The ACIT, Circle-9, Surat V. M/s. Pankaj Diamonds, Surat

ITA 2529/AHD/2008

• Counselvise Citation: 252920514 RSA 2008
• Duration Of Justice: 3 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 25-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 07-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: SN SOPARKARAR
• Keywords: Business income; Speculation loss

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , .'.#$%, '& ' ' BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER 1. ./ I.T.A. NO.2529/AHD/2008 - ) * ) * ) * ) * / A.Y.2005-06 2. ./ I.T.A. NO.1784/AHD/2008 - ) * ) * ) * ) * / A.Y.2005-06 1.THE ASST.CIT CIRCLE-9 SURAT 2. M/S.PANKAJ DIAMOND 4-7, KRISHNA DIAMOND PARK. SURAT ) ) ) ) / VS. 1. M/S.PANKAJ DIAMOND 4-7, KRISHNA DIAMOND PARK, KAPODARA VARACHHA ROAD SURAT 2. THE ASST.CIT CIRCLE-9 SURAT + '& ./,- ./ PAN/GIR NO. : AADFP 5145 L ( +. / // / APPELLANTS ) .. ( /0+./ RESPONDENTS ) REVENUE BY : SHRI B.L.YADAV, D.R. ASSESSEE BY : SHRI S.N.SOPARKAR, A.R. )1 2 &/ // / DATE OF HEARING : 25/11/2011 3$* 2 & / DATE OF PRONOUNCEMENT : 13.1.12 '4 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THESE ARE CROSS APPEALS ARISING FROM THE OR DER OF CIT(A-V, SURAT DATED 28/04/2008. FOR THE SAKE OF CONVENIENCE BOT H THESE APPEALS ARE CONSOLIDATED AND ARE HEREBY DECIDED AS FOLLOWS. 2. DURING THE COURSE OF HEARING, IT WAS INFORMED TH AT GROUND NO.2 OF THE ASSESSEE AND GROUND NO.1 OF THE REVENUE ARE PER TAINED TO THE SAME ITA NO.2529/AHD/2008 (BY REVENUE) & ITA NO.1784/AHD/2008 (BY ASSESSEE) ACIT VS. M/S.PANKAJ DIAMOND ASST.YEAR 2005-06 - 2 - ADDITION, THEREFORE TO BE DECIDED IN A CONSOLIDATED MANNER. FOR REFERENCE, REPRODUCED AS UNDER:- GROUND NO.2 OF ASSESSEES APPEAL 2. WITHOUT PREJUDICE, ON THE FACTS AND CIRCUMSTANC ES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) HAS ERRED IN MAKING ESTIMATING INCOME AT THE RATE OF 2.5% OF TURNOVER AND HEREBY U PHOLDING ADDITION IN A SUM OF RS.44,57,266/- WHEN SUCH ESTIM ATION IS WITHOUT ANY JURISDICTION OR LEGAL BASE. GROUND NO.1 OF REVENUES APPEAL 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .1,00,68,404/- OUT OF RS.1,45,25,670/- MADE BY A.O. ON ACCOUNT OF LOW G.P., VIDE ASSESSMENT ORDER U/S.143(3) OF THE I.T. ACT DATED 2 4.12.2007. 2.1. FACTS IN BRIEF AS EMERGED FROM THE ASSESSMENT ORDER PASSED U/S.143(3) DATED 24/12/2007 WERE THAT THE ASSESSEE- FIRM IS IN THE BUSINESS OF MANUFACTURING, IMPORT AND EXPORT OF DIAMONDS. AT THE OUTSET, IT WAS NOTED BY THE AO THAT DURING THE YEAR UNDER CONSIDER ATION THE GROSS PROFIT WAS 7.37 % AS AGAINST THE GROSS PROFIT AT 7.79% IN THE LAST YEAR. AT THIS JUNCTURE, LD.AR MR.S.N.SOPARKAR HAS INTIMATED THA T A FACTUAL ERROR WAS COMMITTED BY THE AO WHILE MENTIONING THE FIGURES OF THE PERCENTAGE OF THE LAST YEAR. AS PER RECORDS, THE CORRECT FIGUR E OF PERCENTAGE OF GROSS PROFIT OF THE LAST YEAR WAS 7.09%. THE LD.AR HAS T HEREFORE OBJECTED AT THE