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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 ..... intained complete quantitative details in respect of diamonds dealt with by it. (2) The appellant submits that though copy of the judgement of Ahmedabad Tribunal in case of B. Suresh Kumar was furnished the learned Commissioner of Income-tax (Appeals) failed to take that into consideration nor dealt with it. (3) On the facts and circumstances of the case, the book result ought to have been accepted. (II) Addition to valuation 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 qualitati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closing stock. The assessing officer observed from the details produced that the assessee valued its closing stock of diamond at Rs.479.24 per carat. As the- rate of opening stock as well as purchases made during the year was very high, he observed that the rate at which the closing stock has been valued is not justified. Accordingly, a show cause notice was issued to the assessee which finds place in page 3 and 4 of the assessment 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/-. Yo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te bifurcation with rate and quantity of opening stock as on 01.04.2003 and 01.04.2004". 5. In reply to the show cause notice i.e. 30th December, 2008, the assessee submitted that they have adopted the practice of valuation of closing stock at average of the purchase prices with value of opening stock and adopted as per prescribed standard of system. It was argued that since the method has been consistently adopted and the same has been accepted by the department 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he method of valuation of closing stock is at cost. Therefore,, the assessing officer held that the stock was to be valued according to the purchase bills. According to the assessing officer, diamonds being precious items, the assessee is required to keep stock movement register, lot to lot details, issue and dispatch register and accordingly has to prepare detailed inventory of closing stock. According to him assessee failed to file any documentary evidences regarding 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down considerably. These rough diamonds are eventually sold whenever a buyer comes but they hardly fetch any value. The assessee is having significant quantity of rejected diamonds in total rough diamonds since long and while some rejected diamonds were added in A.Y. 2005-06, most of them were sold in A.Y. 2007-08. (iii further, every year in Annexure II of Audit report u/s 44AB being item No. 28 of form 3CD, the appellant has been showing rough diamonds including rejection diamonds which has been accepted by Department. (iv) The detailed statement of such rejected rough diamonds is enclosed along with sale bill (page 1-5). These statements 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 reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible to identify lot wise goods movement as to which particular diamond was produced out of which lot of rough and sold to whom and which parts remained in closing stock. Similarly details of receipts of rough diamonds, issued for manufacturing and remainder in closing stock were not available in respect of separate lots". 10. According to the appellant the opening stock as on 31.03.2005 includes -ejected rough diamonds of 14,541.34 carats which has very low value. It is 2rtant to mention that this quantitative figure was not submitted before the assessing officer. From the details filed and books produced in assessment, information regarding quantitative details of rejected diamonds are neither 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing officer would result in substantial increase in gross profit which is not possible. This argument is advanced to gloss over the issue of under valuation of closing stock. It cannot be denied that the closing stock has to be valued properly, accurately and according to the method of accounting regularly followed by the assessee. In the instant case, considering the limited scale of transactions during the whole year, proper records could have been maintained with absolute accuracy. It is the duty of the assessee to maintain these records in a manner that clarifies and corroborates its claim in assessment. If the assessee fails to satisfactorily explain the valuation of closing stock, which is the 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. A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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