 12573204.41 3.1 The A.O. asked the assessee to submit its books of account including stock register and cash book, he also asked to show cause as to where the surrendered amount had been declared in the books / ITR and as to whether or not the tax on the said surrendered amount had been paid. In response the assessee submitted as under: "Regarding effect of surrender amount during survey on the business premises of the assessee, it is submitted that a sum of Rs. 3410000/- was offered for taxation during survey proceedings u/s 133A. This surrender was based on valuation of stock arrived on by the registered valuer of the Income Tax Department, which was based on market price, as on 11.11.2013 i.e. the date of survey. It is further submitted that no difference in stock was found by the survey team of the Income Tax Department. However the income Tax Return for A. Y. 2014-15 i.e. F.Y.2013-....
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....nded off to Rs. 3,41,00,000/-(Rupees three crores and forty one lacs) which is the difference in stock of jewellery as additional income on a/c of stock difference for AY 2014-15 to buy peace of mind and avoid any further litigation and advance tax or other dues shall be paid accordingly." 3.4 The A.O. observed that even during the course of survey proceedings the partner of the assessee firm had admitted that the inventory of stock was not maintained properly and voluntarily surrendered the amount of Rs. 3,41,00,000/- which was basically the difference in the stock as recorded in the books of account and the value of stock determined by the registered valuer of the Department. The A.O. further observed that in the trading account furnished by the assessee as on 11/11/2013 the assessee had declared stock of Rs. 96,69,393.47 over and above the stock which was appearing in the books of accounts. He therefore made the addition of Rs. 2,44,30,607/-(Rs. 3,41,00,000/-(-) Rs. 96,69,393/-). 4. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under: "It is submitted that the assessee is following average cost rate method of accounting since i....
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....e of valuation instead of the cost or market price which was regularly followed by the assessee. Rather the case of the instant assessee is on a stronger footing in as much as no excess stock was found during survey which could have attracted application of some other method of valuation. It is, therefore, stated that when the quantitative details are not in dispute, the difference has to be worked out following identical scale. The fact also remains that that the method of accounting regularly followed by the assessee requires to be adopted. Reliance is placed on the decision of the Hon'ble ITAT rendered in the case of Shri Kuldeep Chand Jain for the said proposition. This decision has been approved by the Hon'ble High Court vide its order dated 08.09.2015." 4.1 Apart from the aforesaid submission the assessee further submitted as under: "On last hearing, it was submitted that the assessee has been following the same method of accounting for valuation of stock since inception. Copies of the audit report for AY 2011-12 and 2012-13 are annexed herewith to corroborate this contention. Attention is drawn to pages 286 and 302 of the paper book wherein it is specific....
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.... to evidence that the valuer had applied rate of Rs. 30,850/- per 10 gm for 24 carat gold as on 11.11.2013 i.e. the day of survey. On the other hand, the opening stock in the same calculation has been taken while preparing the trading account as reproduced in the assessment order as 10,93,70,975/- which has been calculated on the basis of average cost method. For this purpose attention was drawn to the Trading account placed at Page 17 of the paper book wherein Opening Stock has been taken at Rs. 10,93,70,975/-. Further reliance was placed on audit report placed in the paper book with specific thrust on page 15 specifying the method of valuation of closing stock as average cost method. I have perused the audit reports for the assessment years and it is seen that the method of valuation of stock has consistently been average cost method. Assessee has placed in the paper book at Pages 127-129 justification in respect of difference in stock valuation as per valuer's report and as per books as on the date of survey. This difference has arisen only because of the method of valuation as adopted by the appointed valuer of the department having applied the market rate....
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....lery and Rs. 9 lacs on account of excess cash found. The AO framed assessment u/s 143(3) at an income of Rs. 61,29,065/- after making disallowance of Rs. 32,08,977/- on account of under valuation of closing stock. AO also rejected the books of account of the appellant and treated the surrendered amount of Rs. 26 lacs as deemed income. In the course of assessment proceedings, the assessee informed the AO, that LIFO method of accounting was followed in valuation of closing stock. The contention of the assessee was not found acceptable by the AO. The AO, referred to A.S.-2, that specifies of only three methods of determining the cost of inventories i.e. specific identification method, FIFO and Weighted average cost method. The AO made an addition of Rs. 32,08,977/ - following the weighted average cost method of the closing stock. The Id. CIT(A), on appreciation of the case laws and submissions filed before her, gave her findings in para 5.2 of the appellate order, which are reproduced here under "5.2 I have carefully considered the submission filed by the appellant, it was informed that the AO has accepted the calculation error in the closing stock valuation and has ....
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....osing stock is deleted. This ground of appeal is allowed." 6. A bare perusal of the findings of CIT(A) reveals that on the basis of the doctrine of consistency in relation to method of valuation of inventory as also the decision of the jurisdictional High Court in assessee's own case, she recorded findings in favour of the assessee. Having regard to the fact-situation of the case, decision of the Hon'ble jurisdictional High Court, relied upon by the Id. CIT(A), and the relevance of consistency principle in the matter, we do not find any infirmity, in the findings of the CIT(A), and hence, the same are upheld. Thus, the ground of appeal of the revenue is dismissed." There is merit in the appellant's submissions that the principle o f judicial discipline requires that the order o f Higher Appellate Authority should be followed unreservedly by the subordinate authorities. Therefore, in view o f the above stated facts, assessee having consistently employed the same method o f valuation o f closing stock and AO having not" questioned the same and in fact having accepted it in previous years, it is held that the method o f valuation of closing stock could not be refe....
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....essee and the GP rate is also not in dispute. It is therefore only fair that when the quantitative details are not in dispute, the difference should be necessarily worked out following identical scale. The fact also remains that the method of accounting regularly followed by the assessee requires to be adopted. In this case, there is no rejection of the books of accounts, nor any adverse findings on the system of accounting followed by the assessee. ' Coming to the issue of difference in the stock of gold, the excess stock of gold @ Rs. 1380 per gm for 22 ct as well as gold bullion melted as taken by the Valuer, works out to 9952.20 gms (9897 gms of 18 ct and 55.20 gms of 22 ct) which is the accepted difference in weight as per Valuation and as per books. Aside, the 18 ct gold where in no difference was found (in fact the books showed 2.904 gm more) was valued by the valuer @ Rs. 1200 per gm. On therefore applying the rate as done by the valuer, the value comes to Rs. 13,58,37,331/-. I find that the value of the gold as per the books of account has been worked out at Rs. 10,10,49,782/- The ensuing difference, thus, comes to Rs. 3,47,87,549/~. However, on applying the cost price....
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....nd the Ld. CIT(A) was not justified in deleting the said addition, particularly when the rejection of books by the A.O. were upheld by the Ld. CIT(A). 7. In his rival submissions the Ld. Counsel for the Assessee reiterated the submissions made before the Ld. CIT(A) and further submitted that there was no difference in the stock found during the course of survey and as recorded in the books of accounts, the only difference was in the method of valuation of stock adopted by the valuer of the department and followed by the assessee. It was contended that the assessee was following the average cost price method for valuation of the closing stock, consistently from year to year which had been accepted by the department. However, the valuer of the department applied the market rate while valuing the stock found during the course of survey and worked out the difference in valuation at Rs. 3,41,00,000/- but the actual difference in valuation was Rs. 96,69,393/-, which was offered by the assessee for taxation, therefore the balance addition amounting to Rs. 2,44,30,607/- was rightly deleted by the Ld. CIT(A). It was also submitted that the Ld. CIT(A) while deleting the arbitrary addition....
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....ever is lower; (2) In the balance-sheet, if the securities and shares are valued at cost but from that no firm conclusion can be drawn. A taxpayer is free to employ for the purpose of his trade, his own method of keeping accounts, and for that purpose, to value stock-in-trade either at cost or market price. (3) A method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation. (4) the concept of real income is certainly applicable in judging whether there has been income or not, but, in every case, it must be applied with care and within their recognized limits. (5) Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation. (6) Under section 145 of the Act, in a case where accounts are correct and complete but the method employed is such that in the opinion of the Income-tax Officer, the income cannot be properly deduced therefrom, the computation shall be made in such manner and on such basis as the Income-tax Officer m....