OUTSET THAT THE VERY BASIS OF INITIATION OF ENQ UIRY WAS WRONG ON THE PART OF THE AO. IT HAS ALSO BEEN MENTIONED THAT T HE ASSESSEE HAD IMPORTED ROUGH DIAMONDS FROM FOREIGN COUNTRIES SPEC IALLY FROM BELGIUM. ITA NO.2529/AHD/2008 (BY REVENUE) & ITA NO.1784/AHD/2008 (BY ASSESSEE) ACIT VS. M/S.PANKAJ DIAMOND ASST.YEAR 2005-06 - 3 - ACCORDING TO AO, THE PRICE OF THE ROUGH DIAMOND USE D TO DIFFER FROM LOT TO LOT AND THAT VARIATION DEPENDS UPON THE QUALITY OF THE ROUGH DIAMOND. THE LOTS ARE MADE AFTER THE PROCESS OF ASSORTMENT . LIKEWISE, WHEN POLISHED DIAMOND IS PRODUCED, THEN THE VALUE OF THE POLISHED DIAMONDS VARIES FORM RS.1000 PER CARAT TO RS.1 LAC PER CARAT OR MORE. THE VARIATION IS DUE TO THE FACT THAT THE VALUE OF A DI AMOND DEPENDS ON 4CS, I.E. CARAT, CUT, COLOUR AND CLARITY. THE AO HAS T HEREFORE DEMANDED TO PRODUCE THE QUALITATIVE DETAILS OF THE POLISHED DIA MONDS. IN HIS OPINION, QUANTITY OF A DIAMOND IS ONLY SECONDARY IN DIAMOND INDUSTRY AND THAT THE QUALITY OF A DIAMOND PLAYED THE IMPORTANT ROLE IN F IXING THE PRICE OF A DIAMOND. THE AO HAS OPINED THAT MERE MAINTENANCE O F QUANTITATIVE DETAILS WAS NOT SUFFICE. DUE TO THAT REASON, BOOKS OF ACCOUNTS OF THE ASSESSEE WERE REJECTED. AFTER DETAILED DISCUSSION, AN ADDITION WAS MADE AS FOLLOWS:- 7.8. UNDER THE CIRCUMSTANCES, I HEREBY REJECT THE BOOKS OF ACCOUNTS OF THE ASSESSEE UNDER SECTION 145(3) OF TH E I.T. CT AS BOOKS OF ACCOUNTS ARE NOT COMPLETE. INCOME FROM SA LES/EXPORT OF POLISHED AND REJECTION DIAMONDS (EARNINGS ON ACCOUN T OF EXCHANGE RATE DIFFERENCE ARE NOT CONSIDERED FOR THE PURPOSES OF CALCULATION OF G.P.) HAS BEEN SHOWN AT RS.1,93,67,55,969/-. IN VIEW OF THE FOREGOING DISCUSSION REGARDING CALCULATION OF G.P. AND DUE TO FALL IN G.P. AS COMPARED TO PRECEDING ASSESSMENT YEAR, T HE UNDERSIGNED IS OF THE CONSIDERED OPINION THAT 0.75% ADDITION ON ACCOUNT OF G.P. SHALL MEET ENDS OF THE JUSTICE AND THEREFORE, 1 ADD RS.1,45,25,670/- TO THE TOTAL INCOME OF THE ASSESSE E. ITA NO.2529/AHD/2008 (BY REVENUE) & ITA NO.1784/AHD/2008 (BY ASSESSEE) ACIT VS. M/S.PANKAJ DIAMOND ASST.YEAR 2005-06 - 4 - BEING AGGRIEVED THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY, AT THE OUTSET, LD.CIT(A) HAS MENTIONED THAT FOR A.Y. 2 004-05 THE SAID IDENTICAL ISSUE HAD BEEN RAISED. HE HAS ALSO MENT IONED THAT FOR A.Y. 2004-05 VIDE AN ORDER DATED 03/01/2008 THE ESTIMATI ON OF INCOME WAS RATIONALISED BY ADOPTING THE COMPARABLE RATES OF NE T PROFIT. HE HAS NOTED THAT ONCE AGAIN FOR THE YEAR UNDER CONSIDERATION, T HE AO HAD NOTED THOSE VERY DEFECTS IN THE MAINTENANCE OF BOOKS OF ACCOUNT S OF THE ASSESSEE. THE ASSESSEE HAD ONCE AGAIN FAILED TO PRODUCE QUALI TY-WISE STOCK DAILY IN THE CURRENT YEAR, HENCE THE BOOKS OF ACCOUNTS U/S.1 45 WERE REJECTED AND THE ADDITION WAS MADE. NEVERTHELESS, FOR THE YEA R UNDER CONSIDERATION, THE ASSESSEE HAS VEHEMENTLY PLEADED THAT EXHAUSTIVE BOOKS OF ACCOUNTS WERE MAINTAINED AND