TMI Blog2009 (4) TMI 949X X X X Extracts X X X X X X X X Extracts X X X X ..... details like opening and closing stock, month-wise stock etc., were called for. The required details were filed. Thereafter, the AO further requested to furnish a detailed inventory showing the quantity, quality (description) and the value of various types of diamond contained in the opening and closing stock. 2.2 The detailed written reply was filed by which it was stated that the assessee deals in unbranded commodity, therefore, selling price of unbranded commodity also remains lower than the branded quality. The cost of purchase is comparatively higher than the purchase price of importers of rough diamonds. Due to variations in the prices of diamonds in the prices of diamonds the assessee incurred losses as the assessee was holding sufficient inventory of polished diamond. It was also explained that during the year black and brown diamonds went out of fashion and the same could not be sold even at lower prices which resulted in substantial losses. The AO did not accept the explanation of the assessee. It is observed that merely making an assertion would not be sufficient to establish that the loss has indeed been incurred. Thereafter, the assessee was required to file comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trade, so their cost is lower. To compete them we have to sell at lower price to cost, which results in loss. 2.7 It was further explained that looking at the trend of the market vis-avis inventory held by the company, management do the valuation of inventories for closing stock according to realizable value or cost whichever is less, which is the consistent method of valuation adopted by the company. Since part of company's inventory contains dead, out of demand or goods where the prices have gone down, it has resulted in lesser value then cost. Accordingly, it was submitted that there are many reasons and factors as explained above for incurring loss during the assessment year. The loss incurred during the assessment period is in the regular course of business, which is allowable. 2.8 The AO, after examining the details and the reply given by the assessee, had seen that the assessee had made purchases from M/s Ravichandra Bhaichand Jhaveri amounting to ₹ 56,64,631. Incidentally the total sales of the said Ravichandra Bhaichand Jhaveri are also of ₹ 56,64,631. It was further observed by the AO that M/s Ravichandra Bhaichand Jhaveri has made sales from Utt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess justifiably. The case law relied upon by the AO is fully applicable and binding on the authorities below. It was further observed that the facts in the case of Samir Diamonds Export (supra) are squarely applicable; accordingly, he confirmed the order of the AO in rejecting the books of account as well as in applying GP rate at 1 per cent on gross turnover instead of loss incurred by the assessee at 16.75 per cent. Now, the assessee is in appeal here before the Tribunal. 5. The learned counsel of the assessee who appeared before the Tribunal reiterated its contentions raised, before the lower authorities. It was further submitted that loss is on account of only valuation of closing stock which is valued at as per market value or purchase value whichever is less as per consistent method adopted by the assessee. It was further submitted that the assessment in the immediately preceding year was completed under s. 143(3) and loss incurred by the assessee which was more than the loss incurred during the year under consideration has been accepted by the AO himself. It was further submitted that closing stock of the immediately preceding year is opening .stock of the year under cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessment order for asst. yr. 2002-03 is placed at p. 91 of the paper books. It is seen that net loss of ₹ 5.54 crores was accepted by the AO. The method of accounting adopted by the assessee is the same method of accounting adopted in earlier year. Each and every purchase is vouched. Not a single purchase found to be incorrect or unveriflable. The AO issued notices to the two main parties and both parties have responded by giving confirmations that they have made sales to the assessee as shown in the purchase order as placed on record. No discrepancy whatsoever has been pointed out in the books of account or purchase or sale vouchers. Payments have been made through proper banking channels. It is not the case of the Department that the assessee is showing purchase on higher rates and selling the same on lesser rate to reduce the profit. There are heavy losses suffered by the assessee in earlier year. The losses have been shown on account of valuation of closing stock on the basis of market price or purchase price. Therefore, it cannot be said that the assessee had shown loss mala Jldely. It is further seen that the closing stock prepared by the assessee for immediately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter along with return are placed at pp. 31 to 64 of the paper book. Item-wise purchases and items-wise sales along with month-wise opening stock and purchase and sale have been filed. The AO drew an inference against the assessee that the two parties out of 4 parties to whom summons was issued have not complied with the summons issued under s. 131. There may be so many reasons in not receiving or complying with the notices. There may be changes of address also. The assessee has discharged its burden for filing the details of purchase from those parties and has given their complete addresses available with the assessee. If by any reason, the two parties from whom similar purchases were made could not appear before the AO, the assessee cannot be held faulty and no inference should have been dawn against the assessee. Therefore, keeping in view of these facts and circumstances and keeping in view of voluminous details required by the AO filed before him, we find that the AO and the CIT(A) were not justified in rejecting the claim of the assessee. The AO as well as CIT(A) have rejected the loss claimed by the assessee at 16.70 per cent. The entire loss has been disallowed without assig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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