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Issues Involved:
1. Rejection of books of accounts and book results under Section 145 of the Income Tax Act. 2. Addition on account of alleged undervaluation of closing stock. Issue-wise Detailed Analysis: 1. Rejection of Books of Accounts and Book Results under Section 145 of the Income Tax Act: The assessee contested the rejection of their books of accounts and book results by the Assessing Officer (AO) under Section 145 of the Income Tax Act. The assessee argued that they have consistently followed the method of valuing closing stock at "cost or market value whichever is less." This method involves taking a detailed physical quality-wise stock of diamonds at the end of each year and valuing them accordingly. The assessee provided documentary evidence, including sale bills of the diamonds in the subsequent year, to support their valuation method. The AO, however, rejected the assessee's books of accounts, determining the value of the closing stock at cost rather than the method followed by the assessee. The AO's rejection was based on the grounds that the assessee failed to establish that the market value of the closing stock was lower than the cost. The tribunal upheld the AO's decision, stating that the assessee did not provide sufficient evidence to prove that the market value was lower than the cost. 2. Addition on Account of Alleged Undervaluation of Closing Stock: The AO determined the cost of the closing stock of polished diamonds at Rs. 13,27,06,527, while the value disclosed by the assessee was Rs. 10,30,98,508, leading to a difference of Rs. 2,96,08,019. The assessee claimed that the market value of a part of the stock was lower than the cost, and thus, they valued it accordingly. However, the tribunal noted that the assessee's method of valuation lacked consistency and proper documentation. The assessee did not provide cost or market value details for each lot of diamonds, making it difficult to verify their claims. The tribunal observed that the sale bills provided by the assessee did not correlate with the closing stock details, and the AO's valuation method was found to be accurate. The tribunal concluded that the assessee failed to prove that the market value was lower than the cost, and thus, the AO's valuation at cost was justified. Conclusion: The tribunal dismissed the appeal of the assessee, upholding the AO's rejection of the books of accounts and the addition on account of undervaluation of closing stock. The tribunal agreed with the AO's method of valuing the closing stock at cost, as the assessee did not provide sufficient evidence to support their claim that the market value was lower than the cost. The tribunal also noted that the AO did not disturb the assessee's method of accounting but corrected the valuation based on the available evidence. The appeal was dismissed, and the order of the learned CIT(A) was upheld.
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