Davinder Kumar Jain Prop., Bathinda vs Department Of Income Tax

The Income Tax Officer, Vs. Sh. Davinder Kumar Jain Ward-II (I) Prop. M/s Roshan Lal Davinder Kumar Jain, Post Office Bazar Kumar Jain, Post Office Bazar, Bathinda Bathinda

(Appellant) (Respondent)

Appellant by: Smt. Ratinder Kaur, DR Respondent by: Sh. P.N.Arora, Adv. Date of hearing: 03.03.2015 Date of pronouncement: 11.03.2015

ORDER

PER A.D. JAIN, J.M.

1. This is department's appeal for the assessment year 2010-11, taking the

following sole ground of appeal, against the order dated 04.11.2013,

passed by the learned CIT(A), Bathinda.

2. The ground is reproduced as follows:

"On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition of Rs.22,56,313/- made by the AO on account of undervaluation of the closing stock; ignoring the fact 2 I.T.A. No. 70 (Asr)/2014 Assessment Year: 2010-11

that the assessee has undervalued the closing stock by way of adopting 'average cost' method which is not a recognized method and the assessee has also deviated from the method of accounting regularly employed by him."

3. The assessee individual, during the year, was engaged in the

business of purchase and sale of gold ornaments. The

assessment was completed vide order dated 26.03.2013, u/s

143(3) of the IT Act, at an income of Rs.31,78,800/-, as

against the returned income of Rs.8,34,780/-. The AO made an

addition of Rs.22,56,313/- on account of undervaluation of the

closing stock. While doing so, the AO observed that during

the year, the assessee had changed his method of accounting

without sufficient cause.

4. By virtue of the impugned order, the learned CIT(A) deleted

the addition made by the AO.

5. Challenging the impugned order, the learned DR has

contended that the learned CIT(A) has erroneously deleted the

addition correctly made by the AO; that while doing so, the

learned CIT(A) has failed to take into consideration the fact

that the assessee had undervalued the closing stock by way of 3 I.T.A. No. 70 (Asr)/2014 Assessment Year: 2010-11

adopting the "average cost", method, which is not a

recognized method and that the assessee had also deviated

from the method of accounting regularly employed by him;

and that, therefore, the order passed by the learned CIT(A)

needs to be reversed while allowing the appeal filed by the

department.

6. On the other hand, the learned Counsel for the assessee has

placed strong reliance on the impugned order. It has been

contended, as before the taxing authorities, that the assessee

maintained his books of accounts in the regular course of his

business, by following the mercantile system of accounting;

that the closing stock was valued on cost or market price,

which ever was less; that this method of accounting had been

consistently adopted by the assessee since long, for the earlier

years, as well as in the succeeding years; that the audited

balance sheets for Asst. Yrs. 2007-08 to 2012-2013 were filed

before the taxing authorities; that in order to work out the cost

to value the closing stock, the assessee took the average of the

opening price and the purchases made during the year; that

this method of working the costs had been consistently

followed by the assessee in the earlier years; that this method 4 I.T.A. No. 70 (Asr)/2014 Assessment Year: 2010-11

was also followed by the assessee in the succeeding years;

that this method is a recognized method, i.e., the average of

the opening price plus the purchase price during the year; that

the AO was wrongly of the opinion that the cost price should

be the average of the purchase price only; that the AO had

wrongly observed that the assessee had changed his method of

accounting during the year; that the method to work out the

cost by adopting the average cost method is a recognized

method as per AS-2 prescribed by the Institute of Chartered

Accountants of India; that this method has also been

recognized in judicial decisions and it has also been accepted

by the Department; and that the learned CIT(A) has correctly

deleted the addition wrongly made.

7. We have heard both the parties and have perused the material

on record. The method adopted by the assessee, following the

mercantile system of accounting, valuing his closing stock on

cost or market price, whichever is less, is not disputed. For

working out the cost, the assessee took the average of the

opening price and the purchases made during the year. This

method is undisputedly in accordance with Accounting

Standard-2, as prescribed by the Institute of Chartered 5 I.T.A. No. 70 (Asr)/2014 Assessment Year: 2010-11

Accountants of India. This method has been adopted by the

assessee all through, i.e., in the preceding as well as in the

succeeding years. Thus, there is no ground to hold that the

assessee changed his method of accounting during the year. So

much so, the AO himself worked out the cost price by taking

the average of the purchases made by the assessee during the

year. He, however, wrongly ignored the opening stock. In this

regard, as wrongly observed by the AO, in the mercantile

method of accounting, there is no concept of valuation of

closing stock by taking average of opening stock plus value of

purchases made during the year. The method adopted by the

assessee has been accepted and held to be an approved

method, inter alia, in the following cases:

1. Assistant Commissioner of Income Tax vs. Jagdhis Chand (2004) 90 TTJ (Chd) 943.

2. Assistant Commissioner of Income Tax vs. Gopaldas Vallabhdas (1997) 59 TTJ (Ind)

3. Additional Commissioner of Income Tax, Bathinda vs. M/s Sunder Lal Raaj Kumar jain, Bathinda bearing ITA No.390(Asr)/2009 dated 30-10-2009

4. CIT vs. Fazika Co-operative Sugar Mills Ltd.

(2002) 255 ITR 411 (P&H) 6 I.T.A. No. 70 (Asr)/2014 Assessment Year: 2010-11

5. M/s Singhal Jewellers, Bathinda vide Appeal No.58-IT/CIT(A)/BTI/13-14 dated 12-09-2013. The learned CIT(A) has correctly followed the decision of the Hon'ble

Jurisdictional High Court in " Commissioner of Income Tax vs. Sant

Ram Mangat Ram", 275 ITR 312 (P&H), wherein, it has been held that

where the assessee has continuously adopted the same method of

valuation of the closing stock and no objection was raised by the

department in any of the earlier years, such method of valuation of

closing stock cannot be rejected in a particular year.

8. Thus, the impugned order has been passed by the learned CIT(A) by

taking into consideration all the above-discussed facts duly into

consideration. The said order is found to be a well reasoned order, calling

for no interference by us. Therefore, the grievance of the department is

found to be unjustified and is rejected as such. The order of the learned

CIT(A) is hereby confirmed.

9. In the result, the appeal filed by the department is dismissed.

Order pronounced in the open court on 11th March, 2015.

Sd/- Sd/- (B.P. JAIN) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 11 .03.2015 /PK/ 7 I.T.A. No. 70 (Asr)/2014 Assessment Year: 2010-11

Copy of the order forwarded to:

1. The Assessee: Sh. Davinder Kumar Jain, Prop. M/s Roshan Lal Davinder Kumar Jain, Post Office Bazar, Bathinda.

2. The Income Tax Officer, Ward-11(1), Bathinda.

3. The CIT(A),

4. The CIT,

5. The SR DR, I.T.A.T.,

True copy

By order

(Assistant Registrar) Income Tax Appellate Tribunal, Amritsar Bench: Amritsar.