M/s Rameshchand Jewellers, v. ITO,

ITA 63/HYD/2006 | 2002-2003
Pronouncement Date: 01-01-2010 | Result: Allowed

Appeal Details

RSA Number 6322514 RSA 2006
Assessee PAN AAFFR8575R
Bench Hyderabad
Appeal Number ITA 63/HYD/2006
Duration Of Justice 3 year(s) 11 month(s) 7 day(s)
Appellant M/s Rameshchand Jewellers,
Respondent ITO,
Appeal Type Income Tax Appeal
Pronouncement Date 01-01-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted Not Allotted
Tribunal Order Date 01-01-2010
Date Of Final Hearing 29-12-2009
Next Hearing Date 29-12-2009
Assessment Year 2002-2003
Appeal Filed On 24-01-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B' HYDERABAD BEFORE SHRI G.C.GUPTA VICE PRESIDENT AND SHRI AKBER BASHA ACCOUNTANT MEMEBR ITA NO.63/HYD/06 : ASS TT. YEAR 2002-03 ITA NO.64/HYD/06 : ASS TT. YEAR 2003-04 ITA NO.65/HYD/06 : ASS TT. YEAR 2004-05 M/S. RAMESH CHAND JEWELLERS HYDERABAD. (PAN - AAFFR 8575 R) VS INCOME-TAX OFFICER WARD=8 (2) HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.RAVI RESPONDENT BY : SHRI E.S.NAGENDRA PRASAD O R D E R PER G.C.GUPTA VICE PRESIDENT: THESE THREE APPEALS BY THE ASSESSEE FOR THE ASSES SMENT YEARS 2002-03 TO 2004-05 ARE DIRECTED AGAINST THE C OMMON ORDER OF THE CIT(A). THESE ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. 2. GROUND NO.1 COMMON IN ALL THESE APPEALS IS GE NERAL IN NATURE AND ACCORDINGLY SAME IS NOT ADJUDICATED UPON . 3. GROUNDS NO.2 TO 5 IN ALL THESE APPEALS ARE IDEN TICAL IN ALL THE THREE APPEALS AND THE SAME READ AS FOLLOWS- '2. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ER RED IN COMPARING THE PROFITS RATIO OF THE SUBJECT ASST. YEA R WITH EARLIER YEARS WHOSE FACTS AND CIRCUMSTANCES WERE ENTIRELY DIFFERENT. THE LEARNED COMMISSIONER OF INCOME- ITANO.63TO65/HYD/06 M/S. RAMESH CHAND JEWELLER S HYDERABAD 2 TAX(APPEALS)ALSO FAILED TO APPRECIATE THE CHANGED SCENARIO OF THE CASE BEFORE ESTIMATING THE GP RATE. 3. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERR ED IN ESTIMATING THE GP RATE AT 20% FOR THE SUBJECT ASST. YEAR AND ALSO ERRED IN NOT RECOGNIZING THE FACTS THAT THE GP RATE IS FALLEN BECAUSE OF THE SIGNIFICANT INCREASE IN TURNOVER AND DUE TO THE CHANGE IN THE CUSTOMER BASE FOR THE SUBJECT ASST. YEARS. 4. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERR ED IN STATING THAT THE LIFO METHOD ADOPTED BY THE APPELLANT CONSISTENTLY IS NOT CORRECT WITHOUT ANY MATERIAL FACTS FOUND DURING THE COURSE OF SURVEY OR ASSESSMENT PROCEEDINGS. 5. ADJUSTMENTS MADE BY THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ARE ONLY ON ESTIMATED BASIS AND NOT SUPPORTED BY FACTS OR ENQUIRIES FOUND DURING THE COURSE OF SURVEY OR ASSESSMENT PROCEEDINGS.' 