Appeal Details
Counselvise Citation
[2012] 140 COUNSELVISE.COM (IT) 60272 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 10 month(s) 2 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
20-04-2012
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
D
Next Hearing Date
05-09-2017
Assessment Year
2006-2007
Appeal Filed On
17-06-2009
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE SHRI MUKUL KR. SHRAWAT, JM AND SHRI A. MOHA N ALANKAMONY, AM) ITA NO.1975/AHD/2009: A. Y.: 2006-07 THE D. C. I. T., CIRCLE-9, ROOM NO.423, 4 TH FLOOR, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS M/S. PANKAJ DIAMOND, 4-7, KRISHNA DIAMOND PARK, KAPODARA, VARACHHA ROAD, SURAT P. A. NO. AADFP 5145L (APPELLANT) (RESPONDENT) APPELLANT BY SHRI D. P. GUPTA, CIT DR RESPONDENT BY SHRI S. N. SOPARKAR AND SHRI P. M. MEHTA, AR DATE OF HEARING: 06-03-2012 DATE OF PRONOUNCEMENT: 20-04-2012 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST ORDER OF THE LEARNED CIT(A)-V, SUR AT DATED 31 ST MARCH, 2009, FOR ASSESSMENT YEAR 2006-07 IN APPEAL NO. CAS -V/303/08-09 ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A)-V, SURAT, HAS ERRED IN DELETING THE ADDI TION OF RS.2,27,44,941/- MADE ON ACCOUNT OF SUPPRESSION OF YIELD INSPITE OF PAPERS IMPOUNDED DURING THE SURVEY ON AS SESSEE- FIRM AND THE INTERNAL AND EXTERNAL COMPARISON MADE BY THE A. O. SUGGEST THAT ASSESSEE-FIRM HAS SUPPRESSED THE YIELD? ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A)-V, SURAT, HAS ERRED IN DELETING THE ADDI TION MADE ON ACCOUNT OF SUPPRESSION OF YIELD OF RS.2,27,44,94 1/- ACCEPTING THE DIFFERENT MUTUALLY INCOHERENT EXPLANA TIONS FURNISHED BY THE ASSESSEE-FIRM FOR DIFFERENT ENTRIE S ON THE IMPOUNDED PAPERS FOUND DURING THE SURVEY? 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A)-V, SURAT, HAS ERRED IN ACCEPTING THE CON TENTION OF THE ASSESSEE THAT RS.1,74,11,890/- IS A BUSINESS LO SS WHEREAS IN THE RETURN OF INCOME ASSESSEE-FIRM ITSEL F CLAIMED THAT THE SAID LOSS AS SPECULATION LOSS? 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, WHETHER THE LD. CIT(A)-V, SURAT, IS JUSTIFIED IN GI VING CREDIT OF ALLEGED FOREIGN EXCHANGE GAIN IN IMPORT AND EXPORTS AGAINST LOSS OF RS.1,74,11,890/- INCURRED BY ASSESSEE-FIRM BY SPECULATING THE FORWARD EXCHANGE CONTRACTS? 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, WHETHER THE LD. CIT(A)-V, SURAT, IS JUSTIFIED IN CO NSIDERING LOSS INCURRED BY ASSESSEE-FIRM BY SPECULATING IN FO RWARD EXCHANGE CONTRACTS WHICH ARE HAVING NO RELATION/TIE UP WITH THE ANY OF THE IMPORT AND EXPORT CONTRACTS OF THE A SSESSEE- FIRM OR ITS PRIME BUSINESS TRANSACTIONS AS BUSINESS LOSS? 2. BRIEFLY, THE FACTS OF THE CASE AS EMERGED FROM T HE ORDER OF THE LEARNED CIT(A), ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF IMPORT AND PURCHASE OF ROUGH DIAMONDS A ND CUTTING & POLISHING OF ROUGH DIAMONDS AND THEREAFTER EXPORT A ND LOCAL AND SALES OF THE POLISHED DIAMONDS. AS PER TRADING RESULTS THE ASSESSEE HAS SHOWN GROSS PROFIT OF RS.16,96,76,656/- @ 6.80% OF THE TO TAL TURNOVER OF RS.246,69,58,888/- IN COMPARISON TO EARLIER YEAR GR OSS PROFIT OF RS.14,28,50,454/- @ 7.30% ON THE TOTAL TURN OVER OF RS.193,79,41,937/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS VARIOUS DETAILS FURNISHED BY THE ASSESSEE WERE VERIFIED AND IT WAS NOTED THAT FALL IN GROSS PROFIT RATIO OF THE ASSESSEE DURING THE YEAR UNDER CONSIDE RATION IS 0.50%. THE ASSESSEE HAD SHOWN GROSS PROFIT MARGIN OF 6.8% AS A GAINST GROSS PROFIT ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 3 MARGIN OF 7.3% IN THE IMMEDIATELY PRECEDING ASSESSM ENT YEAR WITHOUT CONSIDERING DIVIDEND AND BANK INTEREST ETC. THE ASS ESSEE WAS CALLED FOR TO EXPLAIN THE FALL IN GROSS PROFIT MARGIN AND WAS ASKED TO EXPLAIN AS TO WHY PROFIT AT 7.3% SHOULD NOT BE ESTIMATED. DURING THE SCRUTINY PROCEEDINGS THE LEARNED AR OF THE ASSESSEE STATED T HAT THE PRIMARY REASON FOR FALL IN GROSS PROFIT MARGIN WAS ON ACCOU NT OF INCREASE IN TRADING ACTIVITY OF POLISHED DIAMONDS WHICH HAD LED TO FALL ON OVERALL BASIS, SINCE THE MARGIN IN TRADING BUSINESS IS ALWA YS LESS AS COMPARED TO MANUFACTURING AND IT WAS EXPLAINED THAT PURCHASE OF POLISHED DIAMOND HAS INCREASED FROM RS.35.77 CRORES TO RS.67 .66 CRORES. THE ASSESSEE VIDE ITS LETTER DATED 8-12-2008 EXPLAINED THAT IF THE TRADING ACTIVITY OF POLISHED DIAMONDS WAS CONSIDERED SEPARA TELY THEN THE GROSS PROFIT MARGIN FOR MANUFACTURING BUSINESS WOULD BE 8 .48% AS COMPARED TO 8.22%. 2.1 THE AO HAS ALSO STATED AT PARA 4 OF HIS ORDER T HAT A SURVEY U/S 133A OF THE IT ACT WAS CARRIED OUT IN THIS CASE ON 21-02-2008 AT THE PREMISES OF (1) KRISHNA DIAMOND PARK, SURAT, (2) SA VANI DIAMOND ESTATE, SURAT AND (3) OPERA HOUSE, MUMBAI FROM WHER E CERTAIN LOOSE PAPERS IN THE FORM OF COMPUTERIZED PRINT-OUTS WERE FOUND AND IMPOUNDED. THE AO HAS REFERRED TO PAGES 18, 20, 21 AND 22 WHICH ARE TITLED AS SUMMARY REPORT (MONTH PROJECTION), PERT AINING TO THE MONTHS OF DECEMBER, 2005 TO MARCH, 2006. THESE PAPERS WERE FOUND FROM VASANT H. RAJYAGURU WHO WAS EMPLOYEE OF THE ASSESSE E FIRM. THESE PAPERS CONTAINED THE PRODUCTION RECORD OF THE ASSES SEE FIRM FOR THE ABOVE MENTIONED FOUR MONTHS. STATEMENT OF SHRI RAJY AGURU WAS RECORDED, WHO EXPLAINED IN DETAIL, THE CONTENTS OF THE IMPOUNDED PAPERS. ON THE BASIS OF HIS STATEMENT, THE AO CONCL UDED THAT THE IMPOUNDED PAPERS REPRESENTED THE ACTUAL PRODUCTION OF CUT AND POLISHED ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 4 DIAMONDS FOR FOUR MONTHS. IT WAS SUBMITTED BY THE A SSESSEE FIRM BEFORE THE AO THAT THESE PAPERS ONLY REFLECTED PROJECTED P RODUCTION AND NOT ACTUAL PRODUCTION. IT WAS EXPLAINED THAT SHRI RAJYA GURU ON RECEIPT OF ROUGH DIAMONDS, ISSUED THE SAME FOR MANUFACTURING P ROCESS AND HE NOTED THE EXPECTED PRODUCTION OF CUT AND POLISHED D IAMONDS. IT WAS FURTHER EXPLAINED THAT EVEN IF IT IS ASSUMED THAT T HE IMPOUNDED PAPERS WERE IN RESPECT OF ACTUAL PRODUCTION OBTAINED, THER E IS NO VARIATION IN THE FIGURES RECORDED ON THE IMPOUNDED PAPERS AND IN THE STOCK REGISTER MAINTAINED BY THE ASSESSEE. IT WAS SUBMITTED THAT T HE PRODUCTION AS RECORDED IN THE STOCK REGISTER FOR THE RELEVANT FOU R MONTHS WAS NOT LESS THAN THE ESTIMATED PRODUCTION SHOWN IN THE PAPERS F OUND DURING THE COURSE OF SURVEY. THE ASSESSEE ALSO FILED A DETAILE D AFFIDAVIT FROM SHRI RAJYAGURU WHEREIN HE EXPLAINED THE EARLIER STATEMEN T BUT THE A O REJECTED THE AFFIDAVIT ON THE GROUND THAT IT WAS ON LY AN AFTERTHOUGHT, WITHOUT EXAMINING SHRI RAJYAGURU. 2.2 ANOTHER FEATURE OF THE PRODUCTION PROCESS ADVER SELY NOTED BY THE AO IS THAT THE YIELD OF CUT AND POLISHED DIAMOND FROM ITS OWN PRODUCTION IS MUCH MORE THAT THE YIELD OBTAINED FROM THE ROUGH DI AMONDS ISSUED TO OUTSIDE 'KARIGARS'. IN THIS RESPECT, THE FOLLOWING DATA HAS BEEN COMPILED BY THE AO AT PAGE 11 OF THE ASSESSMENT ORDER:- KHATA PATDAR PANKAJ DIAMOND KRISHNA DIAMOND MONTHS ROUGH CONSUMED POLISHED DIAMONDS YIELD % ROUGH CONSUMED POLISH DIAMONDS YIELD % DECEMBER 9127.17 2586.27 28.34 14975.89 5028.72 33.58 JANUARY 14055.14 3737.71 26.59 24808.48 8302.40 33.47 FEBRUARY 12397.72 3375.97 27.23 18380.31 6267.49 34.10 ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 5 MARCH 13298.68 3532.83 26.57 18729.32 5958.65 31.98 THE ASSESSEE EXPLAINED BEFORE THE A 0 THAT THE ROUG H DIAMONDS ISSUED TO OUTSIDE 'KARIGARS' WERE OF INFERIOR QUALITY AND, THEREFORE, THE YIELD IS BOUND TO BE LOW. HOWEVER, THE A O DREW ADVERSE INFE RENCE FROM THIS FACT. THE A0 FURTHER NOTED THAT DURING THE IMMEDIAT ELY PRECEDING ASSESSMENT YEAR, THE YIELD OF CUT AND POLISHED DIAM OND WAS 29.34% WHEREAS THIS YEAR THE YIELD WAS 28.61%, HENCE, FROM THIS FACT ALSO THE A0 DREW ADVERSE INFERENCE. THE A0 AT PAGE 12 OF HIS ORDER HAS ALSO REFERRED TO SOME COMPARABLE CASES WHERE THE POSITIO N OF YIELD WAS AS UNDER:- NAME OF THE CONCERN TURNOVER CHADEL ROUGHT % TOTAL ROUGH % AVERAGE COST OF ROUGH PER CARAT MANI EXPORTS 140 CRORES 31.28 23.50 1733 DAVANGIYA BROTHERS 174 CRORES 31.51 22.20 1362 AJANTA EXPORTS 110 CRORES 34.05 15.90 1290 PRIYANKA GEMS 249 CRORES 33.59 32.72 4102 THE AO HAS ALSO GIVEN AT PAGES 12 AND 13 OF HIS ORD ER THE POSITION OF YIELD IN ASSESSEES CASE FOR THE PRESENT ASSESSMENT YEAR AS COMPARED TO THE PRECEDING THREE ASSESSMENT YEARS WHICH ARE: AY CHADEL ROUGH % TOTAL ROUGH % AVERAGE COST OF ROUGH USED PER CARAT 2003-04 26.62 19.39 - 2004-05 26.58 21.68 - 2005-06 29.34 24.05 2825 2006-07 28.61 22.75 2650 ON THE BASIS OF THE REASONS GIVEN ABOVE, THE AO CON CLUDED THAT THE ASSESSEE FIRM HAS UNDERSTATED THE YIELD OF CUT AND POLISHED DIAMONDS ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 6 AND THEREFORE ESTIMATED THE YIELD AT 29% AND MADE T HE IMPUGNED ADDITION WITH THE FOLLOWING DISCUSSION AT PAGE 13 O F HIS ORDER:- 'EVEN IN THE CASE OF ASSESSEE HE HAS OBTAINED YIELD OF 29.34% DURING THE ASSESSMENT YEAR 2005-06 WITH THE AVERAGE OF ROU GH OF RS.2825 PER CARAT. WHEREAS DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS USED ROUGH DIAMONDS WITH THE AVERAGE COST OF RS.265 0 PER CARAT WHICH IS MORE OR LESS SIMILAR IN QUALITY WITH RESPECT TO THE QUALITY OF ROUGH DIAMONDS USED BY HIM IN THE EARLIER YEARS BUT HE HA S SHOWN FALL IN YIELD IN 0.73% DURING THE YEAR UNDER CONSIDERATION. IN VI EW OF THIS AFTER CONSIDERING ALL THE EXPLANATION AND SUBMISSIONS FUR NISHED BY THE ASSESSEE AND AFTER TAKING INTO CONSIDERATION ALL TH E EXPLANATION AND SUBMISSIONS FURNISHED BY THE ASSESSEE AND AFTER TAK ING INTO CONSIDERATION THE INTERNAL IS WELL AS EXTERNAL DATA IT IS JUSTIFIED TO ESTIMATE THE YIELD OF ASSESSEE REASONABLY AT 29% ON THE QUANTITY OF CHADEL DIAMOND REFLECTED BY HIM IN THE, AUDIT REPOR T FURNISHED BY HIM FOR A.Y. 2006-07 AND THEREFORE, I ADD RS.2,2744,941 TO THE TOTAL INCOME OF THE ASSESSEE BY ESTIMATING YIELD AT 29.00% AGAIN ST REPORTED FIGURE OF 28.61% AS UNDER:- PARTICULARS AMOUNT RS. POLISHED DIAMOND MANUFACTURED DURING THE YEAR [CTS] 1,28,547.42 YIELD OF POLISHED DIAMOND AS REPORTED 28.61% ROUGHS PROCESSED DURING THE YEAR [CTS] 4,49,309 ESTIMATED YIELD OF POLISHED DIAMOND 29.00% ESTIMATED POLISHED DIAMOND [CTS] 130299. 