2015 (11) TMI 1541 - AT - Income Tax

Gross profit addition - CIT(A) in reducing the addition made to the gross profit from 0.5 percent to 0.1 per cent - assessee engaged in the business of Trading in Diamonds - Held that - It is a known fact that the price of the diamond would depend upon various criteria, of which size and quality are more relevant. No transaction could take place in the diamonds trade without considering these criteria. Hence, non maintenance of quality-wise stock register was certainly a deficiency on the part of the assessee. Accordingly, in our view the ld. CIT(A) was justified in sustaining the addition to 0.1% of the turnover, considering the fact that the GP of the assessee has come down mainly due to foreign exchange loss. Accordingly, we do not find any infirmity in the order of ld. CIT(A) and confirm the same.

Summary

Issues Involved:
1. Reduction of addition to gross profit from 0.5 percent to 0.1 percent.
2. Challenge to the decision of confirming gross profit addition to 0.1%.
3. Justification for sustaining the addition based on non-maintenance of stock register.

Analysis:

Issue 1: Reduction of addition to gross profit from 0.5 percent to 0.1 percent
The appeal and cross-objection were against the order reducing the addition made to the gross profit from 0.5 percent to 0.1 percent. The Assessing Officer (AO) observed a decrease in gross profit and net profit declared by the assessee compared to previous years. The AO found discrepancies in the maintenance of stock register quality-wise and noted varying diamond rates. Despite the assessee attributing profit decrease to foreign exchange loss, the AO added 0.5 percent of turnover to the gross profit. The Commissioner of Income Tax (Appeals) reduced this addition to 0.1 percent. The Tribunal upheld the Commissioner's decision due to the substantial increase in turnover and lack of evidence of non-genuine transactions.

Issue 2: Challenge to the decision of confirming gross profit addition to 0.1%
The assessee challenged the decision confirming the gross profit addition at 0.1%. The assessee argued against rejecting books of account based on non-maintenance of stock register, citing case laws unrelated to diamond trade. The Tribunal emphasized the importance of quality-wise stock registers in diamond trading, stating it as a critical factor affecting transactions. Considering the decrease in gross profit due to foreign exchange loss, the Tribunal upheld the 0.1% addition to turnover as justified by the circumstances.

Issue 3: Justification for sustaining the addition based on non-maintenance of stock register
The Tribunal highlighted the significance of quality-wise stock registers in diamond trade, emphasizing the impact on pricing and transactions. Despite the assessee's reliance on case laws unrelated to diamond trading, the Tribunal deemed non-maintenance of such registers a deficiency. Given the substantial decrease in gross profit due to foreign exchange loss and the absence of evidence indicating non-genuine transactions, the Tribunal upheld the 0.1% addition to turnover as justified by the circumstances.

In conclusion, the Tribunal dismissed the appeal by the revenue and the cross-objection by the assessee, affirming the Commissioner's decision to sustain the 0.1% addition to the gross profit turnover based on the non-maintenance of quality-wise stock registers in diamond trading.