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Issues Involved:
1. Deletion of addition made on account of Gross Profit (GP). 2. Treatment of loss as business loss versus speculation loss. 3. Deletion of addition made on account of foreign travel expenses. Summary: Issue 1: Deletion of Addition on Account of Gross Profit (GP) The Revenue contended that the Commissioner of Income-tax (Appeals) [CIT(A)] erred in deleting the addition of Rs. 1,12,08,890/- made by the Assessing Officer (AO) by rejecting the book results of the assessee. The AO argued that the assessee failed to produce complete books of accounts and substantiate the low gross profit shown. The AO presumed that the assessee maintained quality-wise quantitative details of diamonds but failed to produce them. The assessee countered that it maintained quantitative details weight-wise, not quality-wise, and it was impractical to maintain quality-wise details. The Tribunal found the AO's rejection of the books of accounts to be based on presumption without material evidence. It held that the books of accounts could not be rejected merely due to the absence of quality-wise quantitative details, following the precedent set in the case of M/s. Dhami Brothers Vs. ACIT. Consequently, the Tribunal upheld the CIT(A)'s order and rejected the Revenue's appeal on this ground. Issue 2: Treatment of Loss as Business Loss versus Speculation Loss The AO disallowed the assessee's claim of Rs. 57,96,350/- as a business loss, treating it as a speculation loss, arguing that the forward contracts for foreign exchange were not hedging transactions. The CIT(A) allowed the claim, holding that the contracts were in the normal course of business and were hedging transactions. The Tribunal found merit in the CIT(A)'s decision, supported by the ITAT, Ahmedabad's decision in M/s. Bhojal Gems Vs. ACIT and the Hon'ble Gujarat High Court's decision in CIT Vs. Friends and Friends Shipping Pvt. Ltd. Both decisions held that forward contracts entered into for safeguarding business interests against foreign exchange fluctuations were hedging transactions and not speculative. Thus, the Tribunal upheld the CIT(A)'s order and dismissed the Revenue's appeal on this ground. Issue 3: Deletion of Addition on Account of Foreign Travel Expenses The AO disallowed 20% of the foreign travel expenses amounting to Rs. 1,52,700/- due to the absence of detailed expenditure and supporting vouchers. The CIT(A) deleted the disallowance, considering the expenditure reasonable given the assessee's turnover. The Tribunal noted that while the foreign visits were for business purposes, personal expenses might have been incurred. Since the assessee did not furnish details or vouchers for other expenses, the Tribunal found the AO's 20% disallowance fair and reasonable. Therefore, the Tribunal reversed the CIT(A)'s order on this point and restored the AO's disallowance, allowing the Revenue's appeal on this ground. Assessee's Cross Objection (CO): The assessee's CO, merely supporting the CIT(A)'s order, was dismissed as infructuous. Conclusion: The Revenue's appeal was partly allowed, and the assessee's CO was dismissed.
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