M/s Dwarka Jewellers, Bhubaneswar v. ITO, Bhubaneswar

ITA 3/CTK/2009 | 2005-2006
Pronouncement Date: 23-07-2010 | Result: Partly Allowed

Appeal Details

RSA Number 322114 RSA 2009
Assessee PAN AACFD5441Q
Bench Cuttack
Appeal Number ITA 3/CTK/2009
Duration Of Justice 1 year(s) 6 month(s) 16 day(s)
Appellant M/s Dwarka Jewellers, Bhubaneswar
Respondent ITO, Bhubaneswar
Appeal Type Income Tax Appeal
Pronouncement Date 23-07-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 23-07-2010
Date Of Final Hearing 20-07-2010
Next Hearing Date 20-07-2010
Assessment Year 2005-2006
Appeal Filed On 06-01-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE HONBLE SHRI D.K.TYAGI JUDICIAL MEMBER. /AND HONBLE SHRI K.K.GUPTA ACCOUNTANT MEMBER . / I.TA.NO . 03/CTK/2009 / ASSESSMENT YEAR 2005 - 06 M/S.DWARKA JEWELLERS 138 ASHOK NAGAR BHUBANESWAR. PAN AACFD 5441 Q - - - VERSUS - . INCOME - TAX OFFICER WARD 1(29) BHUBANESWAR. / A PPELLANT RESPONDENT FOR THE APPELLANT : SHRI P.K.MISHRA AR FOR THE RESPONDENT : SHRI A.S.MONDAL DR / ORDER SHRI K.K.GUPTA ACCOUNTANT MEMBER . THE ASSESSEE IS IN APPEAL AGITATING THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ON THREE ISSUES AS CONSIDERED BY THE LEARNED CIT(A) ON THE BASIS OF FACTS BROUGHT ON RECORD BY THE ASSESSING OFFICER IN HIS ORDER U/S.143(3) OF THE INCOME - TAX ACT 1961. 2. THE ASSESSE ES COUNSEL HAS FILED CONSOLIDATED REVISED G ROUNDS WHICH INTER ALIA AGITATE (I) EXPENDITURE DISALLOWED AS LABOUR CHARGES AMOUNTING TO RS.25 000 (II) ADDITION ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK AMOUNTING TO RS.18 65 290 AND (III) DISALLOWANCE UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT FOR NON - DEDUCTION OF TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 194J ON ADVERTISING AMOUNTING TO RS.4 66 176. 3. THE BRIEF FACTS AS WERE REITERATED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE PUTTING FORTH HIS ARGUMENTS ARE THAT THE ASSESSEE IS A RETAIL TRADER OF SILVER AND GOLD JEWELLERY ITEMS AND FILED ITS RETURN OF INCOME AT RS.1 45 231 FOR THE IMPUGNED ASSESSMENT YEAR. I N PROCEEDINGS U/S.143(3) THE LEARNED ASSESS ING OFFICER SOUGHT DETAILS OF VARIOUS EXPENSES WHEN HE NOTED THAT A SUM OF RS.4 66 177 WAS CLAIMED AS 2 ADVERTISING EXPENSES BEING AMOUNT PAID TO VARIOUS COPY WRITERS AND ART PROMOTERS WHICH HE HELD AS PER SUB - CLAUSE (I) OF CLAUSE (B) TO FIRST PROVISO OF S ECTION 194J FOR TAX DEDUCTION AT SOURCE. FINDING THE SAME NOT DONE HE ADDED RS.4 66 177 UNDER THE PROVISIONS OF SECTION 40(A) (IA). HE ALSO CONSIDERED THE TR ADING RESULT OF THE ASSESSEE IN THE TRADING ACCOUNT WHEREIN THE ASSESSEE CLAIMED EXPENSES OF RS.5 03 218 AS LABOUR CHARGES WHICH WERE NOT SUPPORTED WITH VOUCHERS . IN VIEW OF DEFECTS A LUMP SUM AMOUNT OF RS.25 000 WAS DISALLOWED THERE FROM. IN THE AUDIT REPORT HE HAD OBSERVED THAT THE QUANTITY DETAILS OF THE ITEMS OF GOLD ORNAMENTS HAD NOT BEEN