A LIST WAS MADE BY THE CIT(A). VIDE PAGE NO.10, LD.CIT(A) HAS ALSO FOUND THAT THE CURRENT YEARS PR OFIT WAS 7.37% AND IMMEDIATELY PRECEDING YEAR THE GROSS PROFIT RATE WA S 7.09% AND THAT THE AO HAD WRONGLY MENTIONED THE PERCENTAGE OF GROSS PR OFIT AT 7.79% OF THE LAST YEAR. AN ANOTHER FACT HAS ALSO BEEN NOTED BY THE LD.CIT(A) THAT THE TURNOVER HAD GONE UP FROM RS.160.43 CRORES TO RS.19 3.79 CRORES OF THE YEAR. THE TURNOVER HAD GONE UP BY 20% IN THE YEA R UNDER CONSIDERATION, HOWEVER, THE BETTER GROSS PROFIT WAS DISCLOSED BY T HE ASSESSEE. CONSIDERING THOSE BASIC REASONS A PART RELIEF WAS G RANTED AS FOLLOWS:- ITA NO.2529/AHD/2008 (BY REVENUE) & ITA NO.1784/AHD/2008 (BY ASSESSEE) ACIT VS. M/S.PANKAJ DIAMOND ASST.YEAR 2005-06 - 5 - HOWEVER, IN THE CURRENT YEAR, AGREEING WITH THE SU BMISSION OF THE APPELLANT THAT THE TURNOVER OF THE BUSINESS HAS INC REASED CONSIDERABLY FROM AROUND RS.160.43 CRORE IN ASSESSM ENT YEAR 2004-05 TO AROUND RS.193.79 CRORE IN THE CURRENT YE AR AND ALSO KEEPING IN MIND THE COMPARABLE RATES SUBMITTE3D BY THE APPELLANT IN THEIR WRITTEN SUBMISSIONS, I HOLD THAT A NET PRO FIT RATE OF 2.5% AS AGAINST 3% ESTIMATED IN THE PREVIOUS YEAR WILL MEET THE ENDS OF JUSTICE. SINCE THE APPELLANT HAS DECLARED NET PROF IT RATE OF 2.27%, THE ESTIMATED ADDITION WILL BE RESTRICTED TO 0.23% (2.5% - 2.27%) WHICH WORKS OUT TO RS.44,57,266/-. FURTHER, AS HEL D BY ME IN MY ORDER FOR THE PREVIOUS YEAR, GROUNDS RAISED IN REGA RD TO DISALLOWANCE OF RS.29,29,609/- ON ACCOUNT OF FOREIG N TRAVEL EXPENSES AND RS.83,180/- OUT OF TELEPHONE EXPENSES WILL HAVE TO BE ALLOWED BECAUSE THE ESTIMATION OF FINAL TAXABLE PROFIT DOES NOT LEAVE ANY SCOPE FOR ANY OTHER ADDITION OF SUCH NATU RE. 5. WITH THIS BRIEF BACKGROUND, WE HAVE HEARD BOTH T HE SIDES. WE HAVE BEEN INFORMED, AT THE OUTSET, THAT IN ASSESSEE S OWN FOR A.Y. 2004- 05, ITAT D BENCH IN ITA NO.555/AHD/2008 VIDE AN O RDER DATED 05/09/2008 TITLED AS M/S.PANKAJ DIAMOND VS. ACIT, I T WAS HELD AS UNDER:- 9. IN THE LIGHT OF THE ABOVE OBSERVATIONS MADE BY THE LD. CIT(A), HE PROCEEDED TO ESTIMATE THE TAXABLE INCOME OF THE ASSESSEE. HE OBSERVED THAT IN THE ENHANCEMENT NOTES ISSUED TO TH E ASSESSEE, IT WAS STATED NET PROFITS VARIED FROM 7.41% TO 3.08%. THE AVERAGE IN FOUR CASES WAS AROUND 4.53%. HOWEVER, THE LOWEST N ET PROFIT RATE SHOWN IS 3.08% BY BHOJAL DIAMOND ON THE TURNOVER OF RS.26,63,43,460/-. ON THE OTHER HAND, D.SUBHAHSHCH ANDRA & CO., WITH TURNOVER OF RS.899,969,901/- SHOWED NET PROFIT RATE @ 4.42%. SINCE THE ASSESSEE WAS HAVING ALMOST DOUBLE TURNOVE R AT AROUND RS.155.00 CRORES, IT WILL BE PROPER AND FAIR TO EST IMATE THE NET PROFIT AT THE LOWER SIDE AT 3%. HE OBSERVED THAT T HIS WOULD MEAN ITA NO.2529/AHD/2008 (BY REVENUE) & ITA NO.1784/AHD/2008 (BY ASSESSEE) ACIT VS. M/S.PANKAJ DIAMOND ASST.YEAR 2005-06 - 6 - OF INCOME OF RS.4,65,94,861/- SINCE THE TAXABLE INC OME AS PER ASSESSMENT ORDER WAS WORKED OUT TO RS.2,46,61,270/- , HE MADE ADDITION FOR THE BALANCE AMOUNT OF RS.2,19,33,591/- TO THE INCOME OF THE ASSESSEE. 