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2015 (7) TMI 597 - ITAT AHMEDABAD

2015 (7) TMI 597 - ITAT AHMEDABAD - TMI - Disallowance of loss - rejection of books of accounts - the assessee sold the diamonds worth ₹ 3,76,70,953/- out of the opening stock of the year for an amount of ₹ 2,40,08,065/- and had claimed loss of ₹ 1,36,62,888/- Held that:- Disallowance of loss cannot be made on the ground that in the preceeding assessment year, the assessee accepted the disallowance of loss on sale of diamonds as each assessment year is a separate unit of assess .....

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e assessee is also that the sale consideration was received by the assessee through banking channel. The A.O. has brought no material on record after examining the parties to whom the sales were made by the assessee to show that the assessee has under invoiced the sale of diamonds or that the sales invoiced do not reflect the correct sale-price of the diamond. Thus A.O. as well as the CIT (A) were not justified in disallowing the loss of ₹ 1,36,62,888/- to the assessee. - Decided in favour .....

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; 2,83,775/- Held that:- We find that the contention of the assessee was that no show cause notice was issued to the assessee and therefore, the assessee was prevented from explaining its case before the A.O. It was the argument that there was violation of principle of natural justice by the A.O. and hence the addition made by the A.O. and confirmed by the CIT (A) was not justified in the above facts and circumstances of the case we are of the considered opinion that the matter should be restore .....

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er N S Saini, Accountant Member This is an appeal filed by the assessee against the order of the CIT (A)-V, Surat dated 17-5-2011. 2. Ground No.1 of the assessee is directed against the order of the CIT (A) confirming the disallowance of loss of ₹ 1,45,08,970/- 3. Brief facts of the case of the case are that he assessee is engaged in the business of import, manufacturing and export of diamonds. During the year under consideration the assessee did not do any business activity except selling .....

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4. On appeal, the CIT (A) held that the Assessing Officer had rejected the books of accounts mainly because of the fact that the assessee did not maintain qualitative details of neither stock of diamonds nor of the diamonds sold by it. He held that on the basis of the submissions of the assessee and the decision relied on by the assessee, he was of the view that books of accounts cannot be rejected on the ground taken by the Assessing Officer. 5. As regards the loss of ₹ 1,45,08,970/- CIT .....

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e of the partners Shri Parsottambhai R. Dhami was also recorded. He was asked whether there were any compelling reasons like labour problem, medical problem, financial problem or any other problem which led him to sale the diamond @ 50% of the cost price. He denied of the existence of such extreme situation. The CIT (A) further observed that during the course of appeal proceedings the A.R. of the assessee submitted not preferring appeal for A.Y. 2007-08 though on the same issue addition was made .....

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d the ground of appeal of the assessee dismissed. 6. Before us the A.R. of the assessee relied on the decision of this Bench of the Tribunal in the case of M/s. Dhami Brothers vs. ACIT Cir-9, Surat for A.Y. 2004-05 in ITA No.2309/Ahd/2008 order dated 6-8-2010 wherein the Tribunal has held as under:- "In this case, there is no dispute about the correctness of the assessee s accounts. As per the A.O. for want of qualitative details of the processing of diamonds, the accounts of the assessee c .....

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by rules the books and other documents to be kept and maintained b y the assessee. The CBDT as per rule 6F hasprescribed the books of accounts and other documents to be kept and maintained by the persons carrying on certain specific profession. However, no books of accounts are prescribed for the person carrying on business. Thus, the assessees carrying on business are required to maintain such books of accounts as will enable the A.O. to compute the income of the assessee. The present assessee .....

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tation 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 A.O. that there is defect in the system of method of accounting of the assessee which requires rejection of the book results under Section 145(2) of the Act and estimation of the G.P." 7. He further relied on the decision of this Bench of the Tribunal in the case of I.T.O. vs. M/s. B. Sureshk .....

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e conclusion that the assessee inflated the value of cost price without bringing any evidence to show that the rate adopted by the assessee for every quality of diamond was more that the cost price or the market price. Simply, relying on one sale bill without verifying the quality of diamond sold under that bill, in our opinion, was not the right course to arrive at the conclusion that the assessee had inflated its closing stock. The fact that the assessee had sold 175.18 carat of diamonds @  .....

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chever was less gets supported. It s an admitted fact that so far as diamond industry is concerned, each and every piece of polished/finished diamond has got to be of different quality and fetches different price in the market and since the Assessing Officer had not brought any material to deal with this aspect of the issue, we are in agreement with the submission of the assessee as well as the finding and the CIT (Appeals) that application of average method on the basis of one sale bill was not .....

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ing on record any material to show that the assessee has earned any income in excess of the amount disclosed in the return. It is an established position of law that even after rejecting the book result if the assessing authority add any income to the income declared by the assessee, then, the said addition has to be based on some material and the same cannot be added on the whims or caprice of the assessing authority. In the instant case t is observed that the trading result shown by the assess .....

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ation consistently adopted and followed by the assessee was incorrect. In the absence of any material to show that the actual value of closing stock possessed by the assessee as on 31-3-2004, was more than the value swn by the assessee. In our considered opinion, the A.O. was not justified in making trading addition of ₹ 53,07,218/-. Further, it is observed that none of the lower authorities have found that the various expenses claimed by the assessee in its P & L A/c werenot supported .....

