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TMI Blog2010 (5) TMI 939X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties to verify the sales and purchases when the letter of enquiry were returned by the postal authorities unserved. 3. Assessee is a private limited company engaged in the business of trading in diamonds. The assessee purchases both rough and polished diamonds and sells the same. The total turnover shown by the assessee during the previous year was ₹ 33.10 crores as against ₹ 22.94 crores in the immediately proceedings year. Gross profit during the previous year was ₹ 93.25 lakhs giving up GP margin of 2.82%. In the course of assessment proceedings, the Assessing Officer issued notice u/s. 133(6) to 19 parties. These parties had entered into transactions of purchase or sale with the assessee during the previous year. Out of the 19 parties, 2 parties responded to the notice issued by the Assessing Officer. The notices sent to 4 parties were returned unserved by the Postal Authorities. Names and addresses of these parties were as follows:- S.No. Name of the party Address 1 M/s. Shruti Gems 204, Viabhav Chambers, Raghunathpura Main Road, Surat 2 M/s. Anmol Ratna 204, Viabhav Chambers, Raghunathpura Main Road, Surat 3 M/s. Sanskar Overseas 407, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer to reject book result of the assessee. 4. Another reason given by the Assessing Officer was that GP shown by the assessee was less compared to the GP shown by similar assessees in the same line of business. The Assessing Officer had given the following details in this regard :- S.No. Name of the party Turnover (Rs. in crores) Gross profit (Rs. in crores) Percentage GP 1 Susashish Diamonds Ltd. 750.69 76.54 10.2% 2 Shrenju & Co. Ltd. 293.8 32.58 11.09% 3 Shital Gems P. Ltd. 22.47 1.11 4.9% 5. On the above stand of the Assessing Officer, the assessee submitted that difference GP for the current year was much better than the GP shown in the past and furnished following details :- Financial year Assessment year G.P. rate 1997-98 1998-99 0.63 1998-99 1999-2000 1.25 1999-2000 2000-01 1.84 2000-01 2001-02 1.34 2001-02 2002-03 1.29 2002-03 2003-04 2.82 The assessee also pointed out that comparable instances pointed out by the Assessing Officer were mainly engaged in export of diamonds in which there exists good margin; whereas, the assessee deals in local market in which, margin are always not high compared to export market. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer also was of the view that the assessee was not maintaining quality-wise stock Register for rough and polished diamonds. In this regard, the assessee pointed out that it was not possible to maintain quality-wise stock register. The assessee also submitted that all diamond merchants maintain records on carat basis and this is the practice prevalent in the diamond industry. The Assessee also pointed out that even Gems and Jewellery Export Promotion Council has recommended maintenance of stock of diamond on carat basis. The Assessing Officer, however, was of the view that maintaining carat-wise stock will not give clear picture of the business of the assessee. In this regard, the Assessing Officer also referred to the decision of ITAT Mumbai in the case of DCIT Vs. M/s. Sanghavi Diamond Exports P. Ltd., 71 ITD 75. 8. After rejecting the submissions of the assessee, the Assessing Officer estimated income of the assessee and made an addition of ₹ 43,69,211/- to the total income of the assessee observing as follows :- "Considering the totality of facts as specified above, it is evident that the books of accounts of the assessee are not reliable and the same ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legitimate inference that all is not well with the books and the same cannot be relied upon to assessee the income, profit or gains of an assessee, the authorities would be justified in rejecting the account books under section 145(2) and in making the assessment in the manner contemplated in that provisions- Awadesh Pratap Singh Abdul Rehman & Bros Vs. CIT, 76 Taxman 106 (All). Nevertheless, as held by Hon'ble Gauhati High court, even additions made straightaway on the grounds of low profits rate cannot be sustained - Additions to the profits of the assessee made solely on the ground that it was low without giving a specific finding that the accounts of the assessee were not correct and complete, or that the income could not be properly determined and deducted from the accounting method employed by the assessee, is not justified. The mere facts that there was a less rate of gross profit declared by an assessee as compared to the previous year would not by itself be sufficient to justify the addition- Aluminium Industries (P) Ltd. Vs. CIT, 80 Taxman 184 (Gauhati). The fact that appellant's GP is progressive and no other specific defect in the books of accounts is found can not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and of the assessee as made before the learned CIT(A). 11. We have considered the rival submissions. We are of the view that the order of learned CIT(A) does not call for any interference. Admittedly all 19 parties to whom the Assessing Officer issued notices u/s. 133(6) of the Act ultimately had filed required details called for by the Assessing Officer. The Assessing Officer, if he had any doubt on the veracity of the reply sent by these parties, ought to have examined them by issuing summons and without doing so, he was not entitled to draw any adverse inference. In fact, the assessee had made a specific request for issue of summons u/s. 131 of the Act to all the parties. It is the plea of the Assessee that none of the parties are related to the assessee and all the receipts and payments are by account payee cheques. In fact, the very same transaction has been accepted by the Assessing Officer in earlier years. In fact, in A.Y. 2002-03 and 2004-05, the Assessing Officer raised queries and was satisfied with replies given by the assessee. Thus, on this ground no adverse inference could have been drawn by the Assessing Officer. 12. As far as GP margin is concerned, the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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