ADDL CIT RG 14(1), MUMBAI v. P.M. DWARKADAS, MUMBAI

ITA 5079/MUM/2009 | 2006-2007
Pronouncement Date: 21-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 507919914 RSA 2009
Assessee PAN AABFP8848P
Bench Mumbai
Appeal Number ITA 5079/MUM/2009
Duration Of Justice 8 month(s) 13 day(s)
Appellant ADDL CIT RG 14(1), MUMBAI
Respondent P.M. DWARKADAS, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 21-05-2010
Assessment Year 2006-2007
Appeal Filed On 07-09-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C : MUMBAI BEFORE SHRI D.K. AGARWAL (JM) AND SHRI T.R. SOOD (AM) ITA NO.5079/MUM/2009 ASSESSMENT YEAR : 2006-07 DY. COMMISSIONER OF INCOME TAX -14(1) EARNEST HOUSE 2 ND FLOOR MUMBAI. ..( APPELLANT ) VS. M/S. P.M. DWARKADAS 65/67 3 RD FLOOR SHEIKH MEMON STREET ZAVERI BAZAR MUMBAI-400 002. ..( RESPONDENT ) P.A. NO. (AABFP 8848 P) APPELLANT BY : SHRI K. SINGH RESPONDENT BY : SHRI UT TAMCHAND BOTHRA O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 29.6.2009 PASSED BY THE LD. CIT(A) FOR TH E ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE F IRM IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF JEW ELLERY AND ITS EXPORTS. THE RETURN WAS FILED DECLARING TOTAL INCOME O F RS.30 59 168/-. HOWEVER THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS.1 51 00 000/- INCLUDING THE ADDITION OF UNDERVALUA TION OF STOCK ITA NO.5079/M/09 A.Y:06-07 2 RS.1 10 86 110/- AND DISALLOWANCE OUT OF PHONE EXPENSES RS.32 151/ VIDE ORDER DATED 12.12.2008 PASSED U/S.143(3) OF THE I NCOME TAX ACT 1961 (THE ACT). ON APPEAL THE LD. CIT(A) WHILE PART LY ALLOWING THE APPEAL DELETED BOTH THE ADDITION/DISALLOWANCE. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE REVENUE IS IN APPEAL BEFORE US. 4. GROUND NO.1 READS AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.1 10 86 110/- ON ACCOUNT OF CHANGE IN METHOD OF STOCK VALUATION. THE LD. CIT(A) HAS FAILED TO APPRE CIATE THAT: 1(A) QUANTITATIVE DETAILS AND VALUATION ETC. AS PE R COL.28A IN 3CB REPORT WAS NOT FURNISHED. HENCE AO SPECIFICALLY ASKED FOR THOSE DETAILS AND EVIDENCES FOR VALUATION ADOPTED. THE ASSESSEE HAS NOT PROVIDED T HESE DETAILS. 1(B) AS PER 3CD REPORT AND AS PER NOTES ON ACCOUNTS THE ASSESSEE HAS VALUED THE CLOSING STOCK AT AVERAGE COST (PARA 12 OF 3CD). THIS WAS TO BE PROV ED BEFORE THE AO BY GIVING RELEVANT DETAILS AND EVIDEN CES. THE ASSESSEE HAS FAILED TO DO THIS. THE AO HAS GIV EN FINDING IN PARA-10 OF HIS ORDER THAT ASSESSEES ME THOD OF VALUATION IS NEITHER AT COST NOR AT AVERAGE COST. 1(C) THE AO HAS NOT CHANGED THE METHOD OF ACCOUNTING AS STATED BY LD. CIT(A). THE AO HAS ONL Y DONE VALUATION OF CLOSING STOCK AT AVERAGE COST: SAME AS ASSESSEE. 5. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DURING T HE COURSE OF ASSESSMENT IT WAS INTERAILA OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS VALUED ITS CLOSING STOCK OF 70388 GMS. OF GOLD AT ITA NO.5079/M/09 A.Y:06-07 3 RS.3 43 49 101/- I.E. AT THE RATE OF RS.487.99 PER G M. THE DETAILS OF OPENING STOCK AND PURCHASES ARE AS UNDER: QTY IN GRAMS AMOUNT IN RS. AVERAGE RATE PER GRAM O.S. 75446 36062951 477.9969 PURCHASE EXPORT 355000 241366308 679.9051 PURCHASE LOCAL 3409 2625587 770.1927 TOTAL 433855 280054846 645.5033 ACCORDING TO THE ASSESSING OFFICER SINCE THE ASSESSEE FOLLOWS A VERAGE COST METHOD FOR VALUATION OF STOCK THE CLOSING STOCK SHOULD HAVE BEEN VALUED AT RS.645.50 PER GM AND NOT AT RS.488.00 PER G M. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAS NOT CONSIDERED IMPORT OF 355000 GMS. OF GOLD IN ITS WORKING OF AVERAGE COST ON THE GROUND THAT THIS IMPORT IS UNDER GOLD REPLE NISHMENT SCHEME AND THE GOLD HAS BEEN EXPORTED BACK. ACCORDING T O THE ASSESSING OFFICER THE GOLD REPLENISHMENT SCHEME ONLY AL LOWS THE ASSESSEE TO IMPORT GOLD WITHOUT PAYMENT OF IMPORT DUTY TO REPLENISH ITS STOCK I.E. THE SAME QUANTITY WHICH HAS BEEN EXPORTE D IS ALLOWED TO BE IMPORTED DUTY FREE. ALTERNATIVELY ASSESSEE MAY IMPO RT WITHOUT PAYMENT OF IMPORT DUTY WITH COMMITMENT TO EXPORT SAME QUANTITY OF GOLD (SUPPORTED BY A BANK GUARANTEE). THE SCHEME IS NO T CONCERNED WITH THE PRICING OF GOLD OR STOCK NOR IS IT CONCERNED WI TH THE PARTIES FROM WHOM THE GOLD IS IMPORTED OR EXPORTED. THE PR ICING IS GOVERNED BY MARKET CONDITIONS AND BUSINESS PRACTICE. IN FACT ASSESSE ES OWN ITA NO.5079/M/09 A.Y:06-07 4 GOLD IS USED FOR MANUFACTURING OF JEWELLERY EXPORTED A ND IMPORT IS MADE TO REPLENISH THE STOCK WHEN THE JEWELLERY IS APPRO VED AND EXPORT IS MADE. THE LOCAL SALE IS ONLY OF 8 694 GRAMS OF GO LD. HOWEVER THE ASSESSEE MAINTAINS A STOCK OF OWN GOLD OF 70 TO 75 KGS. AS IT IS REQUIRED FOR MANUFACTURING OF JEWELLERY EXPORTED. THE ASSESSEES METHOD OF VALUATION OF STOCK IS NEITHER AT COST NOR AT A VERAGE COST AND ACCORDINGLY THE ASSESSING OFFICER AFTER CONSIDERING THE IMP ORTED GOLD WORKED OUT THE AVERAGE COST OF GOLD AT RS.645.5 PER GR AMS AND THE DIFFERENCE OF RS.157.5 PER GRAM OF UNDERVALUATION OF CLOSING STOCK OF RS.1 10 86 110/- (157.5 X 70 388) WAS ADDED TO THE IN COME OF THE ASSESSEE. 6. ON APPEAL BEFORE THE LD. CIT(A) THE ASSESSEE CONTEND ED THAT THE ASSESSING OFFICER HAS INCLUDED TWO DIFFERENT PRODUCTS OF GO LD WHICH ARE DIFFERENT IN RESPECT OF OBLIGATION CUSTOM BONDING AN D PRICE I.E. REPLENISHED GOLD AND STANDARD LOCAL GOLD UNDER ON E BASKET WHILE WORKING OF WEIGHTED AVERAGE METHOD WHICH RESULTED IN AN INCREASE OF VALUATION OF CLOSING STOCK AND THUS LEAD TO AN ADDITION OF RS.1 10 86 110/-. IT WAS FURTHER STATED THAT REPLEN ISHED GOLD IS THE GOLD WHICH IS PURCHASED FROM THE BANK (NOMINATED AGEN CY) WITHOUT PAYING THE IMPORT DUTY TAXES