TMI Blog2020 (5) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... all in GP is quite justified - there was overall recession in the diamond industry during the relevant period and most of the sales were export sales of the assessee, whereas the GP was disclosed at 3.71% - the export sales of the assessee constituted almost 99% of the total sales while local sales were only at 1.14%. Deletion of GP addition is justified, hence, we do not find any infirmity in the order of CIT(A) for deleting of GP addition. CIT(A) has upheld the addition of an amount of electricity expenses of to be added to the manufacturing cost to calculate the closing stock by taking the average cost of ₹ 11318.91 per carat which has been arrived after reducing the GP margin of 3.71% from the average export price of ₹ 11756.69 per carat. Therefore, this ground of assessee is dismissed. Forward contract cancellation loss disallowed - forward contract were not booked for any specific export and import and not utilized in business and terminated without affecting delivery of foreign exchange - HELD THAT:- The assessee is in the business of export of diamonds wherein the assessee is exposed to the risk of fluctuation in the exchange rate of currency. In order t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulate the closing stock. So the cost of the sales should have been reduced at ₹ 11,318/- per carat instead of ₹ 11211 per carat. The AO suggested to enhance the closing stock by ₹ 1,97/82,848/- in the remand report and this working was not accepted in the appeal order except in respect of the electricity expenses of ₹ 52,30,2447- which was to be included in the manufacturing cost. AO while giving effect to the appeal order should have calculated the closing stock by adopting the cost of sales at ₹ 11,318.91/- per carat after reducing the GP margin of 3.71%. Similar direction was also given while deciding the appeal order against the 154 application dated 17.01.2014. The AO is directed to give the appeal effect order as per the directions mentioned above. The ground of appeal is allowed. - I.T.A Nos. 1879, 1872/AHD/2013 And 2833/AHD/2014 - - - Dated:- 4-5-2020 - Shri Sandeep Gosain, Judicial Member And Shri O.P. Meena, Accountant Member For the Assessee : Shri Mehul Shah, CA For the Revenue : Shri Srinivas T. Bidari, CIT(D.R.) ORDER PER O.P.MEENA, AM: 1. The above two appeals filed by the Revenue are directed against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P ratio of 2.44% which is almost 40% fall in terms of GP from the previous years 2006-07 2007-08. The assessee has stated that due to fluctuation in prices of excess rate of dollar, the assessee has got less prices of export and paid more prices on import. But, the AO observed that assessee has earned a net foreign exchange fluctuation of dollar prices; therefore this contention of the assessee is factually incorrect. The AO further noted that GP ratio in financial year 2006-07 was at 6.37% and in financial year 2007-08 was at 6.15%, the average of which comes to 6.26%, whereas in the assessment year under consideration, the GP is shown at 3.71% which is inclusive of net foreign exchange fluctuation gain of ₹ 2.13 crore. In view of this, the AO has considered the average GP rate of two preceding years which comes to 6.26%. Accordingly, worked out rate which the difference in GP comes to 2.55%, hence applying the GP rate of 2.55% made addition of ₹ 5,58,41,797/- on account of fall in GP rate. 4. Being aggrieved, the assessee filed an appeal before the ld. CIT(A), wherein it was submitted that the turnover of the assessee is ₹ 218.98 crore as against ₹ 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the AY.2004-05. On perusal of this order of the ITAT, it was found that while working out cost of production of rough diamonds, the electricity expenses have been added under the manufacturing head which includes labour wages and electricity expenses to work out the total cost of manufactured of polished diamonds. Since, the assessee has himself relied on this judgement of ITAT regarding the method of valuation of closing stock, the AO in the remand report has correctly included the electricity expenses of ₹ 52,30,244/- to work out the total manufacturing cost of polished diamonds at ₹ 2,10,11,22,627/- as against the appellant s cost of ₹ 2,09,58,81,383/- by adding electricity expenses of ₹ 52,30,244/- to the total manufacturing of polished diamonds. Hence, the contention of the appellant of non-inclusion of electricity bill towards manufacturing cost was rejected and finding of the AO were upheld. The CIT(A) further observed that the assessee has produced the relevant records in form of export bills, purchase bills, cash etc. along with the books of account and no defects has been pointed out by the AO in the purchase sale bills etc., therefore, GP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f manufacturing of polished diamonds comes to 11326.78 per carat and closing stock has been valued at 998.00 per carat. The ld. counsel referred Para 6.1.1 of the of the CIT(A) wherein it was submitted that the AO has contended that books of accounts are defective as the labour charges to the extent of ₹ 17,76,00,000/- are not verifiable. However, the ld. counsel pointed out variation in signature of managers and karigars cannot be regarded as a valid ground for treating the books of accounts as defective as it is a known-fact that the workers put their signature on register in a casual manner and many times they depute somebody on their behalf to collect their salaries. Further, the ratio of labour wages to the cost of consumption of rough diamonds in AY.2008-09 was 13.87% whereas the same in AY.2009-10 comes to only 9.32% which clearly manifest that there is a significant reduction in claim of labour charges for the year under consideration. Therefore, the ground of rejection of books of accounts u/s.145(3) of the Act by the AO was rightly allowed by the CIT(A). Further, electricity expenses of ₹ 52,30,244/- relates mainly to the office premises of the assessee and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the