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TMI Blog2011 (9) TMI 1012X X X X Extracts X X X X X X X X Extracts X X X X ..... s stated by the learned DR that the assessee derives income from import and export of diamonds. That the GP of the assessee has reduced to 6% as against 7.32% in the immediately preceding year. That the AO examined the assessee's books of accounts in detail and found that the assessee has purchased and sold diamonds as per the quality of diamond. Therefore, it is obvious that the assessee has maintained quantitative details quality-wise, otherwise, he could not have proper control over the trading activity. That despite maintaining of such primary records, the assessee has not produced the same before the AO. In this regard, he referred to para 9.1 to 9.4 of the assessment order which reads as under: "9.1 As regards the assessee's contention that practically it is impossible to maintain quality and quantity-wise records in respect of production as well as sales, it would be suffice to say that it cannot be accepted that the assessee should not have been maintaining qualitywise record of the diamonds. If what the assessee says were true, it could not have sold lots of diamonds at different prices. In this context on examination of bills of export on random basis, it was seen that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ascertain and compute the correct income. From this it also follows that it is not always the prerogative of the assessee to maintain the records the manner in which it likes. However, as noticed in the preceding paras the assessee did not maintain the books of accounts and documents on the basis of which the income declared in the return could be ascertained. If the primary records were maintained by the assessee, they were not produced for examination to compute the correct income." He therefore requested that the order of the CIT(A) should be reversed and that of the AO should be restored. 4. The learned counsel for the assessee, on the other hand, relied upon the orders of the CIT(A). He has stated that the assessee has maintained the quantitative details which is weight wise. However, the quality-wise quantity details have not been maintained. He also stated that it is impossible to maintain quality wise details. That the AO has presumed that the assessee has maintained quality wise quantitative details while no such detail is actually maintained by the assessee. When such detail is not maintained by the assessee, the question of producing the same before the AO does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this issue is considered by the ITAT in the case of M/s.Dhami Brothers (supra) in which one of us is a party. In this case the ITAT held as under: "7. We have considered the arguments of both the sides and perused the material placed before us. The AO has rejected the assessee's books of accounts and estimated the value of closing stock as well as GP. The reasoning given by the AO for rejecting the books of accounts reads as under: "5.8 It would not be out of place to make a mention in this context that, as per the provisions of section 44AA of the I.T. Act, every person carrying on business is compulsorily required to keep and maintain such books of accounts and other documents as may enable them AO to compute the assessee's total income in accordance with the provisions of the I.T. Act. From this, it follows that the purpose and intention of the Legislature in enacting the provisions of section of 44AA of the Act is to put an obligation on the assessee to maintain and keep primary records on the basis of which the tax authorities are able to ascertain and compute the assessee's correct income. From this it also follows that it is not always the prerogative of the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... processing. Such date wise details of the processing of the diamonds were furnished before the AO and copy of which is also enclosed from page no.63 to 149 of the assessee's paper book. The AO has stated that in these details quality of the diamond is not mentioned. It is submitted by the learned counsel that it is not practical to maintain the quality wise details of each and every diamond. Each and every diamond is of a separate quality depending upon its colour, clarity, cut etc. and this is almost impossible to maintain quality wise details for each and every piece of diamond. That the assessee is maintaining the quantitative details in the same fashion since preceding many years and it was always accepted in the past. Section 145(3) which empowers the AO to reject the assessee's trading results and make the assessment in the manner provided under section 144 reads as under: "145. Method of accounting.--(1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall be computed in accordance with the method of accounting regularly employed by the assessee (2) ....... (3) Where the Assessing Officer i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, we are unable to agree with the AO that there is defect in the system of method of accounting of the assessee which requires rejection of the book results under Section 145(3) of the Act and estimation of the GP." No contrary decision is brought to our knowledge therefore respectfully following the above decision of the ITAT, we hold that due to failure on the part of the assessee to maintain the quality-wise quantitative details, the books of account of the assessee cannot be rejected. No other defect is pointed out by the AO in the books of accounts of the assessee, which is duly audited. Once there is no defect in the assessee's books of accounts, the same cannot be rejected therefore, once the books cannot be rejected the estimated addition made by the AO by enhancing the GP at the rate of 1% of the sales cannot be sustained. We therefore uphold the order of the CIT(A), wherein he deleted the addition made by the AO on account of low GP accordingly, Ground No.1 of the Revenue's appeal is rejected. 7. Ground No.2 of the Revenue's appeal reads as under: "2. On the facts and in the circumstances of the case and in law the ld.CIT(A) has erred in treating the loss of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est against fluctuation in rates of foreign exchange. Nothing is brought on record if the assessee has violated any norms issued by Reserve Bank of India. The learned CIT(A), therefore, rightly held that the bank being authorized dealer will not allow the assessee to book forward contracts for speculation purposes. The learned Counsel for the assessee also filed the details of names of the bank of the forward contract to show cancellation date and the gain/loss which support the findings of the learned CIT(A) that assessee's transaction through bank was a genuine business transaction , therefore, loss shall have to be allowed in the case of the assessee. Considering the facts and circumstances and the finding of the learned CIT(A) in the light of the decisions of the Hon'ble Bombay High Court and the Hon'ble Calcutta High Court (supra), we do not find any merit in the departmental appeal on this issue. We confirm the findings of the learned CIT(A) and dismiss the departmental appeal." Similarly, in the case of Friends and Friends Shipping Pvt. Ltd. (supra), Hon'ble Gujarat High Court held as under: "Having thus heard the learned advocates for the parties and having perused the do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f details of the expenses and vouchers in support of other expenses, it could not be verified by the AO that other expenditure was for the purpose of business. Even during the visits for the purpose of business, the assessee may incur personal expenditure. That 20% disallowance out of other expenditure was quite fair and reasonable. The learned counsel for the assessee, on the other hand, reiterated the submissions made before the CIT(A) and stated that the turnover of the assessee was ₹ 112 crores and therefore the total expenditure on foreign traveling was 0.13% of the turnover. He therefore stated that the order of the CIT(A) should be sustained. 13. We have carefully considered the arguments of both the sides and perused the material placed before us. There is no dispute that the foreign visits by the partners or employees of the assessee firm were for the purpose of assessee's business. It is admitted by the AO himself. However, even in the visit for the purpose of business, there may be personal expenditure on shopping or otherwise. In the absence of details of other expenditure, the AO could not have verified whether the other expenditure was entirely for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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