9911796707
TMI Blog2011 (4) TMI 1036X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 2.2 The return of the assessee was taken in scrutiny assessment. The Assessing Officer framed assessment on 24.3.2006. By detailed order he computed total income of assessee at Rs.1,42,86,450/- after giving benefit of deduction under Section 80 HHC of the Act as found admissible. 2.3 By way of impugned notice the assessment was sought to be reopened by the respondent on the ground that income of the assessee for the assessment year in question had escaped assessment. 2.4 The respondent had separately recorded reasons for such proposal of reopening of assessment, which read as follows:- "In this case assessment u/s.143(3) was completed on 20.02.2006 on total income of Rs.1,42,86,450/- against the returned income of Rs.1,41,74,770/-. Point-1 The assessee was having closing stock of polished diamond of Rs.12,916.01 carat which was valued at Rs.9,88,83,587/- at the rate of Rs.7,656/- per carat. The manufacturing cost of the polished diamond was Rs.8,089 per carat. The assessee had sold the polished diamond at the average rate of Rs.10,266 per carat. It was seen that the rate of Rs.7,656/- adopted by the assessee on the closing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The assessee, therefore, has approached this Court in the present petition challenging such reopening of the assessment. We may notice that by the time the assessee approached the Court, it appears that draft assessment order was already passed. However, the Division Bench of this Court by order dated 23.12.2010 restrained the respondent from proceeding further pursuant to impugned letter dated 29.3.2010. No final order of assessment has been passed. 4. We have heard learned counsel for the parties for final disposal of the petition. 5. It is the case of the petitioner that in the return filed, the assessee had given detailed working out of the closing stock and the price of the diamonds adopted for working out such closing stock to the Assessing Officer. By communication dated 4.8.2005 it was conveyed that closing stock of rough diamonds had been valued at cost price whereas the same for polished and rejected diamonds were made at cost or market price whichever was lower. During the assessment proceedings the assessee had also addressed a letter dated 10.11.2005 showing the loans and advances given by the assessee during the said year. Supporting documents were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r did not call for or examine any details for Lot-wise movement of diamond from the stage of purchase of rough to the stage of its final product. The assessee also did not furnished the details to prove that whatever diamond sold was actually part of closing stock only. The assessee also did not furnished the details that which lot of rough diamond was converted and which lots of polished diamonds were produced and its sale to a particular party on a particular date. From the record available, it is not possible to ascertain that whatever bill were produced for sale of diamond in subsequent year were those diamonds which were manufactured in previous year and were the part of closing stock as on 31.03.2003. Accordingly, the contention of the assessee that the present query regarding undervaluation of closing stock of polished diamond is a change of opinion is totally incorrect and not supported by the facts as evident from the records. Similarly the assessee failed to furnish any nexus between the interest free advances was given from interest free fund in the earlier assessment proceeding. Accordingly, the contention of the assessee that the present query regarding disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as valid and reopening for assessment should be permitted. 12. Having thus heard learned advocates for the parties at considerable length though the point raised are three, point Nos. 1 and 2 essentially pertain to the valuation of closing stock. 13. It is the case of the department that the cost of polished diamond was Rs.8,089/- per carat. Market value at which the assessee sold them was Rs.10,266/- per carat, whereas for the purpose of valuation of closing stock, the assessee adopted the rate of Rs.7,656/- per carat. However, the assessee was required to adopt one of the two rates i.e. the cost price or the market value. The assessee, thus, undervalued the closing stock of the polished diamonds. It is further contended that the assessee had also under valued the rough diamonds for the purpose of computing the closing stock. The rough diamonds for the purpose of closing stock were valued at an average rate of Rs.1238.91 per carat, whereas the same should have been valued at the cost or market price which ever was lower. As the assessee had purchased the rough diamonds at the average rate of Rs.2982.52/- per carat during the year, the assessee had, thus, undervalue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which ever is lower. No deviation is made from the method of valuation prescribed under Section 145A." In the same Form at item No.12, the assessee supplied details of raw-material which included opening and closing stocks of rough diamonds as well as polished diamonds. 17. In a communication dated 4.8.2005 by the assessee to the Assessing Officer it was stated as under:- "(3) As regards the valuation of closing stock, kindly note that the closing stock of rough diamonds has been made at cost price whereas the same for polished and rejection diamonds were made at cost or market price whichever is lower. The necessary evidences w.r.t. valuation of closing stock are enclosed as Pages No.3 to 13." Along with such communication, documents in respect of the above statements were also filed. 18. By letter dated 24.11.2005 the Assessing Officer called upon the assessee to furnish the method of valuation of closing stock of polished and unpolished diamonds along with supporting evidences. The exact query of the Assessing Officer was as follows:- "3. In Schedule 5 of the Audited accounts, you had shown the polished and rejected diamonds of Rs.9,88,83 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of details of documents on record, disclosures made by the assessee, answers to the queries raised by the Assessing Officer and find that the assessee cannot be blamed for failure to disclose fully and truly all facts necessary for assessment of the income. 22. With respect to ground No.3 in the reasons recorded we notice that in the return of income filed by the assessee, it had shown loans and advances of Rs.23,23,284/- against interest liability of Rs.50,77,260/- of the previous year and it had showed interest liability of Rs.31,38,795/-. Further vide its communication dated 10.11.2005 the assessee had supplied the details of loans and advances to three individuals, namely, Jignesh G. Navadia, Keyur M. Balar, Jayfun Park Pvt. Ltd. totaling to Rs.17,17,290/-. In response to the communication it was stated that such details were supplied as desired by the Assessing Officer. Since there was no documents through which such details were called for, we requested learned counsel for the Revenue to produce note sheets to link answer of the assessee to the query raised. Such documents were made available to us. In the note sheet dated 31.8.2005, it is recorded that the represen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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