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TMI Blog2012 (11) TMI 795X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of closing stock of rough diamonds:- (1) The learned Commissioner of Income-tax (Appeals) erred in sustaining addition of Rs.52,32,680/- to the valuation of closing stock of rough diamonds when the appellant had valued the closing stock according to the accepted Accounting Principles and as per the method of valuation consistently adopted and accepted by the department made in the past. (2) The learned Commissioner of Income-tax (Appeals) failed to appreciate that the huge addition made gave a distorted version of the income earned by the appellant and, therefore, the addition ought to have been deleted. (3) The learned Commissioner of Income-tax (Appeals) has erred in sustaining addition on the ground of appellant not having maintained qualitative accounts of diamonds when as held by the Income-tax Appellate Tribunal, Ahmedabad, in case of B. Suresh Kumar & Co. that it was not possible to maintain qualitative details of diamonds. (4) The appellant further submits that the learned Commissioner of Income-tax (Appeals) has not been able to appreciate the difference between the valuation of rough diamonds and valuation of rough rejected diamonds. (5) On the facts and circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. The same is reproduced for sake of clarity. "Please refer to assessment proceedings going in your case as well as various submissions made by you. Various issues have been discussed on different dates of hearings. Your Ld. counsel has appeared with books of accounts and bills of safes and purchases as well as details of valuation of closing stock have been furnished. It has been observed that quality wise details of diamonds have not been maintained by you. Such details of quality of diamond have not been maintained either for or for opening/closing stock. You have shown closing stock of rough diamonds of 20802.21 carats which is valued by you at Rs.99,69,305/-. Thus per carat rate of closing stock of rough diamond comes to Rs.479.24/-. You were required to show quality wise details and basis of valuation of closing stock. However, you have failed to submit any such details. Nothing in this regard could be found from your books of account. An analysis of movement of diamonds was prepared on the basis of opening stock details, purchase bills, sale bills and closing stock details provided by you. The summary is as per table below: Sr. No. Opening stock, Purchases & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no interference is called for. The assessee again submitted that only rough and polished diamonds have been considered and rejected diamonds have been ignored. According to the assessee, from the lots purchased, there are certain diamonds which are rejected having nil or meager value affecting the value of the closing stock. The relevant extract of the submission is reproduced for sake of clarity. "In this regard we have to state that our assessee has adopted the system of valuing stock at the average rate and accordingly same have been valued from the inception of the business and stock statement is all ready been submitted. It is further submitted that your goodself have considered only rough and polished diamond but not considered the rejection goods. From the lot purchase there are certain quality which is rejected goods which has either NIL VALUE OR VERY' MIGRE VALUE which effect the value of our stock-(Though the quantity is inclusive in closing stock). In your letter your goodself have given the working in which entire stock is valued at average rate of purchases during the year. But old stock cannot be valued at that cost because the stock is such that it is not in dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected goods and quality wise details of goods that remained in closing stock. From the sale and purchase bills submitted the assessing officer carried out an analysis to arrive at ttie value of closing stock. The same is reproduced as under:- 3.6 From the sale and purchase bills submitted by the assessee for the F.Y. 2003-04 and 2004-05, an analysis was carried out. The assessee has made following purchases of rough diamond: S.No. Date Quantity Price per at in Rs. 1. 4-Feb-05 2094.26 1764 2a. 6-Sep-04 1005.51 374 3. 27-Aug-04 1067.66 2.226 4. 20-Jan-04 94.71 1493 5. 20-Jan-04 2017.22 1532 6. 17-Dec-03 912.71 2277 7. 17-Dec-03 163.66 2365 3.7 On perusal of the above table it is noticed that average purchase price of rough diamond for the F.Y. 2003-04 as well as for F.Y. 2004- 05 was very high. This clearly indicates that the assessee has not valued the dosing stock as descried in the audit report at cost price. On further perusal of the above analysis it was notice that only one purchase, that too of 1005.51 carats only was purchased at low rate being Rs.374/- per carat. The assessee has not submitted any lot wise details or movement register in respect of every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tements show the particulars as under:- Rejected Rough Diamonds Cts. Opening stock 31.03.2004 12,431.34 Further addition during 31.03.2005 2,110.00 Rejected rough diamonds on 31.03.2005 14,541.34 Further addition during 31.03.2006 2,500.00 Rejected rough diamonds on 31.03.2006 17,041.34 Sold during 31.03.2007 14,541.34 (v) the appellant encloses a daily quantitative register of rough diamonds (page.6) alongwith the value as also a consolidated statement of particulars of rough and rejected diamonds (page.7) for the year ending 31.03.2006 to show that in the total rough diamonds shown in the closing stock 20,294.02 cts, the rough rejection quantity was 17,041.34 cts and quantity of makeable rough was only 3,252.68 cts. which takes the average value of rough at Rsw. 1488. A separate statement for the earlier year of monthwise records of rough diamonds without rejection is enclosed (page 8-9). 7) As can be seen from the statement, 20,294.02 carat of rough diamond which was shown at value of Rs.92,12,949/-consisted of rough diamonds of 3,252.68 with value of Rs.48,41,595/- and 17,041.34 being rough rejected of value of Rs.43,71,354/-. 8) Now what the Assessing Officer has don ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available nor ascertainable. The main thrust of the argument is that the stocks, both opening and closing, contain rejected diamonds, as a result of which their value has gone down. This argument is not convincing. The rough diamonds inclusive of rejected diamonds have been valued at average rates, both in the opening as well as closing stock. The average rate takes into account the quantity of rough as well as rejected diamonds. The opening stock has been valued by the assessee at the rate of Rs.551.03 per carat which is not disputed by the assessing officer. Therefore, the composition of opening stock is immaterial when the same has been valued at a particular rate by the assessee and accepted by the assessing officer. As regards purchases, their rates are available in purchase bills. The assessing officer has not disputed the purchase rates of rough diamonds shown by the appellant. The issue remains is valuation of closing stock. During the year, there are 4 entries of purchases and 11 entries of issue of diamonds for manufacturing. It is for the assessee to correlate the date wise entries of issue with their respective sources (opening stock or purchase). This information has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case here under reference, the consequences for such failure obviously impact its own assessable income. This also impacts the gross profit for, the year under reference. That is an inevitable and inescapable consequence which the assessee cannot avoid. Therefore, I am not inclined to accept the argument of high G.P. to give relief for the valuation of closing stock. In view of this, addition made on account of valuation of closing stock by the assessing officer is confirmed." 4. Aggrieved by this order of the learned CIT(A), the assessee is in appeal before us. 5. After hearing both the parties and going through the record, we find that the AO raised the issue of valuation of closing stock on 24-12-2008 by issuing a show cause notice to the assessee and passed the order on 31-12-2008. Thus, the assessee was prevented to file the requisite details in support of its valuation of closing stock, to the AO. The same were filed before the learned CIT(A) but it appears that he has also not properly appreciated the same. Since the details filed before the learned CIT(A) were such that required verification at the end of the AO, we deem it proper that the matter be restored to the file o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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