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TMI Blog2010 (7) TMI 1172X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the assessee, before putting forth his arguments, are that the assessee is a retail trader of silver and gold jewellery items and filed its return of income at ₹ 1,45,231 for the impugned Assessment Year. In proceedings u/s. 143(3), the learned Assessing Officer sought details of various expenses when he noted that a sum of ₹ 4,66,177 was claimed as advertising expenses being amount paid to various copy writers and art promoters, which he held as per sub-clause (i) of clause (b) to first proviso of Section 194J for tax deduction at source. Finding the same not done, he added ₹ 4,66,177 under the provisions of Section 40(a)(ia). He also considered the trading result of the assessee in the trading account wherein the assessee claimed expenses of ₹ 5,03,218 as labour charges which were not supported with vouchers. In view of defects, a lump sum amount of ₹ 25,000 was disallowed there from. In the audit report, he had observed that the quantity details of the items of gold ornaments had not been reflected where he noted that the valuation of closing stock was worked out at the rate of ₹ 483 per gram which is less by ₹ 70 per gram of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtake valuation of the closing stock. Instead of LIFO method which the assessee had adopted, he opined that it should be FIFO method and therefore, the valuation of the closing stock as computed by the Assessing Officer was correct. 5. The details were considered by the learned CIT(A) given at page 16 of the Paper Book. 6. The learned Counsel for the assessee pursued the consolidated revised grounds as noted above and submitted that he did not wish to press ground relating to disallowance of labour charges amounting to ₹ 25,000. Therefore, this ground noted as not pressed is dismissed. 7. On the undervaluation of closing stock, the learned Counsel for the assessee submitted that the assessee is doing retail business and dealing with huge quantity of items of gold and silver jewellery which content gold, the price of which is fluctuating and rising day by day. The assessee adopted the valuation of closing stock at cost by applying weighted average method which he has been consistently following as can be seen in the chart placed at page 16 of the PB. The accounting standard prescribes adopting a consistent system of valuing the closing stock which the assessee had adopted w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng sufficient cause, the authorities below could not disturb or force the assessee to change the method of valuation in so far as it was being followed consistently and regularly to disclose the real profit earned in the year on which income tax was paid. Therefore, it was neither the case of the assessee to postpone payment of tax on the amount of enhanced valuation of closing stock due to inbuilt mechanism itself in the items of jewellery in the opening stock remained at much lower than the average cost or market price as the price of gold is increasing day by day. The gold dealer is an independent person and values on the basis of gold content in the jewellery he sales to the assessee. The item wise detail is not possible in view of the fact that the gold content only separates the margin for labour, alloys and stones whose value cannot, by no stretch of imagination, be depicted in the sale price. The GP rate in trading on gold jewellery itself indicate that the value if considered as suggested by the authorities below would increase the GP by one third more than acceptable by the Assessing Officer. In any case, the trading result relied for disallowance of ₹ 25,000 under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , who in turn produced the copy of advertisement ultimately published in the news paper. He supported the non-applicability of Section 194J on the basis of circular No. 714 dt. 3. 1. 1995 by the CBDT and clarified that the meaning of the term "Advertisement" used in Section 194C(1),where tax deduction at source has to be made at the rate of 1 per cent was to be on the basis of a contract entered into when an advertising agency makes payments for professional services to a film artiste such as an actor, a cameraman, a director etc. , tax will be deducted at the rate of 5%. Therefore, neither the payees nor the advertising agency has been paid for invoking the provisions of Section 194J or u/s. 194C. 9. The learned DR supported the orders of the authorities below on the issue of valuation of closing stock in so far as even if in assessee's own version accounting of closing stock at lower of cost of market value has to be considered, the assessee has not consistently adopted the value at a lower of two as is apparent on the basis of the chart which has been relied upon. The market value and the cost price both are higher than the value, which has been adopted, therefore, indicates t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r market value in so far as the opening stock has also been valued in the same manner. On a perusal of the chart as appearing on page 16 of PB , it is clear that the quantity in grams has been tracked and maintained over last five years without indicating separate items of jewellery traded in by the assessee. As pointed out by the learned Counsel, the items of jewellery are actually having more value as the selling price of the content of gold therein has to be valued in accordance with the basic principle of lower of cost or market value. The learned Counsel has explained that it was not the case of the assessee to postpone payment of tax on income on the assumed sales there from when the prices of gold are ever increasing. This clinches to the fact that the average rate of purchases of gold during the impugned Assessment Year and the earlier AYs is more than the value inscribed in the opening stock for that year. The Assessing Officer therefore sought to value the closing stock by difference of ₹ 70 only in the average purchase price during the year at ₹ 552. 38 per gram as against valued at ₹ 483. 44 per gram in the closing stock. The flow of items of jewellery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaken by the authorities below in the impugned Assessment Year. We are inclined to hold that it would be compensatory in nature when the details furnished comply toSection145A and has not been found fault with by either of the authorities below. The gold content may be valued in accordance with the margin disclosed during the year and therefore, the cost of sale thereof would not be more than the price that exceeded on a particular date is well known to the customers as well as the sellers of jewellery items. It would have given a very high gross margin if tinkered with in this year. Similarly it was not the value of the closing stock to be valued at cost or lower market rate which made the AO to enhance the value in so far as the opening stock of gold content valued below the market price existing on that date when the weighted average cost levelled the stock purchased during the year. The learned DR's reliance on the decision in the case of Mahavir Rice Mill v. ITO (194 CTR 359), is not applicable to the facts of the assessee's case in so far as, we have noted above, the AO ought to have applied the market rate only on the purchases which had been given as weighted average pri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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