2015 (7) TMI 597 - AT - Income Tax

Disallowance of loss - rejection of books of accounts - the assessee sold the diamonds worth ₹ 3,76,70,953/- out of the opening stock of the year for an amount of ₹ 2,40,08,065/- and had claimed loss of ₹ 1,36,62,888/- - Held that - Disallowance of loss cannot be made on the ground that in the preceeding assessment year, the assessee accepted the disallowance of loss on sale of diamonds as each assessment year is a separate unit of assessment. The Assessing Officer is expected to carry out verificationof the claim of the assessee with the evidences produced before him and thereafter arrive at the independent conclusion about the allowability or disallowability of the claim expenditure or loss. Further, in the year under consideration the assessee filed copies of sales invoices with the complete address of the parties and their PAN Nos., No adverse material was brought on record by making due inquiry. Further the contention of the assessee is also that the sale consideration was received by the assessee through banking channel. The A.O. has brought no material on record after examining the parties to whom the sales were made by the assessee to show that the assessee has under invoiced the sale of diamonds or that the sales invoiced do not reflect the correct sale-price of the diamond. Thus A.O. as well as the CIT (A) were not justified in disallowing the loss of ₹ 1,36,62,888/- to the assessee. - Decided in favour of assessee. Addition under section 50C - A.O. made an addition on the ground that the assessee sold property during the year and the sale proceeds was shown at ₹ 55,000/-. A.O. observe that the assessee did not submit copy of saledeed and therefore, he made a reverse calculation by taking the percentage of Stamp Duty at 4.9% as based in sale as per Stamp Valuation Authority and arrived at the value of ₹ 3,38,755/- and thereby made addition for difference amount of ₹ 2,83,775/- - Held that - We find that the contention of the assessee was that no show cause notice was issued to the assessee and therefore, the assessee was prevented from explaining its case before the A.O. It was the argument that there was violation of principle of natural justice by the A.O. and hence the addition made by the A.O. and confirmed by the CIT (A) was not justified in the above facts and circumstances of the case we are of the considered opinion that the matter should be restored back to the file of the A.O. to readjudicate the issue afresh after allowing reasonable and proper opportunity of hearing to the assessee. The assessee is also directed to file all the relevant details and documents before the A.O. as and when called upon by the A.O. - Decided in favour of assessee for statistical purpose.

Summary

Issues Involved:
1. Disallowance of loss of Rs. 1,45,08,970/-
2. Addition of Rs. 2,83,775/- under Section 50C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Loss of Rs. 1,45,08,970/-:

The assessee, engaged in the diamond business, reported a gross loss of Rs. 1,45,08,970/- on a turnover of Rs. 2,40,08,065/-. The Assessing Officer (AO) rejected the books of accounts under Section 145(2) of the Income Tax Act due to the lack of qualitative details of the stock and sales of diamonds. The AO disallowed the loss, citing the assessee's inability to explain the reasons for the loss and the absence of documentary evidence.

On appeal, the CIT (A) upheld the AO's decision, noting that similar losses were disallowed in the previous year (Assessment Year 2007-08) without appeal from the assessee. The CIT (A) emphasized the lack of satisfactory explanation and documentary evidence for the loss.

Before the Tribunal, the assessee argued that non-maintenance of quality-wise details should not lead to disallowance of the loss, citing various Tribunal decisions where similar issues were resolved in favor of the assessee. The Tribunal noted that the AO did not conduct any inquiry to verify the genuineness of the sales and relied on presumptions. The Tribunal found that the assessee provided sales invoices, addresses, and PAN numbers of the purchasing parties, and the sales were through banking channels. The Tribunal concluded that the AO and CIT (A) were not justified in disallowing the loss without concrete evidence of under-invoicing or incorrect sale prices. The Tribunal directed the AO to allow the loss of Rs. 1,36,62,888/- on the sale of diamonds.

2. Addition of Rs. 2,83,775/- under Section 50C of the Income Tax Act:

The assessee sold a property, reporting sale proceeds of Rs. 55,000/-, while the Stamp Valuation Authority valued it at Rs. 3,38,775/-. The AO invoked Section 50C and adopted the stamp valuation for capital gains calculation, resulting in an addition of Rs. 2,83,775/-.

On appeal, the CIT (A) upheld the AO's decision, noting that the assessee did not submit the sale deed despite opportunities. The CIT (A) directed the AO to adopt the correct stamp valuation figure if received from the concerned authority.

The assessee contended that no show-cause notice was issued before adopting the stamp valuation, violating the principles of natural justice. The Tribunal found merit in this argument, noting that the AO made the addition without providing the assessee an opportunity to explain. The Tribunal restored the matter to the AO for re-adjudication after allowing the assessee a reasonable opportunity to present its case.

Conclusion:

The Tribunal allowed the appeal, directing the AO to allow the loss of Rs. 1,36,62,888/- on the sale of diamonds and to re-adjudicate the addition of Rs. 2,83,775/- under Section 50C after providing the assessee an opportunity to explain.