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TMI Blog2015 (7) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal, it is pleaded that the CIT(A) has erred in upholding the rejection of the books of accounts and passing the assessment order under section 144 r.w.section 145(3) of the Income Tax Act. 6. The brief facts of the case are that the assessee is engaged in the manufacture of diamonds and its export. It has filed its return of income on 20.10.2003 declaring an income of Rs. 25,68,598/-. Along with return of income, the assessee has filed tax audit report in form no.3CB and 3CD. The assessee has also claimed deduction under section 80HHC and submitted a report in Form no.10CCAC. The case of the assessee was selected for scrutiny assessment, and notice under section 143(2) dated 26.2.2004 was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the AO that it is difficult to deduce true income from the accounts of the assessee. He accordingly rejected book results as per section 145(3) of the Act. The reasons are assigned by the AO in para 7.1 of the assessment order. 7. This action of the AO has been upheld by the ld.CIT(A). 8. With the assistance of the learned representative, we have gone through the record carefully. Section 145 has a direct b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me cannot be determined and Assessing Officer would compute the income according to his estimation keeping in view the guiding factor for estimating such income. 10. In the light above, if we examine the facts of the present case, then it would reveal that the defects pointed out by the AO in para 7.1 are of such a nature, which authorize him to harbour a belief that true income of the assessee cannot be deduced from those accounts. For example, the assessee had adopted incorrect method of accounting with regard to the purchases and sale of licence premium in trading and profit & loss account. The assessee has been showing such sales in profit & loss account, but it has not been recognizing any opening and closing stock of licence premium. It is quite difficult to cross verify such an item. The electricity expense are manufacturing expenses, these must have been debited to manufacturing account, whereas, the assessee has debited in the profit & loss account. Therefore, considering the concurrent findings of both the authorities on this issue, we do not see any reason to interfere in the order of the CIT(A) on this issue. The first ground of appeal is rejected. 11. In the ground n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- it was submitted that AO's action in allowing labour charges @Rs.240 per carat against he claim of Rs..300 per carat was not correct. The average labour charges pa/d in AY 2000-01 was Rs. 230/- whereas in AY 2001-02, it was Rs. 284/- The AO verified at the job workers by making inquiries through the inspector of the office. The AO has simply reproduced the relevant . part of assessment order of M/s M Kantilal Exports, since out of 21 job workers mentioned in the case, only 5 pertain to the appellant. In the case of the appellant summons were issued to 5 job workers which could not be served but all of the them were located by the Inspectors and their place of work can residence .was also verified. All of them were assessed to tax and filed complete details of their factory premises and residential premises. According to the AO, the electric expenses were not commensurate with the job charges but this was not correct. The job workers were basically labour contractors and an average rate of Rs. 300 per carat was being paid since January, 2001 which was accepted by the AO in AY 2001-02 also. The AO disregarded all these facts and made the addition on a hypothetical basis. I h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find no infirmity in the orders of the learned CIT(A) who has correctly appreciated the facts of the case. Accordingly, we dismiss the first grounds of appeal of the revenue." 17. It is also pertinent to note that even if this disallowance is confirmed, then the assessee will not be burdened with any tax liability, because the moment the expenses will be disallowed, its profit ratio will increase and it will claim deduction under section 80HHC at an higher amount. Therefore, for the purpose of taxability, it is an academic issue and revenue neutral. Respectfully following the order of the ITAT in the Asstt.Year 2002-03, coupled with the fact that ultimately this issue will not bring any tax to the Revenue, we allow this ground of appeal partly, and confirm the adhoc disallowance of Rs. 10 lakhs, which is in the same ratio, as made and confirmed in the Asstt.Year 2002-03. This ground of appeal is partly allowed. 18. In the ground no.3, the Revenue has pleaded that the ld.CIT(A) has erred in confirming the addition of Rs. 2,14,86,709/-. 19. Brief facts of the case are that the assessee has 8748.66 carat of polished diamonds in stock. It valued the closing stock at the rate of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .36 carats sold for Rs. 12,60,99,552/-. Thus the balancing figure is arrived at the value/ cost of closing stock of 8.748.66 carats valued at Rs. 1,55,28,871/-. Thus what the appellant has done is to reduce the cost by the sale value of the items sold. Actually if he wants to arrive at the correct cost of the polished diamond lying in the stock, he has to be reduce the cost by the cost of items sold. If that is done, the working of the A.O. tallies with it. The A.O. was, therefore, justified in making addition in the value of closing stock of polished diamonds by Rs. 2,14,86,709/-. This ground of appeal is dismissed." 