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TMI Blog2017 (9) TMI 2019X X X X Extracts X X X X X X X X Extracts X X X X ..... t that grading and certification are the essential part of business and how much expenditure was required to be made on certification and grading was to be decided by the assessee. AO has not made any comparison to falsify the claim of the assessee. Since, payments to the parties are not in dispute, ad hoc addition cannot be made without establishing that either the transaction was sham or the expenditure was made for the purposes other than the business of the assessee. Hence, we do not find any reason to interfere with the order passed by the Ld. CIT(A). The order passed by the Ld. CIT(A) is upheld and all the grounds of appeal of the revenue are dismissed. - Shri G.S. Pannu (AM) And Shri Ram Lal Negi (JM) For the Revenue : Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding expenses amounting to Rs. 51,83,550/- and 30% certification charges amounting to Rs. 28,44,359/-( Total Rs. 80,27,909/-) and added back the said amount to the income of the assessee. In appeal, the Ld. CIT (A) deleted the addition held by the AO. 3. Aggrieved by the order of Ld. CIT (Appeals), the revenue preferred this appeal before the Tribunal on the following effective grounds:- 1. Whether, on the facts and in the circumstance of the case, the Ld. CIT (A) has erred in holding that the expenditure was incurred wholly and exclusively for the purpose of business without appreciating the absence of correlation of the expenditure on gradation certification of diamonds with the sale and stock of diamonds. 2. Whether on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interfere with the same. The AO has disallowed 30% of the expenditure claimed by the assessee without any basis. Grading expenses are fully allowable expenditure under section 37 of the Act, if the same have been laid out or expended wholly and exclusively for the purpose of the business. Moreover the percentage of grading and certification charges taken by the AO is arbitrary. Hence, the Ld. counsel submitted that there is no merit in the revenues appeal and the same is liable to be dismissed. 6. We have heard the rival submissions and also gone through the material on record. The only grievance of revenue is that the Ld. CIT(A) has wrongly deleted the addition made by AO by making disallowance of 30% of the total expenditure made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tirely a business decision on case to case basis. Moreover, the AO s conclusion that the industry average of such expenditure is just 1% is not supported by comparative facts, neither the same can be applied uniformly to every assessee. In these circumstances, the ad-hoc disallowance made at 30% of the expenditure, i.e. at Rs. 80,27,909/- is not on sound footing, hence deleted. Therefore, the ground no. 1 of appeal is allowed. 7. As pointed out by the Ld. CIT(A) the assessee has produced the party wise details of grading and certification charges along with ledger statements. The payments were made after deducting tax at source. The Ld. CIT(A) has rightly pointed out that grading and certification are the essential part of business and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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