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2018 (8) TMI 1963 - AT - Income TaxValuation of closing stock at the year end - jewellery inventory - HELD THAT - Assessee has made efforts to identify certain items of jewellery as per assessee s inventory with inventory taken at the time of search and as per the same we find that in most of those items the description and Gross weight is either tallying exactly or is very close. We are concerned with valuation of stock and not about purchase and sale tallying. If the closing stock item is identifiable as shown by the assessee on these pages it cannot be said that the method of valuation of closing stock followed by the assessee by valuing the stock item at the actual cost of that item is defective and not acceptable. This is at the best one shortcoming in the method adopted by the assessee because the assessee is not able to show any documentary evidence about identifying the ancient jewellery and such identification is dependent on the partners and/or jewellery experts employed by the assessee. But such shortcoming cannot be a basis to reject the method of valuation of closing stock consistently followed by the assessee and accepted by the department. As per Form 3CB for the preceding year ended as on 31.03.2009 for A. Y. 2009 10 also available on page 105 of the paper book there is no adverse comment. Form 3CB for A. Y. 2010 11 is available on page 147 of the paper book and in this year the auditors has stated that valuation of inventory is on cost or net realizable value whichever is lower and cost is ascertained on LIFO method. It is also stated there that the same is on the same basis as in the preceding previous year but as per Form 3CB for the preceding year ended as on 31.03.2009 for A. Y. 2009 10 there is no such adverse comment of the auditors and in view of this comment of the auditors in Form 3CB for A. Y. 2010 11 that valuation is on the same basis as in the preceding year the statement of the auditors become contradictory conflicting to each other because in one line the auditors say in AY 2010 11 that the valuation is as per LIFO method and in the next line it is said that the valuation is on the same basis as in the preceding year and in the preceding year s Form 3CB there is no adverse comment. This is also settled law that the comments of the auditors are not final and binding particularly if the same is not supported by evidence. On the basis of such a contradictory conflicting statement/ observation of the auditors the method of valuation of closing stock consistently adopted by the assessee and accepted by the department in earlier and later years cannot be discarded. Profit on alleged unaccounted sales - finding of the AO that the entire 22 ct. jewellery including the unaccounted 22 ct. jewellery found in search conducted in 1990 was valued at Rs. 270/- per gram and the assessee did not furnish the old jewellery details or objected to the valuation of this old jewellery at Rs. 270/- per gram - HELD THAT - Addition is in respect of Gold Ingots of 24 carrats weighing 2583 grams and gold ornaments of 5409.43 grams gross weight with net weight of 4955.380 grams. Total net weight of gold ingots and gold ornaments was worked out at 7538.380 grams and it was held to be excess stock found in search and although some explanation was given by the assessee that this is belonging to a joint venture but that explanation was not accepted and addition was made of Rs. 21, 92/294/- by valuing such excess gold ingots and gold ornaments of 7538.380 grams and this rate works out to Rs. 291/- per gram. Based on this addition in respect of some excess Ingot and Gold Ornaments found in search in 1990 it cannot be said or alleged that the assessee is not having any ancient jewellery particularly when no addition is made in that year by alleging that there is any under valuation of stock in spite of the assessee s claim that in that year also the ancient jewellery was there and it was valued at old rates ranging between Rs. 10 per gram to Rs. 240/- per gram and it is not established by the revenue that this stand of the assessee is incorrect. Hence we find that this observation of the AO and CIT (A) is not acceptable. As per the assessment orders for earlier years and later years i.e. Assessment Years 2012-13 and 2013-14 no addition has been made by the AO by making an allegation that there is any under valuation of closing stock it is seen that the AO is also accepting the valuation method adopted by assessee in earlier years and later years and therefore in view of our analysis about the AO s main objections we hold that in view of the principle of consistency the addition made by the AO in the present years is not justified and therefore the same is not sustainable and we delete the same. This issue is decided in favour of the assessee in all these years. Gross profit on such alleged unaccounted sales - HELD THAT - The entire addition on the basis of alleged unaccounted sales is based on these three statements of this witness Mr. Venkatesh Vaidyanathan Vice President of the software supplier company. As per Para 5.11 of the written submissions reproduced above this is the claim of the assessee that all these three statements of the witness were recorded behind the back of the assessee and there was no witness present at the time of recording the statement and therefore this statement cannot be