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TMI Blog1983 (8) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... rket value of the closing stock has to be found as a fact, and whether and in the absence of any details having been furnished by the assessee, the value adopted by the WTO has to be accepted or not?" The point of difference, as stated by the Judicial Member in his order dt.1st Jan., 1982, is as under: "Whether, on the facts and in the circumstances of the case, does the gross profit rate taken in the case of the firm, constitute adequate material to come to the conclusion that market value of the closing stock of the firm exceeds the cost price as adopted by the firm by more than 20 per cent and whether merely on that basis, can the r. 2B(2) of the WT Rules, 1957 be invoked?" 2. The facts giving rise to the difference of opinion on the points mentioned above may be stated: S/Shri Gopichand Rawat, Ram Mohan Rawat and S.M. Rawat are partners of the firm M/s Maliram Puranmal, Jaipur. This firm has its head office at Jaipur and a branch atBombay. At Jaipur the firm has show-rooms at Haldion-ka-Rasta. Rajasthan Handicrafts Emporium and Rajasthan State Hotel, Khasa Kothi. The firm deals in precious stones, jewellery studded with precious stones, paintings, curios and silver articles. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that the firm was prepared to sell its entire stock at a rate about 18 per cent of its book value. He also made the submission that if the Department had any material to show that the market value of the closing stock of the firm exceeded its book value by 20 per cent the assessee should be confronted with this material because the onus for purposes of applying r. 2B(2) lay on the Revenue. The other two partners made similar submissions. The WTO did not accept the submissions made on behalf of the three assessee. He, however, allowed a margin of 4 per cent in view of the submissions made by the assessees. On this basis the market value of the closing stock in the books of the aforesaid firm was worked out at Rs. 35,30,873 and the difference in the market value and the book value of the stock was worked out at Rs. 7,79,734 (Rs. 35,30,873 minus Rs. 27,51,139). One third share of each partner was worked out at Rs. 2,59,911 and this amount was included in the Wealth-tax assessment of the three assessee. This amount was over and above the value of their interest in the aforesaid firm already shown by three assessee in their returns for the present year. 3. All the three ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WTO has discharged the initial burden cast on him. 2. If the answer to (1) above is in the affirmative whether the burden shifts to the assessee to prove that Prima facie difference of 33.68 per cent is not real by leading positive evidence and whether any evidence has been adduced by the assessee to discharge this onus. 3. Whether market value has to be found as a fact, if so what is the market value of the closing stock and the assessee's share therein". After taking into consideration the arguments advanced on behalf of both the parties the learned Accountant Member recorded the following answer to the issues framed above: "1. I answer the first question in the affirmative i.e. the difference is more than 20 per cent in terms of r. 2B(2) and the WTO has discharged the initial burden cast on him. 2. My answer to question No. 2 is also in affirmative. The assessee has also failed to lead any evidence to discharge the onus which shifted upon him. 3. Market value has to be found as a fact and the value placed by the WTO is upheld in the absence of any material brought on record to the contrary on behalf of the assessee". Before the Tribunal the assessee relied on the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who was party to the order dt. 23rd July, 1981 in WTA Nos. 756 and 757/JP/1980 preferred to follow that order, wherein it was held that the more fact that gross profit rate shown by the firm was more than 20 per cent did not constitute adequate material to come to the conclusion that market value of the closing stock of the firm exceeded the book value by more that 20 per cent and that for invoking the provisions of r. 2B(2) the WTO should have brought some cogent material to prove that the market value of the closing stock of the firm exceeded its book value by more than 20 per cent. It is in these circumstances that the point of difference, referred to above, has been framed and has been referred to me as a third Member. 