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TMI Blog2012 (11) TMI 898X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the validity of reassessment proceedings on account of audit objection becomes academic in nature – in favor of assessee - ITA No. 1974/Mum/2010 - - - Dated:- 13-1-2012 - SHRI R.K. PANDA AND SHRI VIJAY PAL RAO, JJ. Appellant by Shri Vipul Joshi Respondent by Shri C.G.K. Nair ORDER PER R K PANDA, AM This appeal filed by the assessee is directed against the order dated 15.01.2010 of the Commissioner of Income Tax (A)- 27, Mumbai relating to Assessment Year 2004-05. 2. Facts of the case in brief are that the assessee is a partnership firm engaged in the business as dealer, manufacturer, importers and exporter of diamonds and studded jewellery. The return of income was filed on 20.10.2004 declaring total income of Rs. 9,94,217/- which was processed u/s 143(1) of the Act on 18.3.2005 accepting the income returned. Subsequently on the basis of the audit objection by the Internal Audit Party the A.O. issued notice u/s 148 of the Act on 11.08.2006 on the ground that there was under valuation of stock of rough diamonds and stock of cut and polished diamonds which are as follows:- A. ROUGH DIAMONDS Qty (carats) Value (Rs) Avg. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 2.3 Subsequently the assessee made detailed submissions according to which the assessment cannot be reopened on the basis of comments/observations made by Audit Officers in view of the decision of Hon ble Supreme Court in the case of Indian Eastern Newspaper Society v. CIT reported in 119 ITR 996 (SC) and decision of Hon ble Allahabad High Court in the case of U.P. State Industrial Corporation v. CIT reported in 16 CTR 142 (Allahabad). It was submitted that reopening of the assessment u/s 147 cannot be carried out in the case of the assessee since there was no additional material/information at the time of reopening of the assessment, which was not available at the time of processing u/s 143(1) of the Act. It was submitted that the reasons recorded for reopening have been recorded without reference to entire assessment records, nature of business carried on by the assessee and a detailed analysis of the reasons for arriving at the reason to believe that income chargeable to tax has escaped assessment. The decision of the Hon ble Supreme Court in the case of M/s G.K.N. Driveshafis (India) Ltd. v. ITO reported in 259 ITR 19 was cited before the A.O. and it was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der-valuation of closing stock i.e. A + B= 1,23,09,723/- 2.6 Before the ld. CIT(A) the assessee made two fold submissions i.e. challenging the validity of the reassessment proceedings on account of audit objections and the addition on account of under valuation of the closing stock of rough diamonds and polished diamonds. The ld. CIT(A) upheld the reassessment proceedings on the ground that the processing has been done u/s 143(1) which cannot be considered to be an assessment proceeding and therefore the issue of notice u/s 147/148 of the Act is valid. So far as the addition on account of under valuation of closing stock of rough diamonds are concerned, he upheld the action of the A.O. on the ground that they have not kept the details of stock of rough diamonds category-wise nor do they have details to show what were the consumption in each category of rough diamonds. Therefore he held that the valuation made by the assessee based on the valuation of class and category of the rough diamonds is not correct. According to him there is absence of any details of what was the consumption of each category of rough diamonds and how much of it was left in the stock and what was the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds are valued at cost or net realizable value whichever is less. Rejections are valued at net realizable value. Referring to page 18 of the paper book he submitted that the auditors have certified the various books of account maintained by the assessee which includes cash book, ledger, sales register, purchase register, stock register etc. Referring to page 19 of the paper book, the ld. counsel for the assessee drew the attention of the Bench to the comments of the auditors on the method of valuation of closing stock according to which the same is at cost or market value whichever is lower in case of finished goods and raw materials and it is valued at market value in case of rejections as certified by the partners. Referring to page 32 of the paper book, the ld. counsel for the assessee drew the attention of the Bench to the statement of movement/valuation of rough diamonds for the year ended 31.3.2004. Referring to page 33 of the paper book, the ld. counsel for the assessee drew the attention of the Bench to the statement of movement/valuation of stock of polished diamonds and finished goods for the year ended 31.3.2004. Referring to page 37 of the paper book, the ld. counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 312 ITR 100 (P H) 8. Balaji Motors (P) Ltd. V. Dy. CIT [2004] 91 TTJ (Lucknow) 604 3.1 Referring to a series of decisions as filed in the paper book he submitted that when there is no material before the A.O. to form a conclusion that the income has escaped assessment, reopening of assessment u/s 147 is bad even if there is no assessment u/s 143(3). 3.2 Referring to the adoption of average cost by the A.O. for valuing the closing stock, he submitted that such an adjustment is in-correct unless similar adjustment is made to the opening stock also. For this proposition he referred to the decision of Hon ble Bombay High Court in the case of CIT v. Mahalaxmi Glass Works and a series of other decisions filed in the paper book. Referring to the decision of Hon ble Supreme Court in the case of CIT v. Bilahari Investments (P) Ltd. Reported in [2008] 299 ITR 1 (SC) he submitted that once the Department has accepted the method of valuation adopted by the assessee over several years, the same cannot be substituted by another method in absence of any finding by the A.O. that the method adopted by the assessee distorts the profits of a particular year. He submitted that there will a chain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke to deal with the ground on merit first. From the various pages of the paper book including the copy of audit report and the submissions made before the A.O., we find the assessee maintains cash book, ledger, purchase and stock register and values the closing stock at cost or the market value whichever is lower in case of finished goods and raw materials and values the rejections at market value. The assessee has given quantitative details of opening stock, purchases during the year, goods manufactured during the year, rejection received during the year, sales during the year and closing stock. The assessee filed before the Bench the copy of the stock register of finished goods and valuation thereof. Similarly, it has also filed the summary register of rough diamonds and the valuation of such rough diamonds as on 31.3.2004. The stock register of finished goods gives item wise details of opening stock, received from manufacturers, exports made during the year and closing stock date-wise. The method adopted by the assessee valuing the closing stock of raw material and finished goods at cost or market price whichever is less is an acceptable method which has been accepted by the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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