M/s. Vavisha Gems, Surat V. The Addl.CIT.,Range-6, Surat

ITA 2173/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9101 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-12-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 06-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K N MADHUSUDAN
• Assessee Lawyers: K N BHATT
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON' BLE SHRI N.S. SAINI, A.M. ) I.T.A. NO. 2173/AHD./2008 ASSESSMENT YEAR : 2004-2005 M/S. VAVISHA GEMS, SURAT -VS.- A DDITIONAL COMMISSIONER OF INCOME TAX, (PAN : AACFV 2159 B) RANGE-6, SURAT (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.N. BHATT RESPONDENT BY : SHRI K.N. MADHUSUDAN, S R. D.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 28.04.2008 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-IV, SURAT FOR THE ASSESSMENT YEAR 2004-05. 2. VARIOUS GROUNDS RAISED BY THE ASSESSEE IN ITS AP PEAL ARE AS UNDER :- (1). IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A.) HAS ERRED IN CONFIRMING THE REJECTION OF BOOKS OF A CCOUNTS OF THE APPELLANT AND HENCE YOUR PETITIONER PRAYS THAT THE ORDER OF THE LD. CIT BE SET ASIDE ON THIS POINT AND THE LD. ACIT BE DIRE CTED TO ACCEPT THE BOOKS OF ACCOUNTS OF THE APPELLANT. (2) IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A.) HAS ERRED IN CONFIRMING THE DIFFERENT METHOD OF VALUATI ON OF CLOSING STOCK OF POLISHED DIAMONDS AND THEREBY CONFIRMING THE ADDITI ON OF RS.5,16,015/- ON ACCOUNT OF THE DIFFERENCE IN THE VALUE OF CLOSIN G STOCK AND HENCE YOUR PETITIONER PRAYS THAT THE SAME BE DELETED. ALTERNATIVELY YOUR PETITIONER BE ALLOWED TO SUBSTITUTE THE VALUE OF OPENING STOCK OF THE AY 2006-07 BY THE VALUE OF THE CLOSING STOCK ADOPTE D BY THE LD. ACIT IN AY 2005-06 AS THERE IS NO VARIATION IN QUANTITY OF CLOSING STOCK BUT THE LD. A.O. ADOPTED THE DIFFERENT METHOD OF VALUATION OF CLOSING STOCK. (3) IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A.) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.20,000/- OUT OF FOREIGN TRAVELS EXPENSES AND HENCE YOUR PETITIONER PRAYS TH AT THE SAME BE DELETED. 2 ITA NO. 2173-AHD-2008 3. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THE AFORESAID GROUNDS NO. 1 & 2 OF APPEAL ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF PROCURING ROUGH DIAMONDS, CUT, CLEAVE AND GRADE THEM POLISHED AND FINISHED AN D EXPORT THE FINISHED GOODS. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN O F INCOME DECLARING TOTAL INCOME OF RS.15,25,515/-. THE ASSESSING OFFICER FRAMED THE AS SESSMENT UNDER SECTION 143(3) ON 27.12.2007, WHEREIN HE MADE ADDITION OF RS.5,16,015 /- ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK ON POLISHED DIAMOND AND DISALLOWED RS.64,028/ - OUT OF FOREIGN TRAVELLING EXPENSES. ON APPEAL, IN THE IMPUGNED ORDER THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) CONFIRMED THE ADDITION OF RS.5,16,015/- WHICH WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK AND CONFIRMED THE DISA LLOWANCE OF RS.20,000/- OUT OF FOREIGN TRAVELLING EXPENSES OF RS.6,40,287/- ON THE GROUND THAT SOME ELEMENT OF NON-BUSINESS EXPENDITURE CANNOT BE RULED OUT. AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF A SSESSEE SHRI K.N. BHATT, LD. COUNSEL APPEARED AND CONTENDED THAT NO DEFECT IN THE BOOKS OF ACCOUNTS IS POINTED BY THE A.O., GROSS PROFIT RATE IN THE CURRENT YEAR IS BETTER COMPARED TO EARLIER YEARS, THE ASSESSEE HAS VALUED THE CLOSING STOCK AT COST OR MARKET PRICE, WHICHEVER IS LOWER. IT WAS FURTHER CONTENDED THAT THIS METHOD OF ACCOUNTING IS FOLLOWED REGULARLY AND THIS YEAR THERE IS NO DEVIATION. ALTERNATIVELY, IT WAS CONTENDED THAT THE ASSESSING OFFICER BE DIRECTE D TO ADOPT THE CLOSING STOCK OF THE YEAR UNDER APPEAL AS OPENING STOCK OF THE ASSESSMENT YEAR 2006 -07. WITH REGARD TO AD HOC DISALLOWANCE OF RS.20,000/- OUT OF FOREIGN TOUR EXPENSES, HE SUBMIT TED THAT NO PART DISALLOWANCE CAN BE MADE, THEREFORE, ON THIS GROUND ALONE THE DISALLOWANCE TO THE EXTENT OF RS.20,000/- SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER, BE UPHELD. 