BLUE BUGGET JEWELS P. LTD, MUMBAI V. ASST CIT 5(1), MUMBAI

ITA 1782/MUM/2013

• Counselvise Citation: [2020] 109 COUNSELVISE.COM (IT) 9264 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 05-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NEHA PARANJPE A RS
• Keywords: Additional evidence
• Section: 143(3); 201; 192; 64; 73; 72; 13; 145(3); 22; 131

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI S . RIFAUR RAHMAN, AM & SHRI PAVAN KUMAR GADALE, J M ./ I.T.A. NO . 1782/MUM/2013 ( / ASSESSMENT YEAR: 2009 - 10 ) BLUE BUGGET JEWELS PVT. LTD. 314, PANCHRATNA, OPERA HO USE, MUMBAI - 400 004 / VS. ACIT 5 (1) , ROOM NO. 568 , 5 TH FLOOR, M. K. ROAD, AAYAKAR BHAVAN, MUMBAI - 400 020 ./ ./ PAN NO. AA ACB9761C ( / APPELLANT ) : ( / RESPONDENT ) / ASSESSEE BY : SHRI K. GOPAL & MS. NEHA PARANJPE , AR S / RESPONDENTBY : MRS KAVITA P. KAUSHIK , DR VIRTUAL D ATE OF HEARING : 0 5 .10 .2020 DATE OF PRONOUNCEMENT : 11.12.2020 / O R D E R PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER : THE PRESENT A PPEAL HAS BEEN FILED BY THE ASSESSE E AGAINST THE ORDER OF LD. COMMIS S IONER OF INCOME TAX (APPEALS) - 9 IN SHORT REFERRED AS LD. CIT(A) , MU MBAI DATED 04.12 . 2012 FOR A SSESSMENT YEAR (IN SHORT A Y ) 2009 - 10 . 2 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. 2 . THE BRIEF FACTS OF THE CASE ARE, ASSESSEE IS A PRIVATE LIMITED COMPANY REGISTERED UNDER COMPANIES ACT, 1956 WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF DIAMONDS AND GOLD JEWELLERY. THE ASSESSMENT Y EAR UNDER CONSIDERATION IS 2009 - 10. THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECLARING TH E TOTAL INCOME AT RS.81,45,080/ - FOR THE PRESENT ASSESSMENT YEAR WHICH WAS SELECTED FOR THE SCRUTINY ASSESSMENT. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO ASKED FOR VARIOUS DETAILS WHICH WERE DULY SUBMITTED BY THE ASSESSEE FROM TIME TO TIME. 3. DURING THE A SSESSMENT PROCEEDI NGS , B ASED ON THE DOCUMENTS SUBMITTED, THE AO OBSERVED AS UNDER: 3.1. THE ASSESSEE HAD VALUED CLOSING STOCK OF THE POLISHED DIAMOND STOCK AT SURAT INCORRECTLY. IN VIEW OF THE AO , THE ASSESSEE HAD FABRICATED ITS BOOKS OF ACCOUNT, MANIPULATED THE STOCK AND C ONSIDERED THE PURCHASES MADE PRIOR TO 25.03.2009 IN THE STOCK WHICH IN THE OPINION OF THE AO WERE ALREADY SOLD. 3.2. THE ASSESSEE HAD NOT MAINTAINED DETAILS SUCH AS QUALITY AND SIZE OF THE POLISHED DIAMONDS IN THE STOCK REGISTER MAINTAINED FOR THE YEA R. FURTHER, THE AO OBSERVED THAT THE ASSESSEE HAD DECLARED SOME SMALL 3 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. PERCENTAGE OF PROFIT ON THE PURCHASES MADE TILL FEBRUARY, 2009 AND THEREAFTER, HAD BOOKED THE LOSS ON THE PURCHASES MADE IN THE MONTH OF MARCH, 2009. ON PAGE NO. - 3 OF THE ASSESSMENT ORD ER, THE AO LISTED OUT THE TRANSACTIONS ENTERED IN MARCH, 2009. 3.3. WITH REGARD TO ROUGH DIAMONDS, THE AO NOTICED THAT THE ASSESSEE HAD NOT MAINTAINED THE DETAILS OF ROUGH DIAMONDS ON THE QUALITY PARAMETER. 