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2008 (9) TMI 867 - AT - Income TaxValuation of closing stock - Rejection of books of accounts - Addition of Enhancement of Net profit @ 3 percent of the total turnover - Polished diamonds - sales of superior quality of diamond and cost of inferior diamond having lower value than the average manufacturing cost of the year - assessee is engaged in the manufacturing as well as trading and export of diamonds - HELD THAT:- In the instant case, it is observed that the trading result shown by the assessee compares favourably with the past accepted position in the case of the assessee itself. Therefore, merely rejecting the book result on the ground that quality-wise details of diamonds has not been maintained will not empower the AO to add any income to the income shown by the assessee. We also observe that no material could be brought on record by the Revenue to show that the value of closing stock of diamonds shown by the assessee was incorrect or the method of valuation consistently adopted and followed by the assessee was incorrect. Further, it is observed that none of the lower authorities have found that the various expenses claimed by the assessee in its profit and loss account were not supported by vouchers or not verifiable or were not genuine. In the above circumstances, the ld CIT (A) was not justified in rejecting various expenses disclosed by the assessee’s day-to-day maintained books of account. Merely because the profit disclosed by the other businessmen in terms of the turnover of its business differs from the rate of profit disclosed by the assessee in terms of its turnover will not, by itself, empower the ld CIT (A) to add any amount to the income of the assessee. We are confident that the Revenue authorities must have come across the case of other assessees 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 profit and loss account could be pointed out by the Revenue, the ld CIT (A) was not justified in arbitrarily applying the rate of net profit of 3 percent in making addition. As the addition on account of valuation of closing stock and addition of enhancement of net profit 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 additions. In view of our decision in respect of grounds taken with the memo of appeal, the entire addition made by the lower authorities stands deleted. In the result, the assessee's appeal stands allowed.
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