relied upon at all - Also no opportunity was provided to the assessee to cross examine this witness on the basis of whose statement adverse inference were drawn against the assessee - these statements cannot be relied upon for drawing any adverse inference against the assessee. We find that in the case of ANDAMAN TIMBER INDUSTRIES 2015 (10) TMI 442 - SUPREME COURT it was held that not allowing the assessee to cross examine the witness by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice - addition made by the AO on the basis of these three statements cannot be sustained because of violation of rules of natural justice. Witness Mr. Venkatesh Vaidyanathan has stated that the items were removed from counter either for sale or on account of any other reason without collecting tax thereon - HELD THAT - Since the AO has also noted that as per the statement of the witness Mr. Venkatesh Vaidyanathan the items were removed from counter either for sale or on account of any other reason it comes out that the removal is not definitely on account of sale even as per the statement of the witness Mr. Venkatesh Vaidyanathan. Removal from counter can be for other reasons and it is established by the assessee at least in respect of 1794 entries as per written submissions in which no defect could be pointed out by the learned DR of the revenue. Considering all these facts and the legal position that before drawing any adverse inference against the assessee on the basis of statement of a witness without providing opportunity to the assessee to cross examine the witness the addition made is not sustainable we hold that this addition made by the AO is also not justified and therefore we delete the same. This issue is also decided in favour of the assessee. As per above discussion we have found that in respect of both the issues on merit the assessee succeeds and therefore the remaining grounds in respect of benefit of telescoping etc. do not call for any adjudication. Appeal partly decided in favour of assessee.
Issues Involved:
1. Validity of jurisdiction under Section 153A of the Income Tax Act. 2. Valuation of closing stock. 3. Alleged unaccounted sales and addition of gross profit. 4. Violation of principles of natural justice. 5. Telescoping of additions. 6. Interest under Sections 234A, 234B, and 234C of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Validity of Jurisdiction under Section 153A: The Tribunal noted that the issue regarding the validity of jurisdiction under Section 153A was previously restored to the CIT(A) by the Tribunal for fresh decision. The CIT(A) held that the proceedings under Section 153A were validly initiated. The Tribunal inferred that technical grounds were not pressed by the assessee during the hearing and thus rejected these grounds as not pressed. 2. Valuation of Closing Stock: The assessee consistently followed a method of valuing closing stock at the specific cost of acquisition for each item, which was accepted by the department in earlier and later years. The AO rejected this method, alleging it was based on the Last In First Out (LIFO) method and not in conformity with Accounting Standards. The Tribunal found that the AO's objections were based on suspicion and not on substantive evidence. The Tribunal emphasized the principle of consistency, noting that the same method was accepted in earlier and later years. The Tribunal concluded that the AO's addition based on revaluation of closing stock was not justified and deleted the addition. 3. Alleged Unaccounted Sales and Addition of Gross Profit: The AO based the addition of gross profit on alleged unaccounted sales on the statements of Mr. Venkatesh Vaidyanathan, which were recorded behind the back of the assessee without providing an opportunity for cross-examination. The Tribunal held that such statements could not be relied upon due to the violation of principles of natural justice. The Tribunal also noted that the assessee provided detailed explanations and evidence for the removal of items from counters for reasons other than sales, which the AO unreasonably rejected. The Tribunal deleted the addition made on account of alleged unaccounted sales. 4. Violation of Principles of Natural Justice: The Tribunal observed that the statements of Mr. Venkatesh Vaidyanathan were recorded without allowing the assessee to cross-examine him, which amounted to a violation of the principles of natural justice. The Tribunal cited several judicial precedents to support its view that such an action renders the order null and void. 5. Telescoping of Additions: Since the Tribunal decided in favor of the assessee on the main issues of valuation of closing stock and alleged unaccounted sales, the ground regarding telescoping of additions became infructuous and did not require adjudication. 6. Interest under Sections 234A, 234B, and 234C: The Tribunal noted that the issue of interest under Sections 234A, 234B, and 234C is consequential and would depend on the final determination of taxable income. Conclusion: The Tribunal allowed the appeals partly, deleting the additions made on account of revaluation of closing stock and alleged unaccounted sales, and upheld the principle of consistency in the method of valuation of closing stock. The Tribunal also emphasized the importance of adhering to principles of natural justice in tax proceedings.
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