The Jt.CIT., Circle-9, Surat V. M/s. R. Vipul & Co., Mumbai

ITA 1201/AHD/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9135 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 15-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 21-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SITA RAM MEENA
• Keywords: Cost of acquisition; Corroborative evidences
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE JCIT, CIRCLE - 9, SURAT (APPELLANT) VS M/S. R. VIPUL & CO., 1205, PANCHRATNA , OPERA HOUSE, MUMBAI PAN: AAAFR 2599 D (RESPONDENT) REVENUE BY : S H RI SITA RAM MEENA , SR. D . R. ASSESSEE BY: NONE DATE OF HEARING : 15 - 02 - 2 017 DATE OF PRONOUNCEMENT : 22 - 02 - 2 017 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS REVENUE S APPEAL FOR A.Y. 2007 - 08 , AR I SES FRO M ORD ER OF THE CIT(A) - I, SURAT DATED 15 - 12 - 2010 IN APPEAL NO. CAS - V/127/2009 - 10 , IN PROCEEDINGS UNDER SECT ION 143(3 ) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 1201 / A HD/20 11 A S SESSMENT YEAR 2007 - 2008 I.T.A NO. 1201 /AHD/20 11 A.Y. 2007 - 2008 PAGE NO J CIT VS. M/S. R. VIPUL & CO. 2 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW , THE ID. CIT(A) HAS ERRED IN REJECTING THE ACTION OF THE AO TO REJECT THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT DESPITE THE FACT THAT THE ASSESSEE FAILED TO MAINTAIN THE QUALITY WISE DATA OF DIAMONDS MANUFACTURED. FURTHER T HE ASSESSEE FAILED TO PRODUCE THE PRODUCTION RECORD NECESSARY SO AS TO ENABLE THE A.O. TO DEDUCE THE CORRECT INCOME OF THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW ,THE ID. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 41,67,230/ - MADE BY THE AO ON ACCOUNT OF SUPPRESSED PRODUCTION DESPITE THE FACT THAT THE ASSESSEE FAILED TO SUBSTANTIATE THE FALL IN THE YIELD BY 2.68% AS COMPARED TO EARLIER YEAR WITH PROPER QUALITATIVE DETAILS OF DIAMOND MANUFACTURING AS ASKED BY THE AO. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW , THE ID. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 41,67,230/ - MADE BY THE AO ON ACCOUNT OF SUPPRESSED PRODUCTION AFTER STATING THAT ONCE THE GROSS PROFIT IS HIGHER COMPARED TO EARLI ER YEAR THE BOOK RESULTS SHOULD NOT BE DISTURBED WITHOUT APPRECIATING THE FACT, THAT THE ASSESSEE FAILED TO PRODUCE QUALITATIVE AND QUANTITATIVE DETAILS OF PRODUCTION AND ALSO FAILED TO EXPLAIN THE FALL IN THE YIELD COMPARED TO EARLIER YEAR WHICH WAS SPECI FICALLY ASKED BY THE AO. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW ,THE ID. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 41,67,230/ - MADE BY THE AO ON ACCOUNT OF SUPPRESSED PRODUCTION AFTER STATING THAT ONCE THE BOOKS ARE REJECTE D THE ASSESSING OFFICER SHOULD ONLY ESTIMATE THE GROSS PROFIT AND SHOULD NOT USE THE FIGURES TO MAKE ADDITIONS BASED ON FALL IN YIELD OR MAKE ADDITIONS TO CLOSING STOCK 5. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE ID. CIT (A) BE SET ASIDE AND THE ASS ESSING; OFFICER'S ORDER DATED 31/12/2009 BE RESTORED. 3. IN THIS CASE, RETURN OF INCOME DECLARING INCOME OF RS. 27 , 93 , 157/ - WAS FILED ON 29 TH OCTOBER, 2007. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY. NOTICE U/S. 143(2) WAS ISSUED ON 22 ND JULY, 2 008. THE ASSESSEE WAS A COMPANY ENGAGED IN THE BUSINESS OF I.T.A NO. 1201 /AHD/20 11 A.Y. 2007 - 2008 PAGE NO J CIT VS. M/S. R. VIPUL & CO. 3 MANUFACTURING AND EXPORT OF DIAMONDS. DURING THE YEAR UNDER CONSIDERATION T HE ASSESSEE HAS SHOWN GP OF RS. 46 , 06 , 407/ - @ 10.83% ON THE TOTAL TURNOVER OF RS. 4,25,36,645/ - AS AGAINST THE PREVIOUS YEAR GP OF RS. 72 , 27 ,0 79/ - @ 6.25% ON THE TOTAL TURNOVER OF RS. 11 , 56 ,50, 770/ - . DURING THE COURSE OF APPELLATE PROCEEDINGS ON VERIFICATION OF BOOKS OF ACCOUNTS , THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS SHOWN YIE LD OF POLISHED DIAMONDS AT 37.01% A S COMPARED TO THE YIELD OF 37.08% SHOWN IN THE PRECEDING YEAR AND 3 9 . 6 9% YIELD IN ASSESSMENT YEAR 2005 - 06. THEREFORE , THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY ADDITION SHOULD NOT BE MADE ON ACCOUNT OF LOWER YIELD @ 2% AS WAS DONE IN T HE EAR LIER ASSESSMENT YEAR IN T H E CASE OF THE ASSESSEE. IN THIS CONNECTION, THE ASSESSEE HAS STATED THAT THE YIELD IN DIAMOND BUSINE SS WAS NOT CONSTANT. THE ASSESSEE ALSO SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT GROSS PROFIT DUR ING THE YEAR UNDER CONSIDERATION HA S INCREASED BY 4 . 5 8% AND IN THE ASSESSMENT YEAR 2006 - 07 THE ADDITION ON ACCOUNT OF G ROSS PROFIT WAS MADE BECAUSE THERE WAS FALL IN GP BY 2. 9 % . HE FURTHER SUBMITTED THAT DURING YEAR UNDER CONSIDERATION T HE GROSS PROFIT WAS 10.83% WH EREAS IN THE SUBSEQUENT ASSESSMENT YEAR 2006 - 0 7 THE GROSS PROFIT WAS ONLY 6.25%. THE ASSESSEE FURTHER EXPLAINED THE METHODOLOGY INVOLVED IN CUTTING AND POLISHING OF DIAMONDS WHIC H WAS STATED TO BE SUBJECT IVE PROCEEDS. HE STATED THAT THERE WERE THOUSANDS OF CATEGORIES IN WHICH ROUGH DIAMONDS CAN BE SORTED. PARCELS RECEIVED AT SUPPLIER S OFFICE GO THROUGH PROCESS OF ASSORTMENT ACCORDINGLY TO SHAPE, SIZE, COLO U R AND PURITY OF ROUGH DIAMOND BEFORE BEING SENT TO VARIOUS I.T.A NO. 1201 /AHD/20 11 A.Y. 2007 - 2008 PAGE NO J CIT VS. M/S. R. VIPUL & CO. 4 MANUFACTURING PROCESSES LIKE SAWING, B RUITING, POLISHING, PLANNING, LASER PROCESSING ETC. THUS, A SINGLE PACKET OF ROUGH MAY BE SPLIT INTO MANY ARTICLES / PARCELS AND SENT TO THEIR MANUFACTURING UNITS OR TO THE BRANCH OFFICES, TO COMMISSION AGENT / CONTRACTORS / SUB - CONTRACTORS DEPENDING UPON NEED AND PLAN OF THE INDIVIDUAL MANUFACTURER. TECHNICALLY, YIELD DEPENDS ON THE TYPE OF ROUGH, ITS SHAPE, PURITY, SIZE COLOUR AND TYPE AND STEPS OF MANUFACTURING PROCESSES TO BE PERFORMED ON THE PARTICULAR ROUGH DIAMOND AS PER THE ASSORTER /PLANNER / MARK ET OBSERVATIONS / ADVICE NOTE. SOME OF THE ROUGH DIAMONDS ARE COATED WITH A ROUGH SURGERY SURFACE. THE COATING MAY BE PAPER THIN OR SO THIN THAT IT COMPRISES MOST OF THE STONE. UNDER COATING, THERE MAY BE GOOD QUALITY OF GEM DIAMOND. THE COATING IS OFTEN OF DIAMOND, WHICH CONTAINS MANY TINY IMPURITIES WHICH ARE REMOVED IN A PROCESS DUE TO WHICH LOWER YIELD IS OBTAINED. AFTER AN ASSESSMENT, WHICH IS JUST A PREDICTION OR AN ANTICIPATION OF THE QUALITY OF THE GEM DIAMOND INSIDE THE COAT, COATING SKIN IS REMO VED AND GEM DIAMOND IS OBTAINED TO THE POSSIBLE EXTENT. THE COATING PART OF THE PIECE SO REMOVED IS TREATED AS REJECTION WHICH IS OF NO USE OR WE CAN SAY THAT THE REMAINS ARE NOT REUSABLE. AS THE THICKNESS OF THE COATING VARIES FROM THICK, PERCENTAGE RANGE OF REJECTION ALSO VARIES CORRESPONDINGLY. THEREFORE, YIELD VARIES FROM 10% TO 40% AND REJECTION VARIES FROM 90% TO 60%. THE DECISION OF I.T.A NO. 1201 /AHD/20 11 A.Y. 2007 - 2008 PAGE NO J CIT VS. M/S. R. VIPUL & CO. 5 YIELD FROM A PARTICULARS LOT OF DIAMOND IS TAKEN BY A CONCERNED PERSON AT THE MANUFACTURING STAGE AT RELEVANT POINT OF TIME CONSIDERING THE VARIOUS CONSTRAINTS AND FACTORS AND CANNOT BE DECIDED ACADEMICALLY ON A TABLE IN THE OFFICE. THE YIELD IS DECIDED ON THE BASIS OF QUALITY OF DIAMOND PREVALENT IN MARKET. IF, REJECTIONS ARE MORE, THE GEM CONTENTS IN MAKABLE ROUGH DIA MONDS IS MORE AND HIGHER YIELD IS OBTAINED BECAUSE OF LOWER EARTHEN CONTENTS ELIMINATED FROM CARBON CONTENTS OF DIAMOND BUT HIGHER YIELD IS OBTAINED WITHOUT MORE POLISHING AND GHAT WORK. THEREFORE, THE VALUE OF POLISHED DIAMOND FETCHED IS LESS. THEREFORE , THE VALUE OF POLISHED DIAMOND QUALITY OF DIAMOND IS MANUFACTURED CONTAINING MORE EARTHEN CONTENTS AND LESS CARBON CONTENTS. SUCH DIAMOND HAVING HIGHER YIELD HAVE LESS THAN 1500 CT. TEMPERATURE PRESSED GEM CONTENTS WHICH DO NOT THROW NATURAL LIGHTS FROM S TONE AND THEREFORE, ARE OF INFERIOR QUALITY. THEREFORE, THE YIELD OF ASSESSES IS CORRECT AND WAS DETERMINED ACCORDING TO MARKET TREND. IN A.Y. 2005/2006 THE AVERAGE SALES RATE IS RS. 