73 SUPPRESSED POLISHED DIAMOND [CTS] 1752.31 ESTIMATED COST OF POLISHED DIAMOND PER CARAT [RS.423000000/32588 CTS] 12,980 ADDITION 227,44,941 ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 7 2.3 BEFORE THE LEARNED CIT(A) ON THIS ISSUE, IN ADD ITION TO VERBAL ARGUMENTS THE LD.AR FILED DETAILED WRITTEN SUBMISS IONS ON BEHALF OF THE ASSESSEE FIRM, THE RELEVANT PART OF WHICH READS AS UNDER: '3. THE AO HAS FRAMED THE ASSESSMENT ORDER WITHOUT CONS IDERING THE DETAILS SUBMITTED DURING THE COURSE OF ASSESSME NT PROCEEDINGS, DRAWING WRONG CONCLUSIONS FROM THE DET AILS SUBMITTED, PASSING ASSESSMENT ORDER WITHOUT GRANTIN G A REASONABLE OPPORTUNITY TO THE APPELLANT TO SUBMIT S PECIFIC DETAILS/ PROVIDE EXPLANATION, NOT GIVING ANY SPECIFIC REASON FOR REACHING THE ADVERSE CONCLUSION USED AGAINST THE APPELLANT AND C ONSIDERING WRONG FACT FOR JUSTIFYING THE ADDITION MADE. THE AL LEGED ADDITION MADE BY THE AO JUSTIFIES QUASHING ON THE FOLIO-WING GROUNDS: (I) CONSIDERING THE CARDINAL RULE OF INTERPRE TATION, THAT THE DOCUMENT SHOULD BE READ IN ITS PRESENT FORM I.E. THE COMPUTE R PRINTOUTS ARE MONTHLY ESTIMATES AS EVIDENCED BY THE HEADING ITSELF. (II) STATEMENT RECORDED OF MR. VASANT H. RAJYAGURU ON 22-2-2008 & SUBSEQUENT CLARIFICATION MADE BY FILLING DULY NOT ARIZED AFFIDAVIT BY MR. VASIANT H. RAJYAGURU IN RESPONSE TO THE STATEMENT S O NOTED. (III) NOT POINTING OUT SINGLE DEFECT IN BOOKS OF ACCOUNTS AS WELL AS OTHER EXHAUSTIVE DOCUMENTARY EVIDENCES PRODUCED BEF ORE THE A O. (IV) THE AO HAS ALSO ACCEPTED THE OPERATIONAL/ GROSS PRO FIT OF THE APPELLANT FIRM, WHICH CONCLUSIVELY JUSTIFIES THE AR GUMENT THAT NO ESTIMATION IN YIELD IS REQUIRED. BONK RESULTS HAVE BEEN ACCEPTED. REFER PARA 3 OF THE ASSESSMENT ORDER. (V) EVEN OTHER WISE, THE YIELD REPORTED IN THE BOOKS OF ACCOUNTS IS HIGHER AS COMPARED TO YIELD MENTIONED IN THE LOOSE PAPERS FOR WHICH RELIANCE IS PLACED BY THE AO. (VI) EVEN OTHER WISE, THE NOTINGS RECORDED IN T HE LOOSE PAPERS, ARE PART DATA WITH RESPECT TO: I. PROCESS, II TIME / SHIFT, II. KHATAS ETC. ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 8 AND CANNOT BE COMPARED WITH COMPLETE DATA RECORDED IN BOOKS AND IF IT HAS IT HAS TO BE SUBJECT TO CERTAIN ADJUSTMENTS. (VII) NO OPPORTUNITY OR SHOW CAUSE GIVEN BY THE A O FOR MAKING ADDITION ON THE BASIS OF YIELD RATIO SHOWN B Y OTHER DIAMOND ENTERPRISES, (VIII) THE AO CONTENTION AND ITS SUBSEQUENT REBU TTAL WOULD SATISFY YOUR HONOUR THAT THE ESTIMATION OF YIELD IS WITHOUT ANY BASE AND REQUIRED TO BE QUASHED. (IX) RATIOS LAID DOWN BY HONBLE COURTS AND IT AT, THAT ONCE THE BOOKS OF ACCOUNTS ARE ACCEPTED, OPERATION PERFORMANCE HAS NOT BEEN DOUBTED, NO OTHER DEFECTS FOUND, NO ESTIMATION IN YIELD IS JUSTIFIED. EACH OF THE ABOVE CONTENTIONS ARC ELABORATED IN SUB SEQUENT PARA'S. 4. THE TAXING AUTHORITIES WHILE DOING THE ASSESSMEN T, EXERCISES QUASI JUDICIAL POWERS AND THEREFORE IN DOING SO THE Y MUST ACT IN FAIR MANNER AND NOT IN A BIASED MANNER. IN VIEW OF THE ABOVE, THE APPELLANT SUBMITS THAT THE ASSESSMENT ORDER PASSED BY THE A O IS BAD IN LAW AND ULTRA-VIRES AND NEEDS TO BE QUASHED. 5. CONTENTIONS OF THE APPELLANT 5. 1 THAT THE COMPUTER PRINT OUT INDICATES ONLY MONTHLY SUMMARY PROJECTIONS AND ARE ONLY ESTIMATES: - WHAT IS PERTINENT TO BE NOTED IS THAT ALL THE PAPER S REFERRED TO BY THE AO ARE TITLED AS 'SUMMARY REPORT (MONTHLY PROJECTION)'. THESE LOOSE PAPERS ARE ONLY ESTIMATES MADE BY THE M ANAGEMENT BEFORE IT DISTRIBUTES THE MAKEABLE ROUGH DIAMONDS E ITHER TO SUB- CONTRACTORS/LABOURERS OR WITHIN ITS OWN DEPARTMENT FOR FURTHER PROCESSES. THIS MONTHLY PROJECTIONS ARE MADE BY THE APPELLANT FIRM TO SET STANDARDS OF THE MINIMUM YIELD ACCEPTED FROM THE SUB- CONTRACTORS/LABOURERS AND IN-HOUSE DEPARTMENT FROM THE MAKEABLE ROUGH HANDED OVER FOR FURTHER PROCESSING. THIS REPO RT ENHANCES THE CAPABILITY OF THE MANAGEMENT EVALUATING THE YIE LD WHICH HAS BEEN GENERATED FROM ITS OWN DEPARTMENT AS WELL AS T HE SUB- CONTRACTORS/LABOURERS TO WHOM MAKEABLE ROUGH DIAMON DS HAVE BEEN HANDED OVER FOR PROCESSING. IT IS ALSO A WELL SETTLED PRINCIPLE ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 9 THAT THE LOOSE PAPERS HAVE TO BE READ AS A WHOLE AN D NEEDS TO HE INTERPRETED IN A MANNER JUST AS A COMMON MAN WOULD UNDERSTAND. IT CANNOT HE READ IN BITS & PARTS TO SUIT THE CONVE NIENCE OF EITHER PARTY. ACCORDINGLY, THESE LOOSE PAPERS BEING ONLY M ONTHLY PROJECTION CANNOT BE COMPARED WITH ACTUAL BOOKS OF ACCOUNT, SINCE IT IS A SUMMARY OF MONTHLY PROJECTION. THIS WAX ALS O CLARIFIED BY MR. VASANT RAJYAGURU VIDE HIS AFFIDAVIT WHEREIN HE HAS STALED THAT HIS ROLE IN THE APPELLANT FIRM WAS LIMITED FOR MAKING M ONTHLY PROJECTIONS AND FAR WHICH HE USED TO ENTER DATA INT O THE COMPUTER SYSTEM. HE STATED THAT HE USED TO MAKE ENTRIES ONLY AS PER THE INSTRUCTION OF HIMMATBHAI AND WAS NOT AWARE OF ANY OTHER TRANSACTION GIVEN TO EITHER CONTRACTORS OR OTHER TH IRD PARTIES. IN SUPPORT OF ITS AFFIDAVIT GIVEN WHEREIN MR. VUSANT R AJYAGURU HAS STATED THAT THE LOOSE PAPERS TITLED AS 'SUMMARY REPORT' [MONTHLY PROJECTIONS] ARE MERELY THE ESTIMATES AND CARRY NO EVIDENTIARY VALUE. THE APPELLANT HAD PLACED ON RECO RD, A COMPARATIVE CHART SHOWING THE YIELD OF POLISHED DIA MONDS TO MAKEABLE ROUGH ALONG WITH THE NECESSARY DOCUMENTARY EVIDENCE [REFER PARA NO. 6]. ON PERUSAL OF THE SAID CHART, I T CAN BE SEEN THAT THERE IS A MINOR DIFFERENCE IN THE ACTUAL YIELD FIG URES, THE REASON BEING THAT WHAT MR. VASANT RAJYAGURU WAS PUNCHING I N THE SOFTWARE WAS ONLY TO FIGURE-OUT THE TENTATIVE YIELD THAT THE MANAGEMENT SHOULD EXPECT OR ITS CONTRACTORS AND LAB OURERS. 6. WITHOUT PREJUDICE TO THE ABOVE CONTENTION, EVEN IF IT IS ASSUMED THAT THE LOOSE PAPERS CONSIST OF ACTUAL FIG URES, THE SAME CANNOT BE SAID TO BE A CONCLUSIVE EVIDENCE TO FRAME THE ASSESSMENT BECAUSE THEY CONSIST OF NOTING IN RELATION TO A PART OF THE PROCESSES ONLY. THESE LOOSE PAPERS CANNOT BE COMPARED WITH THE ACTUAL BOOKS OF ACCOUNT FOR THE REASON THA T THEY REPRESENT ONLY A PART OF THE DATA RELATING TO THE WHOLE MANUF ACTURING PROCESSES AND CONSISTS OF NOTING ONLY IN RELATION T O FEW PROCESSES. FURTHER THESE NOTING CONSIST OF DATA ONLY IN RELATI ON TO FEW KHATAS AND PERTAIN TO FEW PROCESSES. ESTIMATING YIELD ON T HE BASIS OF PART OF DATA IS NOT AT ALL POSSIBLE AND SHOULD NOT BE TH E BASE FOR COMPUTING YIELD. INSTEAD THE A 0 HAS NOT APPRECIATE D THIS FACT. IN RESPECT OF THE ABOVE CONTENTION, THE APPELLANT HAD PLACED ON RECORD A COMPARATIVE CHART SHOWING THE DIFFERENCE I N THE YIELD AX PER THE LOOSE PAPERS AND US PER THE BOOKS OF ACCOUN T. WHILE BRINGING THIS ON RECORD, IT IS ALSO HIGH LIGHTED TH AT THE YIELD AS PER THE BOOKS OF ACCOUNT IS MORE THAN THE YIELD AS PER LOOSE PAPERS. THIS IS BECAUSE THE LOOSE PAPERS SUGGEST NOTHING BU T ONLY REPRESENTS A PART OF THE PRODUCTION PROCESS. THE RE ASONS WHY THE ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 10 LOOSE PAPERS CANNOT BE USED FOR THE PURPOSE OF REAC HING TO ANY CONCLUSION ARE HIGH-LIGHTED HEREUNDER:- EVEN IF IT IS NOT ACCEPTED THAT THE LOOSE PAPERS AR E PROJECTIONS, THEN ALSO ESTIMATES CANNOT BE MADE BAS ED ON THOSE PRINT OUTS ONLY BECAUSE (I) IN FACT THESE LOOSE PAPERS START FROM SOME WHAT MIDDLE OF THE TOTAL NUMBER OF THE PROCESSES; (II) THEY DO NOT REFLECT THE ENTIRE PROCESS; (III) SOME OF THE DEPARTMENTS AND KHATAS ARE NOT WITHIN ITS PURVIEW/SCOPE. (IV) SOME OF THE PROCESSES CARRIED OUT AFTER POLISH ED DIAMOND COMES FROM THE FACTORY ARE NOT ALL CONSIDER ED LIKE BOILING, ASSORTMENT, BREAKING AND REPAIRS I.E. THE PROCESSES WHICH ARE USUALLY CARRIED OUT BY THE MUMBAI OFFICE; (V) BUYERS ALSO RETURN MANY PIECES FOR EITHER REPAIRS OR REPLACEMENT WHICH AFFECT THE ULTIMATE YIELD AS REFL ECTED IN THE BOOKS; (VI) THAT MR. VASANT RAJYAGURU WAS RECEIVING MA KEABLE ROUGH ONLY FROM CERTAIN LOTTING DEPARTMENTS AND OF ONLY CERTAIN SHIFTS. (VII) BOOKS OF ACCOUNTS SHOW THE RESULT OF ALL T HE PROCESSES I.E. RIGHT UP TO THE DIAMONDS ARE READY TO SELL AND OR ACCEPTED TO THE BUYERS; (VIII) PART CANNOT BE MADE BASIS OF COMPARISON. THESE PAPERS RELATE ONLY TO A PARTICULAR PERIOD AND CONSI ST OF ONLY LIMITED PROCESSES '. (IX) IT MAY HAPPEN THAT POLISHED DIAMONDS ARE DIRECTLY SENT BY THE SUB-CONTRACTORS/LABOURERS LO THE BOMBAY OFFICE. THIS DATA DOES COME WITHIN THE FUNCTIONAL SCOPE OF MR. VASANT RAJYAGURU AND HENCE, IS NOT ENTERED IN THE S HEETS. (X) FURTHER, SUCH DIAMOND PIECES WHICH ARE POLISHED BY THE LABOUR CONTRACTORS, MAY BE RETURNED BACK BY THE BUYERS ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 11 FOR REPAIRS/REPLACEMENTS AND FOR THE PURPOSE OF REPAIRS/REPLACEMENTS, THEY MAY BE SENT BACK EITHER TO THE CONTRACTORS OR TO THE SURAT OFFICE. AS WHAT IS ENTE RED INTO BY MR. VASANT RAJYAGURU IS DETAILS RELATING TO MAKEABL E ROUGHS ONLY, HE DOES NOT ENTER ANY DETAILS IN RELATION TO POLISHED DIAMONDS, WHETHER THEY COME FOR REPAIRS OR REPLACEM ENTS. (XI) THE APPELLANT HAD ALSO, STATED THAT THE YIELD IN THE MONTHS OF DECEMBER 2005 TO MARCH 2006 IS HIGHER THEN THE YIELD WHICH COMES OUT FROM THE LOOSE PAPERS. A CHAR T SHOWING THE YIELD AS MENTIONED IN THE BOOKS OF ACCO UNT FOR THE PERIOD OF DECEMBER 2005 TO MARCH 2006 VIS A VIS THE LOOSE PAPERS FOR THE CORRESPONDING PERIOD IS REPROD UCED HEREIN BELOW: - PERIOD MAKEABLE ROUGH TO POLISHED DIAMOND % AS MENTIONED IN LOOSE PAPERS (BOOING ESTIMATES) DECEMBER 2005 31.45. 