Kamal Shah (HUF), Hyderabad v. Income Tax Officer, Ward-4(5), Hyderabad

ITA 1088/Hyd/2017 | 2012-2013
Pronouncement Date: 30-11-2017 | Result: Allowed

Appeal Details

RSA Number 108822514 RSA 2017
Assessee PAN AAFHK9627Q
Bench Hyderabad
Appeal Number ITA 1088/Hyd/2017
Duration Of Justice 5 month(s) 2 day(s)
Appellant Kamal Shah (HUF), Hyderabad
Respondent Income Tax Officer, Ward-4(5), Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Allowed
Bench Allotted SMC
Tribunal Order Date 30-11-2017
Last Hearing Date 16-11-2017
First Hearing Date 17-11-2017
Assessment Year 2012-2013
Appeal Filed On 27-06-2017
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A-SMC HYDERABAD BEFORE SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NOS. A.Y APPELLANT RESPONDENT NO. 1087/HYD/2017 2011-12 SRI KAMAL SHAH HUF HYDERABAD. PAN- AAFHK9627Q THE ITO WARD 5(1) HYDERABAD. NO. 1088/HYD/2017 2012-13 SRI KAMAL SHAH HUF HYDERABAD. PAN- AAFHK9627Q THE ITO WARD 4(5) HYDERABAD. NO. 1089/HYD/2017 2013-14 SRI KAMAL SHAH HUF HYDERABAD. PAN- AAFHK9627Q THE ITO WARD 4(5) HYDERABAD. ASSESSEE BY : SHRI NALIN SHAH REVENUE BY : SHRI M.H. NAIK DATE OF HEARING : 17-11-2017 DATE OF PRONOUNCEMENT : 30-11-2017 ORDER PER SHRI B. RAMAKOTAIAH AM: THESE THREE APPEALS ARE BY ASSESSEE AGAINST SEPARATE BUT COMMON ORDERS OF CIT(A)-1 HYDERABAD DATED 23-03-17. SINCE COMMON ISSUE IS INVOLVED IN ALL THE APPEALS THESE ARE HEARD TOGETHER AND DISPOSED OF BY THIS ORDER. THE ISSUE IN THIS APPEALS IS WHETHER A.O IS CORRECT IN CHANGING THE METHOD OF VALUATION OF CLOSING STOCK. 2. BRIEFLY STATED ASSESSEE IS IN THE BUSINESS OF SELLING GOLD BULLION AND JEWELRY. ASSESSEE TRADES IN GOLD BULLION AND ALSO IN GOLD JEWELRY MANUFACTURING. ASSESSEE IS ADOPTING AVERAGE COST PRICE FOR VALUING THE CLOSING STOCK I.E AVERAGE PURCHASE PRICE OF WHOLE THE YEAR. FOR THE A.Y 2011-12 A.O NOTICED THAT ASSESSEE HAS VALUED THE CLOSING STOCK AS UNDER: 2 ITA NO. 1087 TO 1089/HYD/2017 SHRI KAMAL SHAH (HUF) HYDERABAD. WEIGHT IN GRAMS VALUE IN RS. COST PER GRAM OPENING STOCK 1100.00 16 02 625 1456.93 PURCHASE 61850.00 11 91 96 980 1927.19 CONSUMPTION 60550.00 11 64 31 015 1922.89 CLOSING STOCK 2400.00 43 68 412 1820.17 3. A.O NOTICED THAT THE STOCK OF BULLION PURCHASED UP TO 21- 03-2011 WAS TOTALLY SOLD AND SO THE STOCK PURCHASE AFTER 21-03- 2011 TOTALING TO 2 400 GRAMS SHOULD HAVE BEEN VALUED AT COST PRICE OR AVERAGE COST PRICE OF THAT STOCK AND REVALUED THE AVERAGE COST PRICE AS PER THE FOLLOWING TABLE: S.NO DATE OF PURCHASE QUANTITY IN GRAMS PURCHASE PRICE (IN RS.) AVERAGE COST (IN RS.) 1. 