IN INCOME TAX APPELLATE TRIBUNAL, B BENCH, KOLKATA Before Shri P.M.Jagtap, Accountant Member and Shri S.S.Viswanethra Ravi, Judicial Member I.T.A. No. 202/KOL/2015 A.Y: 2011-12 Asstt. Commissioner of Vs. Jewel India Jewellers Income-tax,Cir-43, Kolkata PAN:AACFJ 4832H (Appellant) (Respondent) Appearances by: Shri Niraj Kumar, CIT, Ld. Sr.DR for revenue Shri S.M Surana, Advocate, Ld.AR of assessee Date of hearing : 18-07- 2016 Date of pronouncement : 04 -10-2016 O R D E R Shri S.S. Viswanethra Ravi, JM :- This appeal by Revenue is directed against order dated 13-11-2014 of Commissioner of Income Tax(Appeals),XXX, Kolkata for assessment year 2011-12. 2. In this appeal, Revenue has raised following effective grounds:- ( i) Th at on t h e f ac t s d in t h e c ir cu m st c e s o f th e ca s e Ld . CI T(A ) h s e r r ed in d el et in g t h e ad d it i on on u n d e rv alu t i on of cl o sin g st o ck f o r R s .8 ,73 ,4 6, 711/ - wi t h ou t c on sid e rin g t h e fa ct t h at t h e s s e ss e e h as n ev e r cl ai me d t h e va lu e o f st o ck o f g ol d f or t h e F . Y r . 2004 - 05, 2 005- 06 in t h e valu at i on o f c l os in g st o ck f or t h e . Y r . 2 009- 1 0 d u rin g t h e c ou rs e o f s s e ss men t p r o c e ed in g s fo r t h e . Y r. 2 009 - 10 . B u t t h e sam e wa s cl aim ed ITA No. 202/Kol/15 M/s. Jewel India Jewellers 1 in t h e c ou r s e o f s s e ss m en t p r oc e e d in g s f o r t h e . Y r . 201 1- 12 in t h e v alu t i on o f cl o sin g s t oc k . T h i s d is c r ep n c y is o f v er y s e ri ou s n t u r e n d c on t rad ic t s t h e cl ai m m ad e b y t h e ss e ss e e t h at it h s c on si st en t l y f ol l ow ed t h e UF O m et h o d o f c l o sin g st o ck . ( ii) Th t on t h e fa c t s d in t h e ci r cu mst c es of t h e c s e Ld . CI T(A ) h s e r r ed in n ot co n s id e rin g t h e f ct t h at th e as s e ss e e h as at t ri b u t ed t h e e n t ir e v alu e ad d it i on t o t h e s t ock of fin n cia l y ea r 2 010- 11 b u t t h e s s e ss e e h s n ot g i v en y c on cl u si v e p r o o f t h at n o valu e ad d it i on w as m ad e t o t h e st o ck o f f in ci al y ea r 200 4- 0 5, 20 05 - 06 d 20 06- 07 . ( iii) Th at t h e p et i t ion e r c ra v e s l ea v e t o ad d , m end d wit h d r aw y g r ou n d of p p ea l at t h e t i me o f h e ring . 3. Brief facts of case are that assessee is firm and manufacturer of jewellery of gold, diamond and other precious and semiprecious stones. Assessee filed its return declaring total income of Rs.87,80,980/-for assessment year 2011-12 on 31-08-2011. Under scrutiny notice u/s 143(2) and thereafter, notice u/s. 142(1) were issued, in response to which assesse filed written submissions and documents. 4. During such proceedings, AO found from tax Audit Report value of closing stock was disclosed at Rs.14,26,62,442/- and further noticed that raw material was valued at lower of cost or market price and finished goods was valued at lower of estimated cost or market price. AO was of view that Assessee under valued closing stock and in this regard assessee furnished corresponding valuation of closing stock as on 31-03-2011 is as under: Particulars Quantity Amount (in Rs.) Gold 68084.120 grams 65,694,587.00 Diamond 5660.298 ct. 69,936,269.00 ITA No. 202/Kol/15 M/s. Jewel India Jewellers 2 Ruby 9722.480 ct 3,100,822.00 Emerald 4498.475 ct. 1,966,376.00 Pearls 8039.979 grams 606,345.00 Blue Sapphire 3190.980 ct. 546,735.00 Multi Sapphire 3340.580 ct 291,518.00 Semi Precious 11372.620 278,995.00 Imitation Stone 5086.449 ct. 202,795.00 Total 142,624,442.00 5. Basing on above information as provided by Assessee, AO summarized valuation of stock as under: Total value of stone & other items Rs. 7,69,29,855/- Add: Gold Value Rs. 