labour charges cannot be doubted. Further, the GP ratio has gone down because as against the rise in average purchase cost of imports and local purchases by 51% and 34% respectively in AY.2009-10, the rise in average price of export is only to the extent of 22.51%, therefore, the fall in GP is quite justified. Further, there was overall recession in the diamond industry during the relevant period and most of the sales were export sales of the assessee, whereas the GP was disclosed at 3.71%. Thus, the export sales of the assessee constituted almost 99% of the total sales while local sales were only at 1.14%. Therefore, the deletion of GP addition is justified, hence, we do not find any infirmity in the order of CIT(A) for deleting of GP addition of ₹ 5,58,41,797/-. We further note that the CIT(A) has upheld the addition of an amount of electricity expenses of ₹ 52,30,244/- to be added to the manufacturing cost to calculate the closing stock by taking the average cost of ₹ 11318.91 per carat which has been arrived after reducing the GP margin of 3.71% from the average export price of ₹ 11756.69 per carat. Therefore, this ground of assessee is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the appellant had booked foreign exchange in the forward market with the bank. On cancellation of contract, the appellant is either entitled to profit or loss depending on rates contracted and rates prevailing at the time of cancellation. The appellant entered into this forward contract exchange in order to protect against the fluctuation in the rate of foreign exchange currency. It is therefore quite natural that in order to minimize the risk, they may enter into such contracts with banks. As such the forward exchange contracts are very much in the nature of hedging transactions and therefore, the same cannot be treated as done with speculative intent. Hence, provisions of section 45(3) of the Act are not applicable. The CIT(A) has also supported his view by placing reliance on the decision of ITAT, Mumbai Bench in the case of Voltas International Ltd. (2009) 126 TTJ 702 (Mum), Badridas Gauridu (P) Ltd. (2004) 187 CTR 453/ (2003) 261 ITR 256 (Bom.). Hence, considering the foreign exchange contract entered by the assessee in the nature of hedging transaction, the CIT(A) deleted the addition of disallowance of ₹ 7,55,57,457/- made by the AO. 12. Being aggrieved, the Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, in order to hedge against losses, the assessee had booked foreign exchange in the forward market with bank and on cancellation on the contracts, the appellant is either entitled to profit or loss depending on the rate of contracts prevailing at the time of cancellation. The assessee has entered to this forward exchange contract in order to protect against fluctuation in the rate of foreign exchange currency to minimize the risk. Therefore, the assessee has not entered into any speculation transaction as held by the CIT(A). The ld. counsel has placed reliance on the decision of Friends Friends Shiping Pvt. Ltd (supra) wherein the Hon ble High Court has held that where assessee exporter entered into foreign exchange contract as incidental to its export business and incurred loss in said contracts, said loss was not speculative loss but business loss. Similar loss was also expressed in the case of Badridas Gauridu (P) Ltd (supra) by Hon ble High Court and CIT v. Panchmahal Steel Ltd. (supra). In view of these facts, we do not find any infirmity in the order of CIT(A), accordingly same is upheld. Therefore, this ground no. 3 of the appeal is dismissed. 15. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision tendered by him in his original order dated 18.04.2013 (concluding part of para 6.2.6 of page Nos. 16), wherein he has directed the AO to calculate the closing stock at the average cost of ₹ 11318.91 per carat, whereas in the order dated 01.08.2014 (at para 6.1.3 at page No. 6), he has given a new direction that the AO should have calculated the closing stock by adopting the cost of sales at ₹ 11318.91 per carat after reducing the GP margin of 3.71%. This has resulted in a change of decision in the original order of the Ld. CIT (A) dated 18.04.2013, where the said order is subject matter of appeal filed by the Revenue before the Hon'ble ITAT on 01.07.2013. (iii) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in directing the AO, vide his order dated 01.08.2014, to calculate the value of closing stock by adopting the value of ₹ 11318.91 per carat as cost of sale, which he himself has earlier refused to entertain, vide his order dated 17.01.2014, on an rectification application filed by the assessee. Conflicting and repeated decisions are bad in law and not permissible while deciding on the same issue on 154/ rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the cost of sales at ₹ 11318.91 per carat after reducing the GP margin of 3.71%. The CIT(A) has given following directions i.e. to sum up the GP addition of ₹ 5,58,41,797/- is deleted and the electricity expenses amounting to ₹ 52,30,244/- is to be added to the manufacturing cost to calculate the closing stock at the average cost of ₹ 11,318.91 per carat which has been arrived after reducing the GP margin of 3.71% from the average export price of ₹ 11,756.69 per carat. 24. Being aggrieved, the Revenue filed this appeal before this Tribunal. The ld. Departmental Representative (DR) submitted that the AO has valued the closing stock @11318.91 per carat, as per the directions of the ld. CIT(A) vide his order dated 18-04-2013, revised income has been thereafter determined at ₹ 2,67,00,080/-. The assessee has not filed any appeal against this order u/s.250 dated 10-06-2013. But the assessee has preferred to move an application u/s.154 before the AO on 15-10-2013, which was rejected on 17-10-2013. The assessee has filed an appeal before the CIT(A). It was submitted that the Revenue has filed already an appeal before ITAT on 02-07-2013 agai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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