21.03.2011 300 6 36 450 2121.50 2. 21.03.2011 300 6 33 000 2110.00 3. 26.03.2011 100 2 11 700 2117.00 4. 28.03.2011 400 8 42 200 2105.50 5. 28.03.2011 1000 20 99 000 2099.00 6. 29.03.2011 300 6 29 400 2098.00 TOTAL 2400 50 51 750 2104.89 AVERAGE COST PRICE 2108.50 4. A.O THUS ADOPTED THE PURCHASED PRICE OF RS. 50 51 750/- AS AGAINST RS. 43 68 412/- ADOPTED BY ASSESSEE THEREBY MAKING AN ADDITION OF RS. 6 83 338/- TO THE CLOSING STOCK OF BULLION. LIKEWISE A.O ALSO REVALUED THE JEWELRY ALSO. A.O NOTICED THAT DURING THE YEAR MANY A TIME STOCK WAS COMING LESS THAN 300 GRAMS AND THEREFORE ADOPTING THE AVERAGE COST METHOD DOES NOT REFLECT THE CORRECT PROFITS AND THEREBY HE OPINED THAT ASSESSEE SHOULD HAVE ADOPTED FIFO METHOD. ACCORDINGLY HE VALUED THE GOLD ORNAMENTS @ 1950 PER GRAM THEREBY ARRIVING AT THE CLOSING STOCK VALUE AT RS. 61 95 772/- AS AGAINST RS. 56 78 841/-. THE DIFFERENCE OF RS. 5 16 913- WAS ADOPTED TOWARDS THE DIFFERENCE OF 3 ITA NO. 1087 TO 1089/HYD/2017 SHRI KAMAL SHAH (HUF) HYDERABAD. VALUE IN FINISHED GOODS. THUS UNDER BOTH THE HEADS THE A.O MADE AN ADDITION OF RS. 12 00 269/- TO THE INCOME RETURNED AT RS. 7 64 624/-. 5. IN THE FOLLOWING ASSESSMENT YEAR 2011-12 THE SUCCESSOR A.O ALSO ADOPTED THE SAME METHOD. AS THERE WERE NO CLOSING STOCK OF BULLION THERE IS NO QUESTION OF REVALUATION OF BULLION FOR THAT YEAR. HOWEVER A.O REVALUED THE STOCK OF GOLD ORNAMENTS BY ADOPTING THE VALUE AT RS. 2 796/- PER GRAM AND ARRIVED AT A CLOSING STOCK VALUE RS. 1 28 00 474/- AS AGAINST RS. 1 02 99 170/- ADOPTED BY ASSESSEE. OUT OF THE DIFFERENCE OF RS. 25 01 300/- SO ARRIVED AT BY THE ABOVE METHOD A.O REDUCED THE ADDITION OF RS. 12 00 269/- MADE FOR THE A.Y 2011-12 AND MADE A NET ADDITION OF RS. 13 LAKHS TO THE INCOME RETURNED AT RS. 8 80 650/-. 6. IN A.Y 2013-14 A.O SIMILARLY FOUND THAT THERE IS NO STOCK OF BULLION IN THAT YEAR BUT ADOPTED THE FINISHED GOODS AT RS. 2 850/- PER GRAM. BY DOING SO THE CLOSING STOCK VALUE WAS ADOPTED RS. 65 57 436/- AS AGAINST RS. 62 51 255/- ADOPTED BY ASSESSEE. HE ARRIVED AT THE DIFFERENCE AT RS. 3 06 381/-. HOWEVER AS AN ADDITION OF RS. 13 LAKHS WAS MADE FOR AY. 2013-14 WHICH IS TO BE CONSIDERED AS INCREASE IN OPENING STOCK A.O NOTICED THAT IT WOULD RESULT IN REDUCTION OF PROFIT BY RS. 9 93 620/-. SINCE IT IS RESULTING IN REDUCTION OF INCOME RETUNED BY ASSESSEE A.O WITHOUT GIVING BENEFIT OF ADDITION IN THE EARLIER YEAR ASSESSED THE INCOME AT RS. 8 41 840/- WHICH WAS RETURNED INCOME BY THE ASSESSEE. 