3.4. AFTER GOING THROUGH THE SAMPLE INV OICES OF LABOUR CHARGES, THE AO OBSERVED THAT THE INVOICES DO NOT CONTAIN QUALITATIVE DETAILS OF THE POLISHED DIAMONDS AND THE BASIS OF CALCULATION OF WEIGHT LOSS IS NOT MENTIONED THEREIN. THE AO WAS ALSO OF THE VIEW THAT NO QUALITATIVE INFORMATION OF DIAM OND PROCESSING WAS MAINTAINED IN THE RECORDS. FURTHER, IT WAS OBSERVED BY THE AO THAT SALE BILLS DO NOT CONTAIN THE DETAILS LIKE WEIGHT, SIZE AND RATE OF DIAMONDS. 4. ON THE BASIS OF THE AFORESAID OBSERVATIONS, THE AO FOUND THE FOLLOWING DEFECTS: - I. THE DETAILS SUCH AS QUALITY, SIZE, PURITY AND CLARITY ARE NOT MAINTAINED FOR LOCAL PURCHASES AND SALES OF ROUGH AND POLISHED DIAMONDS. THE ASSESSEE HAD SYSTEMATICALLY 4 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. BOOKED THE LOSS OF RS. 56,64,499/ - ON THE TRANSACTIONS ENTERED IN MARCH, 2009. II. THE AO , IN THE PROCEEDINGS INITIATED AGAINST THE DIRECTOR OF RIDDHI SIDDHI DIAMONDS U/S 131 OF THE ACT, OBSERVED THAT ALL THE PURCHASES WERE MADE BY THE AFORESAID ENTITY FROM M/S. S. JHAVERI IN WHICH THE DIRECTORS OF THE ASSESSEE WERE PARTNERS. THE AO WAS OF THE VIEW THAT THE SAID TRANSACTIONS WERE CIRCULAR IN NATURE AND IN THE ABSENCE OF THE QUALITATIVE DETAILS, IT IS NOT POSSIBLE TO ASCERTAIN WHETHER THESE TRANSACTIONS WERE UNDERTAKEN AT ARM'S LENGTH PRICE. III. THE AO DOUBTED THE CORRECTNESS AN D COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE , REJECTED THE SAME U/S 145(3) OF THE ACT AND PR OCEEDED TO DETERMINE THE INCOME ON THE ESTIMATION BASIS. THE TOTAL ADDITION OF RS. 3,85,52,981/ - WAS MADE BY THE AO TO THE RETURNED INCOME OF THE ASSESSEE AS UNDE R: I . T HE TOTAL LOSS, OF RS. 56,64,499/ - ; ON THE TRANSACTIONS ENTERED IN THE MONTH OF MARCH. 2009 WAS ADDED TO THE RETURNED INCOME OF THE ASSESSEE. II . RS. 3,28,88,392/ - BEING 2% OF THE GR OSS SALES OF RS. 1,64,44,19,623/ - WAS ADDED ON THE 5 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. OBSERVAT ION THAT THE GP OF THE ASSESSEE FOR THE YEAR IS VERY LOW. 5. THE AO PASSED THE ASSESSMENT ORDER ON 29.12.2011 U/S 143(3) OF THE ACT AGAINST WHICH THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A) - 9, MUMBAI. 6. BEFORE THE LD. CIT(A), THE ASSESSEE FILED WRITTEN SUBMISSIONS DATED 11.08.2012 AND 05.10.2012 INCLUDING THE APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE (PAGES 67 TO 76 OF THE PAPER BOOK). IT IS POINTED OUT AT THIS STAGE THAT THE ASSESSEE DEALT WITH EACH OBSERVATION OF THE AO AND REFUTED THE S AME IN A DETAILED MANNER. SINCE THE ASSESSEE SUBMITTED SOME DOCUMENTS IN THE FORM OF ADDITIONAL EVIDENCE, THE LD. CIT(A) SENT IT BACK TO THE AO AND ASKED TO FURNIS H A COPY OF THE REMAND REPORT WHICH IS AT PAGES NO. 83 TO 86 OF THE PAPER BOOK. THE REMAND REP ORT DATED 12.11.2012 WAS SUBMITTED BY THE AO TO THE LD. CIT(A) WHICH WAS, THEREAFTER HANDED OVER TO THE ASSESSEE FOR ITS COMMENTS. ACCORDINGLY, THE ASSESSEE FILED A REPLY DATED 01.12.2012 WHICH IS AT PAGE NO. 87 TO 111 OF THE PAPER BOOK . 6 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. 