TMI Blog2016 (11) TMI 664X X X X Extracts X X X X X X X X Extracts X X X X ..... irmity in the order of the ld. CIT(A). The A.O. adopted the GP rate @ 7.79% whereas the assessee has declared GP rate @ 6.93%. The ld. CIT(A) estimated the GP rate @ 7% keeping in view the peculiar facts and circumstances of the assessee’s case. In our considered view, the view taken by the ld. CIT(A) is quite reasonable and fair considering the peculiar facts and circumstances of the case.- Decided against assessee - I .T.A. No. 1207/Mum/2012 - - - Dated:- 7-9-2016 - SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Ms. Mrugakshi Joshi For The Revenue : Shri Aarsi Prasad ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee firm , being ITA No. 1207/Mum/2012, is directed against the appellate order dated 16th December, 2011 passed by learned Commissioner of Income Tax (Appeals)- 27, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2008- 09, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 23rd December, 2010 passed by learned the Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income Tax Act,1961 (Hereinafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38,31,22,862 3,09,81,525 8.09 From the above table it can be seen that the turnover of the firm has gone up by about 25% during the year as compared to preceding year and hence there was slight fall in gross profit margin ratio. The assessee submitted that during the year under assessment the diamond trade industry has faced tremendous recession and hence the realization was slightly less as compared to earlier years. The gross profit of the assessee is much higher as compared to other firms. The assessee also submitted that the assessee maintains day to day stock register in respect of rough diamonds and polished diamonds. The assessee submitted that the Mumbai Tribunal has deleted the entire addition made by A.O. in assessee s own case in the assessment year 2003-04 and hence the book results may be accepted. The A.O. had gone through the reply of the assessee and observed as under:- (a) The assessee maintains stock register of rough diamonds. It consist of date, mention of whether it is purchase or sent for manufacturing, weight of purchased rough diamond in carats, weight of rough diamonds in carats sent for manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le was @ ₹ 50,726.98 per carat. The 4th sale was @ ₹ 31,312.17 per carat; The average value of the opening stock of polished diamonds was @ ₹ 35,841.92 per carat. The lowest rate of sale of polished diamonds ₹ 9,000/- per carat. The highest rate of sale of polished diamonds was ₹ 2,22,582/- per carat. But in nowhere in the stock register the size or number of pieces or quality or clarity or colour of the diamond has been mentioned. (h) In the opening stock of the polished diamonds and in the closing stock of the polished diamonds, no where the size or number of pieces, or colour or clarity has been stated. In the absence of which no reliability can be placed upon their valuation. (i) The assessee has filed copy of the sale bills of the items, which were appearing in the closing stock as on 31.3.2008. In the bill type of diamond as 1 D CUT BLACK DIAMOND , their number of pieces and their weight in carat has been stated. When these details can be stated in the sale bill why cannot same be stated in the stock register. From the above discussion the AO observed that it is clear that assessee is maintaining its production records in such a manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;A' Bench of ITAT, Mumbai's decision in the assessee's own case for the assessment year 2003-04 was on the different footings. The facts were different in that case. The above stated defects were never brought on the records. The said decision is not applicable in the instant case was the observations of the AO. Thus, the A.O. came to the conclusion that the method adopted by the assessee to maintain the records of rough diamonds, sending for manufacturing, its receipt back as polished diamonds and its valuation was not satisfactory. The A.O. observed that it does not give correct profit of the business, hence, this is the reason for fall in the gross profit shown by the assessee. The A.O. also rejected the book results u/s 145 of the Act. The A.O. accordingly worked out the fresh figure of sales at ₹ 83,35,13,362/- by applying GP ratio of 7.79% as it was in the last year. Similarly , the extra profit was worked out at ₹ 83,43,116/- which was added to the income of the assessee by the AO vide assessment order dated 23.12.2010 passed by the AO u/s 143(3) of the Act. 4. Aggrieved by the assessment order dated 23.12.2010 passed by the A.O. u/s 143(3) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation of closing stock was not open to verification and hence the book results of the assessee was rejected and the reasons given for fall in GP were also not acceptable to the A.O. . The assessee submitted that the Tribunal considered the submissions of the assessee on these issues and the appeal filed by the department was dismissed for the assessment year 2003-04. The A.O. alleged that the average yield has come down from 43.32% to 41.6%. It was submitted by the assessee that the assessee deals in different variety of rough diamonds each year. There are about 350 qualities of rough diamonds and it is not necessary that the assessee manufactures the same quality of rough diamonds as done in the previous year, hence, the comparison of yield is irrelevant. It was submitted that in the assessment year 2007-08 the turnover comprised of the entire exports , while in the assessment year 2008-09 out of ₹ 81.60 crore turnover the assessee had exported polished diamonds worth ₹ 47.35 crores and had made local sales of ₹ 33.46 crores. It was submitted by the assessee that there was recession in the international market like USA, Japan, Europe etc. due to bankruptcies o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had engaged more labour for cleaving of rough diamonds due to which the labour charges were high. It was also submitted that due to multi- cleaving process, the yield of the rough diamond had also gone down. The assessee had made each and every payment of labour charges and wages by account payee cheques only. The ld. CIT(A) considered the submissions of the assessee and observed that there was a slight fall in GP ratio in the assessment years 2006-07 to 2008-09 which is evident from the following table:- A.Y. Sales (In Rs.) Gross Profit(in Rs) G.P. % 2008-09 81,60,68,947/- 5,65,87,574/- 6.93 2007-08 65,91,11,112/- 5,13,28,051/- 7.79 2006-07 38,31,22,862/- 3,09,81,525/- 8.09 It was observed that the turnover of the assessee firm had gone up about 25% during the year and hence there was slight fall in gross profit margin ratio. The ld. CIT(A) observed that due to the peculiarity of diamond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stance on record to show that the assessee has indulged in sales outside the books of account. Though the books of accounts are rejected, the A.O. has no reason to estimate the sales at a figure higher than the reported sales which were audited. Thus, the ld. CIT(A) rejected the A.O. s action in estimating higher sales vide appellate orders dated 16.12.2011. With regard to the fall in G.P. rate, the ld. CIT(A) observed that the labour cost incurred by the assessee in manufacturing of polished diamonds have tremendously increased during the year. The assessee was involved in purchase and sale of polished diamonds during the assessment years 2008- 09 to 2011-12 unlike in the earlier years where the entire sales were out of polished diamonds manufactured by the assessee. The local purchases and the corresponding local sales do not involve any labour cost in respect of manufacturing, hence, the assessee s explanation as to labour charges ratio to turnover is misleading and not reliable. Again it was observed that the assessee s submission that the inferior quality rough diamonds involve multi cleaving process resulting in higher labour cost is entirely not correct. It was also obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 7.79%. It was submitted that learned CIT(A) arrived at finding that it is not possible to arrange closing stock as per color , size etc due to trade practice. The ld. Counsel submitted that the labour expenses are very high as compared to the last year due to own labour deployed whereby lot of added benefits such as PF/ESIC etc are to be given. The assessee has set up factory where there was a labour problem also which led to higher wages. The ld. Counsel drew our attention to the order of the ld. CIT(A) and submitted that the ld. CIT(A) came to the conclusion that the labour charges paid at a higher rate i.e. ₹ 500/- per carat during the year under consideration whereas the assessee had paid ₹ 108/- per carat in the earlier years. The ld. Counsel submitted that the labour bills are placed at paper book page 28 to 56 and these payments are made to job workers and due TDS is deducted and prayed that the additions sustained by learned CIT(A) be deleted. 8. The ld. D.R. submitted that the ld. CIT(A) has also upheld the rejection of books of account and GP ratio estimated at the rate of 7% against which the Revenue is not in appeal with respect to the relief granted to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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