Swaran Kanta Jain, V. DCIT circle- 24 (1),

ITA 1810/DEL/2008

• Counselvise Citation: [2011] 100 COUNSELVISE.COM (IT) 2222 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 17-02-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 09-05-2008

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH G DELHI ] BEFORE SHRI A. D. JAIN, JM AND SHRI K. D. RANJAN, AM I. T. APPEAL NO. 1810 (DEL) OF 2008 ASSESSMENT YEAR : 1998-99. SMT. SWARAN KANTA JAIN, PROP. DY. COMMISSIONER OF INCOME-TAX , SANT RAM MANGAT RAM JEWELLERS, VS. C I R C L E : 24 (1), 39, AUROBINDO PLACE, HAUZ KHAS, N E W D E L H I. N E W D E L H I. P A N / G I R NO. ADC PJ 0029 R. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI ASHWANI KUMAR, C. A.; DEPARTMENT BY : SHRI KISHORE B., SR. D .R.; O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 19 98-99 ARISES OUT OF THE ORDER OF THE LD. CIT (APPEALS)-XXVIII, NEW DELHI. 2. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS R EPRODUCED AS UNDER :- THAT THE ORDER UNDER SECTION 250 PASSED BY THE L D. CIT (APPEALS)-XXVIII, NEW DELHI, IS AGAINST LAW AND FACTS ON THE FILE INA SMUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LD. DCIT, CIRCLE : 24 (1), NEW DELHI IN ADDING BACK A SUM OF ALLEGED EXTRA PROFIT OF RS.2,01,699/- BY REJ ECTING THE APPELLANTS BOOKS OF ACCOUNT AND BY APPLYING G.P. RATE OF 32,87% ON ACCO UNT OF ALLEGED VARIATION IN GP RATES FOR THE LAST FIVE YEARS BY IGNORING THE FA CTS OF THE CASE, THE PAST HISTORY OF THE APPELLANT AND THE OBSERVATIONS OF THE HONBLE I TAT IN THE APPELLANTS CASE VIDE ORDER DATED 5/08/2005 IN ITA. NO. 2410 (DEL) O F 2003. 3. THE ONLY ISSUE FOR OUR CONSIDERATION RELATES TO CONFIRMING THE ADDITION ON ACCOUNT OF G. P. RATE. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT ORIGINAL ASSESSMENT WAS MADE ON 28 TH FEBRUARY, 2001 MAKING ADDITION OF RS.58,016/- ON A CCOUNT OF VALUATION OF THE CLOSING STOCK 2 I. T. APPEAL NO. 1810 (DEL) OF 2008 ON FIFO METHOD AND RS.1,59,567/- ON ACCOUNT OF LABO UR CHARGES. THE MATTER TRAVELLED UPTO THE LEVEL OF THE ITAT. THE ASSESSEE WAS FOLLOWING LIFO METHOD OF VALUATION OF THE CLOSING STOCK. THE ASSESSING OFFICER ON TEST-CHECK CARRIED OUT DUR ING THE COURSE OF ASSESSMENT, FOUND THAT THE ASSESSEE WAS NOT ABLE TO RELATE THE ITEMS PURCHASED IN THE CLOSING STOCK. NO ITEM-WISE INVENTORY OF GOLD ORNAMENTS SPECIFYING THE ITEMS HAD BEEN MAI NTAINED. THE ASSESSEE CONCEDED THAT SHE WAS NOT MAINTAINING ITEM-WISE QUANTITATIVE DETAILS REGARDING THE PURCHASE OF GOLD ORNAMENTS AND THEIR CONVERSION INTO NEW ORNAMENTS FOR SALE. AS T HE ASSESSEE WAS NOT ABLE TO SUPPLY THE ITEM- WISE LIST WITH WEIGHT TO ESTABLISH THE CONSISTENCY IN THE METHOD OF VALUATION OF THE STOCK, THE ASSESSING OFFICER REJECTED THE LIFO METHOD FOLLOWED BY THE ASSESSEE. HE FOLLOWED FIFO METHOD AND ADDED THE AMOUNT OF RS.58,016/- ON ACCOUNT OF C LOSING STOCK, AFTER TAKING THE AVERAGE PURCHASE RATE OF GOLD AT RS.356.36 PER GRAM. THE A SSESSING OFFICER ALSO NOTED THAT THE ASSESSEE WAS PAYING LABOUR CHARGES AT AVERAGE RATE OF RS.22. 77 PER GRAM. THE ASSESSEE HAD NOT INCLUDED IN THE COST OF CLOSING STOCK THE LABOUR CHARGES. H E, THEREFORE, ADDED RS.1,59,567/- ON ACCOUNT OF LABOUR CHARGES. 