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2016 (7) TMI 1491 - AT - Income TaxValuation of closing stock of gold - LIFO or FIFO method - stock discrepancies were found in survey and the Government approved departmental valuer was also present at the time of survey for valuation of stocks found in the survey - Held that - Once the basic premise on the non-existence of 24 ct gold is defeated the purity difference also vanishes and there is no need to convert the 24 ct gold into 22 ct gold as done by the ld CITA for sustenance of addition of 14, 62, 733/-. Hence we hold that there is only a minor difference of 131 grams on an overall basis on the date of survey and quantity wise reconciliation is also duly filed before the lower authorities which are reproduced in page 2 of the AO s order. Absolutely no basis for sustenance of addition in the sums of 1, 54, 73, 471/- and 36, 87, 474/- towards difference in stocks on the date of survey in the facts and circumstances of the case. Addition towards difference in valuation of stock - we find that the AO though has accepted the quantity analysis of items of ornaments consisting of 24 ct 22 ct 18 ct as per audited accounts but he has multiplied the quantity with the average cost of purchase price as on 31.3.2009. This was in total disregard of the valuation which was adopted by the assessee at cost consistently and there being no deviation throughout the past many years which is fully and elaborately detailed in the audited accounts enclosed in the paper book and duly accepted as such by the revenue from year to year without disturbing the same at any stage AO had not recorded any clear finding in his order that the LIFO method of accounting followed by the assessee for valuing its closing stock was such that correct profit could not be deduced from the books of account maintained by the assessee. In these circumstances it would not be justified in rejecting the closing stock valuation regularly adopted by the assessee. In the instant case the assessee had furnished the closing stock valuation workings as on 31.3.2005 31.3.2006 31.3.2007 31.3.2008 and 31.3.2009 before us which are forming part of the paper book vide pages 20 -182 . On going through the said workings we are fully convinced with the method of accounting regularly employed by the assessee for valuation of closing stock of Gold and other jewellery using LIFO method. It is quite natural that jewellery being a fashion industry the old stocks would most of the times remain with the assessee and the revenue cannot expect the old stocks to be sold out first though it would remain in the wish list of the jeweller. We find that the aforesaid valuation exactly fits into the accepted method of valuation for a jeweller. We hold that no addition could be made towards value of stock because the closing stock cannot be construed as a source of profit for the assessee. We find that the assessee has been consistently following LIFO method of accounting for valuation of its closing stock of gold which has been accepted by the department in the earlier years even in scrutiny assessment proceedings of the assessee. Then there is no justifiable reason to reject the same method during the year under appeal. - Decided in favour of assessee Addition for difference of 230.571 grams - Held that - We find that this addition of 3, 53, 004/- was made by the ld AO due to identifying difference of 230.571 grams between the stock as per gold ledger and stock as per item wise register. The assessee had not filed any reconciliation statement for the same before the lower authorities and even before us. In these circumstances we find no reason to interfere with the order of the ld CITA in this regard. - Decided against assessee Addition based on the impounded document DKB (R ) -15 found during the survey representing receipt of gold of 410.36 grams - Held that - We find that the assessee did not adduce any evidence apart from stating that the same represent gold received from karigar but had not corroborated the same with reference to the regular books maintained by the assessee. Hence we hold that the CITA had rightly confirmed this addition - Decided against assessee Addition on impounded purchase voucher no. 2239 DKB (R ) -4 found during the survey representing purchase of gold of 98 grams from Shri Anil Kr Gupta - Held that - We find that the assesee had primarily proved that the visit of Shri Anil Kr Gupta on 7.7.2008 to the showroom had been duly corroborated with reference to the regular books maintained by the assessee. But the assessee should have obtained confirmation from Shri Anil Kr Gupta confirming the stand of the assessee that he did not sell any gold weighing 98 grams to the assessee on 6.7.2008 to prove the case beyond doubt. Hence we find that the assessee had not discharged its primary onus on this aspect. Hence in these circumstances we hold that the ld CITA had rightly confirmed this addition - Decided against assessee Addition on the basis of entry in the purchase voucher - Held that - We find that this addition of 94, 837/- was made by the ld AO based on the impounded purchase voucher no. 2666 dated 19.11.2008 found during the survey representing purchase of gold of 74.94 grams. AO had observed that the assessee had not denied the basic fact that the said purchase voucher is not part of the regular books maintained by the assessee. Hence in these circumstances we hold that the CITA had rightly confirmed this addition - Decided against assessee
Issues Involved:
1. Addition of ?1,54,73,471/-; ?36,87,474/- and ?6,28,60,651/- made by the AO. 2. Addition of ?3,53,004/- for the difference in gold stock. 3. Addition of ?5,19,315/- based on impounded book DKB(R)-15. 4. Addition of ?1,24,020/- based on impounded purchase voucher No. 2239. 5. Addition of ?94,837/- based on impounded purchase voucher No. 2666. Detailed Analysis: 1. Addition of ?1,54,73,471/-; ?36,87,474/- and ?6,28,60,651/- made by the AO: The assessee, engaged in the manufacture and sale of gold ornaments, was subjected to a survey operation where discrepancies were noted between physical stock and stock as per books. The AO issued a show cause notice for treating the discrepancies as unexplained investment and undisclosed income. The AO also questioned the valuation method (LIFO) used by the assessee, suggesting an average cost method instead. The assessee contended that the discrepancies were minor and due to differences in purity classification by the departmental valuer. The CIT(A) partially upheld the AO's additions but revised the quantum based on purity differences. The tribunal found that the AO's rejection of the LIFO method, which had been consistently followed and accepted in previous years, was unwarranted. The tribunal also noted that the overall difference in stock was minimal (131 grams) and that the AO had inconsistently accepted the existence of 24 ct gold in some contexts but not others. Consequently, the tribunal deleted the additions of ?1,54,73,471/- and ?36,87,474/- and upheld the LIFO method for stock valuation, thereby deleting the addition of ?6,28,60,651/-. 2. Addition of ?3,53,004/- for the difference in gold stock: The AO noted a discrepancy of 230.571 grams between the gold ledger and the item-wise stock register, leading to an addition of ?3,53,004/-. The assessee argued that such minor differences were due to normal business operations involving breakage and shortage. The tribunal upheld the CIT(A)'s confirmation of this addition, noting that the assessee failed to provide a reconciliation statement. 3. Addition of ?5,19,315/- based on impounded book DKB(R)-15: The AO made an addition based on an entry in the impounded book DKB(R)-15, which recorded receipt of gold from a karigar but was not reflected in the regular ledger. The assessee's explanation that the entry was related to karigar payments was not substantiated with evidence. The tribunal upheld the CIT(A)'s confirmation of this addition. 4. Addition of ?1,24,020/- based on impounded purchase voucher No. 2239: The AO noted that a purchase voucher for 98 grams of gold was not recorded in the purchase ledger. The assessee explained that the transaction was mistakenly not recorded on the day it occurred but was entered the next day. The tribunal found that the assessee did not obtain a confirmation from the customer to support this claim and upheld the CIT(A)'s confirmation of this addition. 5. Addition of ?94,837/- based on impounded purchase voucher No. 2666: The AO made an addition based on a purchase voucher for 74.94 grams of gold that was not found in the purchase ledger. The assessee did not deny the omission. The tribunal upheld the CIT(A)'s confirmation of this addition. Conclusion: The tribunal allowed the appeal of the assessee in part, deleting the major additions related to stock discrepancies and valuation methods. However, it upheld the smaller additions related to unrecorded transactions and discrepancies in stock records. The revenue's appeal was dismissed in its entirety.
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