16. WE FIND THAT THE BOOK RESULT WAS REJECTED B Y THE LOWER AUTHORITIES ONLY ON THE GROUND THAT QUALITY-WISE DE TAILS OF DIAMONDS WERE NOT KEPT BY THE ASSESSEE. FURTHER, T HE ADDITION WAS MADE MERELY ON ESTIMATE BASIS WITHOUT BRINGING ON R ECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS EARNED ANY I NCOME IN EXCESS OF THE AMOUNT DISCLOSED IN THE RETURN. IT I S AN ESTABLISHED POSITION OF LAW THAT EVEN AFTER REJECTING THE BOOK RESULT IF THE ASSESSING AUTHORITY ADD ANY INCOME TO THE INCOME DE CLARED BY THE ASSESSEE, THEN, THE SAID ADDITION HAS TO BE BASED O N SOME MATERIAL AND THE SAME CANNOT BE ADDED ON THE WHIMS OR CAPRIC E OF THE ASSESSING AUTHORITY. IN THE INSTANT CASE, IT IS OB SERVED THAT THE TRADING RESULT SHOWN BY THE ASSESSEE COMPARES FAVOU RABLY WITH THE PAST ACCEPTED POSITION IN THE CASE OF THE ASSESSEE ITSELF. THEREFORE MERELY REJECTING THE BOOK RESULT ON THE GROUND THAT QUALITY-WISE DETAILS OF DIAMONDS HAS NOT BEEN MAINTAINED WILL NO T EMPOWER THE A.O. TO ADD ANY INCOME TO THE INCOME SHOWN BY THE A SSESSEE. WE ALSO OBSERVE THAT NO MATERIAL COULD BE BROUGHT ON R ECORD BY THE REVENUE TO SHOW THAT THE VALUE OF CLOSING STOCK OF DIAMONDS SHOWN BY THE ASSESSEE AT RS.16,25,60,000/- WAS INCORRECT OR THE METHOD OF VALUATION CONSISTENTLY ADOPTED AND FOLLOWED BY T HE ASSESSEE WAS INCORRECT. IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE ACTUAL VALUE OF CLOSING STOCK POSSESSED BY THE ASSESSEE AS ON 31.3.2004, WAS MORE THAN THE VALUE SHOWN BY THE ASSESSEE, IN O UR CONSIDERED OPINION, THE A.O WAS NOT JUSTIFIED IN MAKING TRADIN G ADDITION OF RS.53,07,218/-. FURTHER, IT IS OBSERVED THAT NONE OF THE LOWER AUTHORITIES HAVE FOUND THAT THE VARIOUS EXPENSES CL AIMED BY THE ASSESSEE IN ITS P&L A/C WERE NOT SUPPORTED BY VOUCH ERS OR NOT VERIFIABLE OR WERE NOT GENUINE. IN THE ABOVE CIRCU MSTANCES, THE LD. CIT(A) WAS NOT JUSTIFIED IN REJECTING VARIOUS E XPENSES DISCLOSED BY THE ASSESSEES DAY-TO-DAY MAINTAINED B OOKS OF ACCOUNT. FURTHER, IN BUSINESS, PROFIT IS A RESULT OF VARIOUS ITA NO.2529/AHD/2008 (BY REVENUE) & ITA NO.1784/AHD/2008 (BY ASSESSEE) ACIT VS. M/S.PANKAJ DIAMOND ASST.YEAR 2005-06 - 7 - DYNAMICS. THE RESULT OF TWO DIFFERENT BUSINESSMEN DOING THE BUSINESS IN THE SAME LINE MAY DEFER GREATLY BECAUSE OF VARIOUS REASONS FOR E.G. THE VALUE OF PLANT AND MACHINERY E MPLOYED IN THE BUSINESS, THE RATIO OF OWN CAPITAL VERSES BORROWED CAPITAL EMPLOYED IN THE BUSINESS, TIME DEVOTED BY THE OWNER OF THE BUSINESS, RISK TAKING CAPACITY OF THE OWNER, ETC. T HUS, MERELY BECAUSE THE PROFIT DISCLOSED BY THE OTHER BUSINESSM EN IN TERMS OF THE TURNOVER OF ITS BUSINESS DEFERS WITH THE RATE O F PROFIT DISCLOSED BY THE ASSESSEE IN TERMS OF HIS TURNOVER WILL NOT, BY ITSELF, EMPOWERS THE LD. CIT(A) TO ADD ANY AMOUNT TO THE IN COME OF THE