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wed capital employed in the business, time devoted by the owner of the business, risk taking capacity of the owner, etc. Thus, merely because the profit disclosed by the other businessmen in terms of the turnover of its business defers with the rate of profit disclosed by the assessee in terms of his turnover will not, by itself, empowers the Ld. CIT (A)to add any amount to the income of the assessee. The Ld. CIT (A) has brought no material on record to show that the rate of net profit of the as .....

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n arbitrarily applying the rate of net profit of 3% in making addition of ₹ 2,19,33,591/-. As the addition of ₹ 53,07,218/- and ₹ 2,19,33,591/- are found t be not based on cogent and relevant material and are based merely on the surmises and conjectures, the same are found unsustainable on the facts of the instant case. We, therefore, delete the addition of ₹ 53,07,218/- and ₹ 2,19,33,591/-." 9. He further relied on the decision of this Bench of the Tribunal in .....

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ted fact that in this line of business till the rough diamonds are processed, the quality of the diamonds manufactured is not known. Even after the diamondsare processed, the quality will depend upon various factors, such as, colour, clarity, cut and carat. Therefore, in terms of these factors, each diamond manufactured is different from the other. Considering the volume of business, it is impracticable to have qualitative as well as quantitative records of the total stock in possession of the a .....

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/Ahd/2008 for A.Y. 2005-06 order dt. 9-9-2011 wherein the Tribunal has held as under:- "5. We have carefully considered the arguments of both the sides and perused the material placed before us. We find that the A.O. has rejected the assessee s books of accounts mainly on the ground that the assessee has maintained the quality-wise quantitative details which he failed to produce before the A.O. From the perusal of the assessment order, it is evident that such finding of the A.O. is based pu .....

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the A.O. is based purely on the presumption without any material or evidence in support of such finding. We therefore accept the assessee s contention that the assessee has not maintained the quality-wise quantitative details." 11. The Departmental Representative supported the orders of the lower authorities 12. We have heard the rival submissions, perused the material available on record. 13. In the instant case, the assessee sold the diamonds worth ₹ 3,76,70,953/- out of the opening .....

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e on the ground that the same has not been proved by the assessee. According to the Assessing Officer mere issuing of invoices for sale of diamond mentioning quality does not prove the loss of the assessee. He also observed that the similar loss disclosed by the assessee in the immediately preceeding Assessment Year 2007-08 of ₹ 6,36,74,996/- on the turnover of ₹ 11,72,77,128/- was disallowed and the assessee did not file appeal there against. In that year also the assessee had sold .....

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vidence in support of the loss was filed by the assessee. 16. We have heard the rival submissions and perused the orders of the lower authorities and material available on record. In the instant case the assessee sold diamond out of its opening stock broughtforward from earlier years costing ₹ 3,76,70,953/- for ₹ 2,40,08,065/- and claimed loss of ₹ 1,36,62,888/-. The A.O.observed that the assessee has not maintained quality-wise details of diamonds. The assessee could not expla .....

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g that no satisfactory explanation for the loss was given by the assessee and no documentary evidence was also filed for the same. The contention of the assessee is that not preferring an appeal in A.Y. 2007-08 against the disallowance of claim of loss cannot be a ground for making disallowance in the year under appeal as each assessment year is a different assessment year. Further, it is also the contention of the assessee that non maintenance of quality-wise details of diamonds does not allow .....

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claim of loss to the assessee. Thus it was the submission that the disallowance made should be deleted. 18. We find force in the contention of the assessee that disallowance of loss cannot be made on the ground that in the preceeding assessment year, the assessee accepted the disallowance of loss on sale of diamonds as each assessment year is a separate unit of assessment. The Assessing Officer is expected to carry out verificationof the claim of the assessee with the evidences produced before .....

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rial on record after examining the parties to whom the sales were made by the assessee to show that the assessee has under invoiced the sale of diamonds or that the sales invoiced do not reflect the correct sale-price of the diamond. In absence of any such material being brought on record in our considered view the A.O. as well as the CIT (A) were not justified in disallowing the loss of ₹ 1,36,62,888/- to the assessee. On a similar facts this Bench of the Tribunal in the case of Shri Asok .....

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side the orders of the lower authorities and direct the A.O. to allow the loss of ₹ 1,36,62,888/- on sale of diamonds claimed by the assessee. GroundNo.2 of the appeal is that CIT (A) has erred in confirming the addition of ₹ 2,83,775/- under section 50C of the Act. 19. The brief facts of the case are that the assessee sold a property during the year under consideration and the sale proceeds of capital gain was taken at ₹ 55,000/-. As per sale deed the value as per the Stamp Va .....

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lation by taking the percentage of stamp duty at 4.9% as based in Sale as per the Stamp Valuation Authority. He observed that there is no need to disturb the decision taken by the A.O. hence dismissed the ground of appeal. However, he directed the A.O. to take the correct figure of sale value as per the Stamp Valuation Authority if it has been received from the concerned authority. As it was seen from the order that for this purpose a notice u/s. 133(6) was issued to the concerned party and at t .....

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