7. SUBSEQUENTLY, THE LD. CIT(A) ADJUDICATED THE ISSUE BASED ON THE AFORESAID DOCUMENTS AND DISMISSED THE SAME ON THE FOLLOWING OBSERVATIONS. I. THE LD. CIT(A) REJECTED ALL THE DOCUMENTS SUBMITTED IN THE FORM OF ADDITIONAL EVIDENCE ON THE OBSERVATIONS THAT THEY ARE N OT SIGNED AND MOREOVER, THEY DO NOT THROW ANY LIGHT ON THE QUALITATIVE DETAILS OF DIAMONDS; II. THE LD. CIT(A) CONFIRMED THE STAND OF THE AO OF REJECTING THE BOOKS OF ACCOUNT ON THE GROUND THAT THE QUALITATIVE DETAILS OF DIAMOND WERE NOT MAINTAINED BY THE APPELLANT. III. THE LD. CIT(A) F OUND THE ACTION OF THE AO REASONABLE AND CONFIRMED THE ESTIMATION OF GP @2% BASED ON THE GP RATES OF THE PRECEDING TWO ASSESSMENT YEARS. IV. THE LD. CIT(A) RELIED ON CERTAIN CASE LAWS IN ORDER TO SUPPORT HIS CONCLUSION. 8 . AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE IS IN APPEAL BEFORE US ON THE GROUNDS MENTIONED BELOW: - 7 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. 1. THE LD. COMMISSIONER OF INCOME TAX (APPEAL) - 9, MUMBAI [HEREINAF TER REFERRED TO AS LD . CIT(A)] ERRED IN PASSING ORDER DATED 4 TH DECEMBER, 201 2 CONFIRMIN G THE ASSESSMENT ORDER DATED 29 TH DECEMBER, 2011 PASSED UNDER SECTION 143(3) OF THE ACT DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 4,68,37,090/ - AS AGAINST RETURNED INCOME OF RS. 81,45,080/ - MAKING FOLLOWING ADDITIONS AND DISALLOWANCES: SR. NO PARTICULARS AMOUNT (RS. A ADDITION ON ACCOUNT OF LOSS SUFFERED IN LOCAL TRADING TREATING THE SAME AS FICTITIOUS LOSSES 56,64,499 B ESTIMATION OF GROSS PROFIT BY REJECTING BOOK RESULTS 3,28,88,392 A. ADDITION ON ACCOUNT OF LOSS SUFFERED IN LOCAL TRADING TREATING THE SAME AS FICT ITIOUS LOSSES RS. 56,64,492/ - 2. THE LD. CIT(A) ERRED IN CONFIRMING ADDITION OF RS. 56,64,499/ - TREATING THE LOSS SUFFERED IN LOCAL TRADING AS FICTITIOUS SALES WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE I S NOT AT ALL JUSTIFIED AND THE SAME MAY BE DELETED. 3. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE DEALS IN VARIETY OF DIAMONDS AND THEREFORE, IT IS NOT POSSIBLE TO MAINTAIN SEPARATE ACCOUNT OF THE DIAMONDS 8 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. TRADED BY THE APPELLANT. THUS THE ADDIT ION OF RS. 56,64,499/ - IS NOT AT ALL JUSTIFIED AND THE SAME MAY BE DELETED. 4. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE LD. A. O . HAS NOT BEEN ABLE TO POINT OUT THAT THE ASSESSEE HAS UNDERSTATED ITS INCOME BY SELLING THE DIAMONDS OUTSIDE BOOKS OF ACCOUNT. THEREFORE, THE ADDITION OF RS. 56,64,499/ - TREATING THE LOSS AS FICTITIOUS LOSS IS NOT JUS TIFIED AND HENCE, THE SAME MAY B E DELETED. B. ESTIMATION OF GROSS PROFIT BY REJECTING BOOK RESULTS RS. 3,28,88,392/ - 5. THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.0. IN MAKING ADDITION OF 3,28,88,392/ - BY REJECTING THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. THE APPELLANT, THEREFORE, PRAYS THAT THE ADDIT ION OF RS. 3,28,88,392/ - IS UNJUSTIFIED AND HENCE, THE SAME MAY BE DELETED. 6. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE MAINTAINS PROPER STOCK REGISTER GIVING THE QUANTITATIVE AND QUALITATIVE DETAILS OF DIAMONDS AND THE SAME WAS FURNISHED DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS AND APPELLATE PROCEEDINGS. HENCE, THE 9 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. ADDITION OF RS. 3,28,88,392/ - IS NO T AT ALL JUSTIFIED AND THE SAME MAY BE DELETED. 