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AS SESSING OFFICER IN REJECTING THE TRADING ACCOUNT OF THE ASSESSEE AND S USTAINING THE ESTIMATION OF GROSS PROFIT AT 20% OF THE TURNOVER W ITHOUT ANY VALID REASON. HE SUBMITTED THAT THE ONLY REASON FOR THE REVENUE AUTHORITIES FOR MAKING THE IMPUGNED TRADING ADDITIONS IS THE RE JECTION OF THE LIFO(LAST IN FIRST OUT) METHOD ADOPTED BY THE ASSES SEE FOR VALUING THE CLOSING STOCK WITH IT. HE SUBMITTED THAT THE L IFO METHOD IS A RECOGNIZED AND VALID METHOD OF ACCOUNTING. ASSESSE E HAS BEEN CONSISTENTLY FOLLOWING THIS METHOD THROUGH OUT THE EARLIER YEARS AS WELL AS IN THE YEARS UNDER APPEAL. HE SUBMITTED TH AT THE LIFO IS A METHOD OF ACCOUNTING AND IS NOT CONNECTED WITH THE REALITY. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO OTHER DEFECT WHATSOEVER IN THE ACCOUNT BOOKS OF THE ASSESSEE WAS POINTED OUT BY THE DEPARTMENT. HE RELIED ON THE DECISIONS IN SUPP ORT OF HIS ITANO.63TO65/HYD/06 M/S. RAMESH CHAND JEWELLER S HYDERABAD 3 CONTENTION THAT LIFO METHOD OF VALUING CLOSING STOC K IS A RECOGNIZED AND VALID METHOD OF VALUATION- (A) CIT V/S. JP PATEL (BOMAY) PVT. LTD.(263 ITR 421 )-MP (B) DCIT VS./ HARJIVANDAS J.ZAVERI(1998)60 TTJ (AH D)155 (C) ITO VS/ SREE PADMANABHA JEWELLERY MART (19 ITD 816) 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT THE ASSESSEE HAS FAILED TO SUBMIT NECESSARY DETAIL S REGARDING THE VALUATION OF CLOSING STOCK BEFORE THE ASSESSING OFF ICER OR THE CIT(A). THE ASSESSEE HAS NOT MAINTAINED STOCK REGISTER WIT H REGARD TO ITS JEWELLERY BUSINESS AND THE MONTHWISE DETAILS OF ST OCK PURCHASED DETAILS OF GOLD CONVERSION AND SALES AND WHAT PAR T OF SALES WERE EFFECTED OUT OF THE OPENING STOCK WERE NOT SUBMIT TED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. HE SUBMITTED THAT GO LD ORNAMENTS WEIGHING 3276 GRAMS WERE SUPPLIED TO M/S. TRIBHUVA NDAS BHIMJI ZAVERI MUMBAI ON APPROVAL BASIS BY THE ASSESSEE O UT OF THE OPENING STOCK IN THE YEAR 2003-04. IN THESE FACTS HE SU BMITTED THAT THE ASSESSING OFFICER WAS JUSTIFIED IN REJECTING THE LI FO METHOD ADOPTED BY THE ASSESSEE FOR VALUATION OF CLOSING STOCK OF GOLD AND THE ASSESSING OFFICER HAS RIGHTLY APPLIED THE MARKET RA TE FOR VALUATION OF THE GOLD. THE LEARNED DEPARTMENTAL REPRESENTATIVE REFERRED TO THE COPY OF THE STATEMENT OF THE ASSESSEE WHEREIN HE HA S ADMITTED THE PURCHASE OF STANDARD GOLD OF 8870.890 GRAMS AND TH E SAME WAS STATED TO HAVE BEEN CONSUMED INTERNALLY. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THE LIFO METHOD FOLLOWED BY THE ASSESSEE IS A VALI D AND RECOGNIZED METHOD WHILE VALUING THE CLOSING STOCK. THIS METHO D WAS CONSISTENTLY ITANO.63TO65/HYD/06 M/S. RAMESH CHAND JEWELLER S HYDERABAD 4 FOLLOWED AND ADOPTED BY THE ASSESSEE THROUGHOUT THE EARLIER YEARS AS WELL AS IN THE THREE ASSESSMENT YEARS IN APPEAL BEF ORE US. THERE IS FORCE IN THE ARGUMENT OF THE LEARNED COUNSEL FRO TH E ASSESSEE THAT LIFO IS A RECOGNIZED METHOD AND HAS NOTHING TO DO W ITH THE ACTUAL TRANSACTIONS OF PURCHASE AND SALE MADE BY THE ASSES SEE. WE FIND THAT THE ASSESSEE HAS PRODUCED THE DETAILS QUANTITY -WISE OF THE OPENING STOCK PURCHASES SALES AND THE CLOSING STO CK FOR THE RELEVANT ACCOUNTING PERIODS. THE ASSESSEE IS ADMITTEDLY DEAL ING WITH NUMEROUS ITEMS OF GOLD JEWELLERY AND IN ITS LINE OF TRADE IT IS NOT POSSIBLE TO MAINTAIN ITEM-WISE STOCK REGISTER. THE LIFO METHOD ADOPTED CONSISTENTLY BY THE ASSESSEE WAS ACCEPTED BY THE DE PARTMENT THROUGH OUT IN THE PAST YEARS. IN DCIT V/S. HARJIVANDAS H ZAVERI (SUPRA) WHEREIN THE ASSESSEE-FIRM HAS BEEN FOUND TO BE CONS ISTENTLY VALUING THE CLOSING STOCK 'AT COST' AND FOLLOWING THE SYSTE M OF 'LAST-IN-FIRST OUT' IT WAS HELD THAT WHERE THE ASSESSEE HAD BEEN FOLLOWING A REGULAR SYSTEM OF ACCOUNTING SINCE LAST SO MANY YEARS AND T HIS METHOD WAS BASED ON ACCEPTED PRINCIPLES OF ACCOUNTING I.E. AT COST THERE WAS NO JUSTIFICATION FOR REJECTING THE METHOD OF VALUATION OF STOCK. NO OTHER DEFECT IN THE MAINTENANCE OF ACCOUNTS BY THE ASSES SEE COULD BE POINTED OUT BY THE REVENUE. IN THESE FACTS OF THE C ASE WE FIND NO JUSTIFICATION FOR REJECTING THE BOOKS OF ACCOUNT AN D OTHER SUPPORTING EVIDENCE MAINTAINED BY THE ASSESSEE AND ESTIMATING THE GROSS PROFIT BY APPLYING A FLAT RATE OF GROSS PROFIT. ACCORDING LY THE TRADING ADDITIONS MADE FOR THE THREE YEARS UNDER CONSIDERA TION ARE NOT JUSTIFIED AND THEY ARE ACCORDINGLY DELETED AND GROU NDS OF APPEAL NO.2 TO 5 IN ALL THE THREE APPEALS ARE ALLOWED. 7. GROUND OF APPEAL NO.6 IN THE APPEAL OF THE ASSE SSEE FOR THE ASSESSMENT YEAR 2004-05 IS REPRODUCED BELOW- ITANO.63TO65/HYD/06 M/S. RAMESH CHAND JEWELLER S HYDERABAD 5 'THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERR ED IN ESTIMATING THE ADDITION ON ACCOUNT OF MAKING CHARGES AT RS.20/- PER GRAM IN THE FACTS AND CIRCUMSTANCES OF THE CA SE.' 8. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THA T THERE IS NO JUSTIFICATION FOR MAKING THE ADDITION ON ACCOUNT OF INFLATION IN THE MAKING CHARGES OF GOLD ORNAMENTS. HE SUBMITTED THA T THE MAKING CHARGES DIFFER FROM GOLDSMITH TO GOLDSMITH AND THER E CANNOT BE ANY HARD AND FAST RULE SO AS TO JUSTIFY APPLICATION OF A UNIFORM RATE OF MAKING CHARGES IN THE CASE OF ASSESSEE. HE SUBMITT ED THAT NO OPPORTUNITY OF CROSS-EXAMINATION OF THE GOLDSMITHS WHOSE STATEMENTS WERE RELIED UPON BY THE ASSESSING OFFICER WAS ALLO WED TO THE ASSESSEE. HE SUBMITTED THAT THE CIT(A) HAS ALLOWE D ONLY PARTIAL RELIEF ON THIS ISSUE BY FINALLY SUSTAINING ADDITION WORKE D OUT AT RS.20 PER GRAM WHICH IS NOT SUFFICIENT AS THE ASSESSEE IS E NTITLED TO FULL RELIEF ON THIS ISSUE. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS OPP OSED THE ABOVE SUBMISSION OF THE ASSESSEE AND HAS RELIED ON THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). HE SUBMITTED THA T THE CIT(A) WAS MORE THAN REASONABLE IN ALLOWING SUBSTANTIAL RELIEF TO THE ASSESSEE ON THIS ISSUE. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THE STATEMENTS OF THE GOLDSMITHS RECORDED BY THE ASSESS ING OFFICER REVEALED SOME OVERSTATEMENT OF THE MAKING CHARGES C LAIMED BY THE ASSESSEE. WE FIND THAT THE ASSESSEE HAS NOT REQUES TED FOR THE CROSS- EXAMINATION OF THE GOLDSMITHS WHOSE STATEMENTS WER E RECORDED BY THE ASSESSING OFFICER. THE CIT(A) HAS PASSED A WE LL REASONED AND SPEAKING ORDER ON THIS ISSUE AND HAS FAIRLY RESTRIC TED THE ADDITION ITANO.63TO65/HYD/06 M/S. RAMESH CHAND JEWELLER S HYDERABAD 6 WORKING OUT THE SAME AT RS.20 PER GRAM OF GOLD ORNA MENTS TO RS.4.64 LAKHS AS AGAINST RS.11.66 LAKHS MADE BY THE ASSESSI NG OFFICER. IN THESE FACTS OF THE CASE WE HOLD THAT THE ORDER OF THE CIT(A) IS JUSTIFIED AND NO INTERFERENCE IS CALLED FOR. ACCORDINGLY GR OUND OF APPEAL NO.6 OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 IS REJECTED. 11. GROUND OF APPEAL NO.7 OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 READS AS UNDER- 'THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERR ED IN CONFIRMING THE ADDITION ON ACCOUNT OF ALLEGED PURCHASES FR OM PARTNERS IN SPITE OF ALL FACTS AND CIRCUMSTANCES PLACE D BEFORE THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) .' THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT PRESS ED THIS GROUND OF APPEAL. ACCORDINGLY GROUND NO.7 FOR THE ASSESSMEN T YEAR 2004-05 IS REJECTED. 12. IN THE RESULT APPEALS FOR THE ASSESSMENT YEAR 2002-03 AND 2003-04 ARE ALLOWED AND THE APPEAL FOR THE ASSE SSMENT YEAR 2004-05 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 01 JANUARY 2010 SD/- SD/- (AKBER BASHA) (G.C.GUPTA) ACCOUNTANT MEMBER VICE PRESIDENT DT/- 01 JANUARY 2010 COPY FORWARDED TO: 1. M/S. RAMESH CHAND JEWELLERS C/O. M/S. M.BHASKAR RAO & CO. CHARTERED ACCOUNTANTS 6-3-652 5D 5TH FLOOR 'KAUTIYA' SOMAJIGUDA HYDERABAD. ITANO.63TO65/HYD/06 M/S. RAMESH CHAND JEWELLER S HYDERABAD 7 2. INCOME TAX OFFICER WARD-8(2) HYDERABAD. 3. CIT(A)-III HYDERABAD. 4. C.I.T. II HYDERABAD. 5. THE D.R. ITAT HYDERABAD. B.V.S.