10317.06PER CTS. WITH YIELD OF 39.69%. WHEREAS THE AVERAGE SALES RATE IN A. Y. 2006/07 IS 13972.09 PER CTS. WITH YIELD OF 37.08%. THE AVERAGE SALES RATE DURING THE YEAR 15234 PER CTS. WITH YIELD OF 37.01%. IF, YIELD IS LOW THE SALE PRICE IS HIGHER AND IF YIELD IS HIGHER THE SAFE PRICE IS LOW. THIS IS IN RELATIVE TERMS BUT IN CASE OF HIGHER YIELD QUANTITY IS HIGH AND VALUE IS LOW WHEREAS IN CASE OF LOWER YIELD QUANTITY IS LOW AND VALUE IS HIGH IN RELATIVE TERMS BUT IF THE QUANTITY IS MULTIPLIED WITH SALES RATE OBTAINED IN BOTH THE CIRCUMSTANCES, THE ABSOLUTE VALUE OF ENTIRE SAL ES VALUE REMAINS SAME. THEREFORE, IN DIAMOND YIELD HAS NO EFFECT IN SALES VALUE IN ABSOLUTE TERMS BUT YIELD I.T.A NO. 1201 /AHD/20 11 A.Y. 2007 - 2008 PAGE NO J CIT VS. M/S. R. VIPUL & CO. 6 IS RELEVANT FOR MANAGEMENT ONLY TO THE EXTENT OF MAKING DECISIONS OF WHICH QUALITY OF DIAMOND TO BE MANUFACTURED IN ORDER TO ENA BLE THEM TO SELL IN THE MARKET THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND REJECTED BOOKS U/S. 145(3) OF THE ACT ON ACCOUNT OF SUPPRESSED VALUE OF YIELD AND MADE ADDITION OF RS. 41 , 67 , 230/ - . HE ESTIMATED THE YIELD AT 2.68% OVER AND ABOVE THE PE RCENTAGE OF YIELD OF POLISHED BY THE ASSESSEE DURING THE YEAR. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS U NDER: - 5. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE ME, THE APPELLANT FILED HIS WRITTEN SUBMISSION WHICH IS REPRODUCED BELOW: THE ASSESSING OFFICER MADE THE ADDITION OF RS. 41,67,230 BY ESTIMATING YIELD AT 39.69% SHOWN IN A. Y. 2005/06 AS AGA INST 37.01% OF THE YEAR AS PER THE WORKING GIVEN ON PAGE 15 OF THE ASSESSMENT ORDER. THE DETAILS OF GROSS PROFIT AND YIELD IS AS UNDER 2007/08 2006/07 2005/06 EXPORT TURNOVER 42536646 115650770 82398172 GROSS PROFIT 4606407 7227079 754268 6 G.P.% 10.83% 6.25% 9.15% YIELD 37.01% 37.08% 39.69% THE COPIES OF QUANTITATIVE INFORMATION GIVEN IN TAX AUDIT REPORT OF ABOVE 3 YEARS ARE ENCLOSED. (PAGE 7 TO 9) THE YIELD OF 37.08% IN I.T.A NO. 1201 /AHD/20 11 A.Y. 2007 - 2008 PAGE NO J CIT VS. M/S. R. VIPUL & CO. 7 A.Y. 20O6/07 WAS ACCEPTED IN ORDER U/S. 143(3) OF THE AC T. THE ADDITION IS NOT CORRECT SINCE - 1. THE QUALITY WISE STOCK REGISTER IS NOT REQUIRED TO BE MAINTAINED IN VIEW OF THE DECISION OF ITAT AHMEDABAD IN - I. PANKAJ DIAMOND VS. ACIT APPEAL NO. 2608/A/09. (PAGE 10 TO 23) II. ACIT VS. B. SURESHKUMAR & CO. 2632/AHD/2003. (PAGE 24 TO 35) 2. THE GROSS PROFIT DURING THE YEAR IS 10.83% AS COMPARED TO GROSS PROFIT OF 6.25% IN A.Y. 2006/07. THE GROSS PROFIT DURING THE YEAR INCREASED AND HENCE BOOK RESULTS CANNOT BE REJECTED. 