7. THE ASSESSEE CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 9 . WITH REGARD TO GROUND NO. 1 TO 4 IN RESPECT OF A DDITION OF RS. 56, 64, 499/ - ON ACCOUNT OF LOSS SUFFERED IN LOCAL TRADING TREATIN G THE SAME AS FICTITIOUS LOSSES, LD. AR SUBMITTED THAT AO DISALLOWED THE LOSS AND MADE AN ADDITION OF RS. 56,64,499/ - ON THE OBSERVATIONS THAT THE SAID TRANSACTIONS WERE CAR RIED OUT IN THE MONTH OF MARCH, 2009 IN ORDER TO BOOK LOSSES. THE AO RELIED ON THE STATEMENT MR. KAMAT AS RECORDED U/S 131 OF THE ACT IN WHICH HE HAD MENTIONED THAT HIS CONCERN PURCHASED THE DIAMONDS FROM M/S . S. JHAVERI (PARTNERSHIP FIRM O F THE DIRECTORS OF THE ASSESSEE ) AND SOLD THE SAME TO THE ASSESSEE AND CONCLUDED THAT THE TRANSACTIONS WERE CIRCULAR IN NATURE. BEFORE THE LD. CIT(A), THE ASSESSEE MADE A DETAILED SUBMISSION WHICH IS AT PAGE NO. 73 OF THE PA PER BOOK AND ELABORATELY EXPLAINED AS TO WHAT WAS THE COMMERCIAL/BUSINESS NEED WHICH COMPELLED THE ASSESSEE TO SELL THE DIAMONDS PURCHASED FROM M/S. RIDDHI SIDDHI DIAMONDS AT LOSS. HOWEVER, THE LD. CIT(A) DID NOT FIND ANY OBJECTION IN THE 10 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. SAID SUBMISSION. HOWEVER, HE REMAINED SILENT ON THE SAID ISSUE IN THE IMPUGNED ORDER. 10. LD. AR FURTHER SUBMITTED THAT MR. KAMAT, IN HIS STATEMENT, HAS NOT MENTIONED THAT THE TRANSACTIONS OF M/S. RIDDHI SIDDHI DIAMONDS WITH THE ASSESSEE WERE SHAM. AS ELABORATELY EXPLAINED AT PAGE 73 OF THE PAPER BOOK, THE ASSESSEE HAD TO SELL DIAMONDS BELOW THE PURCHASE PRICE DUE TO THE COMPELLING FACTORS AND THE SAID TRANSACTIONS CANNOT BE CONSIDERED AS SHAM MERELY BECAUSE THE TRANSACTIONS THAT RESULTED IN LOSS WERE WITH THE KNOWN/RELATE D PARTIES. HE SUBMITTED THAT IT IS A WELL SETTLED LAW THAT A LAW DOES NOT OBLIGE THE PERSON TO MAXIMISE HIS PROFITS EVEN WITH KNOWN/RELATED ENTITIES . HE STRONGLY RELIES ON THE DECISIONS OF THE HON'BLE SUPREME COURT IN. THE CASES OF 'CIT V. A. RAMAN AND CO . [1968] 67ITR11/ AND CIT VS. CALCUTTA DISCOUNT CO. LTD'. IN THE LIGHT OF THE ABOVEMENTIONED SUBMISSION, HE REQUESTED TO DELETE THE AFORESAID ADDITION OF RS. 56,64,499/ - . 11. WITH REGARD TO GROUND NO. 5 & 6 IN RESPECT OF ADDITION OF RS. 3,28.88.392/ - ON AC COUNT OF ESTIMATION OF GROSS PRO FITS BY REJECTING BOOK RESULTS, LD. AR SUBMITTED THAT THE ADDITION OF RS. 11 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. 3,28,88,392/ - AS MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) IS IN CONTRADICTION WITH THE LEGAL POSITION AND THE FACTS UNDER CONSIDERATION. IT IS P OINTED OUT THAT THOUGH THE AO IN HIS ORDER MENTIONED THAT HE HAD REJECTED THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT, THE AO PASSED THE ASSESSMENT ORDER DATED 29.12.2011 U/S 143(3) OF THE ACT DETERMINING THE TOTAL INCOME OF THE ASSESSEE ON THE BASIS OF THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION WH ICH TRANSPIRES FROM THE PAGE NO. 9 OF THE ASSESSMENT ORDER DATED 29.12.2011. THUS, HE SUBMITTED THAT THIS STAND OF THE AO IS COMPLETELY CONTRARY TO THE REJECTION OF ACCOUNTS U/S 145(3) OF THE ACT AND THUS, THE ADDITION OF RS. 3,28,88,392/ - ON THE BASIS OF REJECTION OF ACCOUNTS MAY BE DELETED . 