31.59 JANUARY 2006 30.05 29.73 FEBRUARY 2006 31.20 31.33 MARCH 2006 31.24 30.98 AVERAGE 30.985 30.907 6.1 IN SUPPORT OF THE ABOVE CONTENTIONS THE APPEL LANT SUBMITTED COMPLETE DETAILS OF ROUGH DIAMOND FOR DECEMBER 2005 TO MARCH 2006 AS PER BOOKS OF ACCOUNTS---------------------- -------------------------- --------------------------------------------------- -------------------------------------- --------------------------------------------------- -------------------------------------- --------------------------------------------------- ----------------------------------- 6.2 MR. VASANT RAJYAGURU WAS ALSO ENTERING THE DET AILS OF LABOUR EXPENSES ON THE ESTIMATED MAKEABLE ROUGH DIAMONDS R ECEIVED FROM THE LOTTING DEPARTMENT. AX CONTENDED ABOVE AND IN SUPPORT OF THE CLAIM THAT THESE LOOSE PAPERS DO NOT REFLECT THE ENTIRE PROCESSES. ALSO, THE ESTIMATED TOTAL LABOUR EXPENSE S REPRESENT ONLY VARIABLE PORTION FOR MAKEABLE ROUGHS TO BE PRO CESSED. A COMPARATIVE CHART SHORING THE LABOUR EXPENSES NS PE R THE LOOSE PAPERS VIDE PAGES 18, 20 TO 22 OF FILE BF-27 AND TH E BOOKS OF ACCOUNT IS REPRODUCED HEREUNDER :- ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 12 PERIOD ROUGH (MAKEABLE) (WT) POLISHED (WT) LABOUR (RS) LOOSE PAPER BOOKS EXCESS IN BOOKS LOOSE PAPER BOOKS EXCESS IN BOOKS LOOSE PAPER (PAID) BOOKS EXCESS IN BOOKS DEC '05- MARCH06 125773 178260 52487 38821 51861 13040 21827980 25402807 3574827 THIS ITSELF PROVES THAT THE LOOSE PAPERS, IF NOT AC CEPTED AS ESTIMATES, THEY CAN BE RELATED AT THE MOST TO ONLY A PART OF T HE ACTIVITIES UNDERTAKEN BY THE ASSESSEE DURING THE SH IFT IN WHICH MR. VASANT RAJYAGURU WAS WORKING. THE APPELLANT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, WAS ALSO CALLED FOR TO EXPLAIN VIDE ORDER SHEET ENTRY DT, 12-12-2008 THE R EASONS FOR INCREASE IN THE LABOUR EXPENSES BY RS.1.00 CRORES, IN COMPARISON TO FINANCIAL YEAR 2004-05, WERE THE EXPENDITURE BY THE APPELLANT VIDE COMMUNICATION DT. 17-12-2008 WHICH WAS ACCEPTED BY THE A O AND NO ADVERSE INFERENCE WAS CALLED FOR. 6.3 FURTHER, IN ORDER TO SUPPORT THE CLAIM THAT THE LOOSE PAPERS REPRESENT ONLY A PART OF THE WHOLE PROCESS, JT WAS ALSO EXPLAINED TO THE A O THAT IN CERTAIN COLUMNS OF THE LOOSE PAPERS , A FIGURE '0' IN THE QUANTITY COLUMNS NAMELY ROUGH DIAMONDS, POLISHE D DIAMONDS, ETC, WAS BEING PUNCHED INTO BY MR. VASANT RAJVAGURU . CERTAIN EXPENSES WHICH WERE REQUIRED TO BE INCURRED IRRESPE CTIVE OF THE QUANTITY OFMAKEABLE ROMH POLISHED I.E. FIXED EXPENS ES WERE NOT PUNCHED BY VASANT. THIS COMPUTER PRINT OUTS AND DAT A CONTAINED ONLY APART OF THE DETAILS AND DID NOT INCLUDE AND D OES NOT INCLUDE THOSE FIXED EXPENSES WHICH WERE REQUIRED TO BE INCU RRED. HENCE, THE COMPUTER PRINT OUTS MAY BEST BE VIEWED AS A PAR T OF THE VARIABLE PROCESSES UNDERTAKEN AT A PARTICULAR POINT OF TIME WITH REFERENCE TO CERTAIN ACTIVITIES COMING WITHIN THE S COPE OF MR. VASANT RAJYAGURU. ACCORDINGLY, THESE COMPUTER PRINT OUTS ARE EITHER DEFECTIVE OR ARE PART PROCESSES AND CANNOT B E COMPARED WITH THE ACTUAL DATA RECORDED IN THE BOOKS OF ACCOU NT. 6.4 HENCE THESE LOOSE PAPERS ARE NOT COMPARABLE WITH AC TUAL BOOKS OF ACCOUNTS SINCE: THEY REPRESENT ON A PART OF THE DATA RELATING TO TH E WHOLE MANUFACTURING PROCESS AT A PARTICULAR PHASE AND POI NT OF TIME ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 13 THEY CONSIST OF NOTINGS IN RELATION TO FEW PR OCESSES INVOLVED IN DIAMOND PROCESSING THE NOTINGS RELATE ONLY TO FEW KHATAS AND PERT AIN TO PROCESSES BEGINNING AFTER MAKEABLE ROUGH DIAMONDS A RE ISSUED FOR FURTHER PROCESSING. THEREFORE IT IS NOT POSSIBLE FOR ANYONE TO ESTIMATE THE YIELD OF THE POLISHED DIAMONDS AS THE DATA IN THE LOOSE PAPERS I N LIMITED AND COMPRISING PART OF ALL THE PROCESSES. THE PART C ANNOT BE COMPARED WITH WHOLE OR PART CANNOT BE TAKEN AS THE BASIS FOR COMPUTING WHOLE YIELD. 7. IN LIGHT OF THE INFORMATION AND EXPLANAT ION SUBMITTED TO THE A O DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THE APPELLANT VEHEMENTLY SUBMITTED THAT THE ESTIMATION OF THE YIELD, AS MADE BY THE A O AT 29% IS COMPLETELY UNJUSTIFIED IN VIEW OF THE FACT THAT ALL THE MATERIAL INFORMATION AND DATA HAD BEEN PROVIDED TO HIM DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND THE A O HAD NOT BEEN ABLE TO POINT OUT A SINGLE DEFECT IN T HE DATA SUBMITTED TO HIM. THE FOLLOWING ARE THE LISTS OF THE DOCUMENT S/EVIDENCES WHICH WERE AVAILABLE WITH HIM OR WERE PRODUCED BEFO RE HIM, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THROUGH DI FFERENT COMMUNICATIONS:- (I) AUDITED COPY OF THE ANNUAL ACCOUNTS, (II) TAX AUDIT REPORT (III) CASH BOOK/BANK BOOB SALES BOOK /PURCHASE BOOK S / REGISTER /PRODUCED BEFORE THE AO FOR VERIFICATION, (IV) STOCK REGISTER COMPRISING OF RAW ROUGHS, CHADEL ROUGHS, POLISHED DIAMONDS FOR THE ASSESSMENT YEAR 2006-07. (VI) COMPLETE MONTHLY SUMMARY OF:- A. ROUGH DIAMONDS RECEIVED AND PROCESSES FOR THE AS SESSMENT YEAR 2006-07. B. RAW ROUGHS PROCESSED INTO CHADEL ROUGHS FOR T HE A. Y. 2006-2007 C. MAKEABLE ROUGH PROCESS FROM CHADEL ROUGH FOR A. Y. 2006-07 (VII) LOTWISE DETAILS OF MANUFACTURING OF MAKEABLE DIAMON DS FROM CHADEL ROUGHS VIS-A-VIS RAW ROUGHS FOR DEC. 20 05 TO MARCH 2006 ALONG WITH RELEVANT VOUCHERS FOR VARIOUS LOSSES INCURRED DURING THE A SIMILAR PERIOD. THE SAME IS E NCLOSED ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 14 HEREWITH VIDE ANNEXURE C OF THE PAPER BOOK FOR YOUR READY REFERENCE. (VIII) COPIES OF THE VOUCHERS [FILED BEFORE THE A O ] SHALL BE PRODUCED, IF REQUIRED, DURING THE COURSE OF HEARIN G. 7.1 VIDE PARA - 3 OF THE ASSESSMENT ORDER IT CAN BE PERUSED THAT THE GROSS PROFIT MARGIN OF THE APPELLANT HAS BEEN A CCEPTED. ONCE THERE IS A SPECIFIC FINDING OF THE A. O. IN ACCEPTI NG THE GROSS PROFIT IT CAN BE INFERRED THAT THE BOOKS OF ACCOUNTS HAVE BEEN ACCEPTED HE PARTICULARLY HAS FAILED IN INDICATING ANY INSTAN CES OF DISCREPANCIES IN THE STOCK REGISTER. ENTIRE PURCHAS ES AND SALES ARE VOUCHED, DETAILED, VERIFIABLE AND THE WORKING RESUL TS HAVE ALWAYS BEEN ACCEPTED IN THE PAST EXCEPT THE YEAR UNDER APP EAL. THE APPELLANT COMPANY HAS MAINTAINED ALL POSSIBLE RECOR DS FOR MANUFACTURING/PROCESSING AS ALSO PURCHASE AND SALE. THE ACCOUNTS ARE BACKED BY QUANTITATIVE TALLY AND STOCK REGISTER. THE AO HAS NOT POINTED OUT ANY MISTAKE IN THE OPENING S TOCK, PURCHASES, SALES AND THE CLOSING STOCK AND THERE IS NO DISPUTE IN THIS REGARD. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO FOR PROVING THE LOW PRODUCTION/LOW YIELD AND THE ASSESS EE HAS MADE THE SALES OUT OF BOOKS OF ACCOUNT. RELIANCE MAY BE PLACED ON THE DECISION OF INTERNATIONAL FOREST CO. V. CIT 1975 CT R (J&K) 88 : (1975) 101 ITR 721 (J&K), PANDIT BROS. V. CIT (1954 ) 26 ITR 159 (PUNJ) FOR THE PROPOSITION THAT NO ADDITION COULD B E MADE MERELY ON THE BASIS OF LOW YIELD OR LOW GP BY REJECTING BOOKS OF ACCOUNT. ONCE THE DROSS PROFIT HAS BEEN ACCEPTED BY THE A.O. , HE CANNOT ESTIMATE YIELD OF THE APPELLANT FIRM. 7.2 INSPITE OF PRODUCING SO MANY EVIDENCES IN RELAT ION TO THE FACT THAT THESE PAPERS REFLECT ONLY A PART OF THE WHOLE PROCESS, THE A O HAS NEITHER CONSIDERED THIS ARGUMENT, NOR HAS GIVEN ANY FINDING AND HAS PROCEEDED TO MAKE THE ESTIMATION OF THE YIELD BY PLACING RELIANCE ON SIMILAR COMPANIES/FIRMS. IT CAN BE INFERRED FROM THIS ACT OF THE AO THAT THE LOOSE PAPERS COULD NOT, BY ANY STRETCH OF IMAGINATION, SUPPORT HIM IN FRAMING AN A SSESSMENT AS THIS DOCUMENT WAS NOT AN INCRIMINATING DOCUMENT. 8 WITHOUT PREJUDICE TO THE ABOVE CONTENTIONS, MR. V ASANT RAJYAGURU USED TO ENTER DELTA ONLY IN RELATION TO M AKEABLE ROUGH DIAMONDS. DURING THE COURSE OF THE SEARCH PROCEEDIN GS, STATEMENT OF MR. VASANT RAJYAGURU WAS TAKEN AND RECORDED ON O ATH. HE WAS SPECIFICALLY RISKED TO EXPLAIN ALL THE LOOSE PAPERS VIDE QUESTION NO. ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 15 4. VIDE QUESTION NO.4, HE WAS ASKED HIS ROLE IN THE ORGANIZATION. HE HAD REPLIED THAT HE ENTERS THE DATA OF DIAMONDS WHICH COME FROM THE LOTTING DEPARTMENT, AND THEN DISTRIBUTE TH E DIAMONDS TO DIFFERENT KHATAS . BASED ON THE ABOVE STATEMENT, IT WOULD BE NECESSARY TO UNDERSTAND THE NUMBER OF PROCESSES A R OUGH DIAMOND UNDERGOES BEFORE REACHING AND PASSING TO TH E LOTTING DEPARTMENT. THE ROUGH DIAMONDS ARE OF DIFFERENT QUA LITIES AND VARIETIES OF SIZES. THE LOT OF ROUGH DIAMONDS IS CO MPLETELY NON- HOMOGENOUS. NO TWO PIECES OF ROUGH DIAMONDS IN A LO T ARE ALIKE. THESE ROUGH DIAMONDS ARE PURCHASED IN LOTS AND THEN GRADED OR GROUPED AND ASSORTED BY SKILLED EMPLOYEES. THE ROUG H DIAMONDS USUALLY UNDERGOES SEVERAL PROCESSES BEFORE IT CAN B E TERMED AS MAKEABLE ROUGH. OUT OF THE RAW ROUGH PRIMARY REJECT ION OF THE DIAMONDS WHICH CANNOT BE PROCESSED AT ALL, IS FIGUR ED OUT AND ARE REMOVED FROM THE LOT. THE RESULTANT ROUGH DIAMONDS ARE TERMED AS CHADEL ROUGH. CHADEL ROUGH DIAMONDS FURTHER UNDERGO THROUGH THE LASER AND CLEAVING DEPARTMENT AND THE LOTTING DEPAR TMENT. THE MAJOR PROCESS WHICH TAKES PLACE IS IN THE LASER/CLE AVING DEPARTMENT. A FLOW CHART OF ACTIVITIES WHICH TAKES PLACE OF ANY DIAMOND PROCESSING USE FOR CONVERTING A RAW ROUGH M AY MAKEABLE DIAMOND IS REPRESENTED HERE UNDER: RAW ROUGH / PRIMARY REJECTIOIN / CHADEL ROUGH / PROCESS LOSS OF LASER /CLEANING ETC. / MAKEAM.E ROUGH [RECEIVED FROM LOTTING DEPARTMENT] / IN ORDER TO KEEP A TRACK OF ALL THE PROCESSES THE A PPELLANT HAS CREATED DIFFERENT KHATAS THROUGH WHICH THE ROUGHS A RE ROUTED THROUGH. FOLLOWING ARE SOME OF THE MAIN KHATAS: (I) ROUGH ASSORTMENTS/ROUGH PRIMARY REJECTIONS AND VERI FICATION THROUGH CHAPKA, TODFOD, ETC. (I) LASER / CLEAVING DEPARTMENT (II) LOTTING DEPARTMENT (III) BLOCKING DEPARTMENT (IV) GHAT DEPARTMENT (V) TALIA DEPARTMENT ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 16 (VI) TALIA PEL DEPARTMENT 8 AND 12 (VII) MATHADA DEPARTMENT 8.1 IT MAY BE WORTHWHILE TO NOTE THAT WHAT MR . VASANT RAJYAGURU IN HIS STATEMENT HAD REFERRED TO IS THAT HE HAD BEEN RECEIVING ROUGH DIAMONDS FROM LOTTING DEPARTMENT FO R TRANSFERRING THEM AFTER NECESSARY ENTRIES TO VARIOUS OTHER KHATA S. IT IS AMPLY CLEAR THAT WHAT HE RECEIVES AND WHAT HE ENTERS IS M AKEABLE ROUGH BECAUSE MAKEABLE ROUGH IS DERIVED ONLY AFTER PASSIN G THROUGH THE LASER / CLEAVING DEPARTMENT, WHICH IS KHATA NO. 1 A S REPRODUCED ABOVE. THIS WAS ALSO FURTHER CLARIFIED BY VASANT RAJYAGURU VIDE HIS AFFIDAVIT. IN HIS AFFIDAVIT VIDE POINT NO. 11 H E HAS STATED THAT IN THE COMPUTER PRINT THE DETAILS OF THE DIAMONDS REPR ESENT MAKEABLE ROUGH I.E. DIAMONDS WHICH HAVE UNDERGONE LASER/CLEA VING /PROCESSES. THE A O VIDE ASSESSMENT ORDER HAS HELD THAT THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE BECAUS E MOST OF THE DIAMONDS FIRMS GIVE ROUGH DIAMONDS DERIVED AFTER PRIMARY REJECTION I.E. CHADEL ROUGHS ONLY TO THE LABOUR CON TRACTORS FOR FURTHER PROCESSING AND NOT AFTER PASSING THEM THROU GH THE LASER/CLEAVING PROCESSES. IT CAN HE INFERRED FROM T HE STATEMENT TAKEN ON OATH DURING THE SURVEY PROCEEDINGS ITSELF THAT WHAT HAD BEEN ENTERED INTO BY MR. VASANT RAJYAGURU WAS THE D ATA RELATING TO MAKEABLE ROUGH DIAMONDS ONLY BECAUSE HE WAS AUT HORIZED TO RECEIVE ROUGH DIAMONDS FROM THE LOTTING DEPARTMENT. AFFIDAVIT OF MR. VASANT RAJYAGURU REITERATES THE SAME FACT. THIS AFFIDAVIT WAS ALSO SUPPORTED BY EVIDENCES DULY PLACED BEFORE THE A O DURING THE ASSESSMENT PROCEEDINGS. THIS, THE CONTENTION OF THE A O THAT THE ROUGHS MENTIONED IN THE LOOSE PAPERS TIRE CHADEL RO UGHS AND NOT MAKEABLE ROUGHS, AS CONTENDED BY THE AO IS ALSO BAS ED ON CERTAIN ASSUMPTIONS AND PRESUMPTIONS. THIS IS BECAU SE THE APPELLANT HAD ALSO PLACED ON THE FILE OF THE AO CON FIRMATION OF THE SUB-CONTRACTORS THAT THEY WERE RECEIVING MAKEABLE R OUGH FROM THE APPELLANT. IN THIS CONNECTION, IT IS SUBMITTED THAT IF THE A O WERE TO CONCLUSIVELY BELIEVE THAT THE ROUGHS MENTIONED IN T HE COMPUTER PRINT OUT WERE CHADEL ROUGHS, THEN HE OUGHT TO HAVE EXAMINED AND CALLED FOR THE DETAILS FROM THE VARIOUS SUB CONTRAC TORS TO ARRIVE AT A CONCLUSION THAT THE ROUGHS GIVEN BY THE ASSESSEE TO THE SUB CONTRACTORS WERE IN FACT, CHADEL ROUGHS AND NOT MAK EABLE ROUGHS. THE ASSESSEE DURING THE COURSE OF THE ASSESSMENT PR OCEEDINGS, HAD ALSO EXPLAINED TO THE AO STATING THAT THE ROUGH S SUBMITTED TO THE SUB CONTRACTORS WERE THE MAKEABLE ROUGHS AND IN CASE IF ANY EXAMINATION OF THE SAME WERE REQUIRED, THE SAME MAY BE ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 17 PRODUCED ON AN OPPORTUNITY BEING GIVEN. HOWEVER, NO SUCH REQUEST WAS MADE BY THE AO IN THE COURSE OF THE ASS ESSMENT PROCEEDINGS. 