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TMI Blog2022 (5) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... we are proceeds to adjudicate the issues. We find that there is objection of the assessing officer that the complete details were not provided by the assessee on the other hand, now we noted that the assessee has now taken stand that assessee follows weighted average basis of valuation for valuation of stock as recognized in para-16 of Accounting Standard -2, dealing with the valuation of inventories issued by Institute of Chartered Accountants of India. No such explanation or stand was asserted by the assessee before assessing officer. The assessee has taken new plea, which is not acceptable to us. Thus, we affirm the order of assessing officer in rejecting the valuation of closing stock. Valuation of stock - addition of account of valuation of stock - GP estimation - AO reinstated the addition by taking view that no details were furnished by the assessee despite providing opportunity to the assessee - CIT(A) made additions by applying 20% rate to the total inward of diamonds (opening stock plus purchases) - HELD THAT:- Working of addition the CIT(A) recorded certain discrepancies in the books of the assessee viz; no finance charges are claimed, sales and administrative expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had followed the directions laid down by the Income Tax Appellate Tribunal of examining the evidence as per para 5 of the order of the Income-tax Appellate Tribunal and on that ground the order is required to be cancelled. (II) Rejection of book result: (1) On the facts and circumstances of the case and as per law, the learned Commissioner of Income Tax (Appeals) erred in rejecting book result when the assessee had maintained complete quantitative accounts of the diamonds. (2) The appellant submits that the learned Commissioner of Income Tax (Appeals) erred in not considering the submission and evidence in the above matter. (3) The appellant further submits that the learned Commissioner of Income Tax (Appeals) erred in relying on the judgment of D. Subhashchandra Co. which dealt with polished diamonds whereas the appellant dealt with rough diamonds. (4) The appellant further submits that the learned Commissioner of Income Tax (Appeals) further erred in not differentiating between the rough makeable diamonds and rough rejected diamonds. (III) Changing base of addition: (1) On the facts and circumstances of the case and as per l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciated and that such details require verification at the end of assessing officer. 4. In restoration proceedings the assessing officer again repeated the similar addition in order passed under section 143(3) read with section (rws) 254 dated 28.03.2013. Before passing the assessment order the assessing officer issued show cause notice to the assessee to furnish required details as submitted before ld CIT(A). The assessing officer recorded that the assessee submitted that rough diamonds are obtained and issued to the contractors for manufacturing of polished diamonds but these rough diamonds from which also include and remained in stock and are referred to as rejected rough diamonds having negligible value. It was also contended that when the rough diamonds and rejected rough diamonds are shown together rough diamonds having very low value, the overall valuation of all rough diamonds goes down considerably. And that rough diamonds of 20,294.02 carat, there was rejection of 17,041.34 carat. The reply of the assessee was not accepted by the assessing officer. The assessing officer held that the assessee has not furnished the quality wise details of diamonds. Diamonds are ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re reproduced by ld CIT(A) at page number 12 to 16 of his order. The ld CIT(A) after considering the contents of remand report and the comments of the assessee upheld the rejection of valuation of closing stock of assessee. The ld CIT(A) while affirming the rejection of valuation of closing stock held that maintenance of quality wise and quantitative details are necessary as held by Tribunal in D Subashchandra Co Vs ACIT (123 ITD 635 Ahd). However, on merits of addition the ld CIT(A) examined the case and find various discrepancies that no finance charges are claimed, sales and administrative expenses are only Rs. 3.44 Lacks only, labour charges were Rs. 18.30 lakhs. On the basis of the above discrepancies and figures of turnover, the ld CIT(A) opined that the monthly net profit shown by the assessee is only Rs. 27,544/- which is equal to the normal salary of semi-skilled diamond labour. It was noted by ld CIT(A) that the addition of Rs, 52,32,680/ was questioned by assessee being absurd, which is about 45.63% of the turnover. The ld CIT(A) made additions of Rs. 41.00 lakhs by applying 20% rate to the total inward of diamonds (opening stock plus purchases) in the following manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by