12. HE FURTHER SUBMITTED THAT T HE SOLE REAS ON FOR THE REJECTION OF BOOKS OF ACCOUNT IS NON - MAINTENAN C E OF QUALITATIVE DETAILS OF DIAMONDS. I T IS PRACTICALLY I MPOSSIBLE FOR ANY DIAMOND DEALER TO MAINTAIN SIZE, QUALITY DETAILS REGARDING EACH AND EVERY DIAMOND PURCHASED CONSIDERING LARGE QUANTITIES IN WHICH THEY ARE USUALLY PURCHASED AND SOLD. IT IS AN A DMITTED FACT THAT THE ASSESSEE HAD 12 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. MAINTAINED ALL OTHER RELEV ANT DETAILS WHICH ARE NECESSARY FOR THE VALUATION PURPOSE. FURTHER, BEFORE THE LD. CIT(A), THE ASSESSEE CLARIFIED THAT THE STOCK AT SURAT WAS CORRECTLY MAINTAINED. HOWEVER, ON ACCOUNT OF SOME INADVERTENCE, SOME INCORRECT DETAILS WERE PROVIDED DURING THE CO URSE OF THE ASSESSMENT PROCEEDINGS. FURTHER, NEITHER THE PROVISIONS OF COMPANIES ACT, 1956 NOR THE ACCOUNTING STANDARD - 2 PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA IMPOSE AN OBLIGATION ON A DEALER TO MAINTAIN QUALITATIVE DETAILS OF STOCK. IT IS PERTINENT TO NOTE THAT THE ACCOUNTS OF THE ASSESSEE WERE SUBJECT TO AUDIT UNDER COMPANIES ACT, 1956 AS WELL AS THE INCOME TAX ACT, 1961. THUS, HE SUBMITTED THAT THE LD. CIT(A) AS WELL AS THE AO ERRED IN REJECTING THE BOOKS OF ACCOUNT U/S 145(3) OF T HE ACT ON THIS ASPECT. THE ASSESSEE RELIES ON THE DECISION OF THE HON'BLE ITAT - AHMEDABAD BENCH IN THE CASE OF ' PANKAJ DIAMONDS VS. A CIT [2010] 5 ITR(TRIB.) 469 (AHMEDABAD)' . 13. LD. AR FURTHER RELIED ON THE DECISION OF HON'BLE ITAT AHMEDABAD C BENCH IN T HE CASE OF DCIT VS M/S KABIR JEWELS 13 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. PVT LTD. [ITA 3054/AHD/20G93 (A.Y. 2006 - 07) AT PAGE 10 IN PARA 5 HAS OBSERVED AS UNDER: - ' THE CASE CITED BY THE A. O. ARE NOT COMPARABLE FURTHER HE ONLY MADE THE GROUND FOR REJECTION OF BOOK RESULT I.E. NOT MAINTAINING QUALITATIVE DETAILS OF THE OPENING STOCK, PURCHASE SALE AND CLOSING STOCK. AS VARIOUS CO - ORDINATE BENCH HAD DECIDED THAT THIS IS NOT A SUFFICIENT GROUND FOR REJECTING THE BOOK - RESULT. THE A.O. HAS TO BRING ON RECORD OTHER E VIDENCES WHICH SUPPORT THE REJECT ION OF BOOK RESULT, WHICH HAS NOT BEEN FOUND PLACE IN THE ASSESSMENT ORDER.' 14. HE FURTHER CLARIFIED THAT IN THE CASE OF THE ABOVE - MENTIONED CASE LAWS THE G. P . RATE WAS MUCH HIGHER AS THE SAME WERE PRIOR TO GLOBAL MELT DOWN IN THE YEAR 2008. THE PRESENT CASE AT HAND IS THE PREVIOUS YEAR 1/4/2008 TO 31/03/2009. THE GLOBAL MELT DOWN HAD EFFECTED JEWELLERY AND DIAMOND BUSINESS VERY BADLY. HENCE, HE PRAYS THAT RELYING ON THE RATIO LAID DOWN BY THE HON'BLE TRIBUNAL IN THE ABOVE - MENTIONED CASE LAW THE ADDITION MAY BE DELETED. 