9. THE APPELLANT SUBMITS THAT THE ESTIMATION MADE B Y THE A O IN YIELD IS REQUIRED TO BE DELETED IN VIEW OF THE FACT THAT ALL THE OBSERVATION MADE BY THE A O HAS BEEN REBUTTED LEAVI NG NO ROOM FOR ANY ADDITION IN YIELD OF POLISHED DIAMOND. THE OBSERVATION OF THE A O AND ITS REBUTTAL ARE AS UNDER. AOS OBSERVATION REBUTTED TO THE AOS OBSERVATION 1. THE LOOSE PAPERS FOUND DURING THE COURSE OF SURVEY ARE NOT MONTHLY ESTIMATES AND ACTUAL DATA 1. CONSIDERING THE RULE OF INTERPRETATION, THAT THE DOCUMENT IS TO BE READ IN ITS PRESENT FORM, THE HEADING MARKED ON THE LOOSE PAPER CATEGORICALLY STATES THAT THEY ARE MONTHLY PROJECTION. 2. THE CLARIFICATION MADE IN THE AFFIDAVIT EXECUTED BY MR. VASANT H RAJGURU THAT THESE ARE ESTIMATES THAT WERE PREPARED FOR THE PURPOSE OF MANAGEMENT. 2. THE AO HAS CONTENDED THAT THE ROUGH DIAMONDS PERTAIN TO ONLY TWO TYPES OF CLASSIFICATION, I. E. ROUGH DIAMONDS BEFORE REJECTING AND MAKEABLE DIAMOND AFTER REJECTION. 1. COMPLETE MANUFACTURING PROCESS WAS EXPLAINED TO THE AO WHICH IS ALSO ENCLOSED VIDE ANNEXURE-I WITH THE STATEMENT OF FACTS. 2. THE APPELLANT IN THE COURSE OF ASSESSMENT PROCEEDINGS HAD EXPLAINED THAT THE ROUGHS ARE CLASSIFIED AS I) RAW ROUGHS, II) CHADDEL ROUGH AND III) MAKEABLE ROUGH. 3. THE ROUGH AFTER PRIMARY REJECTION/WEIGHT LOSS FROM RAW ROUGH IS TERMED AS CHADEL ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 18 ROUGH. THE ROUGH, AFTER PROCESS LOSS FROM CHADEL ROUGH IS TERMED AS MAKEABLE ROUGH. 4. EXHAUSTIVE LOT-WISE DOCUMENTARY EVIDENCE WAS PRODUCED BEFORE THE A.O. JUSTIFYING THE CLASSIFICATION OF ROUGHS WHICH WAS NOT DISPUTED BY HIM NEITHER IN THE ASSESSMENT NOR IN THE ASSESSMENT ORDER. 3. THE ROUGH MENTIONED IN THE LOOSE PAPERS SO SEIZED, ARE CHADEL ROUGH. 1. MR. VASANT H. RAJGURU RECEIVED FROM THE LOTTING DEPARTMENT AND THEY ALWAYS REFER TO MAKEABLE ROUGH I.E. AFTER CONSIDERING ALL PROCESS LOSSES. 2. THIS IS FURTHER PROVED BY THE FACT THAT THE ROUGHS GIVEN TO THE SUB-CONTRACTOR FOR FURTHER PROCESSING IS ALWAYS A MAKEABLE ROUGH SINCE THE ENTIRE PROCESSING FOR CONCERTING RAW ROUGH UP TO MAKEABLE ROUGH IS CARRIED OUT IN THE FACTORY PREMISES ITSELF. 3. CONFIRMATION OF SUB- CONTRACTORS. 4. THE A. O. HAS ALSO OBSERVED THAT THE YIELD MENTIONED IN THE LOOSE PAPER DIFFERS BETWEEN THE ROUGHS PROCESSED BY THE SUB- CONTRACTORS AND ROUGH PROCESSED IN THE FACTORY PREMISES OF PANKAJ DIAMOND ITSELF. 1. THE A. O. HAS FUNDAMENTALLY ERRED IN UNDERSTANDING THE MANUFACTURING PROCESS OF POLISHED DIAMOND SINCE THE YIELD DEPENDS UPON THE QUALITY OF ROUGHS, SHAPES, SIZE, COLOUR, CLARITY ETC. IT IS NOT SACROSANCT. 2. FURTHER THE PRIMARY REASON FOR VARIATION IN YIELD IS ON ACCOUNT OF THE FACT THAT IT IS A ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 19 GENERAL PRACTICE TO RETAIN BETTER QUALITY OF ROUGHS TO BE PROCESSED WITHIN THE FACTORY PREMISES BY THE LABOURERS OF THE APPELLANT FIRM LEADING TO A HIGHER PERCENTAGE IN YIELD AS COMPARED TO ROUGHS SUBMITTED TO THE SUB-CONTRACTORS. 5. THE A.O. HAS ALSO OBSERVED THAT BECAUSE OF THE REPAIRING LOSS ARISING DURING THE PROCESS OF POLISHED DIAMOND, THE PERCENTAGE OF YIELD AS STATED BY THE APPELLANT WOULD ALWAYS BE LOWER AGAINST WHAT HAS BEEN SUBMITTED BY IT. 1. THE OBSERVATION MADE BY THE A. O. IS A MISCONCEPTION. THE REPAIRING LOSS IS DUE TO THE RETURN OF DIAMONDS FROM EITHER HEAD OFFICE AND/OR CUSTOMERS AND IT IS NOT DIRECTLY RELATED TO A PARTICULAR MONTH OR PERIOD. A DIAMOND MANUFACTURED IN THE MONTH OF MARCH MAY COME FOR REPAIR IN THE MONTH OF JUNE. SO THE MONTHLY RESULTS ARE NOT DIRECTLY OUT OF THE INPUTS OF THAT MONTH ONLY. ALSO HOWEVER, HE HAS FAILED TO TAKE INTO CONSIDERATION THAT AS A RESULT OF REPAIRING LOSS THERE NOT ALWAYS REDUCTION IN THE PERCENTAGE OF YIELD SINCE THE SAID REPAIRING LOSS AT MANY TIMES WOULD BE COMPENSATED BY OTHER LOSSES WHICH WOULD HAVE OCCURRED AT A LESSER PERCENTAGE DURING THE SAME MANUFACTURING PROCESS. ACCORDINGLY, HAD THE A. O. UNDERSTOOD THE MANUFACTURING PROCESS IN ENTIRETY, THE SAID OBSERVATION WOULD NOT HAVE BEEN MADE. 2. FURTHER THE SAID REPAIRING LOSS NOT BEING MENTIONED IN THE LOOSE PAPERS IS YET ANOTHER CONSIDERATION THAT THEY ARE INCOMPLETE AND PART DATE, WHICH CANNOT BE GROUND FOR ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 20 MAKING ANY ADDITION. 6. THE A O HAS ESTIMATED YIELD ON THE BASIS OF YIELD SHOWN BY SIMILAR OTHER ENTERPRISES. 1. THE A. O. HAS PROCEEDED TO MAKE THE ADDITION OF YIELD ON THE BASIS OF YIELD SHOWN BY OTHER ENTERPRISES WITHOUT CONSIDERING THE FACT THAT THE BOOKS OF ACCOUNTS HAVE BEEN ACCEPTED, THE OPERATIONAL PROFIT HAS NOT BEEN DOUBTED AND THE EXPLANATION REGARDING THE LOOSE PAPERS SUBMITTED HAVE BEEN ACCEPTED. 2. HAVING PROVED THE ABOVE CONTENTION, THE A. O. HAD STILL ESTIMATED YIELD ON THE BASIS OF YIELD SHOWN BY OTHER ENTERPRISES WITHOUT PROVIDING ANY OPPORTUNITY OR GIVING A SHOW CAUSE NOTICE FOR THE PROPOSED ACTION. THE SAME IS AGAINST THE PRINCIPLE OF NATURAL JUSTICE. 10. WITHOUT PREJUDICE TO THE ABOVE DISCUSSION, YI ELD CAN BE ESTIMATED ONLY WITH RESPECT TO A PERIOD RELATING TO WHICH THE INCRIMINATING DOCUMENTS HAVE BEEN FOUND. DURING THE COURSE OF THE SURVEY PROCEEDINGS, LOOSE PAPERS FOR THE MONTHS OF DECEMBER 2005 TO MARCH 2006 HAVE ONLY BEEN FOUND. AS EVIDENT FROM THE CHART REPRODUCED BELOW, AVERAGE YIELD OF POLISHED D IAMONDS TO CHADEL ROUGHS FOR THE AFORESAID PERIOD IS 29.67% WH ICH IS MORE THAN 29%, AS ESTIMATED BY THE A O. THUS, THIS CONTE NTION OF THE A O IS NOT ACCEPTABLE. AGAIN, IF THE CLAIM OF THE APP ELLANT IS ACCEPTED THAT WHAT HAD BEEN ENTERED INTO BY MR. VASANT RAJYA GURU WAS ONLY, MAKEABLE ROUGH, THEN THE AVERAGE YIELD FOR TH E MID PERIOD COMES OUT TO 30.9875% WHICH IS MUCH NEARER TO THE I NDUSTRY AVERAGE. THE PERCENTAGE OF YIELD FOR THE PERIOD FRO M DECEMBER 2005 TO MARCH 2006 OF CHADEL ROUGH TO POLISHED DIAM OND IS REPRODUCED HERE UNDER: ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 21 PERIOD CHADEL TO POLISHED DIAMOND (BOOKS) DECEMBER 2005 29.47% JANUARY 2006 29.67% FEBRUARY 2006 28.56% MARCH 2006 31.00% IN THIS RESPECT, THE APPELLANT HI ID ALSO SUBMITTED TO THE A O COMPLETE MOVEMENT OF DIAMOND RECEIVED FROM CHADEL L O MAKEABLE ROUGHS WHICH CLEARLY EXPLAINS THE BASIC REAL REJECT ION, LOSS, WEIGHT AND PROCESS LOSS, ETC. TO THE A O. IT WOULD BE RELE VANT TO NOTE THAT THE AO HAS PROCEEDED TO ESTIMATE THE YIELD OF THE E NTIRE YEAR. HE HAS ESTIMATED YIELD OF THE CHADEL ROUGH TO POLISHED DIAMOND AT 29% INSTEAD OF 28.61% AS CLAIMED BY THE APPELLANT. THE CIT (A) MAY DIRECT A.O. TO ESTIMATE YIELD IF AT ALL REQUIRE D ONLY FOR THE PERIOD FOR WHICH THE SO CALLED INCRIMINATING DOCUME NTS HAVE BEEN FOUND AND AS THE YIELD IN THE BOOKS IS MORE THAN TH E COMPUTER SHEETS ESTIMATION FOR THE ENTIRE YEAR IS UNCALLED F OR AND MAY BE DELETED. UNLESS THERE IS ANY MATERIAL EVIDENCE, NO ADDITION CAN BE MADE FOR EARLIER PERIOD OR SUBSEQUENT PERIOD: 1. SHANKUR RICE CO. VS. ITO (21)00) 67 TTJ(ASR) 84 : (2000) 72ITD 139 (ASR). SAMRAL BEER BAR VS. ASSTT. C1T (WOO) 69 TTJ (PUNE) (TM) 113 : (2000) 75 ITD 19 (PUNE) (TM). 2. CONCLUSION ESTIMATE OF SUPPRESSION OF SALE'S FOR A LARGER PERI OD COULD NOT BE MADE ON THE BASIS OF THE DIARY FOUND IN SEARCH SHOWING S UPPRESSION OF SALES IN A PARTICULAR PERIOD. 11. INSPITE OF THE ABOVE FADS ON RECORD, THE A O H AS CONCLUDED THAT YIELD OF POLISHED DIAMONDS CANNOT BE COMPUTED VIS A VIS MAKEABLE ROUGHS. AS DISCUSSED, THERE IS NO PR E-DEFINED YARD- STICK TO COMPUTE YIELD OF DIAMONDS. AT THIS JUNCTUR E, WE WOULD ALSO LIKE TO PLACE RELIANCE ON THE REPORTS RECEIVED FROM MUMBAI DIAMOND MERCHANTS' ASSOCIATION AND JEWELS EXPORT PR OMOTION COUNCIL, WHICH STALE THAT A YIELD IN ANY DIAMOND PR OCESS HOUSE CAN RANGE ANYWHERE BETWEEN 10 TO 55%. COPIES OF THE SAID REPORTS ARE ATTACHED HEREWITH FOR READY REFERENCE A S ANNEXURE -D. 12. FURTHER, THE A O HAS ALSO HELD THAT THE YIELD G ENERATED FROM LABOUR CONTRACTORS/SUB-CONTRACTORS SHOULD BE A T LEAST NEARER ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 22 OR EQUAL TO THE YIELD WHICH THE APPELLANT GENERATES IN ITS OWN FACTORY. IN THIS RESPECT, THE APPELLANT WOULD \LIKE TO SUBMIT THAT IF IT IS ACCEPTED THAT THE NOTING IN THE ROUGH WEIGHT COL UMN OF THE LOOSE PAPERS IS MAKEABLE ROUGH THEN IT WOULD BE PERTINENT TO NOTE THAT THE YIELD DERIVED BY THE APPELLANT IS MORE THAN THE INDUSTRY AVERAGE AS HIGH LIGHTED BY THE A 0. THE AVERAGE YIE LD OF MAKEABLE ROUGH TO POLISHED DIAMOND IS COMING OUT ] OF THE BOOKS OF ACCOUNT FOR THE PERIOD DECEMBER 2005 TO MARCH 2006 IS 30.98 75% WHICH IS MORE THAN THE INDUSTRY AVERAGE. ALSO THE PLEA THAT THE YIELD OF POLISHED DIAMOND FROM THE LABOUR CONTRACTOR IS LESS THAN THE YIELD AS GENERATED IN THE APPELLANT FACTORY PREMISES IS N OT ACCEPTABLE BECAUSE OF THE FACT THAT THE YIELD DIFFERS FROM ASSESSEE TO ASSESSEE AND MORE PARTICULARLY DIFFERS FROM ASSESSE E TO ASSESSEE BECAUSE THE YIELD IS DEPENDENT ON MANY FACTORS; SUC H AS THE PROCESS ADOPTED FOR POLISHING THE DIAMOND BY THE PL ANNERS WHO DECIDE THE VARIETY IN SHAPES & SIZES, SUCH AS ROUND , EMERALD OF THE DIAMOND. THUS, THE LEVEL OF SKILLED EMPLOYED UN DERTAKING SUCH PROCESS, THE MACHINERY AND THE EQUIPMENTS UTILIZED IN ORDER TO UNDERTAKE SUCH PROCESS AND MANY OTHER FACTORS. THUS , AS CLAIMED BY THE AO THE YIELD HAS GENERATED IN THE FACTORY PR EMISES OF THE APPELLANT CANNOT BE COMPARED WITH THAT OF THE YIELD US GENERATED IN THE PREMISES OF ITS CONTRACTORS. BASED ON THE DISCUSSION ABOVE, THE HON'BLE CIT(A) M AY DIRECT THE A O TO DELETE THE ADDITION TAKEN PLACE O N ACCOUNT OF THE ESTIMATION OF THE YIELD AT 29% AND ACCEPT THE YIELD OF THE APPELLANT, ESPECIALLY WHEN NO CORROBORATIVE EVIDENCES HAVE BEE N BROUGHT ON RECORD, REFLECTING UNACCOUNTED SALES OF THE ALLEGED SUPPRESSED YIELD.' 