TMI Blog2010 (1) TMI 881X X X X Extracts X X X X X X X X Extracts X X X X ..... t method - assessee has not reasonably maintained the stock to arrive at a fair valuation of the closing stock - if the average cost method is adopted then in the A.Y. 2006-07 the income of the assessee will diminish by an amount of Rs.20,00,00,255. Thus according to the Assessing Officer himself this method is not to be adopted for the A.Y. 2006-07. - ground raised by the Revenue dismissed. Disallowance of electricity charges - held that:- CIT(A) deleted the addition on the ground that because of the use of the laser machine, the labour charges in respect of laser treatment have gone down by Rs.26 lakhs and therefore, it is a sufficient evidence to establish that the laser treatment has been done in-house. This theory of learned CIT(A), in our opinion, is merely on presumption basis. It is the settled proposition of law that for any claim of expenditure, the onus is always on the assessee to substantiate with documentary evidence to the satisfaction of the Assessing Officer that the expenditure so claimed is wholly and exclusively for the purpose of business. - Matter remanded back to AO. - I.T.A. No. 1215/Mum/2007, I.T.A. No. 3529/Mum/2007 - - - Dated:- 29-1-2010 - N.V. Vas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company filed confirmation in respect of these persons. Since the PAN in respect of the persons did not exist in the confirmations, the Assessing Officer doubted the creditworthiness of the parties and genuineness of the transactions. Accordingly, he disallowed the balance amount of labour charges in respect of the above four parties amounting to Rs.22,11, 581/-. 6. Before the CIT(A), it was submitted that this is not a cash credit where the Assessing Officer has to analyse the creditworthiness. It was submitted that simply because the PA No. is not filed, the transaction cannot be held to be non-genuine particularly when confirmations are on record. The CIT(A) agreed with the assessee and held that non-availability of PA No. cannot make a transaction as non-genuine. Aggrieved with such order of the CIT(A), the Revenue is in appeal before us. 7. We have considered the rival submissions made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. There is no dispute to the fact that out of the five karigars to whom notices u/s. 133(6) were issued, notice was served on one party viz., K.K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eflected at Rs.97,54,14,247 i.e., the cost of Rs.4,459.80 per ct. However, the cost of closing stock at cost is shown at Rs.3911 per ct. The Assessing Officer confronted the above facts to the assessee. Not being satisfied with the various submissions given by the assessee, the Assessing Officer adopted the average manufacturing cost of Rs.4,459.81 per ct and applied the same on the quantity of the closing stock to arrive at the quantum of undervaluation. He accordingly made an addition of Rs.6,99,24,518 to the total income of the assessee. 10. Before the CIT(A) it was submitted that the assessee is not in the line of diamonds which are used for making jewellery. In contrast, the assessee is manufacturing low cost fashion accessories which are used in miscellaneous designing like in jackets, etc. In these diamonds it is the colour and size which are the key elements. It was further submitted that the diamond pieces are all of different shades and sizes and do not fetch uniform price. It was submitted that the demand for such accessory diamonds started declining the world over for which only good variety of manufactured stock could be sold. To establish the above contention the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, size and colour of the diamonds make the average method absolutely inappropriate for arriving at true and correct picture of profit. He further observed that this is not a case where the Assessing Officer has gone into the stock record and established that there was any real manipulation of records. The Assessing Officer is simply adopting the average method and making the addition which is not justified in the facts of the assessee's case. He accordingly held that the addition is without any firm base and is uncalled for and deleted the same. Aggrieved with such order of the CIT(A), the Revenue is in appeal before us. 13. The learned DR for the reasons recorded by the Assessing Officer in the body of the assessment order supported the order of the Assessing Officer. 14. The learned counsel for the assessee, on the other hand,, submitted that the revenue has accepted the opening stock, purchases, sales and closing stock. Further the business of the assessee was shutdown with effect from 31st March, 2007. The books of account of the assessee were never rejected and the closing stock was accepted for all the earlier years. The learned counsel for the assessee referring to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her find the Assessing Officer in the assessment order passed u/s. 143(3) dated 12th December, 2008 for the A.Y. 2006-07 has mentioned in the office note as under: "Office Note: In the A.Y. 2004-05 the closing stock was valued by the Assessing Officer at Rs.1,22,95,57,287/- as against book value of Rs.99,66,94,871/-. This closing stock was taken as opening stock for the A.Y. 2005-06 and value of the closing stock was again adopted by the Assessing Officer by taking average rate and addition was made. In A.Y. 2005-2006, closing stock of polished diamonds were valued at Rs.90,26,21,126/-, as against the value of Rs.45,52,92,075/- declared by the assessee and addition of Rs.21,44,66,635/- was made due to valuation of closing stock of polished diamonds. Now for A.Y. 06-07, if the method adopted by the Assessing Officer of the preceding assessment years is considered then opening stock is required to be valued at Rs.90,26,21,126/- and closing stock at Rs.82,79,69,540/-. By doing so the income of the A.Y. 2006-07 will diminish by an amount of Rs.20,00,02,255/-. In other words the assessee's return income has to be reduced by this amount. If this method for valuation is adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 as electricity charges. From the copy of the bill filed by the assessee, the Assessing Officer observed that the bills are not in the name of the assessee but in some individual names. He further noted that during the preceding years no such claim was debited in the Profit and Loss A/c. nor the above electricity bill relates to the premises occupied by the assessee. On being confronted by the Assessing Officer the assessee replied as under: "That the assessee in earlier years used to outsource completely the process of conversion of rough diamonds into polished diamonds; however, during the year part of the process of conversion of rough into polished diamonds is undertaken at the office premises at 217/218, Parekh Market, Opera House, Mumbai-400 004; the said premises are owned by brother of the directors namely Shri Dilipkumar V. Lakhi who has kindly consented to allow the use of office premises and machines for the manufacture/conversion of roughs and the assessee agreed to pay the electricity expenses incurred during the year. It shall not be out of place to mention that no rental charges are incurred only the actual electricity expenses of Rs.13,06,607/- is incurred for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such theory adopted by the CIT(A) is accepted then no document/ agreement will be necessary for claiming any expenditure. 22. The learned counsel for the assessee, on the other hand, strongly relied on the order of the CIT(A). 23. We have considered the rival submissions made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We find the Assessing Officer disallowed the electricity charges on the ground that such electricity charges were never claimed in the past, the bills relate to premises not occupied by the assessee and there is no such agreement between the assessee company and the brother of one of the directors for use of the laser machine. We find the CIT(A) deleted the addition on the ground that because of the use of the laser machine, the labour charges in respect of laser treatment have gone down by Rs.26 lakhs and therefore, it is a sufficient evidence to establish that the laser treatment has been done in-house. This theory of learned CIT(A), in our opinion, is merely on presumption basis. It is the settled proposition of law that for any claim of expenditure, the onus is always on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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