7. AGGRIEVED ON THE ADDITIONS MADE BY A.O ASSESSEE PREFERRED APPEALS BEFORE THE LD. CIT(A) RAISING VARIOUS GROUNDS PARTICULARLY THAT THE ASSESSEE IS CONSISTENTLY ADOPTING AVERAGE COST METHOD AND THERE IS NO POSTPONEMENT OF PROFITS AND IT WAS ALSO CONTENDED 4 ITA NO. 1087 TO 1089/HYD/2017 SHRI KAMAL SHAH (HUF) HYDERABAD. THAT THE METHOD ADOPTED BY A.O WAS NOT CORRECT. IN THE THIRD YEAR I.E 2013-14 ASSESSEE SPECIFICALLY CONTESTED THAT THE BENEFIT OF OPENING STOCK SHOULD HAVE BEEN ALLOWED BY A.O WHEN HE HAS DISTURBED THE ASSESSEES METHOD OF VALUATION AND ADOPTED A NEW METHOD. 8. LD. CIT(A) HOWEVER REJECTED ALL THE CONTENTIONS. THERE IS NO NEED TO REPRODUCE THE ORDERS OF THE CIT(A) IN THIS ORDER AS THE OPINION EXPRESSED WHILE CONFIRMING THE BULLION THAT THE VALUE OF ADDITIONS NEED NOT BE CONSIDERED IN CLOSING STOCK IS DIFFERING FROM THE OPINION EXPRESSED WHILE THE CONFIRMING THE JEWELRY ADDITION. SUFFICE TO SAY THAT CIT(A) HAS CONFIRMED THE ACTION OF A.O WITHOUT EXAMINING THE FACTS OR THE GROUNDS RAISED. 9. LD. COUNSEL REFERRING TO THE METHOD ADOPTED BY ASSESSEE CONSISTENTLY OVER A PERIOD OF TIME SUBMITTED THAT THERE IS NO BULLION AS ON 31-03-2012 AND 31-03-13. THEREFORE ANY REVALUATION WILL ONLY RESULT IN SHIFTING THE PROFIT FROM ONE YEAR TO ANOTHER YEAR. MOREOVER IT WAS SUBMITTED THAT IF A.O IS OF THE OPINION THAT AVERAGE COST IS TO ADOPTED CONSEQUENTLY HE SHOULD HAVE ALLOWED OPENING STOCK BENEFIT IN THE A.Y 2013-14 WHICH WAS NOT DONE. REGARDING THE METHOD ADOPTED BY A.O IT WAS SUBMITTED THAT THE CLOSING STOCK IS TO BE VALUED EITHER AT COST PRICE OR AT MARKET PRICE WHICHEVER IS LESS. THIS FUNDAMENTAL PRINCIPLE WAS NOT FOLLOWED BY A.O WHILE REVALUING THE STOCK. IT WAS SUBMITTED THAT REFERRING TO THE VALUATION ADOPTED BY A.O THAT THE STOCK PURCHASED ON 21-03-2011 WAS PRICED AT RS. 2 121.50 PER GRAM WHEREAS THE VALUE AS ON 29-03-2011 IS RS. 2 090/- PER GRAM THE VALUE AS ON 31-03-2011 WOULD BE FURTHER LESS. THEREFORE VALUE AT RS. 2 108/- BY A.O ITSELF IS NOT CORRECT AS THE MARKET VALUE IS MUCH LESS THAN THE VALUE ADOPTED. THE MAIN 5 ITA NO. 1087 TO 1089/HYD/2017 SHRI KAMAL SHAH (HUF) HYDERABAD. CONTENTION WAS THAT ASSESSEE IS CONSISTENTLY FOLLOWING THE AVERAGE COST METHOD AND THIS HAS BEEN ACCEPTED IN EARLIER YEARS AND ASSESSEE CONSISTENTLY SHOWING THE PROFITS IN ALL THE YEARS. THEREFORE THERE IS NO NEED TO DISTURB THE METHOD ADOPTED BY ASSESSEE. MOREOVER EXCEPT IN BULLION IN GOLD JEWELRY FIFO METHOD IS NOT APPROPRIATE AS SOME OF THE JEWELRY PREPARED MIGHT HAVE BEEN NOT SOLD DURING THE YEAR AND IS VERY DIFFICULT TO IDENTIFY WHICH PART OF GOLD BULLION HAS GONE INTO JEWELRY MANUFACTURING THEREFORE ASSESSEE HAS ADOPTED AVERAGE COST PRICE WHICH INCLUDED THE COST OF GOLD PLUS MAKING CHARGES AND MANUFACTURING CHARGES ETC. INCIDENTAL TO MANUFACTURING OF JEWELRY. THUS THERE IS NO LOSS OF REVENUE IN THE METHOD ADOPTED BY ASSESSEE. THE ARGUMENT OF THE A.O THAT THE STOCK HAS COME TO ZERO DOES NOT APPLY TO THE GOLD JEWELRY AS THERE WAS ALWAYS STOCK AVAILABLE ON ANY GIVEN POINT OF TIME AND COUNSEL REFERRED TO THE ANNEXURE GIVEN TO THE ASSESSMENT ORDER IN SUPPORT OF HIS CONTENTIONS. 10. LD. DR HOWEVER RELIED ON THE ORDERS OF A.O AND CIT(A). 11. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES. THERE IS NO BASIS FOR ADOPTING THE AVERAGE COST METHOD BY A.O JUST BECAUSE THERE WAS NO STOCK AS ON 20-03-2011. ASSESSEE WAS CONSISTENTLY VALUING THE BULLION ON AVERAGE COST PRICE CONSIDERING THE TOTAL PURCHASES IN THE YEAR. A.O FORGOT THE PRINCIPLE THAT ASSESSEE IS REQUIRED ADOPT THE CLOSING STOCK VALUATION EITHER AT COST PRICE OR AT MARKET PRICE WHICHEVER IS LESS A.O HAS NOT BOTHERED TO VERIFY THE MARKET PRICE AS ON 31- 03-2011 WHILE DISTURBING THE ASSESSEES VALUATION. AS SEEN FROM THE TABLE FURNISHED BY A.O HIMSELF THE VALUE AS ON 21-03-2011 WAS RS. 2 121.50 PER GRAM WHICH HAS COME DOWN TO RS. 2 098/- PER GRAM AS ON 29-03-2011 ITSELF THEREFORE ADOPTING RS. 2 108.50 6 ITA NO. 1087 TO 1089/HYD/2017 SHRI KAMAL SHAH (HUF) HYDERABAD. PER GRAM AS AVERAGE COST PRICE IS NOT CORRECT. MOREOVER IT IS TRITE LAW THAT WHENEVER A.O REVALUES THE CLOSING STOCK HE HAS TO DISTURB THE OPENING STOCK AS WELL SO AS TO MAKE IT A CONSISTENT PRACTICE. IN THIS CASE ASSESSEES AVERAGE STOCK PRICE ADOPTED IN EARLIER YEAR WHICH BECAME OPENING STOCK THIS YEAR HAS NOT BEEN DISTURBED THEREFORE THE METHOD ADOPTED BY A.O IS NOT ONLY FAULTY BUT ALSO NOT ACCORDING TO THE GUIDELINES ISSUED ON THIS REGARD OR THE PRINCIPLES OF LAW. 11.1 IT IS ALSO NOTICED THAT THERE IS AN ADDITION OF RS. 6 83 338/- TOWARDS CLOSING STOCK OF BULLION IN A.Y 2011-12. THIS SHOULD HAVE BEEN ADOPTED AS OPENING STOCK IN THE BULLION TRADED DURING YEAR AND THE PROFIT EARNED IN THE BULLION TRADING SHOULD HAVE BEEN BROUGHT DOWN TO THAT EXTENT AS THERE IS NO CLOSING STOCK. HOWEVER A.O INSTEAD OF GIVING CREDIT OF RS. RS. 5 16 931/- I.E ADDITION OF CLOSING STOCK FINISHED GOODS HAS GIVEN CREDIT OF ENTIRE OF RS. 12 00 269/- TO THE STOCK VALUATION OF FINISHED GOODS. THUS THERE IS INCONSISTENCY IN A.OS ACTION ITSELF. NOT ONLY THAT WHEN THE METHOD ADOPTED BY A.O HAS RESULTED IN REDUCTION OF PROFIT IN A.Y 2013-14 THE A.O WHO MADE THE ADDITION IN EARLIER YEARS SIMPLY REFUSED TO REDUCE THE PROFIT BY GIVING CREDIT TO THE AMOUNT OF RS. 13 LAKHS MADE AN ADDITION IN A.Y 2012-13. THIS PROVES THAT THE METHOD ADOPTED BY A.O IS FAULTY. THERE IS ALSO NO CONSISTENCY IN THE APPROACH OF A.O. HE CANNOT BLOW HOT AND COLD AT THE SAME TIME. IF HE DISTURBS THE VALUATION IN A.Y 2011-12 HE SHOULD NATURALLY FOLLOW THE SAME METHOD IN A.Y 2013-14 AND REDUCE THE PROFITS OFFERED BY ASSESSEE. THIS INDICATES THAT THE METHOD ADOPTED BY A.O IS TOTALLY NOT ACCEPTABLE EITHER ON THE PRINCIPLES OF LAW OR ON THE FACTS. THEREFORE I HAVE NO HESITATION IN STATING THAT THE METHOD ADOPTED BY A.O IN DISTURBING THE 7 ITA NO. 1087 TO 1089/HYD/2017 SHRI KAMAL SHAH (HUF) HYDERABAD. ASSESSEES METHOD OF VALUATION IS NOT CORRECT. THE ASSESSEES GROUNDS ON THIS ISSUE ARE ALLOWED A.O IS DIRECTED TO ACCEPT THE VALUATION AS OFFERED BY ASSESSEE WHICH DOES NOT RESULT IN EITHER SUPPRESSION OF PROFITS OR POSTPONEMENT OF PROFITS. 12. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD. AND OTHERS IN ITA NO. 358 ITR 295 (SC) HAS HELD THAT IT IS THE DUTY OF THE A.O TO TAKE A PRAGMATIC VIEW RATHER THAN PEDANTIC APPROACH. THE HONBLE SUPREME COURT ALSO HELD THAT THERE IS NO NEED FOR THE REVENUE TO CONTINUE WITH THE LITIGATION WHEN IT WAS QUITE CLEAR THAT NOT ONLY FRUITLESS (ON MERITS) BUT ALSO THAT IT MAY NOT HAVE ADDED ANYTHING MUCH TO THE PUBLIC COFFERS. KEEPING IN MIND THE ABOVE OBSERVATIONS OF THE HONBLE SUPREME COURT IT IS VERY CLEAR THAT THE A.OS APPROACH IN THREE DIFFERENT ASSESSMENT YEARS IS NOT CONSISTENT AND BY THE END OF THE THIRD YEAR THERE IS NO REAL GAIN TO THE REVENUE BY DISTURBING THE CLOSING STOCK VALUATION. IN VIEW OF THAT I HAVE NO HESITATION IN SETTING ASIDE THE ORDER OF CIT(A) AND DIRECTING THE A.O TO DELETE THE ADDITION SO MADE AND ACCEPT THE ASSESSEES VALUATION AS SUCH. 13. IN THE RESULT ALL THE APPEALS FILED BY ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER 2017. SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD DATED: 30 TH NOVEMBER 2017. KRK 8 ITA NO. 1087 TO 1089/HYD/2017 SHRI KAMAL SHAH (HUF) HYDERABAD. 1 KAMAL SHAH HUM C/O NALIN SHAH & CO CAS 4-3-41/1 1 ST FLOOR HILL STREET RANIGUNJ SECUNDERABAD. 2 ITO WARD 5(1) HYDERABAD 3 4 ITO WARD 4(5) HYDERABAD CIT(A)-1 HYDERABAD 5 6 7 PCIT-1 HYDERABAD. THE DR ITAT HYDERABAD. GUARD FILE