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TMI Blog2015 (1) TMI 912X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit - Held that:- in working out the gross profit at 0.023%, the foreign exchange difference is not considered by the assessee. Therefore, we do not find any infirmity in the orders of the lower authorities in estimating Gross Profit of the assessee @ 0.21% at ₹ 27,43,564/-. We have, while deciding the Ground No.1 of the appeal above, held that the addition made in respect of undervaluation of closing stock is not sustainable. Thus, the assessee is not entitled for benefit of telescoping and consequentially, the addition of ₹ 27,43,564/- on account of low Gross Profit is sustained. Thus Assessing Officer is directed to withdraw the benefit of telescoping. - Decided against assessee. Disallowance of 20% foreign travelling, conveyance and telephone expenses - Held that:- As the facts and circumstances of the year under consideration are similar to the facts and circumstances of the immediately preceding year, and the disallowance made in the year is in tune with the amount of disallowance confirmed by the Tribunal in the immediately preceding year; therefore, we do not find any good reason to interfere with the orders of the lower authorities.- Decided against assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of more than ₹ 146 crores against GP of 0.21% on a turnover of ₹ 150 crores in the immediately preceding year. When the Assessing Officer required the assessee to justify the fall in GP, the assessee has stated that this was because of exchange rate difference expenses and if this was considered as directly related to purchases, the ratio of GP would be better than the earlier year. The Assessing Officer further required the assessee to produce five top suppliers to verify the purchases claimed by the assessee but the same was not done. The Assessing Officer was also not satisfied by the explanation of the assessee that the reason for fall in GP was because of exchange rate difference. The Assessing Officer further observed that the closing stock of polished diamonds was valued at lower price than rough diamonds. The closing stock was shown at 1240.08 carats @ ₹ 1481 per carat whereas the closing stock of rough diamond was taken at approximately ₹ 2900/- per carat. When required to justify, the assessee submitted copies of purchase bills of polished diamonds dated 24.04.2005 in which the polished diamonds were purchased @ ₹ 2965 per carat from one Lu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was sold on 04.04.2008. It is again very strange to note that the rough diamond have been valued at almost double the price of polished diamonds. I also do not accept the explanation that the rough diamonds had higher value because of the potential future value of polished diamonds which could be made from such rough diamonds. The appellant has not been able to prove the selling price of closing stock which he claimed as inferior nor could there be any justification in claiming that the polished diamonds purchased at a higher value were sold at the lower value. The appellant is in the diamond business for a long time having a turn over of approximately ₹ 150 crores and it is not expected of such an experienced dealer to purchase polished diamonds at a higher rate than the market value. In view of this, I am of the considered view that the AO s action in valuing the closing stock of polished diamonds at the rate at which rough diamonds were valued, is in order and addition on this account is confirmed. 6. The Departmental Representative supported the orders of the lower authorities, whereas the Authorized Representative of the assessee reiterated the submissions made befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee valued 1240.08 carat of diamonds at its market value of ₹ 18,36,660/-. We find that no material was brought on record by the Revenue to show that the rough diamonds of 1240.08 carat was not sold on 04.04.2005 for ₹ 18,39,039/- and the same in fact was sold at a higher value. We find that it is not stated by the Departmental Representative that the name and address of the parties to whom diamonds in question were sold was not submitted before the lower authorities. In the above circumstances, in our considered view, the addition of ₹ 18,40,177/- made on account of undervaluation of closing stock is not sustainable. We, therefore, delete the addition of ₹ 18,40,177/- and allow this ground of appeal of the assessee. 13. Ground No.2 of the assessee s appeal reads as under:- 2. On the facts and in the circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred confirming the action of the Assessing Officer in making addition of ₹ 9,03,387/- on account of low Gross Profit. 