3. THE DETAIL S OF MANUFACTURING ARE AS UNDER : - PARTICULARS OWN MANUFACTURING MANUFACTURING ON JOB WORK BASIS ROUGH DIAMONDS MANUFACTURED 2649.94 | 7563.86 POLISHED DIAMONDS OBTAINED 1083.82 | 2696.51 % OF YIELD NAME OF JOB WOR KER 40.89% NOT APPLICABLE | 35.65% M/S. JITESH DIAMONDS VARACHHA ROAD, SURAT IN OWN MANUFACTURING THE ASSESSEE OBTAINED YIELD OF 40.89%. IN CASE OF JOB WORKS MANUFACTURING THE DIAMONDS WERE OF VERY INFERIOR QUALITY. THESE FACTS ARE EVIDENT FROM THE PURCHASE BILLS OF 9754.36 C TS. FROM M/S. SIMPLEX DIAM ENCLOSED HEREWITH. (PAGE 36 & 37) THE RARE OF ROUGH DIAMONDS PURCHASED IS RS. 2229.71 PER CTS. THE WORKING OF SALE PRICE OF THESE DIAMONDS IS AS UNDER: PURCHASE COST PER CTS. 2229.71 YIELD O F POLISHED DIAMONDS 35.65% I.T.A NO. 1201 /AHD/20 11 A.Y. 2007 - 2008 PAGE NO J CIT VS. M/S. R. VIPUL & CO. 8 ROUGH DIAMONDS REQUIRED FOR MANUFACTURING 1 CTS. OF POLISHED DIAMONDS 2.81 CTS. COST OF ROUGH DIAMONDS IN 1 CTS. OF ED DIAMONDS 6265.48 MANUF ACTURING LABOUR PER CARAT OF DIAMONDS RS. 300 PER CTS. LABOU R COST (RS . 300 X 2.81) | RS. 843 PER CTS. OF 1 POLISHED DIAMONDS TOTAL COST 7108.48 PROFIT | 862.92 SALE PRICE | 7971.40 THEREFORE, THESE DI AMONDS HAS AVERAGE SALE PRICE OF RS. 7971.40 PER CTS. WHICH ARE EVIDENCES OF INFERIOR QUALITY. THE YIELD IN THESE LOTS WAS THEREFORE, LOWER. THE AVERAGE SAFE PRICE DURING THE YEAR IS RS. 15,234/ - AS MENTIONED ON PAGE 15 OF THE ASSESSMENT ORDER. THEREFORE, THE YIELD OF 35.65% IN INFERIOR QUALITY OF DIAMOND IS CORRECT AND EVIDENT FROM SALE PRICE OF RS. 7,971 PER CTS. 4. THE YIELD IN DIAMOND BUSINESS IS NOT CONSTANT. THE METHODOLOGY INVOLVED IN CUTTING AND POLISHING OF DIAMOND IS AN EXTREMELY SUBJECTIVE PROCE EDS. THERE ARE THOUSANDS OF POSSIBLE CATEGORIES INTO WHICH ROUGH DIAMONDS CAN BE SORTED. PARCELS RECEIVED AT SUPPLIER'S OFFICE GO THROUGH PROCESS OF ASSORTMENT ACCORDING TO SHAPE, SIZE, COLOUR AND PURITY OF ROUGH DIAMOND BEFORE BEING SENT TO VARIOUS MANUFA CTURING PROCESS LIKE CLEAVING, SAWING, BRUITING, POLISHING, PLANNING, LASER PROCESSING ETC. THUS, A SINGLE PACKET OF ROUGH MAY BE SPLIT INTO MANY ARTICLES/ PARCELS AND SENT TO THEIR MANUFACTURING UNITS OR TO THE BRANCH OFFICES, TO COMMISSION AGENTS/ CO NTRACTORS/ SUB - CONTRACTORS DEPENDING UPON NEEDS AND PLAN OF THE INDIVIDUAL MANUFACTURER. 