TMI Blog2012 (11) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... excessive and appeared to be unreasonable considering the overall circumstances of the case. The assessee has also failed to establish the reasons for abrupt enhancement in consumption of diamond powder – addition upheld – against assessee Disallowance on account of foreign travel expenses – alleged that no bill was available in respect of foreign exchange purchase – Held that:- Foreign exchange was purchased in the names of relatives. Assessee’s argument was that those persons had gone for market survey. As per AO, no report about the work carried out by those persons was furnished. It was also pointed out by the AO that those relatives had no professional qualification or any experience of the business – matter remanded to AO - I.T.A. No.2529/Ahd/2008 & I.T.A. No.1784/Ahd/2008 - - - Dated:- 13-1-2012 - SHRI MUKUL Kr.SHRAWAT AND SHRI A.K. GARODIA, JJ. Revenue by : Shri B.L.Yadav, D.R. Assessee by : Shri S.N.Soparkar, A.R. ORDER PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER : These are cross appeals arising from the order of CIT(A-V, Surat dated 28/04/2008. For the sake of convenience both these appeals are consolidated and are hereby decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yed the important role in fixing the price of a diamond. The AO has opined that mere maintenance of quantitative details was not suffice. Due to that reason, books of accounts of the assessee were rejected. After detailed discussion, an addition was made as follows:- 7.8. Under the circumstances, I hereby reject the books of accounts of the assessee under section 145(3) of the I.T. ct as books of accounts are not complete. Income from sales/export of polished and rejection diamonds (earnings on account of exchange rate difference are not considered for the purposes of calculation of G.P.) has been shown at Rs.1,93,67,55,969/-. In view of the foregoing discussion regarding calculation of G.P. and due to fall in G.P. as compared to preceding assessment year, the undersigned is of the considered opinion that 0.75% addition on account of G.P. shall meet ends of the justice and therefore, 1 add Rs.1,45,25,670/- to the total income of the assessee. Being aggrieved the matter was carried before the first appellate authority. 3. When the matter was carried before the first appellate authority, at the outset, ld.CIT(A) has mentioned that for A.Y. 2004-05 the said identical issue h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 05/09/2008 titled as M/s.Pankaj Diamond vs. ACIT, it was held as under:- 9. In the light of the above observations made by the Ld. CIT(A), he proceeded to estimate the taxable income of the assessee. He observed that in the enhancement notes issued to the assessee, it was stated net profits varied from 7.41% to 3.08%. The average in four cases was around 4.53%. However, the lowest net profit rate shown is 3.08% by Bhojal Diamond on the turnover of Rs.26,63,43,460/-. On the other hand, D.Subhahshchandra Co., with turnover of Rs.899,969,901/- showed net profit rate @ 4.42%. Since the assessee was having almost double turnover at around Rs.155.00 crores, it will be proper and fair to estimate the net profit at the lower side at 3%. He observed that this would mean of income of Rs.4,65,94,861/- since the taxable income as per assessment order was worked out to Rs.2,46,61,270/-, he made addition for the balance amount of Rs.2,19,33,591/- to the income of the assessee. 16. We find that the book result was rejected by the lower authorities only on the ground that quality-wise details of diamonds were not kept by the assessee. Further, the addition was made merely on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee. The Ld. CIT(A) has brought no material on record to show that the rate of net profit of the assessee should be the same as that in the case of other assessee, which were considered by him. We are confident that the Revenue authorities must have come across the case of other assessee s whereby securing similar or more turnover the assessee suffers a loss in the business or secured lesser profit than the assessee. In the instant case, as no specific defect in the various expenses claimed by the assessee in the P L A/c. could be pointed out by the Revenue, the Ld. CIT(A) was not justified in arbitrarily applying the rate of net profit of 3% in making addition of Rs.2,19,33,591/-. As the addition of Rs.53,07,218/- and Rs.2,19,33,591/- are found to be not based on cogent and relevant material and are based merely on the surmises and conjectures, the same are found unsustainable on the facts of the instant case. We, therefore, delete the addition of Rs.53,07,218/- and Rs.2,19,33,5981/-. 6. The above view was expressed in respect of the quantum addition made in the asst.year 2004-05. Still, an another aspect is yet to be addressed is that whether the addition ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther or not flat rate of profit is applied for computing business income; and (ii) without prejudice, full set off has to be given if a flat rate is not applied for computing the business income. 8.1 These grounds do no survive because the Tribunal had already granted relief in the past as we have noted hereinabove while reproduced the relevant paragraph of the Co-ordinate Bench. These grounds being redundant hence dismissed. 9. Ground No.5 of the Assessee s and ground No.4 of Revenue s appeal are reproduced below:- Ground No.5 of Assessee s appeal read as under: 5. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in purportedly rationalizing and in principle upholding powder expenses to the extent of Rs.7,93,268/- on the ground that its use was not substantiated by the appellant therefore was treated as unaccounted sale by the Assessing Officer particularly when the learned Assessing Officer has not disputed the purchase or not brought any evidence for unaccounted sale of powder. Ground No.4 of Revenue s appeal reads as under: 4. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive of whether or not flat rate of profit is applied for computing business income; and (ii) without prejudice, no such disallowance can be made at all if a flat rate of net profit is not applied for computing the business income. Ground No.2 of Revenue s appeal reads as under: 2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in allowing the disallowance of Rs.29,29,609/- made by A.O. on account of foreign travel expenses vide assessment order u/s.143(3) of the I.T. Act dated 24.12.2007. 11.1 Assessee has claimed foreign travel expense of Rs.66,02,120/-. It has also been noted by the AO that no bill was available in respect of foreign exchange purchase of Rs.52,09,566/-. It has also been noted by the AO that foreign exchange was purchased in the names of relatives. Assessee s argument was that those persons had gone for market survey. As per AO, no report about the work carried out by those persons was furnished. It was also pointed out by the AO that those relatives had no professional qualification or any experience of the business. Accordingly, a sum of Rs.29,29,609/- was disallowed. 12. On perusal of the order of the CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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