ASSESSEE. THE LD. CIT(A) HAS BROUGHT NO MATERIAL O N RECORD TO SHOW THAT THE RATE OF NET PROFIT OF THE ASSESSEE SH OULD BE THE SAME AS THAT IN THE CASE OF OTHER ASSESSEE, WHICH WERE C ONSIDERED BY HIM. WE ARE CONFIDENT THAT THE REVENUE AUTHORITIES MUST HAVE COME ACROSS THE CASE OF OTHER ASSESSEES WHEREBY SE CURING SIMILAR OR MORE TURNOVER THE ASSESSEE SUFFERS A LOSS IN THE BUSINESS OR SECURED LESSER PROFIT THAN THE ASSESSEE. IN THE IN STANT CASE, AS NO SPECIFIC DEFECT IN THE VARIOUS EXPENSES CLAIMED BY THE ASSESSEE IN THE P&L A/C. COULD BE POINTED OUT BY THE REVENUE, T HE LD. CIT(A) WAS NOT JUSTIFIED IN ARBITRARILY APPLYING THE RATE OF NET PROFIT OF 3% IN MAKING ADDITION OF RS.2,19,33,591/-. AS THE ADD ITION OF RS.53,07,218/- AND RS.2,19,33,591/- ARE FOUND TO BE NOT BASED ON COGENT AND RELEVANT MATERIAL AND ARE BASED MERELY O N THE SURMISES AND CONJECTURES, THE SAME ARE FOUND UNSUSTAINABLE O N THE FACTS OF THE INSTANT CASE. WE, THEREFORE, DELETE THE ADDITI ON OF RS.53,07,218/- AND RS.2,19,33,5981/-. 6. THE ABOVE VIEW WAS EXPRESSED IN RESPECT OF THE Q UANTUM ADDITION MADE IN THE ASST.YEAR 2004-05. STILL, AN ANOTHE R ASPECT IS YET TO BE ADDRESSED IS THAT WHETHER THE ADDITION MADE BY THE AO FOR THE REASON THAT THE QUALITATIVE DETAILS WERE NOT MAINTAINED BY THE ASSESSEE IS YET TO BE ADDRESSED AND IN THIS REGARD IT IS WORTH TO MENTION AN ORDER OF THE ITAT C BENCH AHMEDABAD PRONOUNCED IN THE CASE OF M/S .DHAMI BROTHERS ITA NO.2529/AHD/2008 (BY REVENUE) & ITA NO.1784/AHD/2008 (BY ASSESSEE) ACIT VS. M/S.PANKAJ DIAMOND ASST.YEAR 2005-06 - 8 - VS. ACIT IN ITA NO.2309/AHD/2008 FOR A.Y. 2004-05 D ATED 06/08/2010, WHEREIN VIDE PARAGRAPH NO.8 IT WAS OPINED THAT THE QUALITATIVE DETAILS OF EACH PIECE OF DIAMOND IS NOT NECESSARY FOR COMPUTAT ION OF THE INCOME OF THE ASSESSEE, REPRODUCED BELOW :- 8. LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSME NT ORDER WHEREAS LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDE R OF LD. CIT(A). IT IS ALSO SUBMITTED BY HIM THAT IN A RECE NT JUDGMENT DATED23.08.2011, RENDERED IN THE CASE OF CIT VS. FR IENDS AND FRIENDS SHIPPING PVT.LTD. IN TAX APPEAL NO.251 OF 2 010, IT HAS BEEN HELD BY HON'BLE GUJARAT HIGH COURT I.E. THE JU RISDICITIONAL HIGH COURT THAT WHEN THE ASSESSEE IS NOT A DEALER I N FOREIGN EXCHANGE AND FOR THE PURPOSE OF HEDGING THE LOSS DU E TO THE FLUCTUATION IN FOREIGN EXCHANGE RATES WHILE IMPLEME NTING THE EXPORT CONTRACTS IF THE ASSESSEE ENTERED INTO FORWA RD CONTRACT WITH THE BANK AND IF SUCH CONTRACTS ARE REQUIRED TO BE C ANCELLED AND THE ASSESSEE IS REQUIRED TO PAY SOME CHARGES TO THE BAN K, THE SAME IS ALLOWABLE AS EXPENDITURE OF BUSINESS AND IT CANNOT BE CONSIDERED AS SPECULATION LOSS AS TO COVER UNDER SUB-SECTION ( 5) OF SECTION 43 OF THE INCOME TAX. 7. UNDER THE TOTALITY OF THE CIRCUMSTANCES OF THE C ASE, ONCE THE RESPECTED CO-ORDINATE BENCHES HAVE ALREADY TAKEN A VIEW IN FAVOUR OF THE ASSESSEE AND GRANTED RELIEF, THEREFORE WE FIND NO REASON ON THE PART OF THE REVENUE AUTHORITIES, ON THESE ADMITTED FACTS, T O INTERFERE WITH THE BOOK RESULTS OF THE ASSESSEE. WE THEREFORE DIREC T TO DELETE THE ADDITION. IN THE RESULT, ASSESSEES GROUND IS ALLOWED AND REV ENUES GROUND IS DISMISSED. 