ETC. AT INTERNATIONAL G OLD PRICES AND IS ABIDE BY THE RULES AND OBLIGATION OF EXPORT AT SAME P RICE WITH SAME QUANTITY UNDER THE GOLD & JEWELLERY EXPORT PROMOTI ON & REPLENISHED ITA NO.5079/M/09 A.Y:06-07 5 SCHEME OF THE EXIM POLICY AND ARE NOT ALLOWED TO SALE IN LOCAL AS PER EXIM POLICY POINT 4A.21.2. STANDARD LOCAL GOLD I S THE GOLD WHICH IS PURCHASED FROM THE LOCAL MARKET AND IS NOT ABIDE BY TH E REPLENISHMENT SCHEME AND CAN BE SOLD FREELY AT LOCAL MARKET IN ANY FOR M WITHOUT ANY OBLIGATION. IT WAS CONTENDED THAT DURING THE YEAR 2005-06 IT HAD MADE PURCHASE FROM NOVA SCOTIA BANK (IMPORTS THROUGH NO VA SCOTIA BANK) AND EACH OF SUCH IMPORT IS UNDER CORRESPONDING EXP ORT OBLIGATION WITHIN STIPULATED TIME PERIOD AND ARE IM PORTED UNDER A CUSTOM BOND EXECUTED. SUCH IMPORT IS DONE AT INTERNATIO NAL PRICE OF GOLD AND NO DUTIES ARE APPLICABLE ON THIS IMPORT AND ALL SUCH GOLD IS ALLOWED TO BE IMPORTED ONLY IN FORM OF GOLD BARS AN D EXPORT OBLIGATION IS REQUIRED TO BE FULFILLED IN FORM OF EQUIVALENT QU ANTITY OF JEWELLERY OF VARIOUS CARATS TO BE EXPORTED. IT WAS CONTENDED THAT E XPORT OBLIGATION ON ALL SUCH IMPORTS HAD BEEN FULFILLED DUR ING THE CURRENT ASSESSMENT YEAR ITSELF AND THEREFORE DID NOT REMAIN IN STOCK AS ON 31.03.2006. FURTHER IT WAS STATED THAT AS PER ACCOUNT ING STANDARD-2 ISSUED BY ICAI-UNDER THE WEIGHTED AVERAGE COST FORMULA THE COST OF EACH ITEM IS DETERMINED FROM THE WEIGHTED AVERAGE OF THE COST OF SIMILAR ITEMS AT THE BEGINNING OF A PERIOD AND THE COST OF SIMILAR ITEMS PURCHASED OR PRODUCED DURING THE PERIOD AND ACCORDINGLY IN ITS CASE THE SAME WAS BIFURCATED ON THE BASIS OF PRICE AND ITS SPECIF IC OBLIGATION UNDER REPLENISHMENT SCHEME AND HENCE HAD PUT THE OPE NING STOCK ITA NO.5079/M/09 A.Y:06-07 6 AND LOCAL PURCHASE FOR THE VALUATION OF CLOSING STOCK UNDE R WEIGHTED AVERAGE METHOD. THE ASSESSEE FURTHER CONTENDED THAT THE CLUBBING OF TWO DIFFERENT PRICED GOODS WITH DIFFERENT OBLIGATIONS AND CUSTOM BONDING UNDER ONE BASKET MADE NO SENSE AND HENCE ADDITI ON OF RS.1 10 86 110/- TO CLOSING STOCK WAS ILLOGICAL AND IRRAT IONAL BAD IN LAW AS IT IS AGAINST THE PRINCIPLE OF ACCOUNTING TOO AND THUS THE ASSESSING OFFICER WRONGLY INCREASED THE VALUE OF CLOSING ST OCK ON NOTIONAL BASIS BY CREATING ARTIFICIAL AND HYPOTHETICAL FORMULA WHILE WORKING OF WEIGHTED AVERAGE METHOD FOR VALUATION OF CLOSING STOCK. 7. THE LD. CIT(A) AFTER CONSIDERING ASSESSEES SUBMISSIONS AN D THE MATERIAL AVAILABLE ON RECORD OBSERVED THAT THE PURCHASE S MADE THROUGH THE SCHEME ARE TO BE IMPORTED EXACTLY BOTH IN TERMS OF QUANTITY AS WELL AS VALUE THEREFORE THE QUESTION OF CO NSIDERING PURCHASE EXPORT ITEMS FOR DETERMINING VALUATION OF STOC K DOES NOT ARISE MORE SO WHEN THE APPELLANT IS NOT HAVING ANY STOCK OF THIS GOLD UNDER THIS SCHEME IN HIS POSSESSION AT THE YEAR END. HE FU RTHER OBSERVED THAT THE ASSESSING OFFICER HAS NOT POINTED OUT AN Y OTHER DISCREPANCY IN THE SYSTEM OF VALUATION AND ACCOUNTING WHIC H IS CONSISTENTLY FOLLOWED FOR THE LAST 20 YEARS AND ACCEPTED B Y THE DEPARTMENT WHILE FRAMING THE ASSESSMENTS U/S.143(3) AND 143(3) R.W.S. 147 FOR THE ASSESSMENT YEARS 2001-02 TO 2005-06. THE LD. CIT(A) WHILE RELYING ON THE DECISION IN CIT VS. SANT R AM MANGAT RAM ITA NO.5079/M/09 A.Y:06-07 7 (2005) 275 ITR 312 (P&H) HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN CHANGING THE METHOD OF VALUATION REGULAR LY ADOPTED BY THE APPELLANT FOR THE YEAR UNDER APPEAL BASED ON INCORRECT OBSERVATIONS OF THE FACTS DELETED THE ADDITION MADE BY THE ASSESSING OF FICER. 8. AT THE TIME OF HEARING THE LD. DR SUBMITS THAT FOR THE REASONS AS MENTIONED IN THE ASSESSMENT ORDER THE LD. CIT(A) WAS N OT JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. HE THEREFORE SUBMITS THAT THE ADDITION MADE BY THE ASSESSING OFFICER BE RESTORED. 9. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE A T THE OUTSET SUBMITS THAT THE ASSESSEE HAS FILED COMPLETE AUDIT R EPORT SHOWING ALL DETAILS IN FORM NO.3CB AND 3CD APPEARING AT PAGE 66 TO 82 OF THE ASSESSEE'S PAPER BOOK THEREFORE THE PLEA TAKE N BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS NOT FURNISHED RELEVANT DETAILS IS WITHOUT ANY BASIS. THE LD. COUNSEL FOR THE ASSESSEE W HILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE LD. CIT(A) FURTHER SUBMITS THAT THE ASSESSEE UNDER THE SCHEME HAS OBTAINED GOLD ON LOAN BASIS FROM THE BANK OF NOVA SCOTIA (SCOTIAMOCATTA) MUMBAI WEIGHING 355000 GMS. IN TOTAL AND EXPORTED THE SAME D URING THE YEAR AS PER THE SAID SCHEME. THE COMPLETE DETAILS OF STOCK OF GOLD ACCOUNT APPEARING AT PAGE-82 OF ASSESSEE'S PAPER BOOK IS AS UNDER :- ITA NO.5079/M/09 A.Y:06-07 8 M/S. P.M. DWARKA DASS ANNEXURE 6 GOLD STOCK TALLY ASSESSMENT YEAR 2006 -07 OPENING STOCK 75446 SALES EXPORT 355015 SCOTIA BANK 355000 SALES-LOC 9433 8694 LOCAL PURCHASE SALES-LOC-STD 0 STD. 3409 3409 MN F LOSS 215 ORN. 516 457 CLOSING STOCK 70388 _________________ _____________ 434312 434312 COMPLETE STOCK TAL GOLD ACCOUNT 31.03.2006 OPENING STOCK 76608 SALES EXPC 355015 SCOTIA BANK 355000 SALES-LOC-ORN 8694 LOCAL PURCHASE SA LES-LOC-STD. 0 STD. 3409 3409 MFG . LOSS 215 ORN. 516 457 IS UED AGT.JOB(NET) 268 _______ C LOSING STOCK _71282 435474 435474 IN SUPPORT THE REFERENCE WAS ALSO MADE TO THE RELEVANT PROVISIONS OF REPLACEMENT SCHEME APPEARING AT PAGE-30 TO 35 AT PAGE 30 AND COPY OF EXPORT AND IMPORT INVOICES APPEARING AT PAGE 36 TO 50 ASSESSEE'S PAPER BOOK. HE FURTHER SUBMITS THAT SINCE THE PURCHASE EX PORT ITEMS HAVE ALREADY BEEN EXPORTED DURING THE YEAR AND THER E IS NO CLOSING STOCK OF THE SAME THEREFORE THE ASSESSING OFFICER HAS WRON GLY