2.4 THE LEARNED CIT(A) CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE DELETED THE ADDITION. THE FINDINGS OF THE LEARNED C IT(A) IN THE APPELLATE ORDER ARE REPRODUCED AS UNDER: I HAVE GIVEN A CAREFUL CONSIDERATION TO THE RELEVA NT FACTS, THE REASONS STATED BY THE A0 TO JUSTIFY IMPUGNED ADDITI ON AND THE SUBMISSIONS MADE BEFORE ME ON BEHALF OF THE APPELLA NT FIRM. FIRST OF ALL IT MAY BE MENTIONED THAT THE A0 HAS ATTACHED MUCH IMPORTANCE TO THE PAPERS FOUND DURING THE COURSE OF SURVEY. IN MY VIEW IT IS FUTILE TO ENTER INTO ANY CONTROVERSY AS TO WHETHER THESE PAPERS INDICATE ACTUAL PRODUCTION OR ESTIMATED / PR OJECTED ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 23 PRODUCTION. IN THE LIGHT OF THE FACTUAL POSITION WH ICH HAS BEEN REPRODUCED (SUPRA), IT IS CLEAR THAT THE ACTUAL PRO DUCTION RECORDED IN THE BOOKS OF ACCOUNTS FOR THE RELEVANT FOUR MONT HS IS NOT LESS THAN THE PRODUCTION INDICATED IN THE IMPOUNDED PAPE RS. THE DATA IN THE IMPOUNDED PAPERS ARE REFLECTING ONLY SOME OF THE PROCESSES AND DEPARTMENT & IT DOES NOT CONTAIN DETAILS FROM P URCHASE OF COMPLETE ROUGH TO POLISHED DIAMOND. THEREFORE, IN M Y VIEW, THERE IS NO BASIS FOR ANY ADVERSE INFERENCE OR ANY ASSUMP TION ON THE BASIS OF IMPOUNDED PAPERS THAT THE ASSESSEE HAS SUP PRESSED THE PRODUCTION. IT IS NOTABLE THAT DURING THE COURSE OF SURVEY NO EVIDENCE WAS FOUND TO SUGGEST THAT THE APPELLANT FI RM HAD MADE ANY SALES WHICH WERE NOT RECORDED IN THE BOOKS OF A CCOUNTS. THE SITUATION HAS BEEN FULLY EXPLAINED BY ASSESSEE FIRM BEFORE THE AO AS ALSO BEFORE ME. THE AO HAS DRAWN ADVERSE INFERENCE FROM THE FACT TH AT THE AVERAGE YIELD DURING THE PRECEDING ASSESSMENT YEAR WAS 29.34% WHEREAS DURING THE YEAR UNDER APPEAL IT CAME DOWN T O 28.61%. IT IS NOTABLE THAT FROM THE FACTUAL POSITION ALREADY S TATED BY THE AO IN THE ASSESSMENT ORDER WHICH HAS BEEN REPRODUCED (SUP RA) IN THE SHAPE OF CHART, THE AVERAGE PRODUCTION OF CUT AND P OLISHED DIAMONDS DURING THE ASSESSMENT YEARS 2003-04 TO 200 5-06 IS 27.51% AND 21.7% IN RELATION TO CHADEL ROUGH AND TO TAL ROUGH RESPECTIVELY. AS AGAINST THIS, THE ACTUAL PRODUCTIO N DURING THE PRESENT ASSESSMENT YEAR IS MORE AT 28.61% AND 22.75 % RESPECTIVELY. IT IS ALSO NOTABLE THAT DURING THE IM MEDIATELY PRECEDING YEAR THE AVERAGE COST OF ROUGH WAS RS.2,8 25/- PER CARAT WHEREAS THIS YEAR IT IS RS.2,670/- PER CARAT WHICH MEANS THAT THE QUALITY OF ROUGH WAS INFERIOR DURING THE PRESENT YE AR . MOREOVER, WHEN THE PRODUCTION THIS YEAR IS MORE THAN THE AVER AGE PRODUCTION OF PRECEDING THREE ASSESSMENT YEARS, THERE IS NO BA SIS FOR DRAWING ANY ADVERSE INFERENCE. FURTHER, THE A 0 HAS NOT POINTED OUT A SINGLE DEFECT IN THE BOOKS OF ACCOUNTS OR THE METHOD OF ACCOUNTING. THE LEGAL POSITION IS ABSOLUTELY CLEAR FROM THE VARIOUS CASES REFERRED TO ABOVE. ACCORDINGLY, IN MY VIEW ME RELY BECAUSE THERE IS SOME MINOR VARIATION IN THE YIELD AS PER T HE PRECEDING ASSESSMENT YEAR, NO ADDITION CAN BE MADE. ANOTHER REASON GIVEN BY THE AO IS THAT THE YIELD PO SITION IN RESPECT OF ROUGH DIAMONDS ISSUED TO OUTSIDE 'KARIGA RS' IS MUCH LESS THAN YIELD OBTAINED FROM IN-HOUSE PRODUCTION. THE ASSESSEE SUBMITTED A PROPER EXPLANATION THAT IT IS THE NORMA L PRACTICE TO ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 24 ISSUE INFERIOR QUALITY OF ROUGH DIAMONDS TO OUTSIDE 'KARIGARS'. IN MY VIEW THERE IS NO REASON FOR NOT ACCEPTING THIS REAS ONABLE EXPLANATION ESPECIALLY IN VIEW OF THE FACT THAT THE AVERAGE PRODUCTION THIS YEAR IS BETTER THAN THE AVERAGE PRO DUCTION OF PRECEDING ASSESSMENT YEARS. THE A0 HAS ALSO REFERRED TO SOME COMPARABLE CASES A ND THE FACTUAL POSITION REGARDING YIELD IN THESE CASES HAS BEEN REPRODUCED (SUPRA). IT IS TRUE THAT IN RELATION TO CHADEL ROUGH, THE YIELD POSITION FOR THE COMPARABLE CASES IS BETTER. HOWEVER, IN RELATION TO THE TOTAL ROUGH, YIELD POSITION IN ASSE SSEE'S CASE IS BETTER. FOR THIS PURPOSE, THE FACTS OF PRIYANKA GEM S HAVE TO BE IGNORED BECAUSE IN THAT CASE, THE COST OF ROUGH IS RS.4,102/- AS AGAINST THE COST OF RS.2,650/- IN THE CASE OF THE A SSESSEE. IN THE REMAINING 3 CASES, THE AVERAGE YIELD VIS-A-VIS TOTA L ROUGH IS 20.5% WHEREAS IN THE CASE OF THE ASSESSEE IT IS 22.75%. F URTHER, THE FACTS AND CIRCUMSTANCES IN DIFFERENT CONCERNS MAY N OT BE SIMILAR. MOREOVER, DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE ASSESSEE WAS NEVER CONFRONTED WITH THE DATA COLLECT ED BY THE A 0 IN RESPECT OF OTHER COMPARABLE CASES. AFTER CONSIDE RING THE FACTS AND CIRCUMSTANCES AND HOLD THAT THE A0 WAS NOT JUST IFIED IN MAKING ADDITION OF RS.2,27,44,941/- AND THEREFORE, THE SAM E IS DELETED. THE ALTERNATIVE GROUND OF TREATING THE AFORESAID AD DITION AS CLOSING STOCK IS NOT REQUIRED TO BE DEALT WITH, SINCE THE A DDITION ITSELF HAS BEEN DELETED. 2.5 AGGRIEVED AND DISSATISFIED WITH THE ABOVE ORDER OF THE LEARNED CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 3. BEFORE US, THE LEARNED DR RELIED ON THE ORDER OF THE AO AND SUBMITTED THAT THE AO REJECTED THE PROCESS LOSS DOC UMENTS FURNISHED BY THE ASSESSEE HOLDING THAT SUCH RECORDS ARE NOT FURN ISHED DURING THE SURVEY PROCEEDINGS NOR FOUND DURING THE COURSE OF S URVEY. LD. DR FURTHER SUPPORTED THE CONTENTION OF THE LD. AO THAT THESE DOCUMENTS ARE NOTHING BUT CREATED RECORDS. LD. DR FURTHER SUBMIT TED THAT THE LD.AO HAD RIGHTLY REJECTED THE ASSESSEES CONTENTION WITH REGARD TO YIELD WORKED OUT BY THE APPELLANT AND ESTIMATED THE YIELD OF THE ASSESSEE ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 25 AFTER MAKING DILIGENT EXTERNAL COMPARISONS WITH THE COMPARABLE CONCERNS AND ALSO MAKING INTERNAL COMPARISON OF THE ASSESSEES YIELD IN THE EARLIER YEARS AND THEREBY REASONABLY ESTIMATED THE YIELD OF THE ASSESSEE AT 29% AND RIGHTLY MADE THE ADDITION OF RS .2,27,44,941/- TO THE TOTAL INCOME OF THE ASSESSEE. LD. DR POINTED O UT THAT THE YIELD POSITION IN RESPECT OF ROUGH DIAMONDS ISSUED TO OUT SIDE KARIGARS IS MUCH LESS THAN THE YIELD OBTAINED FROM IN-HOUSE PRO DUCTION. LD. DR FURTHER ADDED THAT THE RELIANCE PLACED BY THE LD. C IT(A) ON THE ASSESSEES EXPLANATION THAT IT IS A NORMAL PRACTI CE TO ISSUE INFERIOR QUALITY OF ROUGH DIAMONDS TO OUTSIDE KARIGARS AND T HAT THERE IS NO REASON FOR NOT ACCEPTING THE EXPLANATION OF THE ASSESSEE ESPECIALLY IN VIEW OF THE FACT THAT THE AVERAGE PRODUCTION DURING THE YEA R UNDER CONSIDERATION IS BETTER THAN THE AVERAGE PRODUCTION OF PRECEDING ASSESSMENT YEARS IS NOT CORRECT AND IS TO BE REJECTED. WITH REGARD TO L EARNED CIT(A)S OBSERVATION THAT THE AO HAS NOT DETECTED ANY DEFECT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, IT WAS SUBMITTED BY THE LEARNED DR THAT REQUISITE DETAILS OF STOCK RECORDS WERE NOT MADE AV AILABLE BEFORE THE REVENUE IN ORDER TO ESTABLISH THAT THERE WAS NO SUP PRESSION OF SALES. 4. THE LEARNED AR ON THE OTHER HAND RELIED UPON THE ORDER OF THE LEARNED CIT(A). IN ADDITION TO THE WRITTEN SUBMISSI ONS, THE LEARNED AR VEHEMENTLY ARGUED THAT NO ADVERSE INFERENCE CAN BE DRAWN FROM THE PAPERS FOUND AND IMPOUNDED DURING THE COURSE OF SUR VEY AND IT WAS REITERATED THAT IF IT IS ASSUMED THAT THESE PAPERS CONTAINED RECORD OF ACTUAL PRODUCTION FOR THE FOUR MONTHS, THE SAME TAL LIES WITH THE PRODUCTION SHOWN IN THE STOCK REGISTERS AND THERE C AN BE NO ASSUMPTION THAT PRODUCTION HAS BEEN SUPPRESSED. IT IS SUBMITTE D THAT THE ASSESSEE FIRM HAS MAINTAINED REGULAR BOOKS OF ACCOUNTS METIC ULOUSLY INCLUDING STOCK REGISTERS AND DAY TO DAY PRODUCTION RECORD. T HE BOOKS HAVE BEEN ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 26 STATUTORILY AUDITED AND COPIES OF AUDITED ACCOUNTS ALONG WITH REPORT OF THE AUDITORS WERE DULY FILED BEFORE THE AO. NO DEFE CTS WHATSOEVER HAVE BEEN POINTED OUT IN THE BOOKS OF ACCOUNTS OR THE ME THOD OF ACCOUNTING AND MERELY ON THE BASIS OF MINOR VARIATION IN THE P OSITION OF YIELD AS COMPARED TO THE PRECEDING ASSESSMENT YEAR, THE AO H AS MADE A HUGE ARBITRARY ADDITION ENTIRELY ON THE BASIS OF MERE AS SUMPTIONS. IT IS FURTHER POINTED OUT THAT EVEN IN ASSESSEE'S OWN CASE, THE P OSITION OF YIELD FOR AY 2003-04 AND 2004-05 WAS 26.62% AND 26.58% RESPEC TIVELY, AS COMPARED TO WHICH THE YIELD DURING THE ASSESSMENT Y EAR UNDER APPEAL IS BETTER AT 28.61%. THE AVERAGE YIELD FOR THE AY 2003 -04 TO 2005-06 IS 27.51% VIS-A-VIS CHADEL ROUGH AND 21.7% VIS-A-VIS T HE TOTAL ROUGH AND THAT AS AGAINST THESE, THE YIELD DURING THE PRESENT AY IS 28.61% AND 22.75% RESPECTIVELY. IT WAS ALSO SUBMITTED THAT THE ROUGH DIAMOND GIVEN TO KARIGARS ARE AFTER CARRYING OUT CERTAIN PROCES SES AND THEREFORE THE ASSESSEE HAS ALREADY SUFFERED CERTAIN EXPENSE LOSS DUE TO LABOUR COST AND WASTAGE. IT WAS ALSO EXPLAINED THAT SUCH PROCES SED ROUGH DIAMONDS ARE TERMED AS MAKEABLE ROUGH AND THE BOOKS DETAILS CONTAIN THE YIELD FROM THE VERY BEGINNING TO AN END OF THE PROCESS I. E. FROM CHADEL ROUGH TO MAKEABLE ROUGH. HE HAS ALSO REFERRED TO THE FOLL OWING DECISIONS: A) SHREYANS GEMS PVT LTD, VS ACIT 111TTJ 959 ITAT JAIPUR IN THIS CASE ADDITION WAS MADE ON THE GROUND OF LOW YIELD. THE ADDITION WAS DELETED BECAUSE THE AO DID NOT POINT OUT ANY MISTAK E IN THE OPENING STOCK, PURCHASE, SALES AND THE CLOSING STOCK. B) DHANESH COTTON GINNING DHELL & OIL MILS VS ITO 3 SOT 59 - ITAT JODHPUR. IN THIS CASE ADDITION MADE ON THE BASIS OF LOW YIELD WAS DELETED AS THE AO DID NOT POINT OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS MAINTAINED. ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 27 C) PUSHPANJALI DYING & PRINTING MILLS PVT. LT D. VS. JT. CIT 72 TTJ 886 ITAT AHMEDABAD. IN THIS CASE IT WAS HELD THAT MEREL Y ON THE BASIS OF LOW YIELD AND EXCESS EXPENDITURE ON ELECTRICITY, NO ADDITION CAN BE MADE WHEN THE BOOKS OF ACCOUNTS ARE DULY AUDITED AND NO DEFECTS HAVE BEEN FOUND THEREIN. D) ITO VS. VIGYAN CHEMICAL INDUSTRIES 40 TTJ 81 ITAT DELHI WHEREIN IT WAS HELD THAT THE YIELD OF PRODUCT MAY VARY FROM CONCERN TO CONCERN AND YEAR TO YEAR DEPENDING ON VARIOUS FACTORS AND M ERELY ON THAT BASIS ADDITION CANNOT BE MADE. FOR THE SAME PROPOSITIONS RELIANCE HAS BEEN PLACED ON THE FOLLOWING CASES ALSO:- 1) ITO VS JAGADAMBA RICE & GENERAL MILLS - 86 TAXMA N 46 1TAT CHANDIGARH 2) BISHEN SINGH GILL COTTON FACTORY PVT. LTD. V S. A.O. - 81 TAXMAN 150 - I.T.A.T. AMRITSAR 3) RAJ ENTERPRISE VS ITO - 51 TTJ 408 - ITAT J AIPUR 4) PUNET UDYOG VS ACIT - 164 TAXMAN 167 - ITAT DEL HI THE LEARNED AR ALSO RELIED ON THE HONBLE CALCUTTA HIGH COURT DECISION IN THE CASE OF SIDDHESHWARI COTTON MILLS PVT. LTD. VS CIT - 117 ITR 953 WHEREIN IT WAS HELD THAT WITHOUT REJECTING BOOKS OF ACCOUNTS, NO ADDITION CAN BE MADE ON THE BASIS THAT THE PRODUCTION ACCOUN T INDICATED MORE WASTAGE THAN IN PRECEDING YEAR. ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 28 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIALS ON R ECORD ALONG WITH THE CITATIONS OF CASE REFERRED. AT THE OUTSET, IT IS PE RTINENT TO MENTION THAT THE ASSESSEE HAD DECLARED A WHOOPING TURNOVER OF RS.246 .79 CRORES AGAINST WHICH THE NET PROFIT DECLARED IS ONLY RS.6, 06,485/- FOR THE RELEVANT ASSESSMENT YEAR. SIMILARLY, THE TOTAL TURN OVER DECLARED BY THE ASSESSEE FOR EARLIER ASSESSMENT YEAR I.E. 2005-06 W AS RS.193.79 CRORES AGAINST WHICH THE ASSESSEE HAD DECLARED SIMI LAR NOMINAL NET PROFIT. IT IS ALSO NOT DISPUTED THAT YEAR AFTER YEA R SUCH RESULTS WERE DECLARED BY THE ASSESSEE. NO DOUBT THE LEARNED AO H AD EVERY REASON TO GO DEEP INTO THE BOOKS OF ACCOUNTS AND RELEVANT DOC UMENTS NECESSARY IN ORDER TO VERIFY THE RESULTS DECLARED BY THE ASSE SSEE COMPANY WERE GENUINE. IT IS ALSO IMPORTANT TO NOTE THAT THE ASSE SSEE IS IN THE HIGH PROFILE BUSINESS OF TRADING AND PROCESSING OF DIAMO NDS WHICH REQUIRES SPECIFIC SKILL, TECHNOLOGY AND EXPERIENCE. CONSIDE RING THE NATURE OF THE BUSINESS THE LEARNED AO HAD MADE EFFORTS TO IDENTIF Y THE RIGHT QUALITY/QUANTITY OF DIAMONDS PROCESSED. UNIVERSALLY ACCEPTED MARKET PHENOMENON IS THAT, WHENEVER IN A TRADING ACTIVITY OR MANUFACTURING ACTIVITY WHERE SKILL AND TECHNOLOGY ARE INVOLVED, P ROFIT MARGINS ARE HIGH. IN THE CASE BEFORE US, WE FIND THAT THE NET PROFIT DECLARED BY THE ASSESSEE IS VERY LOW. IN THESE CIRCUMSTANCES, THE L EARNED AO HAD RIGHTLY PROCEEDED TO GO IN FOR A DETAILED INVESTIGATION. HO WEVER, WE FIND THAT THE LEARNED AO DID NOT ELABORATELY AND CLOSELY EXAMINED THE BOOKS OF ACCOUNTS, STOCK REGISTER, STOCK MOVEMENT REGISTER, DIAMOND PROCESSING RECORDS, RECORDS PERTAINING TO MANUFACTURING AND PO LISHING OF DIAMOND, RECONCILIATION OF ROUGH BLOCKS AND DIAMONDS PURCHAS ED WITH THE CLOSING STOCK GIVING EFFECT TO SALES AND WASTAGE ETC., AND IN PARTICULAR THE EXACT DETAILS OF THE ROUGH DIAMONDS OR DIAMONDS PURCHASED AS THE CASE MAY BE WHICH IS IMMENSELY IMPORTANT. ONLY BY EXAMINING SUCH RECORDS ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 29 CORRECT YIELD ANALYSIS COULD BE RELIED UPON. THE LE ARNED AO HAS SIMPLY PROCEEDED ON THE FOLLOWING BASIS:- (I) THE ASSESSEES CONTENTION WITH RESPECT TO LOOSE PAPERS FOUND DURING THE COURSE OF SURVEY TO BE MERE MONTHL Y ESTIMATES AND NOT THE ACTUAL FIGURES WERE NOT ACCEP TABLE BECAUSE MR. VASANTBHAI RAJYAGURU, THE EMPLOYEE OF T HE ASSESSEE HAS AGREED IN HIS STATEMENT THAT WHATEVER FIGURE SHOWN IN THE COMPUTER PRINTOUT INDICATES MONTHLY SU MMARY DATA OF ACTUAL FIGURES. (II) THE ASSESSEES CONTENTION THAT WHATEVER QUANTI TY MENTIONED IN THE COLUMN ROUGH WEIGHT MEANS ROUGH DIAMONDS A ND CLASSIFIED ROUGH DIAMOND INTO THREE CLASSES (I) RAW ROUGH DIAMONDS (II) CHADEL ROUGH DIAMONDS AND (III) MAKEA BLE ROUGH DIAMONDS WERE NOT ACCEPTABLE BECAUSE THE OTHE R DIAMOND FIRMS WERE ALSO DOING SAME BUSINESS LIKE AS SESSEE AND WERE SHOWING ONLY TWO TYPES OF DIAMOND CLASSIFI CATION (I) ROUGH DIAMOND (BEFORE REJECTION) AND (II) MAKEA BLE DIAMOND AFTER REJECTION AND WERE SHOWING YIELD EITH ER ON GROSS ROUGH DIAMONDS OR MAKEABLE ROUGH DIAMONDS AND THE SAME WAS MENTIONED IN THE AUDIT REPORT AS YIELD FOR PARTICULAR YEAR WHICH RANGES WITHIN 28% TO 50%. FURTHER, ON LO OKING AT THE FIGURES OF COMPUTER GENERATED SHEETS THE YIELD OBTAINED BY THE ASSESSEE FROM ROUGH DIAMONDS MANUFACTURED BY LABOUR CONTRACTOR WAS MUCH LESS THAN THAT WHAT THE ASSESSEE WAS GETTING FROM ITS OWN UNIT. (III) THE CLAIM OF THE ASSESSEE THAT THE YIELD MENT IONED ON MAKEABLE ROUGH DIAMOND IS MORE OR LESS SIMILAR AND WHATEVER THE MINIMUM DIFFERENCE IS DUE TO REPAIRING LOSS, IS ALSO NOT ACCEPTABLE BECAUSE THE YIELD AS SHOWN IN T HE LOOSE PAPER WERE SOMETIMES LESS THAN THE YIELD AS PER BOO KS. IF REPAIRING LOSS IS EMINENT BY YIELD PERCENTAGE AS PE R LOOSE PAPER, SHOULD ALWAYS BE HIGHER THAN THE YIELD PERCE NTAGE AS PER BOOKS. THE CLAIM OF THE ASSESSEE THAT THE YIELD MENTIONED IN LOOSE PAPER IS PART OF PRODUCTION PROC ESS IS ALSO NOT GENUINE. FINALLY THE LEARNED AO CONCLUDED BY MAKING AN ADDITION OF RS.2,27,44,941/- WITH THE FOL LOWING OBSERVATIONS: ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 30 EVEN IN THE CASE OF ASSESSEE HE HAS OBTAINED YIELD OF 29.34% DURING THE ASSESSMENT YEAR 2005-06 WITH THE AVERAGE COST OF ROUGH OF RS.2825 PER CARAT. WHEREAS DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS USED ROUGH DIAMONDS WITH THE AVERAGE COST OF RS.2,650/- PER CARAT WHICH IS MORE OR LESS SIMILAR IN QUALITY WITH RESPECT TO THE QUALITY OF ROUGH DIA MONDS USED BY HIM IN THE EARLIER YEARS BUT HE HAS SHOWN FALL IN Y IELD IN 0.73% DURING THE YEAR UNDER CONSIDERATION. IN VIEW OF THI S AFTER CONSIDERING ALL THE EXPLANATION AND SUBMISSIONS FUR NISHED BY THE ASSESSEE AND AFTER TAKING INTO CONSIDERATION THE IN TERNAL AS WELL AS EXTERNAL DATA IT IS JUSTIFIED TO ESTIMATE THE YIELD OF ASSESSEE REASONABLY AT 29% ON THE QUANTITY OF CHADEL DIAMOND REFLECTED BY HIM IN THE AUDIT REPORT FURNISHED BY HIM FOR A. Y. 2006-07 AND THEREFORE, I ADD RS.2,27,44,941/- TO THE TOTAL INCOME OF THE ASSESSEE BY ESTIMATING YIELD AT 29.00% AGAINST REPO RTED FIGURE OF 28.61% AS UNDER: PARTICULARS AMOUNT POLISHED DIAMOND MANUFACTURED DURING THE YEAR (CTS) 1,28,547.42 YIELD OF POLISHED DIAMOND AS REPORTED 2 8.61% ROUGHS PROCESSED DURING THE YEAR (CTS) 4,4 9,309 ESTIMATED YIELD OF POLISHED DIAMOND 29.00% ESTIMATED POLISHED DIAMOND (CTS) 1,30,299.73 SUPPRESSED POLISHED DIAMOND (CTS) 1752.31 ESTIMATED COST OF POLISHED DIAMOND PER 12,980 CARAT (RS.423000000/32588.08 CTS) ADDITION 227,44,941 5.1 IN THIS CASE BEFORE US, THE LEARNED AR EXPLAINE D THE REASON FOR LOW PROFITABILITY WAS DUE TO THE COMPLEXITY AND UNPREDI CTABILITY OF THE DIAMOND BUSINESS. SINCE LARGE NUMBERS OF ITEMS OF D IAMONDS ARE INVOLVED, IT IS NOT POSSIBLE TO MAINTAIN COMPLETE P RODUCTION RECORDS ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 31 ATTRIBUTABLE TO EACH ITEM OF DIAMONDS. HOWEVER, WE ARE NOT IN AGREEMENT WITH SUCH REASONING. IT IS OBVIOUS THAT W HENEVER MANUFACTURING PROCESS IS SIMPLE, LESSER RECORDS/CON TROLS WILL SUFFICE. WHEN THE PROCESS IS COMPLICATED AND THAT TOO INVOLV ING MATERIAL OF HIGH VALUE, STRICTER CONTROLS COUPLED WITH ACCURATE MAIN TENANCE OF RECORDS HAS TO BE ADHERED. IN THE CASE OF DIAMOND TRADE, TH E MANUFACTURER OR THE TRADER NECESSARILY HAS TO MAINTAIN COMPLETE REC ORDS WITH RESPECT TO PURCHASE, PROCESSING COST, PARTICULARS OF YIELD ETC ., OF THE DIAMONDS DEALT WITH. EVEN BEFORE A ROUGH DIAMOND IS GIVEN TO THE ARTISAN FOR FINAL CUTTING AND POLISHING, THE MANUFACTURER, TRADER KNO WS AS TO WHAT WILL BE THE YIELD FOR THAT VARIETY OF DIAMONDS. THE PARTICU LARS IN DETAIL OF EVERY PIECE OF ROUGH DIAMOND WHICH ARE GIVEN TO ARTISAN A RE RECORDED BY THE MANUFACTURER/TRADER METICULOUSLY WITHOUT WHICH CONT ROL ON THE STOCK WILL GO HAYWIRE AND PRACTICALLY IMPOSSIBLE TO CONDUCT TH E BUSINESS. THEREFORE, IT IS PERTINENT FOR THE ASSESSEE TO MAIN TAIN COMPLETE RECORDS OF EVERY PIECE OF ROUGH DIAMOND PURCHASED, LABOUR P AYMENT MADE FOR EVERY PIECE OF CUT AND POLISHED DIAMOND, PARTICULAR S OF YIELD, INVENTORY OPENING STOCK, PURCHASE, SALE AND CLOSING STOCK ETC . WHEN THE WHOLE INDUSTRY RUNS ON THIS LINE, IT IS SURPRISING TO NOT E THAT THE ASSESSEE IS NOT IN POSSESSION OF SUCH RECORDS. 5.2 ON PERUSING THE MANNER IN WHICH THE ASSESSMENT ORDER IS PASSED, IT IS OBVIOUS THAT THE LEARNED AO RELIED MORE ON ES TIMATES AND REASONING INSTEAD OF VERIFYING THE BOOKS OF ACCOUNTS AND RELE VANT DOCUMENTS. IF DUE TO VARIOUS REASONS, BOOKS OF ACCOUNTS ARE NOT R ELIABLE, THEN OF- COURSE THE LD. AO MAY REJECT THE BOOKS OF ACCOUNTS AND MAKE ASSESSMENT BASED ON ESTIMATES. THE LEARNED AR ALSO BROUGHT TO OUR NOTICE THAT THE LD. AO HAD NOT REJECTED THE BOOKS O F ACCOUNTS CITING SOME COGENT REASONS. ON FURTHER ANALYZING THE FINAN CIAL STATEMENTS IT IS ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 32 EVIDENT THAT THE APPELLANT HAD MADE AN INVESTMENT O F RS.11,70,52,132/- ON WIND MILL AND CLAIMED DEPRECIATION OF RS.4,68,20 ,853/- SOURCE PAGE 86 OF THE ASSESSEES PAPER BOOK. EVEN AFTER IGNORIN G ITS DEPRECIATION EFFECT THE NET PROFIT OF THE APPELLANT WORKS OUT TO 1.92% I. E., [ (4,68,20,853 + 6,38,405 ) / 2,46,69,58,888 ] X 100, WHICH PATENTLY APPEAR TO BE TOO LOW. LOOKING AT THE COMPLEXITIES OF THE BUSINESS OF THE ASSESSEE COUPLED WITH HIGH TURNOVER OF APPROX. RS.2 47 CRORES AND FURTHER TAKING INTO ACCOUNT OF THE VERY LOW PROFIT DECLARED BY THE ASSESSEE, IN THE INTEREST OF JUSTICE FOR BOTH THE P ARTIES, WE FIND IT APPROPRIATE TO REMIT THE ISSUE BACK TO THE FILE OF THE LEARNED AO WITH DIRECTION TO EXAMINE THE BOOKS OF ACCOUNTS INCLUDIN G STOCK REGISTER, STOCK MOVEMENT REGISTER, MANUFACTURING AN D PROCESSING RECORDS OF DIAMOND INCLUDING REGISTER FOR STOCK MOV EMENT OF DIAMONDS FROM ONE PROCESS TO ANOTHER PROCESS ALONG WITH THE PAPER SLIPS MAINTAINED BY THE APPELLANT WITH RESPEC T TO THE WORK ASSIGNED TO THE ARTISANS, RECORDS PERTAINING TO POL ISHING OF DIAMOND AND RECONCILIATION OF ROUGH BLOCKS AND DIAM ONDS PURCHASED WITH THE CLOSING STOCK GIVING EFFECT TO S ALES AND WASTAGE ETC., OTHER REQUISITE DOCUMENTS AND MOST IMPORTANTL Y THE DETAILS OF PURCHASES OF ROUGH DIAMONDS OR DIAMONDS AS THE CASE MAY BE ALONG WITH THE RATE OF PURCHASE, JUSTIFICATION FOR SUCH RATE AND DETAILS FROM WHOM THE PURCHASES ARE MADE AND PASS A PPROPRIATE ORDER AS PER LAW ON MERITS. FURTHER WE FIND IT APPROPRIATE TO ADD THAT THE COMPLETE DETAILS OF OPENING STOCK, PURCHASES, B ASIS OF MAKING LABOUR PAYMENT FOR EACH AND EVERY PIECE OF DIAMONDS, SALES , CLOSING STOCK ETC., MAY ALSO BE CLASSIFIED ACCORDING TO THE FOLLOWING C ATEGORIES OR ANY OTHER REASONABLE METHOD ADOPTED IN THE INDUSTRY:- NO. OF PIECES TOTAL CARAT VALUES 0-5 CENTS ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 33 5-10 CENTS 10-15 CENTS 15-30 CENTS 30-50 CENTS 50- 1 CARAT 1 CARAT AND AND ABOVE NEEDLESS TO MENTION, ONLY AS AN ALTERNATIVE, THAT I F THE LEARNED AO FINDS ANY COGENT REASON TO REJECT THE BOOKS OF ACCO UNTS, HE MAY PROCEED TO DO SO AND PASS APPROPRIATE ORDER ON ESTI MATED BASIS KEEPING IN VIEW OF THE INTRICACIES AND NATURE OF SU CH HIGH PROFILE TRADE . THE ASSESSEE IS ALSO DIRECTED TO COOPERATE WITH T HE REVENUE IN THE ASSESSMENT PROCEEDINGS AND FURNISH THE REQUISIT E BOOKS AND DOCUMENTS PROMPTLY BEFORE THE LEARNED AO. IT IS ORD ERED ACCORDINGLY. THUS, GROUNDS NO.1 AND 2 OF THE APPEAL OF THE REVEN UE ARE ALLOWED FOR STATISTICAL PURPOSES. 