8. GROUND NOS.3 & 4 OF THE ASSESSEE ARE REPRO DUCED BELOW:- ITA NO.2529/AHD/2008 (BY REVENUE) & ITA NO.1784/AHD/2008 (BY ASSESSEE) ACIT VS. M/S.PANKAJ DIAMOND ASST.YEAR 2005-06 - 9 - GROUND NO.3 READS AS UNDER: 3. WITHOUT PREJUDICE, THE ADDITION IS EXCESSIVE AN D NEEDS TO BE REDUCED SUBSTANTIALLY. GROUND NO.4 READS AS UNDER: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, IN REGARD TO THE ASSESSEES CLAIM FOR BENEFIT OF SET OFF OF RS.5 3,07,218/- AGAINST ADDITION MADE FOR UNDER VALUATION OF CLOSING STOCK IN THE IMMEDIATELY PRECEDING YEAR THE CIT(A) SHOULD HAVE H ELD THAT: (I) FULL SET OFF WAS REQUIRED TO BE GIVEN IN PRINCIPLE IRRESPECTIVE OF WHETHER OR NOT FLAT RATE OF PROFIT IS APPLIED FOR COMPUTING BUSINESS INCOME; AND (II) WITHOUT PREJUDICE, FULL SET OFF HAS TO BE GIVEN IF A FLAT RATE IS NOT APPLIED FOR COMPUTING THE BUSINESS INCO ME. 8.1 THESE GROUNDS DO NO SURVIVE BECAUSE THE TRIBUNA L HAD ALREADY GRANTED RELIEF IN THE PAST AS WE HAVE NOTED HEREINA BOVE WHILE REPRODUCED THE RELEVANT PARAGRAPH OF THE CO-ORDINATE BENCH. T HESE GROUNDS BEING REDUNDANT HENCE DISMISSED. 9. GROUND NO.5 OF THE ASSESSEES AND GROUND NO.4 OF REVENUES APPEAL ARE REPRODUCED BELOW:- GROUND NO.5 OF ASSESSEES APPEAL READ AS UNDER: 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE HON'BLE CIT(A) HAS ERRED IN PURPORTEDLY RATIONALIZI NG AND IN PRINCIPLE UPHOLDING POWDER EXPENSES TO THE EXTENT O F RS.7,93,268/- ITA NO.2529/AHD/2008 (BY REVENUE) & ITA NO.1784/AHD/2008 (BY ASSESSEE) ACIT VS. M/S.PANKAJ DIAMOND ASST.YEAR 2005-06 - 10 - ON THE GROUND THAT ITS USE WAS NOT SUBSTANTIATED BY THE APPELLANT & THEREFORE WAS TREATED AS UNACCOUNTED SALE BY THE AS SESSING OFFICER PARTICULARLY WHEN THE LEARNED ASSESSING OFFICER HAS NOT DISPUTED THE PURCHASE OR NOT BROUGHT ANY EVIDENCE FOR UNACCO UNTED SALE OF POWDER. GROUND NO.4 OF REVENUES APPEAL READS AS UNDER: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .33,31,725/- MADE BY A.O. ON ACCOUNT OF UNACCOUNTED SALE OF DIAM OND POWDER EXPENSES VIDE ASSESSMENT ORDER U/S.143(3) OF THE I. T. ACT DATED 24.12.2007. 9.1. THE AO HAS NOTED THAT DIAMOND POWDER WAS PURCH ASED AT RS.12,93,072/-. IT HAS ALSO BEEN NOTED BY THE AO T HAT THE OPENING STOCK OF DIAMOND POWDER WAS RS.59,50,000/- AT THE START O F THE YEAR AND THE CLOSING STOCK OF THE DIAMOND POWDER WAS AT RS.40,50 ,000/-. AS PER AO, THEREFORE, POWDER OF RS.31,73,072/- WAS CONSUMED BY THE ASSESSEE. AS AGAINST THAT FOR A.Y. 2003-04 AND 2002-03 POWDER CO NSUMED WAS ONLY RS.33,500/- AND 39,500/-. EVEN FOR A.Y. 2004-05 TH E POWDER CONSUMED WAS ONLY RS.10,71,321/- AS PER AO, NO PROOF WAS G IVEN BY THE ASSESSEE FOR EXCESSIVE CONSUMPTION OF THE DIAMOND POWDER FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE AO HAD PROCEEDED T O ADD THE ENTIRE AMOUNT OF RS.31,73,072/- ON ACCOUNT OF EXCESSIVE CO NSUMPTION OF POWDER AND FURTHER ADDED 5% NET PROFIT OF RS.1,58,6 53/-, THUS TOTALLING TO RS.33,31,725/-, ADDED IN THE TOTAL INCOME OF THE A SSESSEE. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY AN D THE LD.CIT(A) HAS RETAINED 25% OF CONSUMPTION OF POWDER AT RS.7,93, 268/-. HOWEVER, HE ITA NO.2529/AHD/2008 (BY REVENUE) & ITA NO.1784/AHD/2008 (BY ASSESSEE) ACIT VS. M/S.PANKAJ DIAMOND ASST.YEAR 2005-06 - 11 - HAD ALSO MADE AN OBSERVATION THAT TELESCOPING COULD BE GIVEN AGAINST THE NET PROFIT ADDITION AS COMPUTED BY HIM. 10. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE VIEW THAT THE CONSUMPTION OF DIAMOND POWDER WAS EXCESSIV E AND APPEARED TO BE UNREASONABLE CONSIDERING THE OVERALL CIRCUMSTANC ES OF THE CASE. THE ASSESSEE HAS ALSO FAILED TO ESTABLISH THE REASONS FOR ABRUPT ENHANCEMENT IN CONSUMPTION OF DIAMOND POWDER. WE THEREFORE CONFIRM THE VIEW TAKEN BY THE LD.CIT(A). AN ANOTHER ASPECT IS THAT LD.CIT(A) HAS DIRECTED TO GRANT THE TELESCOPING, HOWEVER WE HAVE DELETED T HE PROFIT ADDITION, THEREFORE THE ADDITION NOW CONFIRMED BY US SHALL SU RVIVE AND THE VIEW TAKEN BY THE LD.CIT(A) IN THAT REGARD IS REVERSED. THIS GROUND OF THE ASSESSEE IS DISMISSED. 11. GROUND NO.6 OF THE ASSESSEES APPEAL AND GROUND NO.2 OF REVENUES APPEAL ARE REPRODUCED BELOW :- GROUND NO.6 OF ASSESSEES APPEAL READS AS UNDER: 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, IN REGARD TO THE DISALLOWANCE OF RS.29,29,609 OUT OF FOREIGN TRAVEL EXPENSES THE LEARNED CIT(A) SHOULD HAVE HELD THAT: (I) ANY DISALLOWANCE OUT OF FOREIGN TRAVEL EXPENS ES WAS NOT WARRANTED IN PRINCIPLE IRRESPECTIVE OF WHETHER OR NOT FLAT RATE OF PROFIT IS APPLIED FOR COMPUTING BUSINESS INCOME; AND ITA NO.2529/AHD/2008 (BY REVENUE) & ITA NO.1784/AHD/2008 (BY ASSESSEE) ACIT VS. M/S.PANKAJ DIAMOND ASST.YEAR 2005-06 - 12 - (II) WITHOUT PREJUDICE, NO SUCH DISALLOWANCE CAN BE MADE AT ALL IF A FLAT RATE OF NET PROFIT IS NOT APPLIED FOR COMPUTING THE BUSINESS INCOME. GROUND NO.2 OF REVENUES APPEAL READS AS UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) HAS ERRED IN ALLOWING THE DISALLOWANCE O F RS.29,29,609/- MADE BY A.O. ON ACCOUNT OF FOREIGN T RAVEL EXPENSES VIDE ASSESSMENT ORDER U/S.143(3) OF THE I.T. ACT DA TED 24.12.2007. 11.1 ASSESSEE HAS CLAIMED FOREIGN TRAVEL EXPENSE OF RS.66,02,120/-. IT HAS ALSO BEEN NOTED BY THE AO THAT NO BILL WAS AVAI LABLE IN RESPECT OF FOREIGN EXCHANGE PURCHASE OF RS.52,09,566/-. IT HA S ALSO BEEN NOTED BY THE AO THAT FOREIGN EXCHANGE WAS PURCHASED IN THE N AMES OF RELATIVES. ASSESSEES ARGUMENT WAS THAT THOSE PERSONS HAD GONE FOR MARKET SURVEY. AS PER AO, NO REPORT ABOUT THE WORK CARRIED OUT BY THOSE PERSONS WAS FURNISHED. IT WAS ALSO POINTED OUT BY THE AO THAT THOSE RELATIVES HAD NO PROFESSIONAL QUALIFICATION OR ANY EXPERIENCE OF THE BUSINESS. ACCORDINGLY, A SUM OF RS.29,29,609/- WAS DISALLOWED . 