5. TECHNICALLY, YIELD DEPENDS ON THE TYPE OF ROUGH, ITS SHAPE, PURITY, SIZE COLOUR AND TYPE AND STEPS OF MANUFACTURING PROCESSES I.T.A NO. 1201 /AHD/20 11 A.Y. 2007 - 2008 PAGE NO J CIT VS. M/S. R. VIPUL & CO. 9 TO BE PERFORMED ON THE PARTICUL AR ROUGH DIAMOND AS PER THE ASSORTER/ PLANNER/ MARKER OBSERVATIONS/ ADVICE NOTE. . SOME OF THE ROUGH DIAMONDS ARE COATED WITH A ROUGH SURGERY SURFACE. THE COATING MAY BE PAPER - THIN OR SO THICK THAT IT COMPRISES MOST OF THE STONE. UNDER COATING, THERE MAY B E GOOD QUALITY OF GEM DIAMOND. THE COATING IS OFTEN OF DIAMOND, WHICH CONTAINS MANY TINY IMPURITIES WHICH ARE REMOVED IN A PROCESS DUE TO WHICH LOWER YIELD IS OBTAINED. 6. AFTER AN ASSESSMENT, WHICH IS JUST A PREDICTION OR AN ANTICIPATION OF THE QUALITY O F THE GEM DIAMOND INSIDE THE COAT, COATING SKIN IS REMOVED AND GEM DIAMOND IS OBTAINED TO THE POSSIBLE EXTENT. THE COATING PART OF THE PIECE SO REMOVED IS TREATED AS REJECTION WHICH IS OF NO USE OR WE CAN SAY THAT THE REMAINS ARE NOT REUSABLE. AS THE THIC KNESS OF THE COATING VARIES FROM THICK, PERCENTAGE RANGE OF REJECTION A/SO VARIES CORRESPONDINGLY. THEREFORE, YIELD VARIES FROM 10% TO 40% AND REJECT/ON VARIES FROM 90% TO 60%. THE DECISION OF YIELD FROM A PARTICULAR LOT OF DIAMOND IS TAKEN BY A CONCERNED PERSON AT THE MANUFACTURING STAGE AT RELEVANT POINT OF TIME CONSIDERING THE VARIOUS CONSTRAINTS AND FACTORS AND CANNOT BE DECIDED ACADEMICALLY ON A TABLE IN THE OFFICE. THE YIELD IS D ECIDED ON THE BASIS OF QUALITY O F DIAMOND PREVA LENT IN MARKET. IF, REJECTIONS ARE MORE, THE GEM CONTENTS IN MAKEABLE ROUGH DIAMONDS IS MORE AND HIGHER YIELD IS OBTAINED BECAUSE OF LOWER EARTHEN CONTENTS ELIMINATED FROM CARBON CONTENTS OF DIAMOND BUT HIGHER YIELD IS OBTAINED WITHOUT MORE POLISHING AND G HAT WORK. THEREFORE, THE VALUE OF POLISHED DIAMOND FETCHED IS LESS. THEREFORE, IN CASE OF HIGHER YIELD THE INFER/OR QUALITY OF DIAMOND IS MANUFACTURED CONTAINING MORE EARTHEN CONTENTS AND LESS CARBON CONTENTS. SUCH DIAMOND HAVING HIGHER YIELD HAVE LESS THAN 1500 CT. TEMPERATURE PRESSED GEM CONTENTS WHICH DO NOT THROW NATURAL LIGHTS FROM STONE AND THEREFORE, ARE OF INFERIOR QUALITY. THEREFORE, THE YIELD OF ASSESSEE IS CORRECT AND WAS DETERMINED ACCORDING TO MARKET TREND. IN A.Y. 200 5/06 THE AVERAGE SALES RATE IS RS. 10317.06 PER CTS. WITH YIELD OF 39.69%. WHEREAS THE AVERAGE SALES RATE IN A.Y. 2006/07 IS 13,972.09 PER CTS. WITH YIELD OF 37.08%. THE AVERAGE SALES RATE DURING THE YEAR 15234 PER CTS. WITH YIELD OF 37.01% IF, YIELD IS LOW THE SALE PRICE IS HIGHER AND IF YIELD IS HIGHER THE SALE PRICE IS LOW. THIS IS IN RELATIVE TERMS BUT IN CASE OF HIGHER YIELD QUANTITY IS HIGH AND VALUE IS LOW WHEREAS IN CASE OF LOWER YIELD QUANTITY IS LOW AND VALUE IS HIGH IN RELATIVE TERMS BUT IF THE QUANTITY IS MULTIPLIED WITH SALES RATE OBTAINED IN BOTH THE CIRCUMSTANCES, THE ABSOLUTE VALUE OF ENTIRE SALES VALUE REMAINS SAME. THEREFORE, IN I.T.A NO. 1201 /AHD/20 11 A.Y. 2007 - 2008 PAGE NO J CIT VS. M/S. R. VIPUL & CO. 10 DIAMOND YIELD HAS NO EFFECT IN SALES VALUE /'7 ABSOLUTE TERMS BUT YIELD IS RELEVANT FOR MANAGEMENT ONLY TC THE EXTENT OF MAKING DECISIONS OF WHICH QUALITY OF DIAMOND TO BE MANUFACTURED IN ORDER TO ENABLE THEM TO SELL IN THE MARKET. 