assessee during the course of first round of appeal proceedings. The assessee follows weighted average basis of valuation for valuation of stock as recognized in para-16 of Accounting Standard -2, dealing with the valuation of inventories issued by Institute of Chartered Accountants of India. Date wise, quantity -wise polished diamond, stock register, date wise polished diamond, quantitative details regarding the rejection of diamonds, date wise quantity and value floor of the polished diamond register along with the valuation of closing stock was given. Monthly wise register and copy of tax Audit Report under section 44AB was also filed. The assessing officer instead of verifying the details concluded that assessee did not maintain quality wise details of the diamonds. It was not possible for him to verify the lot wise diamonds, genuineness of rejected diamonds is not verifiable and the assessee has failed to produce documentary evidence to substances the valuation of closing inventories. The learned AR of the assessee submits that quality wise details of diamonds can be maintained only after the rough diamonds is polished. The assessing officer made addition in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anging of basis of addition by the ld CIT(A) from closing inventory based valuation to estimation at 20% valuation of total inward diamonds. The ld AR for the assessee submits that the ld CIT(A) made addition by holding that the assessee earned unaccounted profit. There is no whisper or any allegation of unaccounted sales in the assessment order or by ld CIT(A) which can possibly result in addition on this ground. No show cause notice was issued by the ld CIT(A). The substituted addition is made without any basis and is liable to be quashed. In other alternative submissions the ld AR for the assessee submits that if the addition is substituted it will amount to 36% net profit rate of the turnover which is unrealistic. The Gross profit result would be 42% which is also unrealistic. The Central Board of Direct Taxes (CBDT) in its circular No. 2/2008 dated 22.02.2008 issued direction that 6%profit in the trade of diamonds is acceptable. 9. In without prejudice submissions, the ld AR for the assessee submits that even if the addition is based on the Gross Profit (GP) as applied by ld CIT(A), it can apply on the turnover and not on the total of reopening stock plus purchases. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the material placed before us. We have also deliberated on various case laws relied by the lower authorities as well as by ld AR of the assessee. The assessing officer rejected the working of closing stock by taking view that complete details were not furnished by the assessee. It was also held that the assessee has not furnished the quality wise details of diamonds. And that diamonds are very precious items and the assessee is require to maintain stock movement register, lot to lot details, issue and dispatch register and has to prepare detail inventory of opening and closing stock. From verification of purchase bills, sales bills and from purchase and sale register, genuineness of rejected diamonds is not verifiable. The ld CIT(A) confirmed the action of assessing officer by similar view. 13. Before us, the ld AR for the assessee submits that during the course of assessment proceedings, the assessee furnished evidences to demonstrate movements of rough diamonds. These were the very details filed by assessee during the course of first round of appeal proceedings. The assessee follows weighted average basis of valuation for valuation of stock as recognized in para- 16 of Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the normal salary of semi-skilled diamond labour. We further find that the ld CIT(A) estimated the unaccounted profit at the rate of 20% on the total inward of diamonds consisting of opening stock plus purchases. The ld CIT(A) worked out the addition of Rs. 40,87,076/-, which was rounded off to Rs. 41,00,000/-( forty one lakhs). 16. We find that on making addition the unaccounted profit on estimation, went upto 36% of the turnover, if it is added the gross profit of the assessee it would be 42 %, which is quite unrealistic in the in the trade of diamonds. The assessee has already declared GP at 5.88%. We further noted that Central Board. of Direct Taxes (CBDT) in its Circular No 2/2008 dated 22nd February 2008 had came with instruction that profit to the extent of 6% in the trading and manufacturing of diamonds is acceptable as results. We find that total sale of the assessee is not disputed by the assessing officer. Considering the facts that we have upheld the rejection of books of account, and further held that estimation adopted by ld CIT(A) is not realistic that is higher side, therefore, we direct the assessing officer to consider the consider the unaccounted profit of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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