14. The brief facts of the case are that the Assessing Officer estimated the GP at the same rate as in the preceding yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales. The Assessing Officer observed that the gross profit of the assessee in the immediately preceding year was 0.21%. According to the Assessing Officer, the assessee explained the loss due to exchange rate fluctuation as the main cause of fantastic reduction in the gross profit rate which is not acceptable. Further, the assessee could not produce suppliers of diamond for verification. Therefore, in absence of production of suppliers of diamonds, the purchases claimed by the assessee are not verifiable. He, therefore, rejected the book result and estimated the Gross Profit of the assessee @ 0.21% which worked out to ₹ 27,43,564/-. He thereafter allowed telescoping of addition of ₹ 18,40,177/- made on account of undervaluation of closing stock and therefore, added ₹ 9,03,387/- to the income of the assessee. 19. On appeal, the CIT(A) confirmed the action of the Assessing Officer. 20. We find that the only explanation of the assessee for fall in gross profit rate was that the assessee has incurred foreign exchange fluctuation loss of ₹ 37,06,513/- and if the same is removed from the expenditure side of the trading account, then the gross profit of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mental Representative supported the orders of the lower authorities, whereas the Authorized Representative of the assessee reiterated the submissions made before the Assessing Officer and the CIT(A). 25. We have heard the rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, disallowance of ₹ 10,92,036/- was made by the Assessing Officer out of expenses incurred under the head office expenses, conveyance expenses, telephone expenses, travelling expenses, brokerage and foreign travelling expenses . 26. Before us, the Authorized Representative of the assessee pointed out that the disallowance was made on ad-hoc basis. However, the Authorized Representative of the assessee was fair to concede that on similar facts, disallowance of ₹ 10 lacs was confirmed by the Tribunal in the case of assessee in the immediately preceding year. As the facts and circumstances of the year under consideration are similar to the facts and circumstances of the immediately preceding year, and the disallowance made in the year is in tune with the amount of disallowance confirmed by the Tribunal in the immediately preceding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase and sales of diamonds for the month of January and February 2005, from which payments TDS was deducted by the assessee and the same was deposited to the credit of the Central Government on 02.04.2005. The Assessing Officer disallowed the deduction for the entire brokerage of ₹ 2,74,787/- by invoking the provisions of section 40(a)(ia) of the Act on the ground that the TDS was not deposited before the end of the financial year and the same was confirmed in appeal by the CIT(A). 33. We find that the Hon ble Gujarat High Court in the case of CIT vs. B.M.S. Projects P. Ltd., (2014) 361 ITR 195 (Guj.), has held that where payments were made to sub-contractors for the period from April 2004-February 2005 on which TDS has been paid on 24.05.2005, no disallowance of the expenditure claimed could be made u/s 40(a)(ia) of the Act as the payments were made by the assessee before the due date of filing of return of income u/s 139(1) of the Act, as the amendment made by Finance Act, 2010 with effect from 1st April 2010 was retrospective in operation. Therefore, we delete the disallowance of ₹ 2,74,787/- and allow this ground of appeal of the assessee. 34. In the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by itself, will not amount to furnish inaccurate particulars regarding income of the assessee. Such claim made in the return of income cannot amount to furnish of inaccurate particulars. Unless there is finding that any details supplied by the assessee in its return of income were found to be incorrect or erroneous or false, there is no question of levying penalty u/s 271 (1) (c). If the contentions of the revenue are accepted, then in case of every return where claim is not accepted by the AO for any reason, the assessee will invite penalty u/s 271(l)(c). That is clearly not intendment of the Legislature. I have examined the various correspondences of the AR with the AO. These correspondences clearly show that the Assessee had furnished all the books of account, along with supporting bills/vouchers, the names and addresses of the parties from whom purchase were made and a detailed break-up of the expenses, the AR had submitted the reasons for decrease in GP along with copies of the bills and books of accounts. All these correspondence clearly show that the records and details which are essential for the AO to ascertain the correctness of the claimed of the Assessee, were all avail ..... X X X X Extracts X X X X X X X X Extracts X X X X
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