INCLUDED THE PURCHASE PRICE OF THE SAME WHILE VALUING TH E AVERAGE COST METHOD FOR VALUATION OF CLOSING STOCK. HE FURTHER SUBMI TS THAT THE SAME SYSTEM OF VALUATION OF CLOSING STOCK HAS CONSISTENTLY B EEN ADOPTED AND ACCEPTED BY THE DEPARTMENT SINCE THE LAST 2 0 YEARS AND FOR THIS PROPOSITION THE REFERENCE WAS ALSO MADE TO THE STOCK TALLY FOR THE YEAR ENDED 31.3.2002 TO 31.3.2005 AND ASSESSMENT OR DERS FOR THE ITA NO.5079/M/09 A.Y:06-07 9 ASSESSMENT YEARS 2001-02 TO 2003-04 AND 2005-06 APPEARIN G AT PAGE 1 TO 20 OF THE ASSESSEE'S PAPER BOOK. RELIANCE WAS ALSO PL ACED ON THE FOLLOWING DECISIONS: 1. CIT VS. SANT RAM MANGAT RAM (2005) 275 ITR 312(P&H) 2. CIT VS. SARANGPUR COTTON MANUFACTURING CO. LTD. (1938 ) 6 ITR 36(PC) 3. HARINAGAR SUGAR MILLS LTD. VS. CIT (1994) 207 ITR 901( BOM.) 4. CIT VS. CHARI AND RAM (1949) 17 ITR 1 (MAD.) 5. ASST. CIT VS. JAGDISH CHAND (2004) 90 TTJ 943 (CHD.) 6. ITO VS. CHOKSHI HIRACHAND BROS (1990) 37 TTJ 415(AHD.) 7. CHAINRUP SAMPATRAM VS. CIT (1953) 24 ITR 481(SC) 8. ITO VS. SHREE PADMANABHA JEWELLERY MART (1987) TTJ 15(COCHIN) AND 9. NOTIFICATION NO.9946 DATED 25 TH JANUARY 1996. HE THEREFORE SUBMITS THAT THE ORDER PASSED BY THE LD. C IT(A) IN DELETING THE ADDITION BE UPHELD. 10. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS OBTAINED GOLD ON LOAN BASIS AS PER EXIM SCHEME UNDER THE GOLD REPLENISHMENT SCHEME THROUGH N OMINATED AGENCY I.E. THE BANK OF NOVA SCOTIA (SCOTIAMOCATTA) AND EXPORTED THE SAME DURING THE YEAR . WE FURTHER FIND THAT THE ASSES SING OFFICER WHILE VALUING THE AVERAGE COST METHOD FOR VALUATION O F CLOSING STOCK OF GOLD HAS INCLUDED THE PURCHASE PRICE OF THE SAID GOLD AND WORKED OUT THE AVERAGE COST RS.645.50 PER GM AS AGAINST RS.488.00 PE R GM VALUED AND SHOWN BY THE ASSESSEE ON THE GROUND THAT THE SAID GOLD ITA NO.5079/M/09 A.Y:06-07 10 WHICH WAS PURCHASED UNDER THE GOLD REPLENISHMENT SCHEME W AS EXPORTED DURING THE YEAR THEREFORE THE SAME CANNOT BE INCLUDED WHILE VALUING THE AVERAGE PURCHASE PRICE OF THE GOLD A S THE SAME WAS FOR SPECIFIC PURPOSES. THE LD. CIT(A) WHILE OBSERVING T HAT THE APPELLANT WAS NOT HAVING ANY STOCK OF THIS GOLD UNDER THE SCHEME AND THE ASSESSING OFFICER HAS NOT POINTED OUT ANY OTHER DISCRE PANCY IN THE SYSTEM OF VALUATION AND KEEPING IN VIEW THE CONSISTENCY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 11. IN UNITED COMMERCIAL BANK VS. CIT (1999) 240 ITR 355(SC) THEIR LORDSHIPS HELD THAT THE METHOD WHICH WAS CONSISTENT LY FOLLOWED BY THE APPELLANT- BANK FOR VALUING THE STOCK-IN-TRADE COULD NOT BE REJECTED BY THE ASSESSING AUTHORITY IN A PARTICULAR YEAR. THE PROPOSITION OF LAW LAID DOWN READS AS UNDER ( PAGE 366 ):- (1) THAT FOR VALUING THE CLOSING STOCK IT IS OPEN TO THE ASSESSEE TO VALUE IT AT THE COST OR MARKET VALUE WHICHEVER IS LOWER ; (2) IN