15. HE FURTHER SUBMITTED THAT AO AS WELL AS THE LD. CIT(A) DID NOT CONSIDER THE SUBMISSIONS OF THE ASSESSEE AND REJECTED THE 14 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. BOOKS OF ACCOUNT AND ESTIMATED THE GP @2% ON THE OBSERVATION THAT THE ASSESSEE HAD DISCLOSED SIMILAR GROSS PROFIT R ATES FOR THE PRECEDING YEARS. IT IS SUBMITTED THAT THE ASSESSEE CATEGORICALLY MENTIONED BEFORE BOTH THE LD. AUTHORITIES, MORE SPECIFICALLY BEFOR E THE LD. C IT(A) THE REASONS FOR SUCH A FALL I N GP RATE FOR THE PRESENT YEAR WHICH IS AT P A GES 71 AND 72 OF THE PAPER BOOK . HOWEVER, SUCH REASONS WERE NOT APPRECIATED BY THE LD. CIT(A). IT IS NOW WELL SETTLED PROPOSITION OF LAW THAT MERE FALL IN GP IS NOT A SUFFICIENT REASON TO REJECT BOOKS OF ACCOUNT U/S 145(3) OF THE ACT AND RELIED ON THE FOLLOWING DECISIONS : - I . CIT VS. SMT. POONAM RANI [2010] 192 TAXMAN 167 (DELHI) II . CIT VS. SWASTIK FOODS - [2015] 61 TAXMANN.COM 83 (HIMACHAL PRADESH) . III . PCIT VS. IBILT TECHNOLOGIES LTD - [2018] 98 TAXMANN.COM 255 (DELHI) 16. HE FURTHER SUBMITTED THAT THE CASE LAWS RELIED UPON BY THE LD. CIT(A) IN THE LAST PARAGRAPH OF THE IMPUGNED ORDER ARE NOT 15 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. APPLICABLE TO THE FACTS UNDER CONSIDERATION. IN 'SHRI VENKTESHWAR SUGAR MILLS VS. CIT(A) [2012] 341ITR 588 (ALLAHABAD)', THE HON'BLE HIGH COURT UPHELD THE REJECTION OF ACCOUNTS AS CERTAIN D ISCREPANCIES WERE FOUND IN THE BOOKS OF ACCOUNT AND NO STOCK REGISTER FOR GUNNY BAGS, DIESEL CONSUMPTION AS WELL AS CONSUMABLE STORES LIKE SULPHUR, SALT AND LIME, ETC., WERE NOT OPEN FOR PROPER VERIFICATION. IN 'CIT VS. INDO NIPPON CHEMICALS CO. LTD [2003] 261 ITR 275 (SC)' THE ISSUE WAS WITH REGARD T O VALUATION OF STOCK AND THERE WAS NO REJECTION OF ACCOUNTS U/S 145(3) OF THE ACT. IN 'AMBA RICE MILLS VS. CIT [2010] 325 ITR 33 (PUNJAB & HARYANA)', AGAIN THE QUESTION OF REJECTION OF BOOKS OF ACCOUNT NEVER EX ISTED AND THE CASE WAS DECIDED ON PECULIAR FACTS. IT IS SUBMITTED THAT NONE OF THE ABOVE DECISIONS APPLIES TO THE PRESENT ISSUE UNDER CONSIDERATION AND THE LD. CIT(A) IS NOT CORRECT IN RELYING ON THE SAID DECISIONS HAVING DISTINGUISHING FEATURES. THUS, HE REQUESTED TO DELETE THE ADDITION OF RS. 3,28,88,392/ - . 17 . ON THE OTHER HAND, LD. DR SUBMITTED THAT AO HAS VERIFIED THE BOOKS OF ACCOUNT, BUT NOT ON THE BASIS OF GP. HE OBJECTED TO 16 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. THE VIEW OF LD. AR THAT AO PROCEEDED TO MAKE ADDITION BASED ON GROSS PROFIT . FOR THAT PURPOSE, HE BROUGHT TO OUR NOTICE PAGE NO. 3 & 4 OF THE ASSESSMENT ORDER. HE RELIED IN THE CASE OF PCIT VRS. SAMEER DIAMONDS EXPORTS PVT. LTD. 71 ITD 75 (1999), WHICH IS SIMILAR TO ASSESSEES OWN CASE AND HE HEAVILY RELIED ON THE ORDER OF AO AND LD. CIT(A). 18 . CONSIDERED THE RIVAL SUBMISSION AND MATERIAL PLACED ON RECORD. WITH REGARD TO GROUND NO. 1, W E NOTICE FROM THE RECORD THAT AO OBSERVED WHILE REJECTING THE LOSSES DECLARED BY ASSESSEE TO THE EXTENT OF RS. 56 , 64 , 499 / - THAT ON PERUSAL OF THE E XPORT INVOICES, IT IS OBSERVED BY HIM THAT THE QUALITY OF DIAMONDS EXPORTED HAS COMPLETE INFO RMATION. H OWEVER , THERE IS NO SUCH DETAILS ARE AVAILABLE IN VARIOUS SALES AND PURCHASE INVOICES IN RESPECT OF LOSSES DECLARED . WE NOTICE THAT AO HAS NOT BROUGHT ON RECORD WHETHER HE EXPRESS ING HIS OPINION ON POLISHED DIAMONDS OR UNPOLISHED. ASSESSEE HAS EXPLAINED IN THEIR SUBMISSION BEFORE BOTH AUTHORITIES THAT THEY D EAL WITH POLISHED AS WELL AS UNPOLISHED. I T IS PRACTICE OF THE ASSESSEE THAT THEY TRADE ON UN