REFL ECTED WHERE HE NOTED THAT THE VALUATION OF CLOSING STOCK WAS WORKED OUT AT THE RATE OF RS.483 PER GRAM WHICH IS LESS BY RS.70 PER GRAM OF THE PURCHASE PRICE AT RS.552.IN RESPONSE TO A QUERY THE ASSESSEE FURNISHED EXPLANATION FOR VALUATION WHICH INTERALIA WAS ON THE BASIS OF CONSISTENT SYSTEM OF VALUATION OF GOLD BEING THE CONTENT OF GOLD IN THE JEWELLERY ITEMS TRADED AND ONLY THE WEIGHT OF GOLD IN SUCH JEWELLERY HAD BEEN KEPT RECORDED . THE ASSESSING OFFICER INSISTED THAT THE ITEMS OF JEWELLERY SHOULD HAVE BEEN IDENTIFIED AND THEREFORE IN CASE OF GOLD WHICH PRICES ARE FLUCTUATING AND/ ARE EVER RISING OUGHT TO HAVE BEEN VALUED ATLEAST AT THE COST PRICE IF NOT AT THE MARKET PRICE. HE BELIEVED THAT THE VALUATION OF CLOSING STOCK AT LOWER OF COST OR MARKET VALU E SHOULD HAVE BEEN FOLLOWED WHICH RESULTED IN ASSESSING OFFICER ADDING BACK RS.70 PER GRAM TO THE VALUATION OF THE CLOSING STOCK RESULTING IN ADDITION OF RS.18 65 290. 4. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE LEARN ED CIT(A) CONSIDERED THE VARIOUS ITEMS OF ADDITION/DISALLOWANCES AND CONFIRMED THE DISALLOWANCE U/S.40(A)(IA) ON THE BASIS OF ASSESSEES SUBMISSION BEFORE HIM THAT WHENEVER THE DEDUCTION AT SOURCE WOULD BE MADE THE EXPENSES WOULD BE CLAIMED FOR DISALLOWANC E IN THAT YEAR. FOR THE LABOUR CHARGES THE LEARNED CIT(A) NOTED THAT THE ASSESSEE HAD NOT BEEN ABLE TO REMOVE THE DEFECTS AS POINTED OUT BY THE ASSESSING OFFICER IN THE VOUCHERS AND THEREFORE APPROXIMATELY ONLY 5% HAS BEEN DISALLOWED WHICH IS REASONABL E. ON THE ISSUE OF VALUATION OF CLOSING STOCK HOWEVER THE LEARNED CIT(A) CONSIDERED THE ASSESSEES SUBMISSION ON TABULATION SHOWING AVERAGE PRICE OF PURCHASE AND AVERAGE PRICE OF CLOSING STOCK CALCULATED FOR AND FROM THE ASSESSMENT YEAR 2001 - 02 TO ASSESS MENT YEAR 2005 - 06 AND OBSERVED THAT IN A CITED CASE BEFORE 3 HIM THE ISSUE HAD BEEN RESTORED TO THE ASSESSING OFFICER TO RECONSIDER THE VALUATION AND FORMED THE OPINION ON THE FACTS OF THE ASSESSEES CASE THAT THE ASSESSEE HAD PURCHASED JEWELLERY DURING THE YEAR AND SOLD DURING THE YEAR THEREFORE THE CLOSING STOCK CONTINUED TO HAVE THE ITEMS OF OPENING STOCK WHICH VALUE WAS LESS THAN THE PURCHASE PRICE DURING THE YEAR. HE OPINED THAT THE ITEM - WISE JEWELLERY HA D NOT BEEN GIVEN AS THE NUMBER WAS SIGNIFICANT A S NOTED BY THE AUDITOR IN HIS AUDIT REPORT ONLY INDICATED THAT NO PROPER STOCK REGISTER WAS MAINTAINED. HE ALSO NOTED THAT A SMALL AMOUNT OF RS.5 03 218 ONLY WAS SPENT TOWARDS LABOUR CHARGES WHICH DID NOT IN ANY WAY PARTAKE VALUATION OF THE CLOSING STOCK. INSTEAD OF LIFO METHOD WHICH THE ASSESSEE HA D ADOPTED HE OPINED THAT IT SHOULD BE FIFO METHOD AND THEREFORE THE VALUATION OF THE CLOSING STOCK AS COMPUTED BY THE ASSESSING OFFICER WAS CORRECT. 