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2021 (12) TMI 302 - AT - Income TaxDisallowance of forward contract loss as treated as speculative loss by AO - assessee is a star trading house engaged in the business of diamond purchasing rough and polished diamonds mainly through import from various countries, manufacturing of rough diamonds into polished diamonds and sell polished diamonds mainly by way of exports to various countries - HELD THAT:- Since the facts for the year under consideration with regard to this issue of disallowance of forward contract loss are exactly identical to the facts prevailing in A.Y.2008-09 [2016 (8) TMI 1094 - ITAT MUMBAI], the decision rendered hereinabove by this Tribunal for A.Y.2008-09 shall apply mutatis mutandis to the years under consideration also. Accordingly, the ground Nos. 1-4 raised by the Revenue are dismissed. Adhoc disallowance of miscellaneous expenses @15% made by the ld. AO - CIT-A deleted the addition - HELD THAT:- Since, no defects were pointed out by the ld. AO in the books of accounts / documents produced by the assessee before him, no disallowance of expenses could be made on adhoc basis by placing reliance on various decisions of the Tribunals, he deleted the adhoc disallowance made by the ld. AO. We hold that the ld. CIT(A)had rightly adjudicated the issue in dispute before us. The ld. AO had not rejected the books of accounts of the assessee or the various documents produced by the assessee before him by pointing out defects. The ld. CIT(A) has also categorically recorded a finding that entire details of miscellaneous expenditure has been filed by the assessee alongwith sample invoices, which fact has not been controverted by the Revenue before us. In view of the same, the adhoc disallowance made by the ld. AO has been rightly deleted by the ld. CIT(A). Disallowance made u/s.14A - assessee had made suo-moto disallowance of expenses - CIT-A deleted the addition - HELD THAT:- The law is now very well settled by this Hon’ble Supreme Court in the case of Maxopp Investments [2018 (3) TMI 805 - SUPREME COURT] that disallowance u/s.14A of the Act cannot exceed the exempt income. Hence, we do not find any infirmity in the order of the ld. CIT(A) in this regard. Addition u/s.69A - difference between book stock and physical stock of polished diamonds - HELD THAT:- Only the profit element embedded on the said sale could be brought to tax. The argument of the ld. AO could be accepted when there is excess stock found physically either at the time of search / survey wherein the purchases of excess physical stock found need to be explained. In the instant case, since, there was only shortage of physical stock to the extent of 48.94 carats, we hold that only profit element embedded in said sale transaction could be brought to tax. In this regard we find that the ld. AR placed reliance on the Co-ordinate Bench decision of this Tribunal in the case of sister concern of the assessee in UNI Design Jewellery Pvt. Ltd.,[2020 (1) TMI 18 - ITAT MUMBAI] wherein this Tribunal had also under similar facts and circumstances pursuant to the same search action on 08/08/2011 had held that only the profit element need to be brought to tax. Hence, we direct the ld. AO to compute the gross profit portion on the said sale and tax the assessee accordingly. Addition u/s.69B - treating the difference between physical stock and book stock of rough diamonds as unexplained investment - HELD THAT:- As clinching evidence to accept the explanation offered by the assessee both before the search party as well as before the ld. AO during the course of assessment proceedings that stock to the tune of 169.45 carats represent diamonds received from M/s. Neelam Exports by the assessee which was included only in the physical stock, but not in the book stock maintained by the assessee. Hence, we are inclined to accept to the contentions of the assessee and direct the ld. AO not to make any addition for the value of 169.45 carats of diamonds as it stands properly explained. For remaining difference out of 180.15 carats of stock difference, 169.45 carats was properly explained and the difference of 10.7 carats need to be sustained in the form of addition. Now, for the purpose of arriving at the value of addition for 10.7 carats, the ld. AR has brought this alternative argument. Hence, we hold that this is only an argument advanced by the ld. AR and there is absolutely no fresh facts which requires verification in this regard. Either way this aspect deserves to be remanded back to the file of the ld. AO for arriving at the value for making addition in respect of deficit of 10.7 carats. Hence, we direct the ld. AO to make an addition for 10.7 carats by applying the respective rates applicable for “rough rejections” and “rough diamonds” as the case may be, as mentioned in the Government Valuation report. This in our considered opinion, would meet the ends of justice. Accordingly, the ground No.2 raised by the assessee for A.Y.2012-13 is partly allowed.
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