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TMI Blog2014 (12) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... n made with the corresponding expenses during the previous year - In the absence of any specific defect in the accounting or any evidence which may warrant any re computation of such claim, the AO's estimated addition cannot be upheld. Addition made on account of GP deleted by AO – Fall in GP by 1% substantiated or not – Held that:- CIT(A) rightly was of the view that the AO has not observed any defect in the method of accounting and further incorrect claim and defect in the bills of expenses may lead to disallowance on specific grounds but cannot be the reason for rejection of assessee’s books of accounts - with respect to the labour and wages payments, he has noted that AO has not pointed out any specific defects either from the submissions made by the Assessee or through any independent investigation - Revenue has not brought any material on record to controvert the findings of CIT(A) – Decided against revenue. - I.T.A. Nos. 143 /AHD/2011 & 650/AHD/2010 - - - Dated:- 12-12-2014 - Shri G. C. Gupta And Shri Anil Chaturvedi, A.M.,JJ. For the Appellant : Shri V. K. Singh, Sr. D.R. For the Respondent : Shri Mehul R. Shah, A.R. ORDER Per Shri Anil Chatur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had started manufacturing activity by himself whereas in the earlier year, the assortment of rough diamonds was done through labour contractors. He also noted that there was increase in expense towards labour charges, salaries and wages, electricity expenses as compared to earlier years thought the difference in carats of rough diamond manufactured was only 94.590 carats. He also noticed that though Assessee was having its own laser machine yet it had claimed laser cutting expenses. A.O also noted that electricity bills presented by the Assessee were in the name of the 3 different persons. A.O also noted that in A.Y. 05-06 order was passed after giving effect of under valuation of closing stock estimated during the earlier year. He noticed that Assessee had not given the effect of under valuation of polish diamonds which was determined in A.Y. 05-06. He was therefore of the view that if the credit for under valuation for polish diamond factory expenses is given the G.P of the Assessee for the year under consideration will be 5.7% in comparison to the G.P of 6.74% in immediate preceding year. He therefore asked the Assessee to explain the fall in effective G.P. The submission o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific reasons attributed for doing so. Hence, assessee's contention is accepted on this ground. 4. The next ground relates to disallowance of labour and manufacturing expenses amounting to ₹ 70,62,643/-. The AR submits that the issue is directly covered by the decision of the Hon'ble ITAT in the case of assessee itself for A.Y.2002-03 where in against the claim of manufacturing expenses at the rate of ₹ 300/- per carat, the AO had allowed at ₹ 240/- per carat. The Hon'ble ITAT has allowed the manufacturing expenses excluding salary and wages at ₹ 300/- per carat. 5. After carefully going through the order of the Hon'ble ITAT for the A.Y. 2005-06, it is observed that the Hon'ble Tribunal has confirmed the CIT(A) s order restricting the addition made on disallowance of labour charges. The disallowance made by the then AO was on different footing. The facts and circumstances of that year are not identical with the issues of the current A.Y under appeal. Moreover, for expenses on labour and wages, a static rate need not be adopted for different years. Hence, I disagree with the assessee's contention that the matter has been squarel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He further submitted that A.O after considering the G.P of 3 other concerns had reasonably estimated the G.P at 7.5%. He therefore submitted that considering the various factors stated by the A.O, the books of accounts was rightly rejected and the estimation of G.P was therefore rightly made. The ld. A.R. on the other hand reiterated the submissions made before A.O and CIT(A). He further submitted that the books of accounts of the Assessee are audited and no specific defects have been pointed out by the A.O. He further submitted hat section 145 nowhere mandates the maintenance of quality wise stock register and for which he also placed reliance on the decision in the case of ACIT vs. Pankaj Diamonds (ITA No. 2529 1784/AHD/2008 order dated 13.01.2012 and the decision in the case of Dhami Brothers (ITA No. 2309/AHD/2008) order dated 6.08.2010. He thus supported the order of CIT(A). 9. We have heard the rival submissions and perused the material on record. We find that while deleting the addition made by the A.O, CIT(A) has given a finding that A.O has not observed any defect in the method of accounting and further incorrect claim and defect in the bills of expenses may lead to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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