POLISHE D DIAMONDS WITHOUT ANY SPECIFICATION . W ITH REGARD TO 17 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. POLISHED DIAMONDS , THEY CATEGORISE THE DIAMONDS AS PER THE LOT AND S ELL BASED ON THE DIAMOND . A NY LEFT OVER IN THAT LOT IS KEPT IN THE SAME PACKET . W HEN THEY SALE LOCALLY , IT IS EVALUATED AT THE TIME OF POINT OF SALE AND COMPLETE THE TRANSACTION. T HE BALANCE IS AG AIN KEPT IN THE SAME PA CKET . I T IS NOT PRACTICAL TO DEAL IN SUCH HUGE CATEGORY OF QUALITY WITH THEIR SIZE AND CUT , EVERY INDUSTRY HAS IT ITS OWN WAY OF DEALING WITH THE STOCK. T HE TAX AUTHORITIES HAS TO UNDERSTAND T HE INDUSTRY AND THEIR CUSTOM OF DEALING WITH THEIR STOCK KEEPING . J UST BECAUSE IN EXPORT INVOICE S, IT IS MENTIONED AND EXPORTED AS SUCH , IT IS DOES NOT MEAN THAT THE STOCK ALSO HAS TO BE MAINTAINED SIMILAR MANNER. THE EXPORT ORDERS ARE RECEIVED WITH PARTICULAR SPECIFICATION AND THE SAME ARE EXPORTED. I N THE LOCAL MARKET , THE SALES ARE COMPLETED BASED ON THE REQUIRED SPECIFICATION AND TRANSACTIONS ARE COMPLETED AT THE POINT OF SALE EVALUATION WHERE BOTH THE PARTIES BUYER AND SELLER AGREES WITH THE TERMS OF QUALITY AND PRICE. 19. I N THE GIVEN CASE , ASSESSEE HAS DEALT WITH THE RELATED PERSONS AND JUST BECAUSE , IT IS DEALT W ITH THE RELATED PERSONS AND ASSESSEE INCURRED CERTAIN LOSS, IT DOES NOT MEAN TH AT ASSESSEE HAD 18 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. ONLY INVOLVE IN BOOKING F ICTITIOUS LOSSES. T HERE IS NO SPECI FIC FINDING BY THE TAX AUTHORITIES THAT ASSESSEE HAS SOLD AND RECORDED SUCH LOSSES WITH SPECIFIC FINDINGS. I N CASE , AO HAS DOUBT WITH THE TRANSACTION, HE COULD HAVE V ERIFIED THE INDIVIDUAL TRANSACTION S WITH SPECIFICATION OF SALES AND SPECIFICATION OF EXPORT INVO ICES AT THE SIMILAR POINT OF TIME. THERE IS NO SUCH INVESTIGATION MERELY BASED ON THE OBSERVATION THAT ASSESSEE HAS NOT MAINTAINED STOCK REGISTER WITH QUALITY , HE HAS REJECTED THE LOSSES RECORDED BY THE ASSESSEE. EV EN LD. CIT(A) REJECT ED THE PAPER BOOK JUST BECAUSE THERE ARE S OME DISCREPANCIES IN THE SUBMISSION OF CERTAIN DOCUMENTS , HE COULD HAVE ASKED THE ASSESSEE TO SUBMIT PRO PER DOCUMENTS BEFORE HIM AND HE COULD HAVE GIVEN ANOTHER OPPORTUNITY TO AS SESSEE TO RECTIF Y THE DEFECTS. I N OUR CONSIDERED VIEW , THE D EALINGS IN THE DIAMONDS REQUIRE SPECIAL KNOWLEDGE , INDUSTRY EXPERIENCE AND THE RATES ARE VOLATILE. AO CANNOT PRESUME AND MADE ADDITION OR REJECT THE TRANSACTION MERELY BECAUSE OF LOSSES DECLARED BY THE ASSESSEE. T HEREFORE , WE ARE INCLINED TO ALLOW THE GROUND RAISED BY THE ASSESSEE . A CCORDINGLY , GROUND N O. 1 RAISED BY ASSESSEE IS ALLOWED . 19 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. 20. WITH REGARD TO GROUND NO. 2, WE NOTICE THAT THE TAX AUTHORITIES HAVE REJECTED THE BOOK RESULTS MERELY BECAUSE ASSESSEE HAS N OT MAINT AINED STOCK REGISTER QUALITY WISE . AS DISCUSSED I N THE PREVIOUS PARA , IT IS THE METHOD FOLLOWED BY THE ASSESSEE AND IT SU ITS THE ASSESSEE. A S HELD IN THE CASE OF M/S KABIR JEWELS PVT. LTD. (SUPRA), THE CO - ORDINATE B ENCH HAS OBSERVED THAT AO ONLY MA DE THE GROUND FOR REJECTION OF BOOKS RESULT I.E. NOT MAINTAINING QUALITATIVE DETAILS OF THE OPENING STOCK , PURCHASE , SALES AND CLOSING STOCK. I T HELD THAT IT IS NOT A SUFFICIENT GROUND F OR REJECTING THE BOOK RESULTS. T HE AO HAS TO BRING ON RECORD OT HER EVI DENCES WHICH SUPPORT THE REJECTION OF BOOK RESULTS. 