6. THE RELEVANT FACTS IN RESPECT OF GROUNDS NO.3,4 AND 5, BRIEFLY STATED ARE THAT IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE FIRM DEBITED A SUM OF RS.1,74,11,890/- AS SPECULATION LOSS BEING L OSS DUE TO FLUCTUATION IN FOREIGN EXCHANGE ETC., ON ACCOUNT OF FORWARD HED GING CONTRACTS IN FOREIGN CURRENCY. AS AGAINST THIS LOSS, FOREIGN EXC HANGE GAIN ON EXPORT OF POLISHED DIAMONDS WAS SHOWN AT RS.1,97,24,855/-. THUS, THE NET GAIN ON FOREIGN EXCHANGE WAS RS.78,17,130/-. IT APPEARS THAT UNDER SOME MISCONCEPTION, THE LOSS OF RS.1,74,11,890/- WAS TRE ATED BY THE ASSESSEE AS SPECU LATION LOSS, THIS MISTAKE WAS POINTED OUT TO THE AO BY WRITING A LETTER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND IT WAS SUBMITTED THAT THE FOREIGN EXCHANGE GAIN SHOULD BE RECOMPUTED AFTER TAKING INTO ACCOUNT THE LOSS WHICH IS AN ALLOWABLE BUSINESS EXP ENDITURE AND NOT SPECULATION LOSS. IT WAS EXPLAINED THAT THE LOSS WA S IN RESPECT OF TAKING APPROPRIATE FORWARD COVER AND HEDGING THE RECEIVABL ES AND PAYABLES IN ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 34 FOREIGN EXCHANGE FROM TIME TO TIME AND ANY LOSS ARI SING FROM SUCH HEDGING IS IN THE NATURE OF ALLOWABLE BUSINESS LOSS . THE AO WAS CONVINCED ABOUT THE CORRECTNESS OF THE ASSESSEE'S C LAIM BUT HE REJECTED THIS CLAIM WITH THE FOLLOWING OBSERVATIONS AT PARA 5.1 AND 5.2 OF HIS ORDER;- '5.1 IN SUPPORT OF THE ASSESSEES ARGUMENTS, IT HAD ALSO PRODUCED THE RELEVANT DOCUMENTS TO JUSTIFY THE CLAIM THAT THE FOREIGN CURRENCY LOSS OF RS.1,74,11,890 DEBITED IN THE PROFIT AND LOSS ACCOUNT WAS IN THE NATURE OF IMPORT AND EXPORT OPERATIONS CARRIED OUT BY IT. 5.2 THERE IS SUFFICIENT FORCE IN THE CONTENTI ON OF THE ASSESSEE THAT FOREIGN CURRENCY TRADING LOSS MENTIONED AND DI SALLOWED IN THE RETURN OF INCOME IS ALLOWABLE DEDUCTION ON THE GROU ND THAT THE SAME PERTAINS TO HEDGING OF RECEIVABLES AND PAYABLE IN FOREIGN CURRENCY CARRIED OUT FOR THE OPERATION OF DIAMOND B USINESS. AT THIS STAGE, THE CLAIM OF THE ASSESSEE IS NOT ACCEPTABLE IN VIEW OF THE HON'BLE SUPREME COURT DECISION IN THE CASE OF GOETZ E [INDIA] LTD. VS. COMMISSIONER OF INCOME TAX [2006] 284 ITR 323. AS PER THE SAID DECISION, THE ASSESSEE CANNOT CLAIM DEDUCTION BY ADDRESSING A LETTER TO THE A O BUT MUST DO SO BY FILING A REVI SED RETURN. ' FROM THE ABOVE, IT IS CLEAR THAT EVEN THOUGH THE AO WAS CONVINCED ABOUT THE CORRECTNESS AND ALLOWABILITY OF THE ASSES SEE'S CLAIM, HE REJECTED IT ON THE GROUND THAT REVISED RETURN SHOUL D HAVE BEEN FILED. 6.1 WHILE THE MATTER REACHED THE LEARNED CIT(A) IN APPEAL, THE ASSESSEE FILED A DETAILED WRITTEN SUBMISSIONS BEFOR E HIM ON BEHALF OF THE ASSESSEE FIRM ON THIS ISSUE, RELEVANT PART OF WHICH READS AS UNDER: 'PRIMA FACIE, THE RATIO OF THE DECISION OF THE HON' BLE SUPREME* COURT IN THE CASE OF GOETZE (INDIA) LTD., (SUPRA) I S SQUARELY APPLICABLE TO THE FACTS OF THE CASE BECAUSE AS PER THE LAW, THE ONUS LIES ON THE ASSESSEE TO MAKE RIGHT CLAIM AND S UCH CLAIM MUST BE MADE WITHIN THE FRAMEWORK OF PROVISIONS OF ACT. HOWEVER, THIS SITUATION, THOUGH, IT IS PERFECTLY IN CONSONANCE WI TH THE POSITION OF LAW MAY RESULT INTO GENUINE HARDSHIP TO THE ASSESSE E AS THE ASSESSEE WOULD BE LEFT WITH THE OPTION ONLY TO PROC EED UNDER SECTION 264 THAT TOO IN CASE THEY HAVE NOT GONE INT O APPEAL BEFORE THE LEARNED CIT (A) ON THE SAME ISSUE OR THE LEARNE D CIT (A) HAS MOT ADMITTED THOSE ISSUE. OTHER OPTION WOULD BE TO APPROACH ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 35 CENTRAL BOARD OF DIRECT TAXES UNDER SECTION 119 OF THE ACT FOR GETTING THE SPECIFIC RELIEF. BOTH THESE OPTIONS INV OLVE TIME AS WELL W ENGAGEMENT OF OTHER ADMINISTRATIVE AUTHORITIES WHIC H CAN BE OTHERWISE DEVOTED TO OTHER IMPORTANT ISSUES. THIS S ITUATION HAS COMPELLED US TO LOOK INTO THE DUTIES OF THE ASSESSI NG AUTHORITIES RATHER THAN POWERS OF ASSESSING AUTHORITIES BECAUSE GOVERNMENT IS ENTITLED TO COLLECT ONLY THE TAX LEGITIMATELY DU E TO IT OTHERWISE THE TAX NOT SO COLLECTED WOULD BE VIOLATIVE OF THE ARTI CLE 265 TO THE CONSTITUTION OF INDIA. IN SUCH PURSUIT, WE HAVE FOU ND THAT THE CBDT AS BACK AS IN 1955 ISSUED CIRCULAR NO. 14 (XL-35), DATED 11 TH APRIL, 1955 AS TO WHAT SHOULD BE A DEPARTMENTAL ATTITUDE T OWARDS REFUND AND RELIEFS TO THE ASSESSEES. THE SUBJECT CIRCULAR IS REPRODUCED BELOW FOR THE PURPOSE OF READY REFERENCE: 'V. MISCELLANEOUS - REFUND AND RELIEFS DUE TO ASSES SEES - DEPARTMENTAL ATTITUDE TOWARDS - THE BOARD HAVE ISSU ED INSTRUCTIONS FROM TIME TO TIME IN REGARD TO THE ATT ITUDE WHICH THE OFFICERS OF THE DEPARTMENT SHOULD ADOPT IN DEAL ING WITH ASSESSEE IN MATTERS AFFECTING THEIR INTEREST AND CONVENIENCE. IT APPEARS THAT THESE INSTRUCTIONS ARE NOT BEING UN IFORMLY FOLLOWED. 6.2 THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE LEARNED CIT(A) WAS NOT RIGHT IN DIRECTING THE AO TO DELETE THE ADDITION OF RS.1,74,11,890/- TREATING THE SAME AS B USINESS LOSS OF THE ASSESSEE FIRM WHILE THE ASSESSEE FIRM ITSELF HAS CL AIMED THE SAME AS SPECULATION LOSS IN ITS RETURN OF INCOME. 6.3 IT WAS FURTHER EXPLAINED THAT IN THE AFORESAID CIRC ULAR, THE OFFICERS OF THE DEPARTMENT WERE ADVISED NOT TO TAKE ADVANTAG E OF THE IGNORANCE OF ANY ASSESSEE WITH RESPECT TO THEIR RIGHTS. IT IS ONE OF THEIR DUTIES TO ASSIST A TAXPAYER IN EVERY REASONABLE WAY, PARTICUL ARLY IN THE MATTER OF CLAIMING AND SECURING RELIEFS AND IN THIS REGARD TH E OFFICERS SHOULD TAKE THE INITIATIVE IN GUIDING A TAXPAYER WHERE PROCEEDI NGS OR OTHER PARTICULARS BEFORE THEM INDICATE THAT SOME REFUND OR RELIEF ARE DUE TO THEM. ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 36 6.4 FURTHER, REGARDING THE HONBLE SUPREME COURTS DECISION IN THE CASE OF GOETZE INDIA LTD. VS. CIT (SUPRA), FOLLOWIN G ARGUMENTS HAVE BEEN MADE BY THE ASSESSEE :- 'AS FAR AS THE DECISION OF THE HON'BLE APEX COURT I N THE CASE OF GOETZE (INDIA) LTD. (SUPRA) IS CONCERNED, THERE IS NO DISPUTE THAT THE SAME IS BINDING ON EVERYBODY CONCERNED. IN THE SAID DECISION, THE HON'BLE APEX COURT HAS ALSO RULED THAT APPELLAT E TRIBUNAL MAY ADJUDICATE THE ISSUE IF A CLAIM IS MADE BY ANY PART Y SUBJECT TO SATISFACTION OF PRESCRIBED RULES; HENCE, EVEN THE H ON'BLE APEX COURT HAS NOT BARRED THE ASSESSEE TO RAISE ITS LEGA L CLAIM BEFORE APPELLATE AUTHORITIES. HOWEVER, SUCH PROCESS WOULD RESULT INTO UNDUE HARDSHIPS, DELAY AND MULTIPLICITY OF PROCEEDI NGS. THE HON'BLE APEX COURT, ON NUMEROUS OCCASIONS HAS LAID THE PROPOSITION THAT THE ASSESSING AUTHORITIES ARE BOUN D TO COMPUTE THE CORRECT INCOME ONLY AND COLLECT ONLY LEGITIMATE TAX, HENCE, MERELY FOR A PROCEDURAL LAPSE OR TECHNICALITIES, IN OUR OPINION, THE ASSESSEE SHOULD NOT BE COMPELLED TO PAY MORE TAX TH AN WHAT IS DUE FROM HIM.' 6.5 IT WAS FURTHER CONTENDED BY THE LEARNED LD. AR THAT THE AO IS STATUTORILY BOUND TO COMPUTE THE TOTAL INCOME OF TH E ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME-TAX AC T. IN THE PRESENT CASE, THE ASSESSEE DID NOT MAKE ANY NEW CLAIM BUT O NLY POINTED OUT TO THE AO THAT THE LEGITIMATE BUSINESS LOSS WAS WRONGL Y SHOWN AS SPECULATION LOSS IN THE ACCOUNTS AND THEREFORE, THI S MISTAKE SHOULD BE SET RIGHT BY COMPUTING THE TOTAL INCOME AS PER THE RELEVANT PROVISIONS OF THE INCOME-TAX ACT. MOREOVER, THE LEARNED AO WAS FU LLY CONVINCED REGARDING THE CORRECTNESS OF THE ASSESSEE'S CLAIM B UT HE REJECTED IT ON TECHNICAL GROUND. IT IS SUBMITTED THAT THE HONBLE SUPREME COURTS DECISION WOULD NOT BE APPLICABLE TO THE FACTS OF TH E PRESENT CASE, FOR THE SIMPLE REASON THAT NO NEW DEDUCTION WAS CLAIMED BY THE ASSESSEE. THE RELEVANT FACTS WERE ALREADY PART OF THE AUDITED ACC OUNTS AND THEREFORE, THE AO WAS REQUESTED TO RECTIFY THE MISTAKE. IT WAS FURTHER SUBMITTED ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 37 THAT SUCH LOSS ARISING ON ACCOUNT OF HEDGING AGAINS T FLUCTUATION OF FOREIGN EXCHANGE RATES TO COVER THE GENUINE IMPORT/ EXPORT TRANSACTION OF THE ASSESSEE IS ALLOWABLE BUSINESS EXPENDITURE WHIC H IS SUBSTANTIATED FROM THE FOLLOWING CASES: 1L) ACIT VS SRF LTD - 21 SOT 122, ITAT DELHI 2) KOMAL EXPORTS VS ACIT- 19 SOT 602, ITAT DE LHI 3) APOLLO TYRES LTD VS ACIT -84 ITD 234, ITAT SPL.BENCH, DELHI 4) C.I.T. VS. M/S. WOODWARD GOVERNOR INDIA P. LTD, 8 TH APRIL, 2009 IN CIVIL APPEAL NO.2206 OF 2009 (ARISING OUT O F S.L.P.