Commissioner Of Income Tax,Jaipur-Ii, Jaipur v. M/Ssinghal Natural Stone Privatelimited, Jaipur

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR JUDGMENTIND.B. Income Tax Appeal No.161/2010 Commissioner of Income Tax,Jaipur-II, Jaipur Vs. M/sSinghal Natural Stone PrivateLimited, Jaipur Date of Judgment ::: 10.11.2010 PresentHon'ble the Acting Chief Justice Mr. Arun MishraHon'ble Mr. Justice Mohammad Rafiq Shri R.B. Mathur, Counsel for revenue#### By the Court(Per Hon'ble Rafiq, J.):- This income-tax appeal has beenpreferred by revenue against common order ofIncome Tax Appellate Tribunal, Jaipur Bench'A', Jaipur, (for short, 'ITAT') dated30.10.2009, whereby appeal filed by revenue asalso cross-objections filed by assessee, both,were dismissed and order of Commissioner ofIncome Tax (Appeals)-II, Jaipur, (for short,'CIT (Appeals)') dated 13.03.2009, was upheld. Factual matrix of case is that assesseecompany was formed by conversion of erstwhileconcern M/s Singhal Granites. It was engaged incutting and processing of marble block intoslabs and tiles. Assessing officer noticed thatassessee had valued stock of marble blocks at // 2 // rate of Rs.1240.80 per metric ton as againstaverage cost of purchases amounting toRs.1343.40 per metric ton. He further noticedthat only 50% stock of marble slabs and marbletiles was considered to be fresh and balance50% was considered to be of inferior qualitywithout any basis. Stock that was considered tobe of inferior quality was valued at 25% rateof value applied for fresh stock. This,according to assessing officer, was without anybasis. Therefore, by rejecting books of accountunder Section 145(3), stock of marble blocks,slabs and tiles was valued at average costincurred by assessee and thereby addition ofRs.20,78,821/- was made on this account.Aggrieved thereby, assessee preferred appealbefore CIT (Appeals), who reduced addition toRs.5,15,259/-,andallowedreliefofRs.15,63,567/-. Aggrieved thereby, the revenuepreferred appeal before ITAT and assessee filedcross-objections, both of which were dismissedby the ITAT vide impugned order. Shri R.B. Mathur, learned counsel forrevenue, argued that ITAT itself agreed thatthere was no basis for considering 50% of stockto be of inferior quality as well as valuing itat 25% average rate of value applied for fresh stock. He could not have therefore upheldjudgment of CIT (Appeals). Learned counselreferred to observations made by assessingofficer in its order and argued that book ofaccounts were rightly rejected by assessingofficer by giving cogent reasons. It was arguedthat Section 145A of Income Tax Act prescribesthat valuation of purchase and sale of goodsand inventory for the purpose of determiningincome chargeable under the head 'profit andgains of business of profession' shall be inaccordance with method of accounting regularlymaintained by the assessee. Since this was thefirst year of assessee, it being a new company,no opening stock was there. The stock oferstwhile concern M/s Singhal Granites wastransferred at book value on 31.07.2005. SinceM/s Singhal Granites had also followed the samemethod of valuation of the stock as on31.03.2005, that is cost or market pricewhichever is lower, inferior quality goods, ifany contained in that stock had already beenvalued at lower reasonable price as on31.03.2005. Their pricing therefore could notbe further reduced. Learned counsel thereforeargued that a substantial question of lawarises whether the ITAT was justified in law in confirming decision of CIT (Appeals) inreducing addition made by the assessing officeron account of undervaluation of closing stockby Rs.15,63,562/- without any basis. confirming decision of CIT (Appeals) inreducing addition made by the assessing officeron account of undervaluation of closing stockby Rs.15,63,562/- without any basis. Having heard learned counsel for revenueand perusing impugned orders, we find thatlearned CIT (Appeals) has given cogent andvalid reasons for reducing additions fromRs.20,78,821/- to Rs.5,15,259/- by observingthat FIFO method of valuation can be followedonly when items purchased/manufactured areidentical in nature while in the case ofassessee there is sizable difference in thevaluation for block to block, slab to slab andtiles to tiles. Moreover, whatever valuationmethod if adopted, it has to be followedconsistently and since, it is the first year ofthe assessee-company and accounting methodfollowed has been mentioned in the notes ofaccounts, therefore, there is no justificationin disturbing said method of accounting asfollowed by the assessee. On fact, learned CIT(Appeals) was of the view that entire stockcould not be sold at same price and obviouslyat the time of sale when the buyer picks up thebest available stock then the assessee isentitled to value part of the stock at reduced price particularly when it has also proved thatthe same was sold in immediate succeedingperiod at a lesser rate fixed from best of thestock. This finding recorded by learned CIT(Appeals) has been upheld by learned ITAT.These findings, however, in our view areessentially findings of fact based onappreciation of material on record and do notraise any question of law, muchless asubstantial question of law so as to justifyentertainment of present appeal. This appeal, being devoid of merit, istherefore dismissed. (Mohammad Rafiq) J. (Arun Mishra) Acting CJ. //Jaiman//