Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. M/S Khetan Tiles Pvt. Ltd., C

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 146 / 2015 COMMISSIONER OF INCOME TAX, JAIPUR-II, JAIPUR ----Appellant Versus M/S KHETAN TILES PVT. LTD., C-59, ROAD NO. 5, V.K.I. AREA, JAIPUR ----Respondent _____________________________________________________ For Appellant(s) : Mr. Prateek Kedawat with Mr. K.D. Mathur for Mr. R.B. Mathur For Respondent(s) : Mr. Gunjan Pathak with Ms. Ishita Rawat_____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 11/10/2017 1. By way of this appeal, the appellant has assailed thejudgment and order of the tribunal whereby tribunal has partlyallowed the appeal of the department and cross objections of theassessee was dismissed. 2.This court while admitting the appeal on 15.9.2016 framedfollowing substantial question of law:- “Whether in the facts andcircumstances of the case, the ITATwas justified in deleting the additionof Rs. 2,11,29,247/- as made by theAssessing Officer on account ofunder valuation of stock withoutappreciating the fact that theassessee could not identify thedefective stock and could not justifyits valuation at reduced rate. Whetherinthefactsandcircumstances of the case, the ITAT was justified in law in treating 50%of stock as defective stock withoutany basis.” 3.The facts of the case are that the assessee companyengaged in business of manufacturing and trading of Marble, Slabsand Blocks. The AO while finalizing the assessment u/s 143(3) ofthe IT Act after considering material on record made addition ofRs.2,11,29,247/- on account of under valuation of closing stock asthe assessee could not identify the defective stock and could notjustify its valuation at reduced rate. The AO further made additionof Rs.42,36,130/- on account of disallowance of commission andDalai. 4.Counsel for the appellant has taken us to the order of AOwherein it has been observed as under:- “I have carefully considered the reply of theassessee but found it is to be notconvincing. During the course of Assessmentproceedings it was revealed that theassessee has declared undervalue of theclosing stock showing it is as defective. It isan admitted fact that no identification ofdefective goods has been maintained by theassessee. The assessee has not able toidentify the sales of defects goods and alsostock register has not been maintained.Copies of bills mentioned by the assesseewere examined and it was found that suchbills are in respect of sale of laffer (byproducts during the course of assessmentproceedings) and not defective goods asclaimed by the assessee. Moreover on the examination of sales itrevealed that all the goods are sold as fresh.During the course of assessmentproceedings no such instance was broughtto the notice of the undersigned, whichshows that the assessee has identified anystock as defective. Moreover there was nodefective stock which was maintained in the books of accounts. Therefore it is clear thatreduction of the value of closing stock in theshadow of the defective is only adopted withthe intention to reduce the tax liability. It is admitted fact that quantity andvaluation of the different items of the closingstock have been maintained, as statedabove without any basis, the valuations ofthe stock was reduced in the shadow ofdefective goods. Complete details of theexpenses, mines units and other units havenot been supported with the vouchers. Theconsumption details as required vide letterdt. 22.9.2011. I have not been filed in therequisite Proforma. The assesse has also notmaintained the details of consumption ofblade, segment, filing material, Store &spare and others. books of accounts. Therefore it is clear thatreduction of the value of closing stock in theshadow of the defective is only adopted withthe intention to reduce the tax liability. It is admitted fact that quantity andvaluation of the different items of the closingstock have been maintained, as statedabove without any basis, the valuations ofthe stock was reduced in the shadow ofdefective goods. Complete details of theexpenses, mines units and other units havenot been supported with the vouchers. Theconsumption details as required vide letterdt. 22.9.2011. I have not been filed in therequisite Proforma. The assesse has also notmaintained the details of consumption ofblade, segment, filing material, Store &spare and others. Therefore, the valuation for the defectivegoods is hereby rejected and the value ofthe items where value was reduced by theshadow of defective is re-calcuated.” 5.He contended that the CIT(A) as well as Tribunal havecommitted serious error in holding against the present appellant. 6.Counsel for the respondent pointed out the observationsmade by the CIT(A) and contended that CIT(A) has rightlyobserved as under:- “It was further held that the method ofvaluation of closing stock consistently andregularly adopted by the assessee sincelast so many years could not be rejectedmerely on the view of the AO that theassessee should have adopted a differentmethods unless the method followed bythe assessee was found to be incorrectand unsustainable one. In the case of Investment Ltd. Vs. CIT (77ITR 533), the Hon’ble Supreme Courtheld that a tax payer was free to employhis own method of keeping accounts forthe purpose of his trade. A method ofaccounting adopted by the trader consistently and regularly could not bediscarded by the department authoritieson the view that he should have adopted adifferent method of keeping account or ofvaluation. The method of accountingregularly employed might be discardedonly if in the opinion of the taxingauthorities, income of the trade could notbe properly deducted there from. In thecase of CIT vs. Fazilka CooperativeSugar Mills Ltd. (255 ITR 411), the AOmade addition on account of revaluation ofthe closing stock by holding that valuationof the closing stock had to be done on thebasis of the average price for the month ofMarch, 1991.” 7.We have heard counsel for the parties. 8.Taking into account the principle laid down by the SupremeCourt, the CIT(A) has allowed the valuation on the basis of lastyears which was accepted by the assessee and the same wasconfirmed. In that view of the matter, the stock valuation methodwas used for the closing stock and we are of the opinion that noerror has been committed by the CIT(A) and Tribunal. 9.In that view of the matter, the issue is answered in favour ofthe assessee and against the department. 10.The appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Brijesh 58.