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2022 (5) TMI 295 - AT - Income TaxValuation of closing stock - Rejection of books of accounts - assessing officer made addition in respect of closing stock valuation of rough diamonds - AO rejected the working of closing stock by taking view that complete details were not furnished by the assessee - HELD THAT:- The assessee follows weighted average basis of valuation for valuation of stock as recognized in para- 16 of Accounting Standard -2, dealing with the valuation of inventories issued by Institute of Chartered Accountants of India. Date wise, quantity -wise polished Diamond, stock register, date wise polished diamond, quantitative details regarding the rejection of diamonds, date wise quantity and value floor of the polished diamond register along with the valuation of closing stock were furnished. We find that the submissions of ld AR of the assessee are contrary to the submissions recorded by the assessing officer. It is not the case of assessee that the finding of the assessing officer is perverse. We are conscious of the fact that that this is second round of litigation and instead of sending matter back, we are proceeds to adjudicate the issues. We find that there is objection of the assessing officer that the complete details were not provided by the assessee on the other hand, now we noted that the assessee has now taken stand that assessee follows weighted average basis of valuation for valuation of stock as recognized in para-16 of Accounting Standard -2, dealing with the valuation of inventories issued by Institute of Chartered Accountants of India. No such explanation or stand was asserted by the assessee before assessing officer. The assessee has taken new plea, which is not acceptable to us. Thus, we affirm the order of assessing officer in rejecting the valuation of closing stock. Valuation of stock - addition of account of valuation of stock - GP estimation - AO reinstated the addition by taking view that no details were furnished by the assessee despite providing opportunity to the assessee - CIT(A) made additions by applying 20% rate to the total inward of diamonds (opening stock plus purchases) - HELD THAT:- Working of addition the CIT(A) recorded certain discrepancies in the books of the assessee viz; no finance charges are claimed, sales and administrative expenses are only Rs. 3.44 Lacks only, labour charges were Rs. 18.30 lakhs and that the monthly net profit shown by the assessee is only Rs. 27,544/- which is equal to the normal salary of semi-skilled diamond labour. We further find that the ld CIT(A) estimated the unaccounted profit at the rate of 20% on the total inward of diamonds consisting of opening stock plus purchases. The ld CIT(A) worked out the addition of Rs. 40,87,076/-, which was rounded off to Rs. 41,00,000/-( forty one lakhs). On making addition the unaccounted profit on estimation, went upto 36% of the turnover, if it is added the gross profit of the assessee it would be 42 %, which is quite unrealistic in the in the trade of diamonds. The assessee has already declared GP at 5.88%. We further noted that Central Board. of Direct Taxes (CBDT) in its Circular No 2/2008 dated 22nd February 2008 had came with instruction that profit to the extent of 6% in the trading and manufacturing of diamonds is acceptable as results. We find that total sale of the assessee is not disputed by the assessing officer. Considering the facts that we have upheld the rejection of books of account, and further held that estimation adopted by ld CIT(A) is not realistic that is higher side, therefore, we direct the assessing officer to consider the consider the unaccounted profit of assessee at 10% of the sales during the year under consideration, which in our view will be sufficient to avoid the possibility of revenue leakage. As the assessee has already declared 5.88% GP, the assessee be granted set off of the GP already declared by it. In the result, the Ground No. 3 raised by the assessee is partly allowed.
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