9911796707
TMI Blog1979 (11) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... us heads totalling Rs. 284,500. This claim of the assessee was rejected in toto by the ITO. 3. In the present appeal the various grounds which have been raised relate to the following:- (i) Application of the proviso to s. 145(1); (ii) Addition of Rs. 1,57,865 by way of under-valuation of closing stock; and (iii) Non-allowance of weighted deduction under s. 35B. These are dealt with below:- 4.1. As stated, the assessee firm manufactures precious and semiprecious stones and exports these. ITO found that for this manufacturing activity the assessee had not maintained day to day stock record and quantitative details were not available. The assessee had not maintained a manufacturing account also with the result that the wastage at various stages and the percentage of recovery were also not ascertainable, in the absence of these records. In view of these defects it was held that the proviso to s. 145(1) was applicable. 4.2. Before the ld. CIT(Appeals) it was urged that the assessee had supplied quantitative details in the jewellery account and as such the ITO was not right in saying that stock record had not been maintained or that the quantitative particulars were not available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application of the said proviso on the facts stated in the order of the authorities below. 4.4. we have considered the facts and the rival submissions. As stated, the assessee is a manufacturer of precious and semi-precious stones. For this purposes the assessee purchases rough (Kharad) which is made to undergo various processes and ultimately the final product is reached. The different stages are handled by different karigars. We entirely agree with the authorities below that for a manufacturing activity of this type involving different stages it is necessary to have proper quantitative records in respect of the various stages of manufacture so that it could be verified that the raw-material available to the assessee was duly accounted for either in the closing stock or in the sale. Such record the assessee admittedly did not maintain. As stated by the ld. Commr. (Appeals), even the wastage claimed at different stage and was not verifiable and similarly the final recovery from the Kharad was not verifiable. Also the loss in weight of 6435 cts. remained unverifiable. We looked into the vouchers of payments of Karigars on the basis of which it was claimed that the loss in weigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned exchange profit of Rs. 18,493 which had been accounted for in the profit and loss account although it pertained to the trading account. If this profit is transferred to the trading account, the gross profit rate would go upto 39 per cent. It was further stated that profit of Rs. 23,754 had been earned from sale of import licence. This profit also had been wrongly accounted for in the profit and loss account. If it is added to the gross profit, the gross profit rate would go up still further and would be 42 per cent. This being the position it was submitted that the disparity rate of 40 per cent was in order. The ITO, however, did not feel satisfied. According to him the disparity rate need not be the same as the gross profit earned by the assessee. He found that in the assessments for years 1973-74 and 1974-75 disparity rate of 35 per cent had been found to be reasonable although the gross profit earned in those years was 37 per cent and 36.3 per cent respectively. ITO, therefore, applied the disparity rate of 35 per cent and added the impugned amount of Rs. 1,57,865 as under valuation of closing stock. 5.2. Before the ld. Commr. (Appeals) it was urged that the addition ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaded emphatically, the authorities below were not justified at all in holding that the closing stock had not been properly valued. The ld. counsel also pointed out that in the immediately preceding asst. yrs. the disparity rate was not 35 per cent as stated by the authorities below. Further he said, the disparity rate could not be the same every year. Proceeding further he said that the ld. Commr. (Appeals) had been mis-guided by certain observations of the ITO in the assessment orders for years 1973-74 and 1974-75 with regard to the enhancement of the value of closing stock by Rs. 2,34,000 as per settlement with the Commissioner. He had proceeded on the basis, in view of the so observations of the ITO as though the disparity rate for these years was 35 per cent which was not correct. Shri Ranka explained that the observations made by the ITO had been cancelled in appeal as being un-called for since no additions had been made in the assessments in respect of the income embodied in the amount of Rs. 2,34,000 added to the closing stock. Concluding his argument Shri Ranka said that in the cases of M/s Mahendra Jewellers, Jaipur and M/s K.D. Jhaveri the additions made in similar circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of Rs. 19,49,961 against the export price of Rs. 33,42,721. The disparity rate was 42.25 per cent although the gross profit earned was 37 per cent. In asst. yr. 1973-74 the export price of the closing stock was Rs. 34,18,920. Closing stock as per books was 20,37,511. According to the ITO it was Rs. 21,03,432. The disparity rate worked out to 40.4 per cent on the basis of the assessee's figure of the closing stock and 38 per cent on the basis of the ITO's figure of the same. The gross profit earned was 36.3 per cent. Thus, in these asst. yrs. the disparity rate has been higher than the gross profit actually earned. In the cases of M/s. Mahendra Jewellers K.D. Jhaveri there has been far higher difference between the disparity rate and the gross profit actually earned. In the case of Mahendra Jewellers (asst. yr. 1969-70) the disparity rate was 42 per cent while the gross profit earned was only 24.8 per cent. Even then the addition of Rs. 15,000 made in the closing stock was deleted by Jaipur Bench of the Tribunal vide its order dt. 20th Nov., 1974. In ITA No. 578 and 746/JP/1973-74. In the case of M/s. K.D. Jhaveri Jaipur the Settlement Commission knocked off similar additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that arises in such circumstances is that even if such a method was adopted by the assessee, whether an addition in the value of the closing stock was called for. The assessee had followed this method in the past. In the earlier years no such addition had been sustained. In this asst. yr. gross profit rate of 37 per cent was shown which was accepted. The disparity rate of 40 per cent approximated closely to the gross profit earned. As per books the gross profit was 37 per cent. We agree with the ld. counsel for the assessee that it should be taken at 39 per cent by accounting for the exchange profit of Rs. 18,493 in the trading account. We have no doubt that exchange profit is referable to trading account as it essentially affects the sale value of the goods. Taking into account all the facts we feel that the valuation adopted by the assessee was proper and should not have been disturbed. We direct that the addition be deleted. 6. Weighted deduction under s. 35B: ITO had rejected the claim of the assessee in toto. The ld. Commr. (Appeals) examined the assessee's claim in the light of the various sub-cls. of s. 35-B(1b). In view of the discussion with the assessee's counsel, t ..... 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