Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2020 (5) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (5) TMI 402 - AT - Income TaxRejection of books of accounts - Addition on account of low gross profit - CIT-A deleted the addition - HELD THAT:- Books of accounts were rejected by the AO merely on the basis of variation of signatures of karigars, workers as appearing in the salary register. However, no specific defects have been pointed out by the AO. Therefore, the difference in signature cannot be a ground to reject the books of accounts. CIT(A) has rightly observed that the AO is not hand writing expert to distinguish the signature of the karigar. CIT(A) has rightly allowed the ground of rejection of books of accounts u/s.145(3) of the Act in favour of the assessee. GP addition - Genuineness of the labour charges cannot be doubted. Further, the GP ratio has gone down because as against the rise in average purchase cost of imports and local purchases by 51% and 34% respectively in AY.2009-10, the rise in average price of export is only to the extent of 22.51%, therefore, the fall in GP is quite justified - there was overall recession in the diamond industry during the relevant period and most of the sales were export sales of the assessee, whereas the GP was disclosed at 3.71% - the export sales of the assessee constituted almost 99% of the total sales while local sales were only at 1.14%. Deletion of GP addition is justified, hence, we do not find any infirmity in the order of CIT(A) for deleting of GP addition. CIT(A) has upheld the addition of an amount of electricity expenses of to be added to the manufacturing cost to calculate the closing stock by taking the average cost of ₹ 11318.91 per carat which has been arrived after reducing the GP margin of 3.71% from the average export price of ₹ 11756.69 per carat. Therefore, this ground of assessee is dismissed. Forward contract cancellation loss disallowed - forward contract were not booked for any specific export and import and not utilized in business and terminated without affecting delivery of foreign exchange - HELD THAT:- The assessee is in the business of export of diamonds wherein the assessee is exposed to the risk of fluctuation in the exchange rate of currency. In order to hedge against losses, the assessee had booked foreign exchange in the forward market with bank and on cancellation on the contracts, the appellant is either entitled to profit or loss depending on the rate of contracts prevailing at the time of cancellation. The assessee has entered to this forward exchange contract in order to protect against fluctuation in the rate of foreign exchange currency to minimize the risk. Therefore, the assessee has not entered into any speculation transaction as held by the CIT(A). The ld. counsel has placed reliance on the decision of Friends & Friends Shiping Pvt. Ltd [2013 (5) TMI 458 - GUJARAT HIGH COURT] wherein held that where assessee exporter entered into foreign exchange contract as incidental to its export business and incurred loss in said contracts, said loss was not speculative loss but business loss. Similar loss was also expressed in the case of Badridas Gauridu (P) Ltd [2003 (1) TMI 61 - BOMBAY HIGH COURT] and CIT v. Panchmahal Steel Ltd. [2013 (5) TMI 686 - GUJARAT HIGH COURT]. In view of these facts, we do not find any infirmity in the order of CIT(A). Valuation of closing stock - direction to the AO to recalculate the value of closing stock after considering electricity expenses in manufacturing expenses and thereby increasing the value of closing stock - HELD THAT:- As we have uphold that finding of CIT(A) to consider, the electricity expenses in manufacturing expenses and thereby increase the value of closing stock. Since the value of closing stock has been increased during this year, it becomes opening stock for the next year. Therefore, the AO is directed to consider to increase the opening stock of the equal amount in AY.2010-11 in the opening stock. Therefore, this ground of appeal of the assessee is allowed. Rectification u/s 154 - Calculation of closing stock by adopting the cost of sale - whether AO has committed an error while giving effect to the appeal effected to the appeal order and he should have calculated the closing stock by adopting the cost of sale at ₹ 11,318.91/- per carat, after reducing the GP margin of 3.71% - HELD THAT:- In the appeal order dated 18.04.2013 it was held that the working of the AO in the remand report of recalculation of the closing stock by including exports sales and local sales to work out the average price is not the correct method to calculate the closing stock. So the cost of the sales should have been reduced at ₹ 11,318/- per carat instead of ₹ 11211 per carat. The AO suggested to enhance the closing stock by ₹ 1,97/82,848/- in the remand report and this working was not accepted in the appeal order except in respect of the electricity expenses of ₹ 52,30,2447- which was to be included in the manufacturing cost. AO while giving effect to the appeal order should have calculated the closing stock by adopting the cost of sales at ₹ 11,318.91/- per carat after reducing the GP margin of 3.71%. Similar direction was also given while deciding the appeal order against the 154 application dated 17.01.2014. The AO is directed to give the appeal effect order as per the directions mentioned above. The ground of appeal is allowed.
|