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TMI Blog2010 (8) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the CIT(A) was not justified in enhancing income by estimating net profit of 4% when the AO had assessed it by adding to valuation of closing stock. 3. The appellant submits that on the facts and circumstances of the case, the addition made by the AO for undervaluation of closing stock and enhancement by the CIT(A) of 4% was not justified. 4. Without prejudice to the above, the CIT(A) ought to have taken into consideration the comparable rates of profit shown by several concerns mentioned by him on page 36 of the appellate order. 5. The appellant further submits that there was no basis to compare the case of Ravjibhai Dhameliya who was merely processor of diamonds and the appellant is not aware of the particulars of other three cases mentioned by him. 6. The appellant submits that the estimate of net profit at 4% is arbitrary and highly excessive. III. The ld.CIT(A) ought to have deleted interest u/s.234B and 234C of the Act. 3. At the time of hearing before us, it is submitted by the learned counsel that the assessee derives income from processing and export of diamond. That the AO rejected the assessee's valuation of closing stock and held that there was suppression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see may be accepted. 6. The learned DR, on the other hand, relied upon the orders of the authorities below. He submitted that nowadays with the aid of computers, it is possible to maintain qualitative details of each and every piece of diamond, and therefore if the assessee has failed to maintain such details, the AO was fully justified in rejecting the assessee's books of accounts. He further submitted that the estimation of net profit at 4% by the CIT(A) is fair and reasonable and the same should be sustained. 7. We have considered the arguments of both the sides and perused the material placed before us. The AO has rejected the assessee's books of accounts and estimated the value of closing stock as well as GP. The reasoning given by the AO for rejecting the books of accounts reads as under: "5.8 It would not be out of place to make a mention in this context that, as per the provisions of section 44AA of the I.T. Act, every person carrying on business is compulsorily required to keep and maintain such books of accounts and other documents as may enable them AO to compute the assessee's total income in accordance with the provisions of the I.T. Act. From this, it follows that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts, which were duly audited. Each items of sale/purchase is verifiable. The only dispute is with regard to maintenance of qualitative details for the processing of the diamond by the assessee. The assessee maintained complete date-wise details of quantity of each lot of the diamond given for the processing as well as polished diamonds received after the processing. Such date wise details of the processing of the diamonds were furnished before the AO and copy of which is also enclosed from page no.63 to 149 of the assessee's paper book. The AO has stated that in these details quality of the diamond is not mentioned. It is submitted by the learned counsel that it is not practical to maintain the quality wise details of each and every diamond. Each and every diamond is of a separate quality depending upon its colour, clarity, cut etc. and this is almost impossible to maintain quality wise details for each and every piece of diamond. That the assessee is maintaining the quantitative details in the same fashion since preceding many years and it was always accepted in the past. Section 145(3) which empowers the AO to reject the assessee's trading results and make the assessment in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the profit cannot be computed from the books of accounts maintained by the assessee. In our opinion, the qualitative details of each piece of diamond is not necessary for computation of the income of the assessee. Income of the assessee can be very well computed on the basis of accounts already maintained by the assessee. In view of the above, we are unable to agree with the AO that there is defect in the system of method of accounting of the assessee which requires rejection of the book results under Section 145(3) of the Act and estimation of the GP. 9. Now we come to the valuation of the closing stock. The assessee has shown the closing stock of polished diamond amounting to Rs.54,23,81,050/-. However, no details with regard to the valuation of the closing stock of the polished diamond are furnished before us. It seems that no such details was furnished before the AO or CIT(A). In the absence of any details of the closing stock and valuation thereof, the AO cannot verify the correctness of the valuation of closing stock. In such circumstances, the AO has worked out the valuation of closing stock of polished diamond in the following manner: COST OF PRODUCTION 10. At the time ..... X X X X Extracts X X X X X X X X Extracts X X X X
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