THE BALANCE-SHEET IF THE SECURITIES AND SHA RES ARE VALUED AT COST BUT FROM THAT NO FIRM CONCLUSION CAN BE DRAWN. A TAX PAYER IS FREE TO EMPLOY FOR THE PURPOS E OF HIS TRADE HIS OWN METHOD OF KEEPING ACCOUNTS AND FOR THAT PURPOSE TO VALUE STOCK-IN-TRADE EITHER AT COS T OR MARKET PRICE. (3) A METHOD OF ACCOUNTING ADOPTED BY THE TAXPAYER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY T HE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING ACCOUNTS OR O F VALUATION. ITA NO.5079/M/09 A.Y:06-07 11 (4) THE CONCEPT OF REAL INCOME IS CERTAINLY APPLICA BLE IN JUDGING WHETHER THERE HAS BEEN INCOME OR NOT BUT IN EVERY CASE IT MUST BE APPLIED WITH CARE AND WITHIN THEIR RECOGNISED LIMITS. (5) WHETHER THE INCOME HAS REALLY ACCRUED OR ARISEN TO THE ASSESSEE MUST BE JUDGED IN THE LIGHT OF THE REA LITY OF THE SITUATION. (6) UNDER SECTION 145 OF THE ACT IN A CASE WHERE ACCOUNTS ARE CORRECT AND COMPLETE BUT THE METHOD EMPLOYED IS SUCH THAT IN THE OPINION OF THE INCOME- TAX OFFICER THE INCOME CANNOT BE PROPERLY DEDUCED THEREFROM THE COMPUTATION SHALL BE MADE IN SUCH MA NNER AND ON SUCH BASIS AS THE INCOME-TAX OFFICER MAY DETERMINE. 12. IN CIT VS. SANT RAM MANGAT RAM (2005) 275 ITR 3 12 (P&H) IT HAS BEEN HELD (HEADNOTES) : HELD THAT IT WAS AN ADMITTED POSITION THAT FROM TH E INCEPTION OF ITS BUSINESS THE ASSESSEE HAD CONTINU OUSLY ADOPTED THE SAME METHOD OF VALUATION OF THE CLOSING STOCK AND NO OBJECTION WAS RAISED BY THE DEPARTMENT IN ANY OF THE PREVIOUS YEARS. RATHER THE COMPETENT AUTHORITY ACCEPTED THE METHOD ADOPTED BY THE ASSESS EE AND ACCORDINGLY MADE ASSESSMENTS. THE TRIBUNAL WAS RIGHT IN LAW IN CONFIRMING THE ORDER OF THE COMMISS IONER (APPEALS) DELETING THE ADDITIONS OF RS. 83 192 AND RS. 2 336 MADE BY THE INSPECTING ASSISTANT COMMISSIONER ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK OF GOLD AND SILVER RESPECTIVELY. 13. BY APPLYING THE LAW LAID DOWN IN THE AFOREMENTI ONED CASES TO THE FACTS OF THIS CASE WE ARE OF THE VIEW THAT SINCE THERE IS N O DISPUTE THAT THE ASSESSEE HAS CONSISTENTLY FOLLOWED A METHOD OF VALUATIO N OF CLOSING STOCK WHICH IS AS PER PRINCIPLES LAID DOWN BY THE HONBLE APEX COURT ITA NO.5079/M/09 A.Y:06-07 12 THE SAID METHOD OF VALUATION OF CLOSING STOCK HAS BEEN ACCE PTED BY THE REVENUE FOR THE EARLIER YEARS AND KEEPING IN VIEW T HAT THE ASSESSEE HAS FILED ALL THE RELEVANT DETAILS AND HAS ALSO PROVED THAT THE GOLD OBTAINED UNDER THE EXIM SCHEME HAS BEEN EXPORTED DURIN G THE YEAR HAVING NIL CLOSING STOCK OF THE SAME THE ADDITION MAD E BY THE ASSESSING OFFICER ON ACCOUNT OF UNDERVALUATION OF STOCK RS.1 10 86 110/- IS NOT SUSTAINABLE IN LAW AND ACCORDING LY WE ARE INCLINED TO UPHOLD THE FINDING OF THE LD. CIT(A) IN DELETING THE SAME. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJE CTED. 14. GROUND NO.2 READ AS UNDER : 2. THE LD. CIT(A) ERRED IN DELETING ADDITION OF RS.32 151/- BEING DISALLOWANCE OF TELEPHONE EXPENSE S TOWARDS PERSONAL USE ON THE GROUND THAT FBT IS PAID ON THE SAME. FBT (SECTION 115 WB) HAS NO RELATION WIT H THE DISALLOWANCE OF ANY EXPENSES TOWARDS PERSONAL USE O F THE ASSESSEE. THIS DISALLOWANCE IS DONE U/S.37(1) OF T HE I.T. ACT AS IT IS NOT INCURRED WHOLLY AND EXCLUSIVELY FO R THE PURPOSES OF BUSINESS. SE.115WB DOES NOT EXCLUDE DISALLOWANCE U/S.37(1). 15. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT WAS INTERALIA OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CLAIMED TELEPHONE EXPENSES AT RS.1 60 754/- WHICH INCLUDE THE MO BILE PHONE EXPENSES RS.61 992/- OF PARTNERS AND RESIDENTIAL PHONE E XPENSES RS.38 168/-. THE ASSESSEE WAS ASKED TO JUSTIFY THE SAME. IN THE ABSENCE OF ANY DETAILS THE ASSESSING OFFICER DISALLOWED R S.32 151/- ITA NO.5079/M/09 A.Y:06-07 13 BEING 20% OF THE TELEPHONE EXPENSES BY ESTIMATE ON THE GROUND THAT THE SAME HAS NOT BEEN INCURRED FOR THE PURPOSE OF BUSINE SS. HOWEVER ON APPEAL THE LD. CIT(A) IN VIEW OF THE DISALLOWANCE MADE BY THE ASSESSEE UNDER FBT (SECTION 115 WB) DELETED THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER. 16. AT THE TIME OF HEARING THE LD. DR SUPPORTS THE O RDER OF THE ASSESSING OFFICER. 17. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE W HILE RELYING ON THE ORDER OF THE LD. CIT(A) SUBMITS THAT HE HAS NO OBJECTION IF THE DISALLOWANCE IS REDUCED TO 10%. 18. HAVING CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVA L PARTIES AND PERUSING THE MATERIALS AVAILABLE ON RECORD WE FIN D THAT EVEN AT THIS STAGE THE ASSESSEE HAS FAILED TO SHOW THAT THE TELE PHONE EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE WHOLLY AND EXCL USIVELY FOR THE PURPOSES OF THE BUSINESS. IN THE ABSENCE THEREOF AND KEEPING IN VIEW THAT THE PERSONAL USE HAS NOT BEEN RULED OUT W E CONSIDER IT FAIR AND REASONABLE THAT THE DISALLOWANCE OF 10% OF TELEPH ONE EXPENSES WILL MEET THE ENDS OF JUSTICE AND ACCORDINGLY THE DISALLO WANCE OF TELEPHONE EXPENSES IS RESTRICTED TO 10% OF RS.1 60 754/- . TO THIS EXTENT THE ORDER PASSED BY THE LD. CIT(A) IS REVERSED A ND THAT OF ITA NO.5079/M/09 A.Y:06-07 14 ASSESSING OFFICER IS RESTORED. THE GROUND TAKEN BY THE R EVENUE IS THEREFORE PARTLY ALLOWED. 19. IN THE RESULT REVENUES APPEAL STANDS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.5.2010. SD/- SD/- (T.R. SOOD) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED: 21.5.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 5.5.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 6.5.10 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 21.5.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 24.5.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER