2024 (5) TMI 698 - AT - Income Tax

GP estimation - estimation for want of details of assessee firm s diamond stock piece wise color wise data wise and carat wise and grade wise - CIT(A) estimated an increase of GP @ 5.12% on the basis of GP shown by the appellant in last 5 years against the GP estimates made by AO @ 5.55% (4.05% shown by the appellant plus increase of 1.5% made by the AO) - Whether the maintenance of assessee s books of accounts for the relevant Assessment Year 2017-18 is in accordance with the provision of the Act? HELD THAT - As assessee has filed stock book of polished diamonds-date wise and carat wise. Details of sale/purchase and the reconciliation with trading account and sample invoices for agency commission along with the invoices in respect of import of the purchases have also been filed with the assessee s paper book. Audit report also does not disclose any defect in such maintenance of books of accounts by the assessee. The gross profit can easily be ascertained on the basis of the aforesaid documents filed by the appellant. This apart the AO has accepted the similar explanation of the appellant assessee for the assessment year 2018-19 after issuing the similar show-cause notices with the draft of rejection of books of accounts. Also undisputed fact that the revenue department has been accepting assessee firm s method of accounting in earlier years as well. It is also pertinent to mention that the AO has not brought on record any other comparable case. The assessee has maintained quantitative details of diamonds. The facts of the present case are similar to the facts of M/s Nevils Gems 015 (12) TMI 989 - ITAT AHMEDABAD We therefore hold that the qualitative details of stock of diamonds piece wise color wise data wise and carat wise are not required to be maintained under the Act and rule as referred by the coordinate bench of this tribunal. The facts of Kanchwala Gems 2006 (12) TMI 83 - SUPREME COURT are in respect of bogus purchases and non maintenance of quantitative details of stock. The facts of Oopal Diamonds 2022 (11) TMI 620 - ITAT MUMBAI are related to the purchases of diamonds from certain tainted dealers thus the facts of both the cases referred by Ld. DR are not identical to the facts of the present case hence for no avail to the department. We hold that the learned CIT(A) has failed to appreciate the facts in the light of relevant law. Aforesaid both the issues are thus decided is positive in favor of the appellant/assessee and against the firm.

Summary

Issues Involved:
The appeal challenges the additions in the total income of the assessee made by the CIT(A) u/s 143(3) r.w.s. 144 of the Income Tax Act for the assessment year 2017-18 based on estimation due to lack of detailed diamond stock information.

Issue 1: Addition on Account of Gross Profit
The appellant contested the addition of Rs. 1,75,56,107/- in total income, arguing that the CIT(A) erred in confirming it u/s 145(3) of the Act. The appellant explained the unavailability of data as requested by the Assessing Officer and emphasized that the rejection of books and profit estimation lacked merit as the records were available. The appellant highlighted the consistency in accounting methods accepted by the Department in previous and subsequent years. The appellant also pointed out the failure of CIT(A) to consider judicial pronouncements cited in their submissions.

Issue 2: Maintenance of Books of Accounts
The appellant argued that the books of accounts were audited u/s 44AB of the Act and contended that maintaining detailed quality-wise stock records of each diamond was unnecessary. Reference was made to a previous order supporting this argument. The Departmental Representative supported the impugned order and cited relevant case laws. The Tribunal referred to a past order emphasizing that qualitative details of each diamond piece were not essential for income computation and disagreed with the Assessing Officer's view on rejecting the books under Section 145(3) of the Act.

Conclusion:
The Tribunal found in favor of the appellant, holding that the CIT(A) failed to consider relevant facts and laws. The appeal was allowed, setting aside the impugned orders.