5. THE DETAILS WERE CONSIDERED BY THE LEARNED CIT(A) GIVEN A T PAGE 16 OF THE PAPER BOOK. 6. THE LEARNED COUNSEL FOR THE ASSESSEE PURSUED THE CONSOLIDATED REVISED GROUNDS AS NOTE D ABOVE AND SUBMITTED THAT HE DID NOT WISH TO PRESS GROUND RELATING TO DISALLOWANCE OF LABOUR CHARGES AMOUNTING TO RS.25 000. THEREFORE T HIS GROUND NOTED AS NOT PRESSED IS DISMISSED. 7. ON THE UNDERVALUATION OF CLOSING STOCK THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS DOING RETAIL BUSINESS AND DEALING WITH HUGE QUANTITY OF ITEMS OF GOLD AND SILVER JEWELLERY WHICH C ONT ENT GOLD THE PRICE OF WHICH IS FLUCTUATING AND RISING DAY BY DAY. THE ASSESSEE ADOPTED THE VALU ATION OF CLOSING STOCK AT COST BY APPLYING WEIGH T ED AVERAGE METHOD WHICH HE HAS BEEN CONSISTENTLY FOLLOWING AS CAN BE SEEN IN THE CHART PLACED AT PAGE 16 OF THE PB . TH E ACCOUNTING STANDARD PRESCRIBES ADOPTING A CONSISTEN T SYSTEM OF VALUING THE CLOSING STOCK WHICH THE ASSESSEE HA D ADOPTED WHICH HAVING INBUILT MECHANISM TO TAKE CARE OF ITEMS WHICH ARE NOT SOLD OR IS SLOW MOVING OR H A VING LESS QUANTITY OF GOLD TH EREIN. AS HAS BEEN RIGHTLY NOTED THAT THE PRICE OF GOLD IS RISING AND THE ASSESSEE HAD BEEN VALUING ITS STOCK AT LOWER OF COST OR MARKET VALUE ADOPTING THE VALUE AT RS. 70 PER GRAM LESS THAN THE AVERAGE PURCHASE 4 PRICE AT RS.551 2.38 PER GRAM WAS IN ACCORDAN CE WITH THE PRINCIPLES OF CONSISTEN T SYSTEM OF ACCOUNTING AT LOWER OF COST O R MARKET PRICE. THE ASSESSING OFFICER THEREFORE ERRED IN HOLDING THAT WHEN THE AVERAGE COST PRICE IS RS.552.38 PER GRAM THE ASSESSEE COULD NOT VALUE STOCK AT RS.483.44 PER GRAM WHICH IS EVEN LESS THAN THE MARKET PRICE AND THE COST PRICE AS WELL. FURTHER THE LEARNED CIT(A) THEREAFTER FURTHER OPINED THAT THE ASSESSEE OUGHT TO HAVE SOLD THE ITEMS IN THE OPENING STOCK AND TH EN SHOWED THE ITEMS OF PURCHASES LATER IN ORDER NO T TO AV ERAGE PURCHASE PRICE RESULTING IN THE VALUATION AT LOWER OF COST AND MARKET PRICE. HE POINTED OUT THAT IT IS NOT THE CASE OF THE DEPARTMENT THAT THE ASSESSEE HAS TO VALUE ITS STOCK WHEN PROFITS ARE NOT GENERATED. THE OPENING STOCK AND THE CLOSING STOCK REM AIN ED THE S AME IN SO FAR AS QUANTITY IS CONCERNED. THEREFORE BY NO STRETCH OF IMAGINATION THE LIFO OR FIFO METHOD COULD BE ADOPTED WAS EXPLAINED TO THE AUTHORITIES . A PRUD ENT BUSINESSMAN BEFORE FOLLOWING RECOGNIZED PRINCIPLES/METHOD PRESCRIBED IN THE ACC OUNTING STANDARD HAS TO CONSIDER THE NATURE OF ITS BUSINESS WHICH APPROPRIATELY WAS ADOPTED AT WEIGHTED AVERAGE COST METHOD FOR VALUATION OF THE STOCK. IT WAS NOT THE CASE OF THE AO OR CIT(A) TO CONSIDER THOSE ITEM OF JEWELLERY IN THE OPENING STOCK AS WEL L THAT WERE SOLD AND COULD HAVE GENERATED M ORE PROFIT BELONGING TO THE EARLIER YEAR BUT INCOME GENERATED IN THE IMPUGNED ASSESSMENT YEAR. SIMILARLY IT WAS NOT THE CASE OF THE AUTHORITIES BELOW TO INCREASE THE VALUE OF GOLD CONT ENT IN THE IMPUGNED ASSESSMEN T YEAR IN THE CLOSING STOCK IN ORDER TO REDUCE THE PROFIT IN THE SUBSEQUENT YEAR WHEN THE ITEMS OF THE CLOSING STOCK WERE SOLD. THEREFORE IT WAS A CLEAR DISCRETION ON ASSUMING POWER TO VALUE OF THE AUTHORITIES BELOW TO DISTURB THE BOOKS OF ACCOUNT OF THE ASSESSEE WITHOUT HAVING SUFFICIENT CAUSE AS STIPULATED U/S.145A OF THE ACT. SECTION 145A PROVIDES THAT ADOPTION OF A METHOD AND PRINCIPLE OF ACCOUNTING DEPEND ON THE CHOICE OF THE ASSESSEE AND WITHOUT HAVING SUFFICIENT CAUSE THE AUTHORITIES BELOW COULD NO T DISTURB OR FORCE THE ASSESSEE TO CHANGE THE METHOD OF VALUATION IN SO FAR AS IT WAS BEING FOLLOWED CONSISTENTLY AND REGULARLY TO DISCLOSE THE REAL PROFIT EARNED IN T HE YEAR ON WHICH INCOME TAX WAS PAID. THEREFORE IT WAS NEITHER THE CASE OF THE ASSESSEE TO POSTPONE PAYMENT OF TAX ON THE AMOUNT OF ENHANCED VALUATION OF CLOSING STOCK DUE TO INBUILT MECHANISM ITSELF IN THE ITEMS OF JEWELLERY IN THE OPENING STOCK REMAINED AT MUCH LOWER THAN THE AVERAGE COST OR MARKET PRICE AS THE PRICE OF GOLD IS INCREASING D AY BY 5 DAY. THE GOLD DEALER IS AN INDEPENDENT PERSON AND VALUES ON THE BASIS OF GOLD CONT ENT IN THE JEWELLERY HE SALES TO THE ASSESSEE . THE ITEM WISE DETAIL IS NOT POSSIBLE IN VIEW OF THE FACT THAT THE GOLD CONT ENT ONLY SEPARATES THE MARGIN FOR LABOUR ALLO YS AND STONES WHOSE VALUE CANNOT BY NO STRETCH OF IMAGINATION BE DEPICTED IN THE SALE PRICE. THE GP RATE I N TRADING ON GOLD JEWELLERY ITSELF INDICATE THAT THE VALUE IF CONSIDERED AS SUGG ESTED BY THE AUTHORITIES BELOW W OULD INCREASE THE G P BY ONE THIRD MO RE THAN ACCEPTABLE BY THE ASSESSING OFFICER. IN ANY CASE THE TRADING RESULT RELIED FOR DISALLOWANCE OF RS.25 000 UNDER THE LABOUR CHARGES WHICH ISSUE HAS NOT BEEN PRESSED FOR ARGUMENT BEFORE US HAD TAKEN CARE OF THE VALUATION OF CLOSING STOCK VIS - - VIS GROSS PROFIT . HE RELIED ON THE DECISION IN THE CASE OF CIT V. BE NGAL JUTE MILLS CO. LTD. (107 CTR 34) (CAL) RADHESHYAM AGARWAL V. CIT [ 119CTR 263 (MP) ] AND K. G. KHOSLA AND CO. PVT. LIMITED V.CIT (99 ITR 574) WHEREIN IT HAS BEEN HELD THAT ONLY TO INCREA SE INCOME FOR REVENUE PURPOSE C OULD NOT DISTURB THE CONSISTENT SYSTEM OF VALUATION OF CLOSING STOCK . WITH RESPECT TO T HE OTHER MARKET AND BUSINESS SITUATION S HE POINTED OUT THAT JEWELLERY IS PURCHASED MOSTLY BY LAD IES WHO PREFERS TO DISPOSE OF F OLD JEWELL ERY TO PURCHASE NEW ACKNOWLEDGING INCREASE IN GOLD PRICE WOULD COMPENSATE THEIR NOT SPENDING EXTRA. THE GOLD CONTENT IN VARIOUS ITEMS WAS THEREFORE NOT THE BASIS OF THE ASSESSING OFFICER TO REVALUE THE OPENING STOCK AS WELL HAVING GOLD CONTENT OF ABOUT 23. 441 KG. HE PURSUED HIS TABULATION ON PAGE 16 OF THE PB WHICH INDICATED THAT WHEN THE QUANTITY OF GOLD CONTENT REMAINED THE SAME IN OPENING AND CLOSING STOCK THE ASSESSEE HA D GENERATED SUFFICIENT PROFIT IN THE PURCHASE AND SALES THEREFORE COULD NOT BE DIST URBED ON THE BASIS OF OPINION OF THE LEARNED ASSESSING OFFICER OR LEARNED CIT(A) TO INCREASE INCOME ALONE . THE ASSESSEE HAS BEEN RENDERING INCOME FROM SUCH TRADING OF GOLD JEWELLERY IN THE SUCCESSIVE AYS IN ACCORDANCE WITH THE CONSISTENT SYSTEM OF ACCOUNTI NG OF VALUING THE STOCK THEREFORE COULD NOT BE TINKERED WITH SO THAT THE INCOME INCREASES FOR THE FIRST TIME TO BE ADOPTED FOR SUBSEQUENT YEAR MAKING IT COMPENSATORY IN SO FAR AS THIS VALUE IS TO BE ADOPTED IN THE SUBSEQUENT ASSESSMENT YEAR AS OPENING STOC K WHICH WOULD REDUCE THE INCOME IN THE SUBSEQUENT YEAR BY THE LIKE AMOUNT. THEREFORE HE PRAYED THAT THIS ADDITION IS FIT FOR DELETION. 6 8. ON THE ISSUE OF DISALLOWANCE U/S.40(A)(IA) THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF SEC TION 194J ARE NOT APPLICABLE ON THE PAYMENTS MADE AS ADVERTISING EXPENSES INCURRED INCLUDES PAYMENTS MADE TO COPY WRITERS AND ARTISTS AND AS PER THEIR BILL AND WERE PAID FOR SECURING ADVERTISEMENT IN PRESS AS PER THE COPY OF THE PUBLISHED ADVERTISEMENT ENCLOSED IN THE PB. HE POINTED OUT IN THE LEDGER COPY OF THE PAYEES ACCOUNT WHICH INDICATES THAT THE AMOUNTS WERE PAID ON THE BASIS OF THEIR BILLS DRAWN ON THE ASSESSEE WERE FOR BANNERS PAINTING ON WALLS ETC . WHO IN TURN PRODUCED THE COPY OF ADVERTISEMEN T ULTIMATELY PUBLISHED IN THE NEWS PAPER. HE SUPPORTED THE NON - APPLICABILITY OF SECTION 194J ON THE BASIS OF CIRCULAR NO.714 DT.3.1.1995 BY THE CBDT AND CLARIFIED THAT THE MEANING OF THE TERM ADVERTISEMENT USED IN SECTION 194C(1) WHERE TAX DEDUCTION AT S OURCE HAS TO BE MADE AT THE RATE OF 1 PER CENT WAS TO BE ON THE BASIS OF A CONTRACT ENTERED INTO WHEN AN ADVERTISING AGENCY MAKES PAYMENTS FOR PROFESSIONAL SERVICES TO A FILM ARTISTE SUCH AS AN ACTOR A CAMERAMAN A DIRECTOR ETC. TAX WILL BE DEDUCTED AT T HE RATE OF 5%. THEREFORE NEITHER THE PAYEES NOR THE ADVERTISING AGENCY HAS BEEN PAID FOR INVOKING THE PROVISIONS OF SECTION 194J OR U/S.194C. 9. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE OF VALUATION OF CLOSING STOCK IN SO FAR AS EVEN IF IN ASSESSEES OWN VERSION ACCOUNTING OF CLOSING STOCK AT LOWER OF COST OF MARKET VALUE HAS TO BE CONSIDERED THE ASSESSEE HAS NOT CONSISTENTLY ADOPTED THE VALUE AT A LOWER OF TWO AS IS APPARENT ON THE BASIS OF THE CHART WHICH HAS BEEN RELIE D UPON. THE MARKET VALUE AND THE COST PRICE BOTH ARE HIGHER THAN THE VALUE WHICH HAS BEEN ADOPTED THEREFORE INDICATES THAT THE AUTHORITIES BELOW WERE WELL WITHIN THEIR JURISDICTION TO CONSIDER THE RE VALUATION OF CLOSING STOCK AS PER THE NORMS OF THE BUS INESS. 10. ON THE REMAINING ISSUE BEING DISALLOWANCE U/S.40(A)(IA) THE LEARNED DR POINTED OUT THAT THE CASE OF THE ASSESSEE WAS TO CLAIM EXPENSES U/S.37(1) WAS CONSIDERED IN THE LIGHT OF THE FACTS BROUGHT ON RECORD. THE ASSESSING OFFICER IN HIS ORDER NOT ED AS PER SUB - CLAUSE (I) OF CLAUSE (B) OF FIRST PROVISO TO SECTION 194J WHEN THE PAYMENT EXCEEDED RS.20 000 TAX WAS TO BE DEDUCTED AT SOURCE WHICH FACT IS ON 7 THE BASIS OF PAYMENT TO THREE PARTIES AMOUNTING TORS. 4 66 177 .THE LEARNED CIT(A) ON THE BASIS OF THE ASSESSEE - APPELLANTS SUBMISSION BEFORE HIM HELD THAT THE ASSESSEE HIMSELF ADMITTED DURING THE APPELLATE PROCEEDINGS THAT THE DISALLOWANCE HAS BEEN CORRECTLY MADE BUT A DIRECTION BE ISSUED TO THE ASSESSING OFFICER TO ALLOW THE CLAIM IN THE YEAR IN WHIC H TDS HA D BEEN PAID. THE LEARNED CIT(A) THEREFORE CATEGORICALLY HELD THAT THE ISSUE COULD ONLY BE ADJUDICATED IN THE YEAR WHEN SUCH CLAIM IS MADE AND DISMISSED THE ASSESSEES GROUND ON THIS ISSUE. 11. BEFORE THE TRIBUNAL THE LEARNED COUNSEL SUBMITTED V OUCHERS RELATING TO THE NATURE OF PAYMENT MADE TO THREE PARTIES WHICH THE LEARNED ASSESSING OFFICER AND THE LEARNED CIT(A) IN SO FAR AS THE ASSESSEE HAS DISPUTED EVEN THE APPLICABILITY OF EITHER SECTIN194J OF 194C HAS BEEN CLARIFIED IN THE CBDT CIRCULAR RE LIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE . IT WAS CLARIFIED THEREIN THAT TAX AT SOURCE HAS TO BE DEDUCTED U/S.194J FOR PAYMENT MADE FOR PROFESSIONAL SERVICES. THUS AN ADVERTISING AGENCY MADE PAYMENT FOR PERSONAL SERVICES TO ACTOR CAMERAMAN AND DI RECTOR ETC. TAX AT SOURCE WILL BE DEDUCTED AT THE RATE OF 5%. SINCE THIS CLARIFICATION WAS NOT MADE BY THE ASSESSEE BEFORE THE ASSESSING OFFICER ON THE BASIS OF DETAILS INSCRIBED IN THE VOUCHERS THE ISSUE MAY BE RESTORED TO THE FILE OF THE ASSESSING OFF ICER FOR CONSIDERING THE APPLICABILITY OF THE PROVISIONS OF SECTION 194J AS PER CBDT CIRCULAR RELIED UPON BY THE LEARNED COUNSEL. 12. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL PERUSAL OF THE FACTS AND CIRCUMSTANCES WE ARE INCLINED TO HOLD THAT ON THE ISSUE OF VALUATION OF CLOSING STOCK THE ASSESSEES VALUATION AS DISCLOSED IS ON THE BASIS OF CONSISTENT SYSTEM OF ACCOUNTING O F VALUATION AT LOWER OF COST OR MARKET VALUE IN SO FAR AS THE OPENING STOCK HA S ALSO BEEN VALUED IN THE SAME MANNER. ON A PERUSAL OF THE CHART AS APPEARING ON P A GE 16 OF PB IT IS CLEAR THAT THE QUANTITY IN GRAMS HAS BEEN TRACKED AND MAINTAINED OVER LAST FIVE YEARS WITHOUT INDICATING SEPARATE ITEMS OF JEWELLERY TRADED IN BY THE ASS ESSEE. AS POINTED OUT BY THE LEARNED COUNSEL THE ITEMS OF JEWELLERY ARE ACTUALLY HAVING MORE VALUE AS THE SELLING PRICE O F THE CONTENT OF GOLD THEREIN HAS TO BE VALUED IN ACCO RDANCE WITH THE BASIC PRINCIPLE OF 8 LOW ER OF COST OR MARKET VALUE. THE LEARNED CO UNSEL HAS EXPLAINED THAT IT WAS NOT THE CASE OF THE ASSESSEE TO POSTPONE PAYMENT OF TAX ON INCOME ON THE ASSUMED SALES THERE FROM WHEN THE PRICES OF GOLD ARE EVER INCREASING. THIS CLINCHES TO THE FACT THAT THE AVERAGE RATE OF PURCHASE S OF GOLD DURING THE I MPUGNED ASSESSMENT YEAR AND THE EARLIER AYS IS MORE THAN THE VALUE INSCRIBED IN THE OPENING STOCK FOR THAT YEAR. THE ASSESSING OFFICER THEREFORE SOUGHT TO VALUE THE CLOSING STOCK BY DIFFERENCE OF RS.70 ONLY IN THE AVERAGE PURCHASE PRICE DURING THE YEAR AT RS.552.38 PER GRAM AS AGAINST VALUED AT RS.483.44 PER GRAM IN THE CLOSING STOCK. THE FLOW OF ITEMS OF JEWELLERY DURING THE YEAR INDICATE D THAT THE VALUE OF CLOSING STOCK ON ITEMS OF JEWELLERY WAS TAKEN CARE OF IN THE OPENING STOCK. THIS APPROPRIATELY LED T HE LEARNED CIT(A) TO ADJUDICATE THAT THE ASSESSEE OUGHT TO HAVE ADOPTED LIFO INSTEAD OF FIFO METHOD. ADOPTION OF A PARTICULAR METHOD OF VALUATION IS ONLY FOR CONTROLLING COST WHICH VARIES EVERYDAY AND NOT EARN ING INCOME. THE ASSESSEE HA D ADOPTED THE WEIGHT ED AVERAGE METHOD OVER THE PERIOD OF ONE YEAR PURCHASES WHICH SYSTEM HAS BEEN CONSISTENTLY ADOPTED BY INCORPORATING THE ACTUAL PURCHASES AND THEREFORE CLEARLY INDICATE BY THE FACT THAT MINOR LABOUR CHARGES HAD ONLY BEEN INCURRED TO MANUFACTURE JEWELLERY IT EMS THAT HAD BEEN SOLD IN THE YEAR. THEREFORE IT IS A CLEAR CASE OF RE VALUATION WHEN THE JEWELLERY ITEMS THAT ARE ACTUALLY TRADED AS PER THE PREVAILING MARKET RATE OF GOLD ON A PARTICULAR DATE T HE PURCHASE THEREFORE WOULD HAVE INCLUDED ONLY THOSE ITEM S OF GOLD JEWELLERY WHICH WOULD NOT HAVE BEEN SOLD BY THE SELLER TO THE ASSESSEE AT LOWER THAN THE COST PRICE. THIS CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE TO THE EXTENT THAT THE GROSS MARGIN ADOPTED BY THE ASSESSEE WAS CONSIDERED BY THE LEARNED ASSES SING OFFICER BY DENYING ONLY THE LABOUR CHARGES OF RS.25 000 OUT OF APPROXIMATELY RS.5 LAKHS TO BE PART OF UNDERVALU ATION. THIS GROUND HAS NOT BEEN PRESSED FOR ADJUDICATION BEFORE US THEREFORE SUPPORTS THE LEARNED COUNSELS VIEW THAT THE CONSISTENT SYST EM OF ACCOUNTING FOR VALUATION WAS TO BE CONSIDERED BUT NOT FOR POSTPON ING PAYMENT OF INCOME FROM THE ITEMS BELONGING TO THE OPENING STOCK AS WELL AND THEREFORE COULD NOT BE CONSIDERED EITHER FOR FIFO OR LIFO METHOD AS IN THE ADOPTED METHOD WOULD NOT HAVE RESULTED LOSS OF REVENUE. THIS ONLY LEADS TO THE MOOT POINT AS TO WHEN THE SUGGESTED PROCEDURE BE ADOPTED THAT WOULD TAKE CARE OF THE PRECEDING AND SUCCEEDING AYS AS WELL THEREFORE HAS RIGHTLY BEEN ARGUED FOR CONSIDERATION NOT IN THE IMPUGNED 9 ASSESSMENT Y EAR BUT ON THE BASIS OF ACTUAL PHYSICAL VERIFICATION OF GOLD CONTENT IN ITEMS OF JEWELLERY THAT HAS TO BE ADOPTED EITHER AT LOWER OF COST O R MARKET VALUE. HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. BENGAL JUTE MILLS CO. LTD.(SUPRA) HAS HELD THAT WH ERE THE ASSESSING OFFICER REVALUES THE CLOSING STOCK OF EARLIER YEAR AT THE MARKET RATE REJECTING ASSESSEES VALUATION HE MUST ALSO VALUE THE OPENING STOCK IN A SIMILAR MANNER WHICH HAS NOT BEEN UNDERTAKEN BY THE AUTHORITIES BELOW IN THE IMPUGNED ASSESSME NT YEAR. WE ARE INCLINED TO HOLD THAT IT WOULD BE COMPENSATORY IN NATURE WHEN THE DETAILS FURNISHED COMPLY TOSECTION145A AND HAS NOT BEEN FOUND F AULT WITH BY EITHER OF THE AUTHORITIES BELOW. THE GOLD CONT ENT MAY BE VALUED IN ACCORDANCE WITH THE MARGIN DIS C LOSED DURING THE YEAR AND THEREFORE THE COST OF SALE THEREOF W OULD NOT BE MORE THAN THE PRICE THAT EXCEEDED ON A PARTICULAR DATE I S WELL KNOWN TO THE CUSTOMERS AS WELL AS THE SELLERS OF JEWELLERY ITEMS . IT W OULD HAVE GIVE N A VERY HIGH GROSS MARGIN IF TINK ERED WITH IN THIS YEAR. SIMILARLY IT WAS NOT THE VALUE OF THE CLOSING STOCK TO BE VALUED AT COST OR LOWER MARKET RATE WHICH MADE THE AO TO ENHANCE THE VALUE IN SO FAR AS THE OPENING STOCK OF GOLD CONT ENT VALUED BELOW THE MARKET PRICE EXISTING ON THAT DATE WHEN THE WEIGHTED AVERAGE COST LEVEL L ED THE STOCK PURCHASED DURING THE YEAR. THE LEARNED DRS RELIANCE ON THE DECISION IN THE CASE OF MAHAVIR RICE MILL V. ITO (19 4 CTR 359) IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE IN SO FAR AS WE HAVE NOTED ABOVE THE AO OUGHT TO HAVE APPLIED THE MARKET RATE ONLY ON THE PURCHASES WHICH HAD BEEN GIVEN AS WEIGHTED AVERAGE PRICE ON THE STOCK REMAINING UNSOLD FOR THAT YEAR AS THE OPENING STOCK AND THE CLOSING STOCK QUANTITY HA S REMAINED CONSTANT OVER T HE PERIOD O F EARLIER FIVE YEARS. W E ARE INCLINED TO HOLD THAT THE VALUATION ADOPTED BY THE ASSESSEE AT RS.483.44 PER GRAM WAS IN ACCORDANCE WITH CONSISTENT SYSTEM OF VALUATION ON THE BASIS OF QUANTITATIVE DETAILS MAINTAINED OF GOLD JEWELLERY ITEMS BELONGING TO EARLIE R YEARS. IN THIS VIEW OF THE MATTER WE ARE OF THE CONSIDERED VIEW THAT THE ADDITION OF RS.18 65 290 IS BOUND BE DELETED AND IT IS DIRECTED TO BE DELETED. 13. ON THE ISSUE OF DISALLOWANCE U/S.40(A)(IA) AS PER THE FINDINGS AS NOW SUBMITTED BY THE LEARNED C OUNSEL OF THE ASSESSEE AND THE PRAYER OF THE LEARNED DR ON MERITS THAT THE PAYMENT VOUCHERS OF THE COPY WRITERS AND ARTISTS DO INDICATE ADVERTISEMENT 10 EXPENSES INCURRED WAS FOR THE PURPOSE ADVERTISEMENT EXPENSES AS PROFESSIONAL SERVICES RENDERED BY THE PA YEES WERE IN THE NATURE OF DIRECT PAYMENT FOR PROFESSIONAL SERVICES WAS NOT CLARIFIED BEFORE THE ASSESSING OFFICER. THE LEARNED COUNSEL ALSO HAD NO OBJECTION IF THE MATTER WAS RESTORED TO THE FILE OF THE AO FOR CONSIDERATION AFRESH TO DETERMINE WHETHER THE PROVISIONS OF SECTION 194J WERE APPLICABLE IN THE CASE OF THE ASSESSEE ON THE BASIS OF CONFIRMATION OF THE PAYMENTS MADE TO THE COPY WRITERS AND ARTISTES. IN THIS VIEW OF THE MATTER THEREFORE THE ORDER OF THE LEARNED CIT(A) IS SET ASIDE AND THE ISSUE IS RESTORED TO THE FILE OF THE AO FOR CONSIDERATION AFRESH IN THE LIGHT OF THE SUBMISSIONS NOW MADE BEFORE US FOR CARRYING OUT THE VERIFICATION WHET HER THE PROVISIONS OF SECTION 19 4J ARE APPLICABLE IN THE LIGHT OF THE CBDT CIRCULAR RELIED UPON BY BOTH PARTIE S BEFORE US. 14. IN THE LIGHT OF FOREGOING THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 23.07.2010 SD/ - SD/ - ( ) D.K. TYAGI JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER. DATE: 23.07.2010 - COPY OF THE ORDER FORWARDED TO : / THE APPELLANT : / THE RESPONDENT : THE CIT THE CIT(A) DR CUTTACK BENCH GUARD FILE TRUE COPY BY ORDER [ ] SENIOR PRIVATE SECRETARY ( /) H.K.PADHEE SENIOR.PRIVATE SECRETARY.