12. ON PERUSAL OF THE ORDER OF THE CIT(A), IT APPEA RS THAT THIS ISSUE HAS NOT BEEN DEALT WITH BY HIM. THOUGH AS PER FORM NO. 35, I.E. APPEAL MEMO BEFORE CIT(A) VIDE GROUND NO.5 THIS ISSUE WAS RAISED. WE THEREFORE DEEM IT PROPER TO RESTORE THIS ISSUE BACK TO THE STAGE OF THE FIRST APPELLATE AUTHORITY TO EXAMINE THE DETAILS OF THE F OREIGN TRAVEL, THE WORK DONE BY THE PERSONS TRAVELLED ABROAD AND WHETHER TH AT TRAVEL WAS WHOLLY ITA NO.2529/AHD/2008 (BY REVENUE) & ITA NO.1784/AHD/2008 (BY ASSESSEE) ACIT VS. M/S.PANKAJ DIAMOND ASST.YEAR 2005-06 - 13 - AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. WE THEREFORE DIRECT TO ADJUDICATE ACCORDING TO LAW. 13. GROUND NO.7 OF THE ASSESSEES APPEAL AND GROUND NO.3 OF REVENUES APPEAL ARE REPRODUCED BELOW:- GROUND NO.7 OF ASSESSEES APPEAL READS AS UNDER: 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, IN REGARD TO THE DISALLOWANCE OF RS.83,180 OUT OF TELEPHONE EXPE NSES THE LEARNED CIT(A) SHOULD HAVE HELD THAT: (I) ANY DISALLOWANCE OUT OF TELEPHONE EXPENSES WAS NOT WARRANTED IN PRINCIPLE IRRESPECTIVE OF WHETHER OR N OT FLAT RATE OF PROFIT IS APPLIED FOR COMPUTING BUSINE SS INCOME; AND (II) WITHOUT PREJUDICE, NO SUCH DISALLOWANCE CAN BE MADE AT ALL IF A FLAT RATE OR NET PROFIT IS NOT APPLIED FOR COMPUTING THE BUSINESS INCOME. GROUND NO.3 OF REVENUES APPEAL READS AS UNDER: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) HAS ERRED IN ALLOWING THE DISALLOWANCE O F RS.83,180/- MADE BY A.O. ON ACCOUNT OF TELEPHONE EXPENSES VIDE ASSESSMENT ORDER U/S.143(3) OF THE I.T. ACT DATED 24.12.2007. 13.1. A SUM OF RS.8,31,786/- WAS DEBITED TOWARDS TE LEPHONE EXPENSES. ON ACCOUNT OF PERSONAL USE, 10% WAS DISALLOWED BY T HE AO. WHEN THE MATTER WAS RAISED BEFORE THE LD.CIT(A) VIDE GROUND NO.7, NO VIEW WAS EXPRESSED. UNDER THESE CIRCUMSTANCES, WE HEREBY RE STORE THIS GROUND ITA NO.2529/AHD/2008 (BY REVENUE) & ITA NO.1784/AHD/2008 (BY ASSESSEE) ACIT VS. M/S.PANKAJ DIAMOND ASST.YEAR 2005-06 - 14 - BACK TO THAT STAGE TO DECIDE AS PER LAW. RESULTAN TLY, GROUND NO.3 OF THE REVENUE AND GROUND NO.7 OF THE ASSESSEE MAY BE TREA TED AS ALLOWED BUT FOR STATISTICAL PURPOSES. 14. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLO WED BUT FOR STATISTICAL PURPOSES ONLY. SD/- SD/- ( .'.#$% ) ( ) '& ( A.K. GARODIA ) ( M UKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 13 / 01 /2012 5..), .)../ T.C. NAIR, SR. PS '4 2 /6 7'6* '4 2 /6 7'6* '4 2 /6 7'6* '4 2 /6 7'6*/ COPY OF THE ORDER FORWARDED TO : 1. +. / THE APPELLANT 2. /0+. / THE RESPONDENT. 3. 8 / CONCERNED CIT 4. 8() / THE CIT(A)-V, SURAT 5. 6;# /) , , / DR, ITAT, AHMEDABAD 6. # <1 / GUARD FILE. '4) '4) '4) '4) / BY ORDER, 06 / //TRUE COPY// = == =/ // / , , , , ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD