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TMI Blog2016 (4) TMI 994X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounting consistently and no change has been made in the opening stock by the Assessing Officer, weighted average cost has been calculated as per accounting standard issued by ICAI and even if the comparative working of valuation of stock on FIFO basis and weighted cost on average basis as given by the Assessing Officer during assessment proceedings then also the result will be in negative and nothing can be inferred that the appellant had derived any undue advantage. In these circumstances, we are of the view that stock valuation method adopted by the assessee in the year under appeal has been consistently followed since last many years, no defect in the books have been pointed out by the Assessing Officer nor books of account have been rejected and the valuation of closing stock by applying his own formula of weighted average cost without applying it to the opening stock of the assessee and, therefore, in our view this addition for suppression of closing stock is uncalled for and needs to be deleted. - Decided in favour of assessee Disallowance on account of office expenses - Held that:- CIT(A) has rightly deleted the addition because such kind of ad hoc disallowance are norm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Income Tax(A) also erred in confirming manufacturing loss of ₹ 45,08,042/-. 3. The AO also erred in levying interest u/s 234C. 3. Briefly stated facts as culled out from the assessment records are that assessee is a partnership firm engaged in the business of manufacturing diamonds studded jewellery. E-return for asst. year 2007-08 was filed on 29.10.2007 declaring total income at ₹ 11,01,717/- accompanied by Tax Audit Report u/s 44AB of the Act. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued on 8.9.2008 and served upon the assessee on 11.9.2008 followed by notice u/s 142(1) of the Act was issued on 31.07.2009 and served on the assessee along with questionnaire. The case was discussed and necessary details as required by ld. Assessing Officer were furnished and discussion on valuation of closing stock and genuineness of manufacturing loss were made by ld. Assessing Officer in his order and assessment was framed on 30.12.2009 by assessing the income of assessee at ₹ 92,20,894/- after making following additions :- 1. Disallowance of suppression of stock as discussed in para no.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the making loss recorded is abnormal. The jewellery is manufactured on conditions environments such as outside interference of air, moisture, dust, light, noise etc. are well controlled. The accumulated gold dusts are condensed and retrieved. The superior tools used allows bare minimum wastage during the making. The workers are never allowed wastage % in excess of accepted norms. Enquiry from the trade circles (both big and small) unanimously stated that the rate of making loss accepted cannot be more than 0.50%. The appellant heavily relied on the proposition set out in the Exim Policy to drive home about the issue. I am not convinced with such argument for the reasons that the tenor of the Exim Policy is different from the issue at hand. Therefore, taking queue from the Exim Policy is not relevant. The basic issue in this appeal is can 10.59% making loss be allowed. The appellant's own admission making loss recorded for Diamond jewellery 0.10% and Gold Chains (l8Kt) 0.06%. Then how the making loss for the Gold jewellery (i8Kt) recorded by the appellant was 10.59%'s not explained. Normally the making loss in actual term neutralizes due to the impurities added to convert 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage loss as per his experience is around 1% whereas assessee has claimed 10.59% of shortage loss. Apart from this observation there is no other finding placed on record. 10. We also find that in the Handbook of Procedures (Vol.I) 1st September 2004 31st March, 2009 issued by Ministry of Commerce and Industry, Department of Commerce, Government of India wherein wastage norms have been given in column 4A-2 which reads the wastage or manufacturing loss on gold/silver/platinum jewellery articles thereof is normally around 9%. From going through the manufacturing process submitted by the assessee we find that it is also involved in the manufacturing of gold studded jewellery 18 kt. and the manufacturing loss shown by assessee is at 10.59% which shows that there is no major variation between the wastage norms of 9% depicted by the Handbook of Procedures (Vol.I) 1st September 2004 31st March, 2009 issued by Ministry of Commerce and Industry, Department of Commerce, Government of India and loss of 10.59% claimed by assessee. We further observe that assessee has shown 9% shortage manufacturing loss for Asst. Year 2005-06 and 11.05% for Asst. Year 2006-07 during which turnover of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osses have been shown on account of valuation of closing stock on the basis of market price or purchase price. Therefore, it cannot be said that the assessee had shown loss mala fidely. It is further seen -that the closing stock prepared by the assessee for immediately preceding year has been accepted by the AC without commenting an\ defects. The books ol account were maintained in the regular course ot business and they have been accepted by the AO. It was further stated that even in subsequent assessment year i.e., 2004-05 the opening stock which was of the closing stock of the year under consideration has been accepted by the Department, therefore, for this reason, rejection of the closing as well as opening stock by the AO, in our considered view is not justified at all. The AO cannot go into the facts of the immediately preceding year. The assessee has explained the closing stock of the immediately preceding year, the assessment of which has also been completed under s. 143(3). Therefore, closing stock of the immediately preceding year has to be taken into consideration. It has been categorically stated that in view of consistent method of valuation, loss is incurred on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired by the AO filed before him, we find that the AO and the GIT (A) were not justified in rejecting the claim of the assessee. The AO as well as CIT(A) have rejected the loss claimed by the assessee at 16.70 per cent. The entire loss has been disallowed without assigning any reason and thereafter, 1 per cent gross profit on the total turnover has been adopted again without assigning any reason, therefore, as stated above, both the authorities were not justified in rejecting the books of account and not allowing claim of loss of the assessee. Accordingly, we set aside the orders of the authorities below and the AO is directed to allow the claim of the assessee as claimed. 7. In the result, the appeal of the assessee is allowed. 12. The facts of the case discussed in the decision of co-ordinate bench in the case of Shukra Jewellery Ltd. vs. ACIT (supra) are also similar to the facts of the case we are dealing in. We, therefore, respectfully following the decision of the co-ordinate bench referred above and also on the basis of our discussion made above, including wastage norms set by the Handbook of Procedures (Vol.I) 1st September 2004 31st March, 2009 issued by Ministry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Ahd/2009 vide order dated 31.5.2012. 18. We have heard rival contentions and perused the material on record. The issue in this appeal raised by Revenue in the first ground is on account of deletion of addition of suppression of valuation of closing stock of ₹ 35,61,135/- and deletion of addition of ₹ 50,000/- on account of disallowance of various expenses. 19. First we take up suppression of valuation of closing stock at ₹ 35,61,135/-. From going through the assessment order we find that Assessing Officer has arrived at the weighted average cost method by taking the cost of purchases made in February and March, 2007. Whereas assessee has calculated the weighted average on the basis of purchases of 12 months . Apart from this calculation, wherein purchases of two months have been taken as a basis of calculating average cost by Assessing Officer, but there is no other observations in relation to any defect in the regular books of account maintained by the assessee. 20. Ld. CIT(A) has deleted the addition by observing as under :- DECISION : I have carefully perused the submission made by the Id. AR and the findings of the AO. According to the AO the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s given to the AO during the assessment proceeding and the result was (-) ₹ 62,86i/~ thereby the appellant had not derived undue advantage by adopting Weighted Average cost method. The Id.AR also supported his argument with relevant case laws. In this circumstances, in my view, the AO is not correct to thrust upon the appellant the FIFO method- of valuation of stock without bringing any materials evidence showing that the appellant has derived benefit by adopting Weighted Average method for valuation of Stock. The AO ought not to have rejected the plea of the appellant that FIFO method has to be followed for both Opening Stock and the Closing Stock as well. Therefore, the AO is directed to delete the addition made in this ground. The appeal in this ground is allowed. 21. We further find that co-ordinate bench in the case of DCIT vs. Shri Chimanlal H. Soni (supra) has also dealt with similar issue where Assessing Officer has calculated the valuation of closing stock by applying different method than regularly adopted by the assessee and the observation of the co-ordinate bench is reproduced below :- 8. We have heard the rival contentions, perused the material on records, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuation we are not inclined to approve the said approach of assessment of the A.O. In view of the foregoing facts and in the circumstances of the case we are of the considered view that CIT (A) has rightly deleted the addition of ₹ 2,60,63,437/- made to closing stock. We accordingly upheld the action of CIT (A) and dismiss this ground of Revenue. 9. In the result, the appeal of Revenue is dismissed. 22. We find that the facts of the case dealt in this appeal are similar to the facts adjudicated in the decision of the co-ordinate bench, Ahmedabad in the case of DCIT vs. Shri Chimanlal H. Soni (supra) and also looking to the fact that assessee has been maintaining method of accounting consistently and no change has been made in the opening stock by the Assessing Officer, weighted average cost has been calculated as per accounting standard issued by ICAI and even if the comparative working of valuation of stock on FIFO basis and weighted cost on average basis as given by the Assessing Officer during assessment proceedings then also the result will be in negative and nothing can be inferred that the appellant had derived any undue advantage. In these circumstances, we are o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account which are audited u/s 44AB of the Act and all the documents relating to expenses incurred are verified by the auditors and also looking to the magnitude of the turnover of the assessee which in this year is ₹ 17.36 crores, expenses incurred on account of office expenses, office maintenance, miscellaneous expenditure, printing stationery expenditure aggregating to ₹ 4,59,911/-, cannot be said as unreasonable. Therefore, ld. CIT(A) has rightly deleted the ad hoc addition of ₹ 50,000/- as no specific defect and discrepancy has been pointed out by the Assessing Officer. Accordingly, this ground of appeal is dismissed. 25. Other grounds are general in nature which needs no adjudication. 26. In the result, appeal of Revenue is dismissed. 27. Now we take up assessee s appeal in ITA No.2716/Ahd/2012 for asst. year 2009-10 wherein following grounds have been raised :- 1 On the facts and in the circumstances of the case and in law the Honorable CIT (A), Valsad has erred in confirming the addition made by the Ld. A.O. of ₹ 54,59,500/-, disallowing genuine manufacturing loss claimed in the process of manufacturing of high class diamond studded gold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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