2021 (8) TMI 646 - AT - Income Tax

Addition on account of difference in stock - valuation of stock held - method of accounting adopted by the tax-payer consistently - difference was there in the valuation made by the registered valuer of the department who applied the market rate and worked out the total stock of the jewellery different as per books of the account of the assessee - CIT-A deleted the addition - HELD THAT - The assessee while working out the above difference applied the average price which was followed consistently, whereas the registered valuer of the department applied the market rate for valuation of the closing stock. It is well settled that the method of accounting adopted by the assessee consistently and regularly cannot be discarded.Revenue department undisputedly accepted the average cost price method for valuation of the opening stock for the year under consideration as well as the valuation of the closing stock in the earlier years, therefore, the valuation of the closing stock as on 11/11/2013 found during the course of survey, by applying the market rate was not justified, as such the Ld. CIT(A) rightly deleted the impugned addition made by the A.O. We do not see any valid ground to interfere with the findings given by the Ld. CIT(A). - Decided against revenue.

Issues Involved:
1. Whether the CIT(A) erred in law and facts in allowing the appeal of the assessee without appreciating the facts of the case.
2. Whether the CIT(A) erred in accepting the assessee's version that the difference in stocks was attributable to rate difference.
3. Whether the CIT(A) erred in deleting the addition made by the AO on account of difference in stocks.
4. Whether the CIT(A) erred in deleting the addition when the assessee admitted and offered the amount during the survey.
5. Whether the CIT(A) erred in deleting the addition when the assessee failed to discharge the burden of proving the admission wrong or given under coercion.
6. Whether the order of the CIT(A) should be set aside and the order of the AO restored.

Issue-wise Detailed Analysis:

1. Whether the CIT(A) erred in law and facts in allowing the appeal of the assessee without appreciating the facts of the case:

The Department's grievance was that the CIT(A) allowed the appeal without considering the facts, particularly the difference in stock valuation found during the survey. The CIT(A) considered the submissions of the assessee, who argued that the difference arose due to the method of valuation (market price vs. average cost), not due to any actual discrepancy in stock quantity. The CIT(A) found merit in the assessee's argument that the method of valuation should be consistent and cannot be changed arbitrarily.

2. Whether the CIT(A) erred in accepting the assessee's version that the difference in stocks was attributable to rate difference:

The CIT(A) accepted the assessee's version that the difference in stock valuation was due to the rate difference, as the departmental valuer used the market price instead of the average cost method consistently followed by the assessee. The CIT(A) noted that the assessee had been using the average cost method for valuation of stock, which was an accepted accounting practice and had been consistently followed and accepted by the Department in previous years.

3. Whether the CIT(A) erred in deleting the addition made by the AO on account of difference in stocks:

The AO had made an addition of ?2,44,30,607 on account of difference in stock valuation. The CIT(A) deleted this addition, observing that the AO had not considered the method of valuation consistently followed by the assessee. The CIT(A) emphasized that the difference arose due to the application of market price by the departmental valuer, while the assessee used the average cost method. The CIT(A) relied on various judicial precedents, including the case of M/s Talwarsons Jewellers and Shri Kuldeep Chand Jain, which supported the principle of consistency in the method of accounting.

4. Whether the CIT(A) erred in deleting the addition when the assessee admitted and offered the amount during the survey:

The CIT(A) noted that the assessee's admission during the survey was based on the valuation done by the departmental valuer using the market price. The CIT(A) found that the assessee had not retracted the admission but had explained that the difference was due to the method of valuation. The CIT(A) held that the method of valuation should be consistent and that the assessee's admission during the survey did not warrant the addition if the method of valuation was incorrect.

5. Whether the CIT(A) erred in deleting the addition when the assessee failed to discharge the burden of proving the admission wrong or given under coercion:

The CIT(A) observed that the assessee had consistently followed the average cost method for stock valuation, which was an accepted accounting practice. The CIT(A) found that the assessee had provided sufficient explanation for the difference in valuation and that the burden of proof was on the Department to show that the method of valuation followed by the assessee was incorrect. The CIT(A) held that the addition made by the AO was not justified as the method of valuation should be consistent.

6. Whether the order of the CIT(A) should be set aside and the order of the AO restored:

The Tribunal upheld the CIT(A)'s order, noting that the CIT(A) had correctly applied the principle of consistency in the method of valuation. The Tribunal found that the CIT(A) had properly considered the facts and the judicial precedents, and there was no valid ground to interfere with the findings of the CIT(A). The Tribunal dismissed the Department's appeal, thereby upholding the deletion of the addition made by the AO.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO on account of difference in stock valuation. The Tribunal emphasized the principle of consistency in the method of valuation and found that the CIT(A) had correctly applied this principle. The Department's appeal was dismissed.

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