6,56,94,587/- Total value of stock Rs.14,26,24,442/ Total Gold stock in terms of pure 107167.19 grams Gold Less : Gold deposit as claimed by 39083.07 grams Assessee Net gold stock in terms of pure gold 68084.12 grams 6. AO was of view, that assessee deliberately undervaluing stock by following LIFO method of valuation of gold stock and proposed FIFO method of valuation of stock of gold to be appropriate for valuation of gold stock. ITA No. 202/Kol/15 M/s. Jewel India Jewellers 3 7. In reply to proposition as made by AO, Assessee submitted that it purchases gold and stones, manufactures jewellery from such gold, also dismantles jewellery already manufactured and manufactures fresh jewellery out of same since designs goes out of market within very short time. 8. assessee also submitted that it consistently following LIFO method for valuation of closing stock since its inception. This system is consistently followed and accepted in all earlier years including in scrutiny assessment for earlier years including assessment year 2006-2007 in which survey was conducted. 9. According to AO, assessee has shown value addition to stock of F.Y. 2010-11, but assessee has not provided any conclusive proof that no value addition was made to stock of F.Y s 2004-05, 2005-06 and 2006-07. AO opined that old receipt of gold or gold ornaments was not subjected to above value addition. Bu t d u rin g t h e en t i r e c ou r s e o f s s es s men t p r o c e ed in g s t h e as s e ss e e h s f ail ed t o su b mit y su ch R eg i st e r b y wh ich t h e as s e ss e e can e st b l ish t h t t h e val u e o f g o ld st o ck o f t h e F . Y s . 20 04- 0 5, 200 5- 06 , 70 06- 0 7 d s o o n wa s l yin g as cl o sin g st o ck . H e al s o f ail ed t o p r o vid e su f fi ci en t e vid e n c e d p r o o f r eg rd in g s t o h o w t h e r at e s f o r F . Y s 200 4-05 , 2 0 05- 06 d 2 006- 07 w e r e d e ri v ed b y t h e s s es s e e . In t h e b s e n c e o f y d o cu m en t r y p r o o f i t i s n ot p os si b le t o c c ep t t h e ra t e s p e rt ain in g t o F . Y s 2004- 05 , 2005 - 06 n d 20 06- 07 s cla i me d b y t h e as s e s s e e. F u rt h e r , it i s s e en d u rin g t h e c ou r s e o f as s e ss m en t p r oc e e d in g f or t h e .Y r . 200 9- 10 t h e s s e ss e e h s cl aim e d t h e v alu e of cl o sin g st oc k c o mp r isin g on l y of cl o sin g st o ck o f rat e o f F .Y .- 2006- 07 d F . Y. - 2007- 08 d n ot o f F .Y . - 20 04- 0 5 n d 2005- 06 . Th e sa m e wa s d u ly r ef l ect ed in p ra n o . 11 o f as s e ss m en t o rd e r u / s .14 3( 3) d at ed 2 7 / 12/ 2 011 , t h e sam e i s r ep r od u c ed s b el o w. Th e s can n e d c op y o f t h e r el ev t p ag e o f t h e s s e ss m en t o rd e r s w ell as t h e s can n e d c o p y o f ITA No. 202/Kol/15 M/s. Jewel India Jewellers 4 n exu r e p ag e 3 o n wh i ch p ar 1 1 of s st t . O rd e r o f . Y r. 2009- 10 . H en c e, i t is c r ys t al c l ea r t h t t h e s s es s e e h as n ot c on s is t en t l y f o ll ow e d t h e LIF O m et h od o f v alu t i on of c l osi n g st o ck s 'i s cl aim ed b y t h e as s e s s e e . F r om t h e ab o v e su b mis si on i t is s e e n h at t h e as s e s se e h as n e v er cl aim ed t h e valu e o f st o ck o f g o ld f o r t h e F . Y r . 20 04- 05 , 200 5- 06 d u r in g t h e as s e s sm en t p r o c e ed in g s r ela t in g t o s s e ss m en t y ea r 2009- 10 b u t in t h e F .Y r . 20 10- 1 1 t h e s se s s e e c on si d er e d t h e valu e of st o ck of g old f o r F . Y r . 20 0: 4- 05 & 200 5- 06 . T h is d is c r ep n c y i s o f ve r y s e ri ou s n t u r e d c on t ra di ct s t h e cla im m ad e b y t h e as s e ss e e t h at h e h s c on si st en t ly f oll o w ed t h e LIF O m et h o d o f cl o sin g s t oc k . 