7. THE ASSESSING OFFICER HAS NO EVIDENCE OF ANY SALES OUTSIDE BOOKS OF ACCOUNTS OR PRODUCTION OUT OF BOOKS OF ACCOUNTS. THE ADDIT ION IS BASED ONLY ON PRESUMPTION AND SURMISES. 8. THE ASSESSING OFFICER HAS EXPLAINED THE PROCESS OF DIAMOND ON PAGE 7 TO 14 OF THE ASSESSMENT ORDER BUT HAS NOT POINTED OUT ANY DEFECTS DUE TO WHICH ASSESSEE GET LESS YIELD OR HAS NOT BROUGHT ON RECOR DS ANY EVIDENCE OF ANY EXTRA YIELD OBTAINED FROM ANY LOT OF MANUFACTURING. DECISION: - 6. I HAVE CONSIDERED THE ASSESSMENT ORDER AS WELL AS THE SUBMISSIONS OF THE APPELLANT. THE A.O. HAS REJECTED BOOKS OF ACCOUNT U/S. 145(3) BY MAKING SOME CALCULAT IONS ON HIS OWN WITHOUT BRINGING OUT ANY DEFECT IN TH E BOOKS OF ACCOUNT WHICH IS THE PRIMARY CRITERIA FOR REJECTING THE BOOKS OF ACCOUNT. ON THE ONE HAND, THE A.O. HAS REJECTED THE BOOKS OF ACCOUNT AND ON THE OTHER HAND HE HAS CONSIDERED ALL THE FIGURES OF BOOKS OF ACCOUNTS AND MADE ADDITION BY A) COMPUTING SUPPRESSED YIELD AND B) RE - COMPUTING THE VALUE OF CLOSING STOCK. IN A CASE, ONCE THE BOOKS OF ACCOUNTS ARE REJECTED THE ONLY OPTION LEFT WITH THE A.O. IS TO ESTIMATE THE TOTAL INCOME OF THE ASSESSEE BY E STIMATING THE G.P. RATIO. HE CANNOT GO ON ESTIMATING/DISALLOWING VARIOUS EXPENDITURE/STOCKS SHOWN IN THE PROFIT & LOSS A/C. IT APPEARS THAT THE A.O. HAS NOT UNDERSTOOD THE PROVISION OF THE SECTION 145(3) PROPERLY AND RELATED DECISIONS. FURTHER, IN THIS CAS E, THE G.P. RATIO SHOWN BY THE APPELLANT IS 4.58% HIGHER THAN THE IMMEDIATE PRECEDING YEAR. IN MY OPINION, ONCE THE G.P. RATIO OF ANY BUSINESS IS FOUND BETTER THAN THE IMMEDIATE PREVIOUS YEAR, THERE IS NO NEED TO DISTURB THE BOOK RESULTS SHOWN BY TH E APPEL LANT. THIS HAS BEEN HELD BY VARIOUS COURT OF THE COUNTRY. THE COURT CASES LIKE, PANKAJ DIAMONDS, ANJANA EXPORTS AND B. SURESHKUMAR & CO. (HON'BLE AHMEDABAD BENCH OF ITAT), RELIED UPON BY THE APPELLANT ARE VERY MUCH RELEVANT AND ARE IN FAVOUR OF THE APPELL ANT'S CASE. I.T.A NO. 1201 /AHD/20 11 A.Y. 2007 - 2008 PAGE NO J CIT VS. M/S. R. VIPUL & CO. 11 IN VIEW OF THE ABOVE FACTS AND POSITION OF LAW, THE ABOVE ADDITION MADE ON ACCOUNT OF LOW YIELD IS HEREBY DELETED AND THE GROUND OF APPEAL IS ALLOWED. 4. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, LEARNED COUNSEL HAS SUBMITTED APP LICATION F OR ADJOURNMENT WHICH WAS REJECTED BY THE BENCH AT THE TIME OF HEARING CONSIDERING THAT THE LEARNED COUNSEL HAS ALREADY TAKEN A NUMBER OF ADJOURNMENTS. HOWEVER , WRITTEN SUBMISSION RECEIVED FROM THE ASSESSEE IN THE FORM OF PAPER BOOK HAS BEEN CONS IDERED DURING THE COURSE OF APPELLATE PROCEEDINGS. THE WRITTEN SUBMISSION IN THE FORM OF PAPER BOOK CONTAIN WRITTEN SUBMISIION MADE BEFORE THE LD.CIT(A), DETAIL OF PURCHASE OF ROUGH DIAMOND AND COPY OF INVOICE, COPY OF ORDER OF ITAT IN THE CASE OF PANKAJ DIAMOND, COPY OF QUANTITATIVE INFORMATION IN TAX AUDIT REPORT OF A.Y.2005 - 06 TO @2007 - 08. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF ASSESSING OFFICER AND CONTENDED THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE B Y THE ASSESSING OFFICER. 5. WE HAVE PERUSED THE MATERIAL ON RECORD. WE HAVE NOTICED THAT THE ASSESSEE HAS EXPLAINED THE COMPLETE METHODOLOGY PROCESSING OF DIAMOND IN HIS SUBMISSION MADE BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. WE OBSERVED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY CONCRETE SUPPORTING EVIDENCE IN RESPECT OF ADDITION MADE ON ACCOUNT OF LOW YIELD IN TH E CASE OF THE ASSESSEE. WE ALSO FIND THAT THAT THE ASSESSING OFFICER FAILE D TO REBUT I.T.A NO. 1201 /AHD/20 11 A.Y. 2007 - 2008 PAGE NO J CIT VS. M/S. R. VIPUL & CO. 12 THE INFORMATION AND SUPPORTING EVIDENCES FURNISHED BEFORE HIM RELATING TO THE DETERMINATION OF YIELD IN THE CASE OF THE ASSESSEE . WE FIND THAT T HE A.O. HAS REJECTED BOOKS OF ACCOUNT U/S. 145(3) ON THE BASIS OF SOME CALCULATIONS MADE ON ASSUM P TION BASIS AND HAS NOT ESTABLISHED EXISTENCE OF ANY DEFECT IN THE BOOKS OF ACCOUNT . WE HAVE ALSO NOTICED THAT THE G.P. RATIO SHOWN BY THE ASSESSEE WAS 4.58% HIGHER THAN THE IMMEDIATE PRECEDING YEAR. WE FIND THAT THE LD.CIT(A) HAS ELABORATED IN DETAIL HI S FINDINGS WHILE DELETING THE AFORESAID ADDITION MADE BY THE ASSESSING OFFICER. 5.1 IN VIEW OF THE ABOVE STATED FACTS, WE FIND THAT THE ASSESSING OFFICER HAS NOT SUPPORTED THE FINDINGS WITH EVIDENCES AND THE ADDITION WAS JUST MADE ON GENERAL ASSUMPTIONS AND PRESUMPTIONS , THEREFORE, WE DISINCLINED TO INTERFERE IN THE FINDINGS OF THE LD. CIT(A). 6. IN THE RESULT, THE A PPEAL OF THE REVENUE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 22 - 02 - 201 7 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JU DICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 22 /02 /2017 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) I.T.A NO. 1201 /AHD/20 11 A.Y. 2007 - 2008 PAGE NO J CIT VS. M/S. R. VIPUL & CO. 13 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,