7. The ld. Department al Representative relied on the order of the Accountant Member, at Jaipur dt.25th July, 1981in WTA Nos. 451 and 452/JP/1980 and the Special Bench order of the Tribunal in WTA No. 560/JP/1981 dt.13th Oct., 1982in the case of IAC, Jaipur vs. Cosmopolitan Trading Corporation, Jaipur. He submitted that when the firm M/s Maliram Puranmal had itself shown the rate of GP at 25.2 per cent, it was apparent that the market value of the closing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If the payment is delayed, the price would go down because the element of risk of recovery would be there. He submitted that the gross profit would not help in finding out the market rate because the gross profit was not constant. He furnished the following chart which is at page 26 of the paper book: Comparative position of sales in Jawahart A/C Asst. yr. Sales in jewellery account Gross profit Gross profit rate 1973-74 24,84,95 4,80,001 19.3 per cent 1974-75 25,76,571 5,00,001 19.4 per cent 1975-76 26,67,960 6,75,839 25.3 per cent 1976-77 21,50,403 4,74,001 22.04 per cent 1977-78 32,09,900 7,22,251 22.5 per cent Comparative Position of Total Sales Asst. yr. Total sales Total gross profit Total Gross profit rate 1974-75 Rs. 39,33,544 5,82,650 18.5 per cent 1974-75 34,22,955 5,94,306 17.3 per cent 1975-76 27,57,720 6,88,443 24.9 per cent 1976-77 30,45,771 4,93,676 16.2 per cent 1977-78 91,70,105 8,50,824 9.2 per cent He also referred to the following chart which is given at page 264 of the paper book: Asst. yr. Net profit as per Profit & Loss Account Opening stock Closing stock 1974-75 78,519 18,08,324 20,31,868 1975- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T vs. Smt. Kusumben D. Mahadevia (1980) 14 CTR (SC) 366 : (1980) 122 ITR 38 (SC), CWT vs. Mahadeo Jalan 1972 CTR (SC) 395 : (1972) 86 ITR 621 (SC) and CIT vs. Smt. Vimalben Bhagwandas Patel and Smt. Kamlaben Kanjibhai Patel (1979) 13 CTR (Guj) 27 : (1979) 118 ITR 134 (Guj). He also submitted that if the two methods were available, the method beneficial to the assessee should be applied. On this point, he referred to the decision in Jaswant Rai vs. CWT (1977) 107 ITR 477 (P&H) and Debi Prasad Poddar vs. CWT (1977) 109 ITR 760 (Cal). He submitted that even after the valuation of the property was done on the basis of yield method, further deduction had to be allowed as was done in the cases reported in Prodyut Kumar Dutta & Ors. vs. Competent Authority & Ors. (1981) 24 CTR (Cal) 284 : (1982) 134 ITR 42 (Cal) and Lalita Jabbar vs. Competent Authority & Ors. (1982) 133 ITR 389 (Cal). He pointed out that more than 50 per cent of the closing stock consisted of coloured stones and it was very difficult to place the market value of such stones and the market value of the entire closing stock of the firm could certainly not be arrived at on the basis of the average rate of GP shown in this y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the report and these are CWT vs. Aluminium Corporation of India Ltd. (1970) 78 ITR 483 (SC), Kesoram Industries and Cotton Mills Ltd. vs. CWT and CWT vs. Tungabhadra Industries Ltd. (1970) 75 ITR 196 (SC). The valuation of the closing stock is shown in the balance-sheet of the firm and that value having been shown at cost has thus to be accepted. The value of the closing stock shown in the balance-sheet of the firm has been accepted in the IT assessment of the firm and that is obvious from a copy of the assessment order of the firm filed before me. Now, the assessee is not required to lead any evidence for purposes of invoking r. 2B(2), because it is not the assessee's case that the value of the closing stock shown in the balance-sheet of the firm does not represent its correct value. The evidence to prove the market rate of the closing stock of the firm has to be led by the Revenue, because the Revenue wants to make the necessary adjustment for invoking r. 2B(2). The Revenue cannot make a grievance of the fact that the assessee has not led any evidence for proving the market value of the goods shown as closing stock of the firm. The firm produced its books of account and it was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of closing stock carried over in different years suggests, that the goods in which the assessee deals, the sales are slow. The sales are not the type of sales which can be expected in items of consumer goods. The investment in closing stock is large. Before the items of jewellery can be sold, different permutations, combi nations, settings, etc. have to be made. Some items of jewellery may be sold quickly, but for others the stock may have to be carried over a period of certain years. The coloured precious stones require treatment. It is not easy to fix the value of emeralds, rubies, sapphires etc. The rates would differ from person to person and even from place to place. If such large quantity of goods as the firm carries are to be sold on the valuation date, the buyer would in all probability be a dealer and he would certainly not pay the price which the assessee can get from sales to different parties over a period of 12 months. I have thus no hesitation in coming to the conclusion that on the basis of the mere gross profit of 25.2 per cent shown in this year, the value of the closing stock cannot be considered to be more than 20 per cent of the value shown in the books of the f ..... 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