TMI Blog2009 (11) TMI 906X X X X Extracts X X X X X X X X Extracts X X X X ..... ng stock of polished diamonds of 1481.77 carats at ₹ 3,00,05,843/- as per which, the average cost per carat comes to ₹ 20,250/-. The working of the value of closing stock of the polished diamonds were filed before the Assessing Officer. The Assessing Officer after analysing the working, found that safety cost of closing stock of polished diamonds per carat was at ₹ 20,250/- and average cost of production of manufactured diamonds as per carat was at ₹ 27,517/-. Average value of polished diamond per carat after considering the value of opening stock of polished diamonds and cost of product of manufactured polished diamond was at ₹ 25,506/-. In view of these points, the Assessing Officer proposed to value of closing stock of polished diamond at ₹ 25,506/- per carat instead of ₹ 20,250/- per carat shown by the assessee. Consequently, enhancing the value of closing stock of polished diamonds by ₹ 77,88,183/- on the ground that the assessee had under-valued the closing stock of polished diamonds. The Assessing Officer also proposed to reject the book result for the following reasons: 6.3 a. The Stock Book is not maintained on lot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer did not accept the assessee s contention on the ground that it had itself admitted importance of maintenance of record on closing stock of polished diamonds, need maintenance of stock register showing cut, polished, size and quality and, therefore, he held that average value of closing stock of polished diamonds at ₹ 20,250/- per carat as adopted by the assessee was without any basis. Hence, Assessing Officer applied provision of section 145(3) rejected the books of amount and valued closing stock of polished diamonds at ₹ 25,506/- per carat resulting in addition of ₹ 77,88,183/-. While holding so, the reliance was placed by Assessing Officer on the decision in case of Samit Diamond Export (66 TTJ 74) (Mum) and in case of Vallabhbhai Dhanjibhai (55 TTJ 424) and in case of British Paints (188 ITR 44). 9. The assessee disputed the above additions before the CIT (A). It was contended and submitted the details of comparison of closing stock of polished diamonds should be valued at average cost and submitted that Assessing Officer had no right to change the method of accounting followed by it consistently. It was further submitted that it had disclosed the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have been carefully considered. The AO has given a categorical finding at paragraph 6.8 of the assessment order that he has rejected the books of accounts by applying provisions of Sec 145(3), adopted value of polished diamonds as on 31.03.2003 at ₹ 25,506/- per carat and added ₹ 77,88,183/- to the declared income of the appellant. Thus, the addition of ₹ 77,88,183/- has been made on account of valuation of closing stock. It is undisputed fact that the AO has a duty to examine the correctness of method of valuation of closing stock adopted by the appellant. Before the AO and also in this proceedings, the appellant has submitted that it had adopted Net Realisable Value method for valuation of its closing stock of polished diamonds and this method has remained unchanged. The appellant has admitted absence of maintenance of stock register showing cut, colour, carat and clarity of diamonds on the ground of non-homogenous nature of those. This contention has been rightly rejected by the AO as without maintaining such details, it is not possible for the diamond trader even to issue rough diamonds to karigars for manufacturing and assort and assess the yield of diamo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidences and records as stated earlier. Arbitrariness and estimation are, thus, built into such method. Consistency of following such method would not prevent the AO from examining its correctness. 3.5 In view of the aforesaid discussion, it is held that the AO was justified in rejecting the correctness of books of account and the method of valuation of closing stock of polished diamond as adopted by the appellant for the purpose of determination of true profits of the business of the appellant for AY 2003-04. Reliance is placed on DCIT vs Samir Diamonds Exports Pvt Ltd 66 TTJ (Mum) 74 and ACIT vs Vallabhbhai Dhanjibhai 55 TTJ (Ahd) 424 wherein rejection of books of account by application of provisions of sec 145 of the Act was upheld. 3.6 The next issue is the appropriateness and reasonableness of the method adopted by the AO for valuation of the closing stock of the polished diamonds. The AO has determined the average value of cost of polished diamonds at ₹ 25,506/- per carat as against ₹ 20,250/- per carat of closing stock of polished diamonds, on the basis of information given by the appellant. When the method of valuation of the appellant is found n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y allowed. 10. Now, both are in appeal here before the Tribunal. The Learned Departmental Representative placed reliance on the order of the Assessing Officer to the extent that the additions are deleted by the CIT (A) and placed reliance on the order of CIT (A) to the extent that the additions are sustained. Attention of the Bench was drawn on the finding of the CIT (A) at page 10 of his order. The Counsel of the assessee, on the other hand, reiterated the contention raised before the CIT (A). It was explained that the assessee is maintaining consistent method of valuation on the basis of net realisable value. Assessee is 100% exporter and eligible for deduction u/s 80HHC. Attention of the Bench was drawn on the order of the Tribunal in case of M/s Harshit Exports, which was decided in ITA 7003/Mum/2006 dated 26.6.2009, copy of which is placed on record. It was submitted that on similar fact, the Assessing Officer has made an addition by rejecting the valuation method adopted by the assessee. The CIT (A) after considering the facts in detail allowed the appeal of the assessee and on second appeal by Department the Tribunal has confirmed the order of CIT (A) by dismissing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified by the Assessing Officer. The CIT (A) was also not justified in confirming the rejection of books of account. Accordingly, we direct the Assessing Officer to accept the book result shown by assessee. Hence, ground of the assessee is allowed and the grounds of department are dismissed. 12. There is no other ground of appeal filed by the assessee. 13. Ground 1 2 in appeal of the Department is against directing the Assessing Officer to include the exchange rate gain difference of ₹ 1,12,778/-. 14. The Assessing Officer reduced the amount pertaining to rate gain difference related to earlier year while calculating deduction u/s 80HHC. The CIT (A) allowed the issue in favour of the assessee. 15. Now, this issue has been decided by the Special Bench in case of Prakash L Shah (115 ITD 167) whereby it has been held that the rate difference in exchange gain or loss will be taken into consideration in the year of export. Therefore, in the year under consideration this issue is decided in favour of the Department. However, the Assessing Officer is directed to take into consideration the exchange rate gain difference in the year of export. We order accordingly. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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