21. IN THE PRESENT CASE ALSO, AO HAS HEAVILY RELIED ON THE QUALITATIVE DETAILS, WHICH ASSESSEE HAS NOT MA INTAINED AND FOR THIS REASON ONLY THE BOOKS RESULTS WERE REJECTED. RESPECTFULLY FOLLOWING THE ABOV E DECISION I.E. KABIR JEWELS (SUPRA), WE ARE INCLINED TO COME TO THE CONCLUSION THAT AO CANNOT REJECT THE BOOK RESULT MERELY ON THIS ISSUES OF MAINTAINING QUALITATIVE DETAILS IN THE STOCK REGISTER. 20 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. 22. FURTHER, WE NOTICE THAT AO HAS OBSERVED IN HIS ORDER T HAT THE ASSESSEE HAS DECLARED MEAGER GP COMPARED TO EARLIER TWO ASSESSMENT YEARS. WE NOTICE FROM THE RECORD THAT THE OBSERVATION OF THE AO IS NO T CORRECT , AS PER BOOK RESULT, THE ASSESSEE HAS ACHIEVED 2.42% OF GP AND 0.46 % OF NP. W HEN COMPARED TO PREVIOUS YEARS FIGURE OF 2.86% AND 0.68% RESPECTIVELY. E VEN AO REJECTED THE BOOK RESULTS IN ORDER TO ESTIMATE THE G.P , HE SHOULD HAVE MATCHED THE AVERAGE PREVIOUS TWO YEARS GP AND NP RATIOS. I N OUR VIEW, AO PROCEEDED WITH THE WRONG NOTION THAT THERE IS NO SUFFICIEN T GP , HE ACCORDINGLY ADDED 2% AS ADDITIONAL GP. 23. WE REJECT THE PROPOSITION OF MAKING 2% ADDITIONAL GP AS TH E ADDITIONAL NET PROFIT. T HE REVENUE AUTHORITIES CAN NOT PRESUME THE WAY THEY EXPECT THE ASSESSEE TO CONDUCT THEIR BUSINESS AND ACHIEVE THE EXPECT ED MARGIN IN EACH TRANSACTION IS NOT PRACTICAL. T HEREFORE , IN OUR VIEW , THE RESULT HAS TO BE EVALUATED BASED ON THE MARKET SITUATION AND THE REGULAR PRACTICE O F THE ASSESSEE OVER THE YEARS. S INCE , THE DIAMOND INDUS TRY RATES AND QUALITIES ARE BASED ON MARKE T DEMAND AND SUPPLY , FURTHER, THE ASSESSEE MAINTAIN S THE BOOKS IN THIS PARTICULAR METHOD AND THE SAME METHOD WAS 21 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. FOLLOWED OVER THE YEARS , THE RESULTS OF THOSE YEARS WERE NOT REJECTED . T HEREFORE , WE ARE IN CLINED TO ACCEPT THE SU BMISSION OF THE ASSESSEE AND FURTHER LD. DR RELIED ON THE CASE SAMEER DIAMONDS EXPORTS (SUPRA). IN THIS CASE, THE ASSESSEE HAD EXPORTED DIAMOND TO ITS SISTER CONCERN ABROAD AND FAILED TO DISCLOSE THE DETAILS OF PROCUREMENT OF DIAMOND WITH QUALITATIVE DETAILS. B ECAUSE OF THIS REASON , T HE BOOKS WERE REJECTED . IN THE GIVEN CASE , AO ACCEPTS THAT ASSESSEE HAS DECLA RED ALL THE DETAILS FOR THE EXPORTS. T HE FACTS ARE DISTINGUISHABLE TO THE PRESENT CASE . ACCORDINGLY GROUND NO. 2 RAISED BY THE ASSESSEE IS ALLOWED . 24 . IN THE NET RESULT, THE APPE AL FI LED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 11.12. 2020 . SD/ - SD/ - (PAVAN KUMAR GADALE ) (S. RIFAUR RAHMAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBE R MUMBAI ; DATED : 11.12 .2020 SR.PS. DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE ASSESSEE 2. / THE RESPONDENT 22 I.T.A. NO. 1782 /MUM/201 3 BLUE BUGGET JEWELS PVT. LTD. 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI