IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM ITA No. 482/JP/2015 Assessment Year : 2011-12. Deputy Commissioner of Income-tax, cuke Shri Ram Narayan Birla, (Central) Vs. Prop. M/s. Birla Bandhu, Ajmer. Saraffa Bazar, Bhilwara. PAN No. ABEPB 2314 H Appellant Respondent Revenue by: Shri B.K. Gupta (CIT) Assessee by : Shri P.C. Parwal (C.A) Date of Hearing : 07.09.2016. Date of Pronouncement : 30/09/2016. ORDER PER SHRI KUL BHARAT, JM. This appeal by revenue is directed against order of ld. CIT (A)-2, Udaipur dated 09.03.2015 pertaining to A.Y. 2011-12. revenue has raised following grounds of appeal :- 1. On facts and in circumstances of case, CIT (A)-2, Udaipur has erred in directing AO to assess unexplained investment surrendered by assessee under head Income from Business ignoring decision of Hon ble Gujarat High Court in case of Fakir Mohd. Hazi Hasan 247 ITR 290 that unaccounted income ought to be categorized under residuary head of Income from other Sources. 2. On facts and in circumstances of case, CIT (A)-2, Udaipur has erred in deleting addition of Rs. 35,06,099/- made on account of change in method of valuation of closing stock ignoring that stock was valued at cost price by assessee to reduce profit in year of survey, while stock was valued at market price by assessee in all other previous years. 2 ITA No. 482/JP/2015 Shri Ram Narayan Birla 3. On facts and in circumstances of case, CIT (A)-2, Udaipur has erred in deleting addition of Rs. 5,02,010/- made on account of making charges on unaccounted excess stock found ignoring element of making charges paid by assessee on such excess stock. 2. Briefly stated facts of case are that search and seizure action under section 132 of Income Tax Act, 1961 (hereinafter referred to as Act) was carried out at residential and business premises of assessee and his family members as well as survey u/s 133A was also conducted at some of business premises of assessee on 03.02.2011. During course of survey, excess stock of gold and silver ornaments were found valuing Rs.77,66,887/-. This amount was surrendered for taxation in hands of assessee. Further, sum of Rs. 1,20,000/- on account of advances given for land purchase also offered for taxation as observed by AO. Subsequently, return was filed on 30.09.2011 declaring total income of Rs. 59,93,693/-. This return was further revised on 08.12.2011 declaring total income of Rs. 59,13,690/-. case of assessee was picked up for scrutiny assessment. While framing assessment, AO made various additions and treated excess stock as unexplained investment not recorded in books of account and made addition by invoking provisions of section 69B. AO made addition on account of change into method of valuation of closing stock of Rs. 35,06,099/- and also made undisclosed making charges of Rs. 4,86,903/- and Rs. 15,107/-. Assessing Officer also made addition on unexplained registration expenses. assessee aggrieved by this order, preferred appeal before ld. CIT (A), who after considering submissions allowed appeal. 3 ITA No. 482/JP/2015 Shri Ram Narayan Birla 3. Now revenue is in appeal before us. 4. first ground of revenue s appeal is against direction of ld. CIT (A) to AO to assess unexplained investment by assessee under head Income from business. 4.1. ld. D/R submitted that ld. CIT (A) grossly erred in directing AO to assessee income surrendered by assessee under head Income from Business. He submitted that ld. CIT (A) has not followed judgment of Hon ble Gujarat High Court rendered in case of Fakir Mohd. Hazi Hassan 247 ITR 290 (Guj.). He also placed reliance on judgment of Hon ble Punjab & Haryana High Court in case of Dulari Digital Photo Services P. Ltd. vs. CIT, 38 taxmann.com 390 (P&H). 4.2. On contrary, ld. Counsel for assessee reiterated submissions as made in written brief. He placed reliance on decision of Coordinate Bench in case of Chokshi Hiralal Maganlal vs. DCIT, 141 TTJ (Ahd.) 1 wherein Hon ble ITAT after taking into consideration judgment of Hon ble Gujarat High Court in case of Fakir Mohd. Hazi Hassan (supra) held that where in search excess stock is found which does not have independent identity as asset but as mixed part of overall stock found in survey/search then such excess stock would represent business income only. He further submitted that issue is well settled that if excess stock found in search has no independent identity, in that event investment in unexplained assets by assessee be assessed as income from business. 4 ITA No. 482/JP/2015 Shri Ram Narayan Birla 4.3. We have heard rival contentions and perused material available on record. Undisputed facts emerged from record that at time of survey excess stock was found. It is also not disputed that assessee is engaged in business of jewellery. During course of survey excess stock valuing Rs. 77,66,887/- was found in respect of gold and silver jewellery. Coordinate Bench in case of Chokshi Hiralal Maganlal vs. DCIT, 131 TTJ (Ahd.) 1 has held that in cases where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on premises that such excess investment is not recorded in books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, first attempt of assessing authority should be to find out link of undeclared investment/expenditure with known head, give opportunity to assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is observed that there is no conflict with decision of Hon ble Gujarat High Court in case of Fakir Mohd. HajiHasan (supra) where investment in asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, Hon ble Coordinate Bench held that where asset in which undeclared 5 ITA No. 482/JP/2015 Shri Ram Narayan Birla investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset, falling under particular head, then difference should be treated as undeclared business income explaining investment. In present case excess stock was part of stock. revenue has not pointed out that excess stock has any nexus with any other receipts. Therefore, we do not find any fault with decision of ld. CIT (A) directing AO to treat surrendered amount as excess stock qua excess stock found. 5. Ground No. 2 is against deletion of addition of Rs. 35,06,099/- on account of change of method of valuation of closing stock. 5.1. ld. D/R vehemently argued that ld. CIT (A) was not justified in deleting addition. He supported order of AO. 5.2. On contrary, ld. Counsel for assessee supported order of ld. CIT (A) and submitted that there is no illegality in order of ld. CIT (A). He submitted that reasoning in paras 6 to 6.2 of order of ld. CIT (A) is self explanatory. Therefore, he submitted that there is no reason to interfere in order of ld. CIT (A). 5.3. We have heard rival contentions and perused material available on record. We find that ld. CIT (A) in para 6 to 6.2 has decided issue by giving finding of fact as under :- 6. I have considered facts of case, gone through assessment order, submission of ld. AR and various case laws relied upon. only dispute in this ground is whether change in method of valuation of stock from market price to cost or net realizable value whichever is lower is bona fide or not. various courts including Supreme Court has held that change in 6 ITA No. 482/JP/2015 Shri Ram Narayan Birla method of accounting is permissible if change is bona fide and followed consistently in subsequent years. 6.1. If fact of present case is seen with reference to these decisions then it is found that :- - appellant was hitherto valuing stock in trade at Market Rate. - During year, appellant has changed method of valuation of stock from market price to cost or net realizable value, whichever is lower. - This change was carried out during year as there has been wide fluctuation in rates of gold/silver. - appellant has subsequently followed same method consistently. - AO has completed assessment for A.Y. 2012-13 by accepting changed method by adopting closing stock of AY 2011-12 as opening stock and also accepting closing stock as on 31.03.2012 valued by appellant on basis of changed method. 6.2. From above, I find that change in method of valuation of stock is bona fide and AO himself in subsequent year has accepted same. various cases laws relied by ld. AR also support case of appellant. I further noticed that Hon ble ITAT Jodhpur Bench in case of Anil Kumar Tantia v. ITO dated 31.05.2013 for AY 2007-08 to 2009-10 held that appellant who was dealer of precious metal like gold and silver and previously adopting method of valuation of closing stock at market rate but changed same to weighted average cost price for which bona fide reasons exist considering fluctuation in rates, same needs to be accepted. Considering all these facts I find that change in method of valuation of stock is bona fide. Accordingly, addition made by AO is deleted. above finding of fact is not disputed by revenue by placing any contrary material. We find that assessee has been consistently following method 7 ITA No. 482/JP/2015 Shri Ram Narayan Birla subsequently. Therefore, we do not see any reason to interfere in order of ld. CIT (A). 6. Ground No. 3 is against deletion of addition of Rs. 5,02,010/- made on account of making charges on unaccounted excess stock found ignoring element of making charges paid by assessee on such excess stock. 7. ld. D/R submitted that ld. CIT (A) was not justified in deleting addition. He supported order of AO. 7.1. On contrary, ld. Counsel for assessee supported order of ld. CIT (A) and submitted that there is nothing wrong in order of ld. CIT (A). He submitted that ld. CIT (A) has rightly deleted addition by observing in para 9 of his order as under :- 9. I have carefully considered finding of AO in assessment order, written as well as oral arguments by appellant before me and valuation report of jewellery placed in paper book. It is seen that valuer has valued jewellery and not pure gold. excess stock found during search is valued by registered valuer and neither anything against said valuation is pointed out against by AO nor any action against valuer has been taken by department under WT Act. Obviously, jewellery valued includes making charges in very applying rate by valuer. I find that AO is not expert to change valuation of valuables found during search. There is no basis for assumption by AO that making charges which would have incurred in creating above jewellery were not included in valuation. AO has not brought any evidence to prove that valuer has valued jewellery without considering making charges. No specific reasons are advanced by AO for making separate addition for making charges. Such addition cannot be sustained. Accordingly addition made by AO is only on assumptions and same is deleted. 7.2. We have heard rival contentions and perused material available on record. We find that ld. CIT (A) has given finding of fact, which is not 8 ITA No. 482/JP/2015 Shri Ram Narayan Birla controverted by ld. D/R by placing any contrary material on record. Therefore, we find no reason to interfere in order of ld. CIT (A), same is hereby upheld. 8. In result, appeal of revenue is dismissed. Order is pronounced in open court on 30/09/2016. Sd/- Sd/- ( BHAGCHAND) ( KUL BHARAT ) Accountant Member Judicial Member Jaipur Dated:- 30/09/2016. Copy of order forwarded to: s 1. Appellant- DCIT (Central), Ajmer. 2. Respondent Shri Ram Narayan Birla, Bhilwara. 3. CIT(A). 4. CIT, 5. DR, ITAT, Jaipur 6. Guard File (ITA No. 482/JP/2015) By order, Assistant. Registrar Deputy Commissioner of Income-tax, (Central) Ajmer v. Ram Narayan Birla