10. AO did not accept submission of assessee regarding application of LIFO method for valuation of stock of gold. AO applied gold rate as it was existing in F.Y 2010-11 Rs.1993.50 per gram and modified value of gold stock at Rs.8,73,46,711/- and added same to total income of assessee on account of under valuation of stock. 11. CIT-A observed that AO did not give any reason for rejection of LIFO method for valuation of gold stock and also found fault with application of rate of gold per gram in F.Y.2010-11 to FY s 2004-05, 2005-06, 2006-07 and 2010-11 and found assessment order made without any basis. CIT-A deleted addition of Rs.8,73,46,711/-as made by AO by following first appellate order dt:08-02-2013 for A.Y.2009-10. 12. Having aggrieved by order of CIT-A, Revenue before this Tribunal by raising aforementioned grounds. Ld. DR relied on order of AO. ITA No. 202/Kol/15 M/s. Jewel India Jewellers 5 13. At time of hearing, Ld.AR submits that appellant Revenue challenged order of CIT-A passed for A.Y 2009-10 before this Tribunal and submitted that Tribunal upheld order of CIT-A. 14. Heard rival submissions and perused material evidence on record. We find that observation of Coordinate Bench that AO did not give any justifiable reason for rejection of LIFO method which has been followed consistently by Assessee and which method Revenue has been accepting for earlier years. relevant portion of which is reproduced herein below: 7.2. It is quite natural that jewellery being fashion industry, old stocks would most of times remain with assessee and revenue cannot expect old stocks to be sold out first though it would remain in wish list of jeweller. We find that aforesaid valuation exactly fits into accepted method of valuation for jeweller as approved in case of Cochin Tribunal supra. We also find that decision of Chandigarh Tribunal in case of DCIT vs Vipin Aggarwal in ITA No. 450/Chd/2010 dated 23.7.2010 wherein it was held that :- 6. We have heard rival contentions and perused records. issue arising in present appeal is with regard to valuation of closing stock. assessee is jeweler and had declared closing stock of Rs. 3,79,84,232/- as on 31.3.2007. contention of assessee was that it was valuing closing stock at cost. Out of total closing stock of 54,756 gms, assessee claims that gold weighing 31,905 gms was its opening stock valued @ Rs. 482/- per gram. balance stock available out of purchases made during year was 22850 gms which was valued at cost price of Rs. 905/- per gram. contention of assessee was rejected by Assessing Officer as according to Assessing Officer assessee was not following one of methods specified in accounting standard AS-2 issued by Institute of Chartered Accountants of India for determining cost of inventories. explanation of assessee in this regard was that opening stock of 31950 gms was valued at Rs. 482/- per gram and similar value be adopted to work out value of closing stock. It as further explained that said jewellery being old conventional jewellery was not sold during year and was available at close of year. balance stock was out of purchases made during year less sales made by ITA No. 202/Kol/15 M/s. Jewel India Jewellers 6 assessee. Assessing Officer while re-computing value of stock has accepted weights in grams of stocks but had only revalued stock by adopting figure higher than rate disclosed by assessee. We find no merit in said addition being made by Assessing Officer where valuation of closing stock has been changed vis-a-vis its value and not because of any difference in quantity of stock. assessee was consistently following particular method of accounting which is being accepted from year to year and in absence of any contrary findings by Assessing Officer, there is no merit in not adopting method of valuation of stock being consistently followed by assessee. Further we find support from ratio laid down by Hon'ble Supreme Court in Chainrup Sampat Ram Vs. CIT 24 ITR 481 (SC) (supra) wherein it has been held that value of stock cannot be appreciated higher than cost because closing stock is not source of profit for assessee. It has also been held by Hon ble Supreme Court that closing stock is to be valued either at cost or market value, whichever is low. In facts and circumstances of present case, we are in conformity with order of CIT(A) and uphold same. There is no merit ill adopting weighted average cost method for valuation of inventory of stock in circumstances of case. We confirm deletion of addition made by Assessing officer totaling Rs.52,23,753/-. ground of appeal raised by Revenue is thus dismissed. 7.3. In any event, we hold that no addition could be made towards value of stock because closing stock cannot be construed as source of profit for assessee. We place reliance on decision of Hon ble Supreme Court in case of Chainrup Sampat Ram vs CIT reported in 24 ITR 481 (SC) in support of this proposition. 7.4. We find that assessee has been consistently following LIFO method of accounting for valuation of its closing stock of gold which has been accepted by department in earlier years even in scrutiny assessment proceedings of assessee. Then there is no justifiable reason to reject same method during year under appeal. In this regard, we place reliance on decision of Hon ble Apex Court in case of United Commercial Bank vs CIT reported in 240 ITR 355 (SC) wherein principles were laid down for valuation of assets at page 366. We find that following decisions also support case of assessee:- CIT vs Sant Ram Mangat Ram reported in (2005) 275 ITR 312 (P&H) CIT vs Ema India Ltd reported in (2006) 296 ITR 510 (All) CIT vs Jagatjit Industries Ltd reported in (2011) 339 ITR 382 (Del) CIT vs Shah Doshi & Co reported in (1982) 133 ITR 23 (Guj) ITA No. 202/Kol/15 M/s. Jewel India Jewellers 7 7.5. In view of aforesaid findings in facts and circumstances of case and respectfully following various judicial precedents relied upon hereinabove, we do not find any reason to interfere with order of Learned CITA. Accordingly grounds raised by revenue are dismissed. 15. Coordinate while dealing with issue on hand discussed decision of Cochin Tribunal in case of jeweller in ITO vs Sree Padmanabha Jewellery Mart reported in 19 ITD 816 as relied by Assessee wherein it approved LIFO method. Coordinate bench also discussed decision of Chandigarh Tribunal in case of DCIT vs Vipin Aggarwal in ITA No. 450/Chd/2010 dated 23.7.2010 which found no merit in not adopting method of valuation of stock being consistently followed by assessee which is being accepted from year to year in absence of any contrary findings by Assessing Officer. In view of finding of Coordinate Bench for A.Y 2009-10, we hold that no addition is maintainable made on account of value of closing stock and order of CIT-A is justified and grounds raised are dismissed. 16. In result, appeal filed by Revenue is dismissed. Order Pronounced in Open Court on 4 t h October, 2016 Sd/- Sd/- P.M JAGTAP S.S.VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 04/10/2016 ITA No. 202/Kol/15 M/s. Jewel India Jewellers 8 Copy of order forwarded to: 1. APPELLANT ACIT, circle-43, 3 Govt Place (W),Kolkata-1. 2 Respondent M/s. Jewell India Jewellers, 41, Monohar Dass St., Kolkata-700 007 3. CIT(A), Kolkata 4. CIT, Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order, Asstt. Registrar. ITA No. 202/Kol/15 M/s. Jewel India Jewellers 9 Asstt. Commissioner of Income-tax, Cir-43, Kolkata v. Jewel India Jeweller