5. ON THE OTHER HAND, SHRI K. MADHUSUDAN, LD. SR. D .R. APPEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). 6. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE ASSESSME NT ORDER THE ASSESSING OFFICER HAS FOLLOWED THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF DCIT VS.- SAMIR DIAMONDS EXPORT PVT. LTD. 3 ITA NO. 2173-AHD-2008 REPORTED IN 71 ITD PAGE 75. HE HAS FURTHER STATED T HAT THE VALUATION OF CLOSING STOCK IS NOT VERIFIABLE. THE ADDITION OF RS.5,16,015/- MADE BY T HE ASSESSING OFFICER IS CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER FOR THE DETAILED REASONS GIVEN ON PAGE 2, WHICH READS AS UNDER :- I HAVE CONSIDERED THE SUBMISSIONS AND GONE THROUGH THE DETAILS FILED BY THE APPELLANT. THERE IS NO DOUBT ABOUT THE FACT THAT TH E APPELLANT HAS NOT MAINTAINED ANY QUALITY WISE DETAILS OF PRODUCTION AND CLOSING STOCK OF POLISHED DIAMOND. THAT WOULD MEAN THAT THE CLOSING STOCK HAS BEEN VAL UED BY THE APPELLANT AS PER HIS CONVENIENCE. ALTHOUGH I AM INCLINED TO AGREE WI TH THE APPELLANT THAT THE PRICE OF DIAMOND WOULD DEPEND UPON A NUMBER OF FACTORS WH ICH HAVE BEEN ENUMERATED BY THE LD. A.R. IN HIS SUBMISSIONS, BUT THIS METHOD OF VALUATION IS NOT ACCEPTABLE SINCE IT WILL DEPEND UPON THE APPELLANTS WORD ONLY AND WOULD HAVE NO SCIENTIFIC OR MATHEMATICAL BASIS BEHIND IT. THE APPELLANT COUL D VERY WELL VALUE A PIECE OF DIAMOND WHICH HAS A COST PRICE OF RS. 1 LAKH AT RS. 10,000/- POINTING OUT A NUMBER OF FACTORS BUT THAT WOULD NOT BE ITS PRICE AS SUCH. IN ORDER TO ARRIVE AT A CORRECT PICTURE OF CLOSING STOCK, THE ONLY METHOD AVAILABLE WOULD BE THE AVERAGE COST PRICE WHICH HAS BEEN RIGHTLY ADOPTED BY THE A.O. IT IS SEEN THAT THE VALUE OF CLOSING STOCK TAKEN BY THE APPELLANT IS FAR LESS TH AN THE AVERAGE NET REALIZABLE PRICE AND ALSO THE COST PER CARAT AFTER INCLUDING D IRECT OVERHEADS TO THE COST OF ROUGH DIAMONDS. THEREFORE, THE A.O.S ACTION IN REV ALUATION OF CLOSING STOCK IS IN ORDER AND THE SAME IS HEREBY CONFIRMED. 6.1. IT IS PERTINENT TO NOTE THAT THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER HAS CLEARLY RECORDED A FINDING OF FA CT THAT THE ASSESSEE HAS VALUED A PIECE OF DIAMOND, WHICH HAS A COST PRICE OF RS.1,00,000/- AT RS.10,000/-. IN OUR CONSIDERED OPINION, THE MARKET VALUE OF DIAMOND CANNOT BE FALL TO 1/10 TH OF THE ORIGINAL COST. BE THAT IT MAY BE, THE ASSESSEE HAS NOT MAINTAINED ANY QUALITY-WISE DETAIL S OF PRODUCTION OF CLOSING STOCK OF POLISHED DIAMONDS, WE ARE, THEREFORE, THE VIEW THAT THE ADDI TION OF RS.5,16,015/- MADE BY THE ASSESSING OFFICER IS FAIR AND REASONABLE. WE, THEREFORE, DECL INE TO INTERFERE. 7. COMING TO THE ALTERNATIVE PLEA OF THE ASSESSEE, WE ARE OF THE VIEW THAT THIS IS FAIR AND REASONABLE. WE ACCORDINGLY DIRECT THE ASSESSING OF FICER TO SUBSTITUTE THE VALUE OF OPENING STOCK OF THE ASSESSMENT YEAR 2006-07 BY VALUE OF CLOSING STOCK ADOPTED BY HIM IN THE ASSESSMENT YEAR 2005-06. 8. WITH REGARD TO DISALLOWANCE OF RS.20,000/- OUT O F FOREIGN TRAVELLING EXPENSES, IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS PAID THE EN TIRE AMOUNT AS PER BILL AND ONLY BY CHEQUE AND 4 ITA NO. 2173-AHD-2008 COMPLEMENT DOCUMENTS AND VOUCHERS WERE SUBMITTED BE FORE THE ASSESSING OFFICER. IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) WITHOUT POINTING OUT THE NATURE OF PERSONAL ELEMENT MADE AD HOC DISALLOWANCE OF RS.20,000/-. SINCE THE ENTIRE TRAVELLING EXPENSES PERTAINED TO FOREIGN TRAVEL, IN OUR CONSID ERED OPINION, THERE IS NO JUSTIFICATION WHATSOEVER FOR MAKING A TOKEN DISALLOWANCE OF RS.20 ,000/-. THIS ADDITION OF RS.20,000/- IS ACCORDINGLY DELETED. 9. IN THE RESULT, FOR STATISTICAL PURPOSES, THE APP EAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 20.12.20 10 SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 20 / 12 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A.) CONCERNED, (4) CIT CONCERNED, (5) D.R. , ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGI STRAR, ITAT, AHMEDABAD LAHA/SR.P.S.