(C) NO.593 OF 2008). LD. AR ALSO RELIED ON THE ITAT COCHIN BENCH DECISI ON IN THE CASE OF THOMAS KURLAN VS. ACIT - 303 ITR (AT) 110 INVITING ATTENTION OF THE LEARNED CIT(A) TO THE RELEVANT PART OF THE RATIO OF THIS CASE WHICH IS REPRODUCED BELOW FROM THE HEAD NOTE: 'HELD, (I) THAT THOUGH THE AO IS AN EXECUTIVE OFFIC ER IN THE ADMINISTRATION OF THE ACT, THE FUNCTION OF THE AO I S FUNDAMENTALLY QUASI-JUDICIAL. THE TAXING AUTHORITIES SHOULD EXERC ISE QUASI-JUDICIAL POWERS, AND IN DOING SO THEY MUST ACT IN A FAIR AND NOT IN A PARTISAN MANNER. BEING A QUASI-JUDICIAL AUTHORITY, THE ASSESSMENT ORDER IS DUTY BOUND TO DETERMINE THE CORRECT TAX PA YABLE BY THE ASSESSEE. IN ARRIVING AT SUCH CORRECT TAX, THE A0 I S DUTY BOUND TO ALLOW THE DEDUCTIONS AND EXEMPTIONS AVAILABLE TO TH E ASSESSEE IN ACCORDANCE WITH LAW. WHEN THE FACTS WERE AVAILABLE ON RECORD BEFORE THE A0 AND PARTICULARLY WHEN HE HAD NOTED TH E TURNOVER AND NET PROFIT FROM SUCH BUSINESS, THE A 0 WAS DUTY BOU ND TO HAVE ASKED THE ASSESSEE WHY HE HAD NOT: CLAIMED THE DEDU CTION UNDER SECTION 80HHC. THE ORDER OF THE COMMISSIONER (APPEA LS) NOT ADMITTING THE CLAIM OF DEDUCTION UNDER SECTION 80HH C MADE FOR THE FIRST TIME BEFORE HIM WAS NOT REASONABLE. ALTHO UGH HE MIGHT NOT HAVE HAD THE POWER TO RESTORE THE MATTER BACK T O THE FILE OF THE AO, AT THE RELEVANT POINT OF TIME, HE SHOULD HAVE A DMITTED THE CLAIM, CALLED FOR A REMAND REPORT AND THEN DECIDED ACCORDING TO LAW INSTEAD OF REJECTING ALTOGETHER THE CLAIM OF TH E ASSESSEE, MORE PARTICULARLY WHEN THE FACTS RELATING TO EXPORT BUSI NESS AND RELEVANT TURNOVER AND PROFITS WERE AVAILABLE IN THE ASSESSME NT ORDER ITSELF.' ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 38 THE LD. AR ALSO POINTED OUT THAT FROM THE ABOVE CAS E IT IS CLEAR THAT THE AO IS DUTY BOUND TO DETERMINE THE CORRECT TAX PAYAB LE BY THE ASSESSEE AND TO ALLOW DEDUCTIONS AND EXEMPTIONS IN ACCORDANC E WITH LAW EVEN IF SUCH DEDUCTIONS ARE NOT CLAIMED. THE LD. AR ALSO DR EW SUPPORT FROM THE DECISION OF THE HONBLE SUPREME COURT'S 3 JUDGES BE NCH IN THE CASE OF NATIONAL THERMAL POWER COMPANY VS CIT - 229 ITR 383 BEFORE THE LEARNED CIT(A) WHEREIN AT PAGE 386 OF THE SAID DECI SION THE HONBLE SUPREME COURT OBSERVED AS UNDER: 'UNDER SECTION 254 OF THE INCOME-TAX ACT, THE APPEL LATE TRIBUNAL MAY, AFTER GIVING BOTH THE PARTIES TO THE APPEAL AN OPPORTUNITY OF BEING HEARD, PASS SUCH ORDERS THEREON AS IT THINKS FIT. THE POWER OF THE TRIBUNAL IN DEALING WITH APPEALS IS THUS EXPRES SED IN THE WIDEST POSSIBLE TERMS. THE PURPOSE OF THE ASSESSMENT PROCE EDINGS BEFORE THE TAXING AUTHORITIES IS TO ASSESS CORRECTL Y THE TAX LIABILITY OF AN ASSESSEE IN ACCORDANCE WITH LAW. IF, FOR EXAMPLE , AS A RESULT OF A JUDICIAL DECISION GIVEN WHILE THE APPEAL IS PENDI NG BEFORE THE TRIBUNAL, IT IS FOUND THAT A NON-TAXABLE ITEM IS TA XED OR A PERMISSIBLE DEDUCTION IS DENIED, WE DO NOT SEE ANY REASON WHY THE ASSESSEE SHOULD BE PREVENTED FROM RAISING THAT QUESTION BEFORE THE TRIBUNAL FOR THE FIRST TIME, SO LONG AS THE RELEVANT FACTS ARE ON RECORD IN RESPECT OF THAT ITEM. THE VIEW THAT THE TRIBUNAL IS CONFINED ONLY TO ISSU ES ARISING OUT OF THE APPEAL BEFORE THE COMMISSIONER OF INCOME -TAX (APPEALS) TAKES TOO NARROW A VIEW OF THE POWERS OF THE APPELLATE TRIBUNAL (VIDE E.G. CIT V. ANAND PRASAD [1981] 128 ITR 388 (DELHI), CIT V. KARAMCHAND PREMCHAND P. LTD . [1969] 74 ITR 254 (GUJ) AND CIT V. CELLULOSE PRODUCTS OF INDIA LTD. [ 1985] 151 ITR 499 (GUJ) [FB]). UNDOUBTEDLY, THE TRIBUNAL WILL HAV E THE DISCRETION TO ALLOW OR NOT ALLOW A NEW GROUND TO BE RAISED. BU T WHERE THE TRIBUNAL IS ONLY REQUIRED TO CONSIDER A QUESTION OF LAW ARISING FROM THE FACTS WHICH ARE ON RECORD IN THE ASSESSMENT PRO CEEDINGS WE FAIL TO SEE WHY SUCH A QUESTION SHOULD NOT BE ALLOW ED TO BE RAISED WHEN IT IS NECESSARY TO CONSIDER THAT QUESTION IN O RDER TO CORRECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE.' ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 39 IT WAS ALSO SUBMITTED THAT SIMILAR VIEW HAS BEEN TA KEN BY THE HONBLE HIMACHAL HIGH COURT IN THE CASE OF HIMACHAL GRAMIN BANK VS DCIT - 305 ITR 163 WHEREIN THE HONBLE HIGH COURT HELD THA T EVEN IF DEDUCTION UNDER SEC.80-P IS CLAIMED FOR THE FIRST TIME BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), THE SAME HAS TO BE CONSIDERED AND ALLOWED IF THE CONDITIONS OF SECTION 80-P ARE FULFILLED. 7. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE LD.AR AND THE CITATIONS POINTED OUT, DIRECTED THE AO TO ALLOW NET FOREIGN CURRENCY LOSS OF RS.95,94,760/ COMPUTED AFTER DEDUCTING, GAI N ALREADY OFFERED FOR TAXATION OF RS.78,17,130/- FROM THE TOTAL LOSS OF R S.174,11,890/- AND DELETED THE ADDITION. THE FINDINGS OF THE LEARNED CIT(A) ARE REPRODUCED AS UNDER: I HAVE GIVEN A CAREFUL CONSIDERATION TO THE FACTS AND THE SUBMISSIONS MADE BY THE A.R. APPEARING FOR THE ASSE SSEE AS ALSO THE REASON GIVEN BY THE A0 FOR NOT ACCEPTING THE CL AIM OF THE ASSESSEE. THERE IS NO DISPUTE ABOUT THE FACTS AND T HE LEGAL POSITION. EVEN THE A0 HAS ACCEPTED THAT THE FOREIGN EXCHANGE LOSS IS ALLOWABLE UNDER THE PROVISIONS OF THE INCOME-TAX ACT. THE VARIOUS CASES RELIED UPON BY THE A.R. FOR THE ASSES SEE PROVES THAT SUCH LOSS HAS TO BE SET OFF WHILE COMPUTING THE TOT AL INCOME OF THE ASSESSEE. IT IS ALSO AN ADMITTED POSITION THAT DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE DID NOT MAKE AN Y NEW CLAIM WHICH WAS NOT THERE ON RECORD. THE ASSESSEE O NLY MADE A REQUEST THAT THE LOSS WRONGLY SHOWN AS SPECULATION LOSS IN THE PROFIT AND LOSS ACCOUNT HAS TO BE TREATED AS LEGITI MATE BUSINESS LOSS. THE FACTS WERE ALREADY AVAILABLE ON RECORD AN D THE A 0 WAS BOUND TO COMPUTE THE TOTAL INCOME CORRECTLY IN ACCO RDANCE WITH THE PROVISIONS OF THE INCOME-TAX ACT. IN MY VIEW, THE S UPREME COURT DECISION IN THE CASE OF GOETZE INDIA LTD. VS. CIT W OULD NOT APPLY TO THE FACTS OF THE PRESENT CASE. EVEN IF FOR THE S AKE OF ARGUMENT IT IS ASSUMED THAT THE HONOURABLE SUPREME COURT DECISI ON DID APPLY IN THIS CASE, THE LEGITIMATE CLAIM WHICH HAS BEEN R EJECTED BY THE A0 AND WHICH IS CLEARLY ALLOWABLE ON THE BASIS OF T HE FACT ALREADY AVAILABLE ON RECORD, THE APPELLATE AUTHORITIES ARE LEGALLY BOUND TO ADMIT AND ALLOW SUCH CLAIM AS PER THE PROVISIONS OF LAW AS HELD BY ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 40 A LARGER BENCH OF THE HONOURABLE SUPREME COURT IN T HE CASE OF NTPC (SUPRA). IN THE PRESENT CASE THE FACTS ARE CLE AR AND THE LOSS IS REQUIRED TO BE ALLOWED AS ALREADY DISCUSSED ABOV E. THEREFORE, THE A.O. IS DIRECTED TO ALLOW NET FOREIGN CURRENCY LOSS OF RS.95,94,760/- COMPUTED AFTER DEDUCTING, GAIN ALREA DY OFFERED FOR TAXATION OF RS.78,17,130/- FROM THE TOTAL LOSS OF R S.174,11,890/-. 8. BEING AGGRIEVED AND DISSATISFIED WITH THE ABOVE FINDINGS OF THE LEARNED CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND CAREFULLY CONSIDERED THE MATE RIAL ON RECORD ALONG WITH THE CITATIONS REFERRED TO BY BOTH THE PARTIES. THERE IS FORCE IN THE CONTENTION OF THE ASSESSEE THAT FOREIGN CURRENCY TR ADING LOSS THOUGH NOT CLAIMED AS BUSINESS LOSS IN THE RETURN OF INCOM E IS AN ALLOWABLE DEDUCTION SINCE IT PERTAINS TO HEDGING OF RECEIVABL E AND PAYABLES IN FOREIGN CURRENCY CARRIED OUT FOR THE OPERATION OF D IAMOND BUSINESS OF THE ASSESSEE. THE FACTS OF THE CASE CITED IN 284 ITR 32 3 GOETZE (INDIA) LTD DOES NOT APPEAR TO BE IDENTICAL WITH THE FACTS OF T HE CASE BEFORE US. AT THIS JUNCTURE, IT IS RELEVANT TO QUOTE THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS CIT, 284 ITR 323 (SC) AS UNDER: 1. LEAVE GRANTED. 2. THE QUESTION RAISED IN THIS APPEAL RELATES TO WH ETHER THE APPELLANT ASSESSEE COULD MAKE A CLAIM FOR DEDUCTION OTHER THAN BY FILING A REVISED RETURN. THE ASSESSM ENT YEAR IN QUESTION WAS 1995-96. THE RETURN WAS FILED ON NOVEMBER 30, 1995, BY THE APPELLANT FOR THE ASSESSM ENT YEAR IN QUESTION. ON JANUARY 12, 1998, THE APPELLAN T SOUGHT TO CLAIM A DEDUCTION BY WAY OF A LETTER BEFO RE THE ASSESSING OFFICER. THE DEDUCTION WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THERE WAS NO PROVISION UNDER THE INCOME-TAX ACT TO MAKE AMENDMEN T IN THE RETURN OF INCOME BY MODIFYING AN APPLICATION AT THE ASSESSMENT STAGE WITHOUT REVISING THE RETURN. ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 41 3. THIS APPELLANTS APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS ALLOWED. HOWEVER, THE ORDE R OF THE FURTHER APPEAL OF THE DEPARTMENT BEFORE THE INC OME- TAX APPELLATE TRIBUNAL WAS ALLOWED. THE APPELLANT H AS APPROACHED THIS COURT AND HAS SUBMITTED THAT THE TRIBUNAL WAS WRONG IN UPHOLDING THE ASSESSING OFFIC ERS ORDER. HE HAS RELIED UPON THE DECISION OF THIS COUR T IN NATIONAL THERMAL POWER COMPANY LTD. VS CIT (1998) 2 28 ITR 383, TO CONTENT THAT IT WAS OPEN TO THE ASSESSE E TO RAISE THE POINTS OF LAW EVEN BEFORE THE APPELLATE TRIBUNAL. 4. THE DECISION IN QUESTION IS THAT THE POWER OF TH E TRIBUNAL UNDER SECTION 254 OF THE INCOME-TAX ACT, 1 961, IS TO ENTERTAIN FOR THE FIRST TIME A POINT OF LAW P ROVIDED THE FACT ON THE BASIS OF WHICH THE ISSUE OF LAW CAN BE RAISED BEFORE THE TRIBUNAL. THE DECISION DOES NOT I N ANY WAY RELATE TO THE POWER OF THE ASSESSING OFFICER TO ENTERTAIN A CLAIM FOR DEDUCTION OTHERWISE THAN BY F ILING A REVISED RETURN. IN THE CIRCUMSTANCES OF THE CASE, W E DISMISS THE CIVIL APPEAL. HOWEVER, WE MAKE IT CLEAR THAT THE ISSUE IN THIS CASE IS LIMITED TO THE POWER OF T HE ASSESSING AUTHORITY AND DOES NOT IMPINGE ON THE POW ER OF THE INCOME-TAX APPELLATE TRIBUNAL UNDER SECTION 254 OF THE INCOME-TAX ACT, 1961. THERE SHALL BE NO ORDE R AS TO COSTS. 10. FROM THE ABOVE ORDER OF THE HONBLE SUPREME COU RT IT IS EVIDENT THAT THE HONBLE SUPREME COURT HELD THAT ANY DEDUCT ION CLAIMED BY WAY OF LETTER BEFORE THE ASSESSING OFFICER CANNOT BE EN TERTAINED UNLESS AND UNTIL THE CLAIM IS MADE OTHERWISE THAN BY FILING A REVISED RETURN. HOWEVER, IN THE CASE BEFORE US, THE CLAIM MADE BY T HE ASSESSEE BEFORE THE LEARNED AO AT THE ASSESSMENT STAGE WAS NOT A CL AIM OF DEDUCTION BUT RECTIFICATION OF THE COMPUTATION WRONGLY MADE W ITHOUT APPRECIATING CERTAIN FACTS. IT IS WELL SETTLED PRINCIPLE THAT TH E LEARNED AO HAS TO COMPLETE THE ASSESSMENT PROCEEDINGS KEEPING IN MIND OF ALL THE RELEVANT PROVISIONS OF THE ACT AND WHEN PARTICULARL Y THE ASSESSEE HAS POINTED OUT THE MISTAKE COMMITTED IN THE COMPUTATIO N, IT IS THE PRIMARY ITA NO.1975/AHD/2009 (AY 2006-07): DCIT, SURAT VS M /S. PANKAJ DIAMONDS 42 DUTY ON THE PART OF THE LEARNED AO TO CORRECT THE M ISTAKE AND MAKE ASSESSMENT ACCORDING TO LAW. BUT IN THE PRESENT CAS E, WHILE COMPLETING THE ASSESSMENT, THE LEARNED AO HAS NOT DONE SO. THE REFORE, THE ORDER OF THE LEARNED CIT(A) IS UPHELD ON THESE ISSUES AND WE HEREBY DISMISS GROUNDS NO.3, 4 AND 5 RAISED BY THE REVENUE. 13. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF APRIL, 2012 SD/- SD/- (MUKUL KR. SHRAWAT) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/- -- - COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD
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