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2014 (7) TMI 819 - AT - Income TaxRestriction of labour charges Held that:- A reasonable rate should have been applied by CIT(A) - it would be fair and reasonable to allow labour charges @ ₹ 270 per carat, instead of ₹ 300 per carat as claimed by the assessee - to settle the issue being very old it is appropriate to adopt an average rate which comes to ₹ 270/- per carat - This rate can be applied on the total diamonds in carats meant for the labour charges Decided partly in favour of Revenue. Undervaluation of closing stock on polished diamonds Held that:- The valuation of the polished diamond could have been made by adopting the basis of the sale of the last month of the accounting period - This figure can thus be a starting point for the calculation - by comparing the sale price of the last month a reasonable view can be adopted about the exact position of the valuation of the closing stock - it is correct to disturb the valuation at least for the year under consideration so that the discrepancy as noted in respect of the quality of the diamond can to some extent be rectified - this year can be treated as a demarcating year from the past years it is a reasonable and fair approach to compute the value of the stock of the polished diamond at ₹ 6448/- per carat as an average value of the closing stock - Closing stock of the diamond was 12909.74 Ct. and by applying the rate of ₹ 6,448/- the value to be worked out is ₹ 8,32,42,003/-, out which the value declared as per assessee is to be reduced of ₹ 6,00,30,337/; thus the balance comes to ₹ 2,32,11,666 Decided partly in favour of Revenue. Under valuation of closing stock of rough diamonds Held that;- The valuation of the stock is to be made at the market price or the cost price, whichever is lower - when the complete information about the quality of the stock is not made available then to resolve the issue a middle path is to be adopted - the assessee was in possession of the rough diamond - the difference of the two, i.e., purchase cost (- minus) sale cost is the correct method for determining the valuation of the rough diamond - The average of the two is ₹ 803 per carat, is required to be adopted by replacing the closing stock of diamonds calculated by adopting the average rate at ₹ 734.73 per carat Decided partly in favour of Revenue. Rejection of books of accounts Held that:- CIT(A) was rightly of the view that the labour payment was not verifiable in the assessment order and that the day to day consumption and production record of quantity and quality is not maintained - Even in survey complete records were not available the AO is justified in applying section 145(3) of the Act - merely because in the earlier years the book results are accepted and no addition is made, it does not justify the assessees plea that the same status should be applied for the subsequent year - there was no fallacy in rejecting the books of account by the Revenue Authorities Decided against Revenue. Labour charges disallowed Held that:- The labour charges are different from lot to lot depending upon the quality of the diamond manufactured - the assessee himself had taken a plea that the diamonds are of two qualities, a superior quality and inferior quality - the valuation of such type of diamonds effect the overall valuation of the closing stock - it was impractical to pay an identical rate of job charges to all the job workers - Certain other doubts have also been raised such as a huge amount of labour charges remain outstanding at the end of the financial year - labour charges @ ₹ 270 per carat is allowed - the AO is directed to recompute the disallowance Decided partly in favour of Assessee. Valuation of closing stock of polished diamond Held that:- The assessee was in possession of 31945.14 carat of polished diamonds in the closing stock. The assessee had valued the polished diamonds @ ₹ 8790 per carat, the total value of the closing stock - in the absence of any other factor to determine the exact valuation of the polished diamond the valuation could be determined by considering the sales of the last month of the accounting period - The assessee had adopted the average value of the polished diamond in the closing stock at ₹ 8,790/- per carat, this can be said to be a reasonable and fair approach to resolve the issue as well as to compute the value of the closing stock of the polished diamond at ₹ 9378/- per carat as an average value of the entire stock thus, the value of the unaccounted closing stock of the polished diamond as determined by the AO is modified Decided partly in favour of Assessee.
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