4. ON APPEAL BEFORE THE ITAT, THE TRIBUNAL OBSERVED THAT THE ASSESSING OFFICER HAD REJECTED THE LIFO METHOD FOR VALUING THE CLOSING STOCK. THE ASSESSING OFFICER HAD FOLLOWED FIFO METHOD WHEREAS THE OPENING STOCK ALREADY VALUED BY THE ASS ESSEE REMAINED ON LIFO METHOD. SIMILARLY, IN RESPECT OF LABOUR CHARGES, THE AO HAD INCLUDED I N LABOUR CHARGES IN THE CLOSING STOCK, BUT THE OPENING STOCK DID NOT INCLUDE LABOUR CHARGES. THER EFORE, THE ADOPTION OF FIFO METHOD AND INCLUSION OF LABOUR CHARGES IN THE CLOSING CHARGES WOULD NOT GIVE A TRUE PICTURE OF THE PROFIT. SECONDLY, IT WOULD ALSO EFFECT THE OPENING STOCK VA LUATION OF THE SUBSEQUENT YEAR. THEREFORE, THE TRIBUNAL HELD THAT IT WOULD NOT BE APPROPRIATE TO R EJECT THE METHOD OF VALUATION BEING REGULARLY FOLLOWED BY THE ASSESSEE. HOWEVER, THE TRIBUNAL OB SERVED THAT AS COMPLETE AND DETAILED ACCOUNTS HAVE NOT BEEN MAINTAINED BY THE ASSESSEE F ROM WHICH THE VALUATION OF THE CLOSING STOCK MADE BY THE ASSESSEE FOLLOWING A PARTICULAR METHOD COULD BE VERIFIED, THE AO WOULD BE ENTITLED TO REJECT THE ACCOUNTS AND COMPUTE PROFIT TO THE BE ST OF HIS JUDGEMENT. THE TRIBUNAL SET ASIDE THE ORDER TO THE FILE OF ASSESSING OFFICER WITH THE OBS ERVATION THAT THE AO MAY ESTIMATE THE GROSS PROFIT IN SUCH A SITUATION ON THE BASIS OF PAST REC ORD OF THE ASSESSEE OR ANY OTHER MATERIAL INCLUDING COMPARABLE CASES AVAILABLE WITH HIM. 3 I. T. APPEAL NO. 1810 (DEL) OF 2008 5. THE ASSESSING OFFICER, DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, NOTED THAT THERE WAS NO COMPARABLE CASE AS THE FACTS OF THE ASSESSEES C ASE WERE PECULIAR TO THE EXTENT THAT A SEARCH AND SEIZURE OPERATION UNDER SECTION 132 OF THE ACT HAD BEEN CONDUCTED IN ACCOUNTING YEAR RELEVANT TO ASSESSMENT YEAR 1995-96 AND ON ACCOUNT OF INCOME SURRENDERED IN THE COURSE OF SEARCH, THE RESULTANT GP OF THAT YEAR WORKED OUT TO 291.65 PER CENT. HOWEVER, THE ASSESSING OFFICER NOTED THAT GROSS PROFIT FOR THE YEAR UNDER CONSIDERATION WAS AT 28.91 PER CENT AS AGAINST THE GP RATE FOR ASSESSMENT YEAR 1996-97 AT 35.93 PE R CENT. IT WAS SUBMITTED BY THE ASSESSEE THAT FALL IN GP IS ON ACCOUNT OF FALL IN THE GOLD RATES, WHICH ON 31 ST MARCH, 1998 STOOD AT RS.4,045/- PER 10 GRAMS FOR 24 CARAT GOLD AS AGAINST THE RATE OF RS.4,725/- ON 31 ST MARCH, 1997. THIS CONTENTION OF THE ASSESSEE WAS REJECTED BY THE AO O N THE GROUND THAT THE ASSESSING OFFICER IN REGULAR ASSESSMENT ORDER HAD PROCEEDED TO VALUE THE CLOSING STOCK OF GOLD JEWELLERY ON THE BASIS OF AVERAGE PURCHASE RATE OF GOLD DETERMINED AT RS.3 56.36 PER GRAM WHEREBY FLUCTUATIONS IN THE GOLD PRICE WAS MARGINALIZED AND CONSEQUENTLY WOULD HAVE NO IMPACT ON THE CLOSING STOCK OF VALUE OF THE GOLD JEWELLERY. HOWEVER, THE LD. AO W ORKED OUT THE AVERAGE GROSS PROFIT RATE AT 32.87 PER CENT BY TAKING THE GP RATE FOR ASSESSMENT YEARS 1994-95, 1996-97 AND 1997-98. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS AN D ESTIMATED INCOME BY APPLYING GP RATE OF 32.87 PER CENT, WHICH AMOUNTED TO RS.2,01,699/-. 6. ON APPEAL THE LD. CIT (APPEALS) CONFIRMED THE AD DITION MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE WAS NOT ABLE TO SHO W THAT THE G. P. RATE ADOPTED BY THE ASSESSING OFFICER WAS UN-REASONABLE OR THAT ANY OTHER ASSESSE E, IN THE SAME LINE OF BUSINESS, HAD LOWER RATE OF GROSS PROFIT. 7. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT FALL IN THE G. P. RATE IN THE YEAR UNDER CONSIDERATION IS DUE TO THE FACT THAT PRICE O F GOLD HAS FALLEN FROM RS.4,725/- PER 10 GRAM AS ON 31 ST MARCH, 1997 TO RS.4,045/- PER 10 GRAM AS ON 31 ST MARCH, 1998. THE REASON FOR FALL IN THE GP RATE IS BEYOND THE CONTROL OF THE AS SESSEE. THEREFORE, DECLARED GP RATE 4 I. T. APPEAL NO. 1810 (DEL) OF 2008 SHOULD BE ACCEPTED. ON THE OTHER HAND, THE LD. SEN IOR DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 8. WE HAVE HEARD BOTH THE PARTIES. THERE IS NO DIS PUTE THAT THERE IS FALL IN THE GOLD PRICE FROM RS.4,725/- AS ON 31 ST MARCH, 1997 TO RS.4,045/- PER 10 GRAM AS ON 31 ST MARCH, 1998. THE ASSESSING OFFICER HAS REJECTED THE CONTENTION OF TH E ASSESSEE ON THE GROUND THAT THE CLOSING STOCK WAS VALUED BY THE ASSESSING OFFICER ON AVERAGE PURC HASE RATE OF GOLD AT RS.356.36 PER GRAM. THE ASSESSING OFFICER HAD NOT EXAMINED THE CONTENTION O F THE ASSESSEE ABOUT THE FALL IN THE PRICE OF GOLD ON THE LAST DAY OF THE ACCOUNTING YEAR AS COMP ARED TO THE RATE OF GOLD ON WHICH OPENING STOCK WAS VALUED. THE ASSESSEE IS FOLLOWING LIFO M ETHOD OF VALUATION AND HENCE, THE GOLD PURCHASED IN THE LAST WILL BE SOLD FIRST. THE REFORE, THE CLOSING STOCK WILL CONSISTS OF THE GOLD WHICH WAS PURCHASED AT HIGHER RATE AND WAS VALUED AT LOWER RATE BECAUSE OF FALL IN THE PRICES. MOREOVER, THE ASSESSING OFFICER HAD NO T POINTED OUT ANY DISCREPANCY BY WAY OF INFLATION OF PURCHASES OR SUPPRESSION OF SALES. THE TINKERING OF CLOSING STOCK ON FIFO METHOD HAS NOT BEEN APPROVED BY THE TRIBUNAL. THEREFORE, WHATEVER MAY BE THE GROSS PROFIT HAS TO BE ACCEPTED. THE ASSESSING OFFICER HAS NOT BEEN ABLE TO BRING ON RECORD ANY COMPARABLE CASE IN THE SAME LINE OF BUSINESS, TO REJECT THE GP EARN ED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. IN ASSESSMENT YEAR 1994-95 THE ASSE SSEE HAD ADMITTED THE GP RATE OF 31.88 PER CENT AND IN ASSESSMENT YEAR 1996-97 AT RATE OF 35.93 PER CENT. THE ASSESSING OFFICER HAS ACCEPTED THE GP RATE OF 30.82 PER CENT IN ASSESSMEN T YEAR 1997-98 WHERE THERE WAS FALL OF MORE THAN FIVE PER CENT IN GP RATE AS COMPARED TO IMMEDI ATELY PRECEDING YEAR. THIS SHOWS THAT GROSS PROFIT RATE WAS FLUCTUATING IN RANGE OF 30.82% AND 35.93%. GROSS PROFIT RATE CANNOT BE CONSTANT IN EVERY YEAR. IT HAS TO VARY DEPENDING UPON VARIO US FACTS. IN THE YEAR UNDER CONSIDERATION, THE FALL IN THE GP RATE IS ABOUT 1.91 PER CENT AS COMPA RED TO ASSESSMENT YEAR 1997-98 WHICH IS ATTRIBUTABLE TO FALL IN GOLD PRICE AS ON THE LAST D AY OF ACCOUNTING YEAR. ACCORDINGLY IN OUR CONSIDERED OPINION NO ADDITION CAN BE MADE ON ACCOU NT OF FALL IN GROSS PROFIT RATE. THE ASSESSING OFFICER IS DIRECTED DELETE THE ADDITION. 5 I. T. APPEAL NO. 1810 (DEL) OF 2008 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 31 ST MARCH, 2011. SD/- SD/- [ A. D. JAIN ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : _31 ST MARCH, 2011 . *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.