22. Before us, the learned counsel for the assessee has reiterated his contentions as were raised before the CIT(A). On the other hand, the learned DR relied upon the order of the Revenue authorities below. 23. We have duly considered rival contentions and gone through the record carefully. There is no dispute with regard to the proposition that closing stock is to be valued either at the market price or at cost, whichever is lower. The working given by the assessee before the CIT(A) [produced at page no.11] as well as before us in the paper book is altogether an u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the total turnover. 32. Brief facts of the case are that the assessee has claimed deduction under section 80HHC of the Act. According to the AO, it has filed report in Form No.10CCAC showing total turnover of Rs. 14,16,28,527/-. According to the AO, the assessee did not maintain separate accounts for its different activities. Therefore, the labour receipt of Rs. 1,04,54,602/- ought to be included in the total turnover, while computing eligible profit for the purpose of deduction under section80HHC. In response to the query of the AO, it was contended by the assessee that M/s.Anjana Exports (JOB) was engaged in job work only. It has received total job work receipts of Rs. 1,04,54,602/-. It has paid labour charges of Rs. 1,02,49,678/-. Thus, the net profit with this concern is of Rs. 2,04,929/-. According to the assessee, under clause (baa) of Section 80HHC(3) of the Income Tax Act, 90% of net job work receipts ought to be reduced from the profit and gains of the business while working out admissible deduction under section 80HHC. The ld. AO did not find merit in this contention of the assessee. He observed that the assessee is not maintaining separate account of different units w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profits of the business as computed under the head "Profits and gains of business or profession" as reduced by- (1) ninety per cent of any sum referred to in clauses (iiia), (iiib), (iiic), of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or 8any other receipt of a similar nature included in such profits ; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India.' 35. The ld. CIT(A), after taking into consideration the job work receipt, commission, interest etc. directed the AO to reduce 90% of net receipts from the eligible profit while working out the deduction admissible under section 80HHC of the Act. In our opinion, the ld.CIT(A) has appreciated the controversy in right perspective and does not call for any interference. The order of ld.CIT(A) is in line of latest decision of Hon'ble Supreme Court in the case of ACG Associates Capsules Ltd. Vs. CIT, 343 ITR 89. In view of the above discussion, we do not find any merit in this appeal. It is dismissed. 36. Now we take up the appeal of the assessee for the Asstt.Year 2004-05 i.e. ITA No.939/Ahd/008. 37. In the first gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monds remaining in closing stock are out of a particular purchase having lower cost. The A.O., therefore, justifiably adopted a scientific basis of FIFO method to find out the stock of rough diamonds remaining in closing stock, to which he has applied the purchase cost on the basis of purchase value. The method adopted by the A.O. is thus found to be justifiable method and accordingly the first ground of appeal stands rejected and addition of Rs. 5,45,30,060/- made by the Assessing Officer is confirmed." 40. With the assistance of the learned representatives, we have gone through the record carefully. The assessee has produced copies of import invoice. Copies of all jangads for movement of rough diamonds from Mumbai to Surat, copy of manufacturing chart showing the issue, consumption and date wise manufacturing. We have gone through all these documents. As far as purchase of diamond is concerned, there is no dispute. Thus, the invoices are of no help for the assessee. Similarly, as far as the transmission of rough diamonds from Mumbai to Surat, is also not a relevant fact for deciding this issue. The assessee is required to demonstrate on the basis of day-to-day stock register in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 143(2) of the Income Tax Act was issued on 7.3.2006. 48. On scrutiny of the accounts, it was revealed to the AO that the assessee has a closing stock of polished diamonds at 11272.85 carats. The assessee has valued the same at Rs. 6900/- per carat, aggregating to Rs. 7,77,82,665/-. 49. The ld.AO has also observed that the average cost of polished diamonds during the year comes to Rs. 7631/-, and the average sale price comes to Rs. 7744/- per carat. The AO has adopted the value of the closing stock of polished diamonds at the rate of average cost and determined the total value at Rs. 8,60,23,118/-. The difference between this value worked out by the AO and the value adopted by the assessee has been worked out at Rs. 82,40,453/-. This amount has been added in the income of the assessee. 50. On appeal, the CIT(A) confirmed the addition. 51. With the assistance of the learned CIT(A), we have gone through the record carefully. An identical issue has been discussed by us while dealing ground no.3 in the appeal of the assessee for the Asstt.Year 2003-04 in the earlier part of the order. We have upheld that the value of the closing stock has to be adopted by the assessee either at ..... X X X X Extracts X X X X X X X X Extracts X X X X
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