9911796707
TMI Blog2023 (1) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... ime and filed the reply and documents before the Assessing Officer. 3. The AO rejected the books of account maintained by the Assessee mainly on the ground that as per Form 3CD of the audit report for AY 2011- 12 filed by the Assessee, the Assessee has declared a closing stock of 53758.089 gms. Raw gold (24 ct. Gold) only. The closing stock of finished stock of goods has been declared as "NIL" as per the Audit Report of AY 2011-12. However, on examination of sales ledger and sale bills of April 2011-12, clearly revealed that the Assessee has sold 5387 gms. Gold jewellery (22 ct.), on 01.04.2011 itself. The very fact that the Assessee has exported 5387 gms. 22 ct. gold jewellery on 1.4.2011 itself is clear, clinching and undeniable evidence that the quantitative details of stock furnished by the Assessee in its Audit Report is incorrect because the closing stock of finished goods could never have been "NIL" for the Assessee as on 31.3.2011 when he is exporting 5387 gms. very next day. Secondly, the above finding also categorically proves that there exists clear undervaluation of closing stock as on 31.3.2011 since correct value of finished goods i.e. gold jewellery ought to includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of the year. 2.) During the year Assessee firm does not keep gold in the form of jewellery, whatever jewellery manufactured, supervisor deliver jewellery to Assessee for export, hence there is no separate stock register of jewellery. 3.) Assessee firm is registered export house and employed more than 80 workers in factory. Assessee firm receive order in KG like 10 KG, or 15 KG etc in the form of 2 KG bangle, 5 KG sets etc. There is no particular design or order set for export* order. Assessee firm manufactured gold jewellery in bulk and export the same in bulk, it is not possible for Assessee firm to specify the value and weight of each item. Assessee firm prepare packing list for export in which weight and item of jewellery mentioned. 4.) Wastage: Whatever occurred during manufacturing, Assessee firm charge from buyer as mentioned in sales invoice. 5.) Making charges: Assessee firm charged fixed making charges form buyer irrespective Of nature, weight of jewellery. Assessee firm cannot allocate expenditure item wise. During the year it is apparent that direct expenditure charged by Assessee firm is .76% of the turnover in comparison of .88% of the turnover in prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion at S.No is not acceptable since manufacture in bulk does not imply that jewellery would not have any specification as to weight, type of item, its quantity and design. (v) The contention of the Assessee at S.No 4 & 5 are unacceptable since the cost of making and wastage charged by the Assessee are not in consonance with prevailing market rate for such value addition. It is against prudent business sense that an Assessee should charge a "fixed making Charge" irrespective of type & weight of jewellery manufactured by him when prevailing market rates hugely vary from 8% to 24% depending on complexity of design and other specifications. (vi) The contention of the Assessee at S,No 6 itself proves that Assessee does not purchase and sell Gold as per market determined rates. Infact, in its defense Assessee itself concedes that it fixes its transactions in a way that purchase and sale price of Gold remain the same, which very clearly hugely diminishes the profits declared by the Assessee. An exporter having a turnover in the vicinity of over 100 Crores was under no compulsion to restrict its business with only one customer and fix its business transactions to its own disadvantag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 145(3). The decision of the AO to invoke section 145(3) is based on her observations as extracted above which demonstrate that the "true profits" of the appellant's business cannot be deduced there from. I have analyzed the material available on the record in depth. The Hon'ble Supreme Court in the case of Nalinikant Ambalal Mody v. S.A.L. Narayan Row; CIT 51 ITR 428 has held that the section 145 is mandatory. The Hon'ble Supreme Court in the case of British Paints India Ltd.; 188 ITR 44 has held that it is not only the right but the duty of the AO to consider whether or not the books disclose the true state of accounts and the correct income can be deduced there from. Further, the Hon'ble Supreme Court in the case of British Paints India Ltd. has held that it is incorrect to say that the AO is bound to accept the system of accounting regularly employed by the Assessee, the correctness of which had not been questioned in the past as there is no estoppel in these matters, and the AO is not bound by the method followed in the earlier years. From perusal of the assessment order, it is clear that there were various discrepancies in books of account as noticed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, the method adopted by the Assessee has been found to be such that income cannot properly be deduced there from. It is therefore, not only the right but the duty of the Assessing Officer to act in exercise of his statutory power, as he has done in the instant case, for determining what, in his opinion, is correct taxable income. The Tribunal's order, affirming that of the Assessing Officer, was based on findings of fact made on cogent evidence and in accordance with correct principles. The High Court was clearly wrong in interfering with those findings. Accordingly, we set aside the judgment of the High Court and allow the appeals of the Revenue with costs throughout." 8.1. The Hon'ble Supreme Court, in the case of Dhakeswari Cotton Mills Ltd. reported in 26 ITR 775 held as under: "In making an assessment under section 23(3) of the Indian Incometax Act, the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a court of law, but the Incometax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the finished items/ gold jewellery, the Assessee tried to explain that the Assessee firm after purchasing raw gold, delivers the same to its Supervisor, who supervise complete factory and keeps the complete jewellery in his possession till completion of a lot. After completion of manufacturing of lot, he delivers to the Assessee firm for export. The Assessee firm maintains stock register as per custom parameters and verifies stock physically at the year end and value at cost or market price whichever is less. Same process as adopted by Assessee firm in the case of stock in hand in the beginning of the year. The Assessee further claimed that during the year under consideration the Assessee firm does not keep gold in the form of jewellery. What-ever jewellery manufactured and received from the Supervisor, directly exported, hence there is no separate stock register of finished jewellery. Further, the Assessee is a registered export house and receive order in kilograms like 10 kg. or 15 kg. etc. and manufacture gold jewellery in bulk and export the same in bulk, therefore, it is not possible for Assessee firm to specify the value and weight of each item. 9. We have given our thoughtf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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