The ITO, Ward-6(1), Surat V. Shri Ashok Kumar Kothari, Surat

ITA 2800/AHD/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85518 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-12-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 04-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV SRDR
• Assessee Lawyers: M K PATEL
• Keywords: Gross profit estimation
• Section: 133(6)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD 0 00 0 0 00 0 , , , , ! ! ! ! ' #$% ' #$% ' #$% ' #$% #& #&#& #&0 00 0# ## #0 00 0 '& '& '& '&, , , , () * () * () * () * ( ' ( ' ( ' ( ' BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI N.S. SAINI, ACCOUNTANT MEMBER % % % %./ ././ ./ ITA NO. 386/AHD/2009 & - $.- & - $.- & - $.- & - $.-/ // / ASSESSMENT YEAR: 2005-06 ASHOKKUMAR H. KOTHARI, PROP. B. ASHOKKUMAR & CO., 12, SHAKTI CHAMBERS, RAGHUNATHPURA, SURAT PAN : ADGPK 1858 H VS THE ITO, WARD-6(1), SURAT % % % %./ ././ ./ ITA NO. 2800/AHD/2010 & - $.- & - $.- & - $.- & - $.-/ // / ASSESSMENT YEAR: 2005-06 THE ITO, WARD-6(1), SURAT VS ASHOKKUMAR H. KOTHARI, SURAT PAN : ADGPK 1858 H /0 /0 /0 /0 / // / (APPELLANT) 12 12 12 12 /0 /0/0 /0 / // / (RESPONDENT) ASSESSEE(S) BY : SHRI M.K. PATEL, AR REVENUE BY : SHRI B.L. Y ADAV, SR. DR. &$3 4 )/ // / DATE OF HEARING : 17/12/2014 56. 4 ) / DATE OF PRONOUNCEMENT: 16/01/2015 (7 (7 (7 (7/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THE APPEAL IN ITA NO. 386/AHD/2009 IS THE APPEAL F ILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME-TAX (APPEALS)-IV, SURAT DATED 28.11.2008 FOR ASSESSMENT YEAR 2005-06 AND THE APPEAL IN ITA NO.2800/AHD/2010 IS THE APPEA L FILED BY THE ITA NOS 386/AHD/2009 & 2800/AHD/2010 - ASHOKKUMAR H. KOTHARI - AY 2005-06 - 2 - REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF IN COME-TAX (APPEALS)-IV, SURAT DATED 02.07.2010 FOR ASSESSMENT YEAR 2005-06. 2. GROUND NO.1 OF THE ASSESSEES APPEAL READS AS UN DER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A S WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED CONFIRMING THE ACTION OF THE AS SESSING OFFICER IN MAKING ADDITION OF RS.18,40,177/- ON ACC OUNT OF UNDER VALUATION OF CLOSING STOCK. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSI NG OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN GROSS PROFIT O F 0.023% OF THE TOTAL TURNOVER OF MORE THAN RS.146 CRORES AGAINST G P OF 0.21% ON A TURNOVER OF RS.150 CRORES IN THE IMMEDIATELY PRECED ING YEAR. WHEN THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO JUST IFY THE FALL IN GP, THE ASSESSEE HAS STATED THAT THIS WAS BECAUSE OF EX CHANGE RATE DIFFERENCE EXPENSES AND IF THIS WAS CONSIDERED AS D IRECTLY RELATED TO PURCHASES, THE RATIO OF GP WOULD BE BETTER THAN THE EARLIER YEAR. THE ASSESSING OFFICER FURTHER REQUIRED THE ASSESSEE TO PRODUCE FIVE TOP SUPPLIERS TO VERIFY THE PURCHASES CLAIMED BY THE AS SESSEE BUT THE SAME WAS NOT DONE. THE ASSESSING OFFICER WAS ALSO N OT SATISFIED BY THE EXPLANATION OF THE ASSESSEE THAT THE REASON FOR FALL IN GP WAS BECAUSE OF EXCHANGE RATE DIFFERENCE. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE CLOSING STOCK OF POLISHED DIAMOND S WAS VALUED AT LOWER PRICE THAN ROUGH DIAMONDS. THE CLOSING STOCK WAS SHOWN AT 1240.08 CARATS @ RS.1481 PER CARAT WHEREAS THE CLOS ING STOCK OF ROUGH DIAMOND WAS TAKEN AT APPROXIMATELY RS.2900/- PER CARAT. WHEN REQUIRED TO JUSTIFY, THE ASSESSEE SUBMITTED CO PIES OF PURCHASE BILLS OF POLISHED DIAMONDS DATED 24.04.2005 IN WHIC H THE POLISHED DIAMONDS WERE PURCHASED @ RS.2965 PER CARAT FROM ON E LUCKY STAR AND IT WAS STATED THAT SOME OF THE DIAMONDS PURCHAS ED WERE OF INFERIOR QUALITY AND HENCE COULD NOT BE SOLD DURING THE YEAR AND WERE ITA NOS 386/AHD/2009 & 2800/AHD/2010 - ASHOKKUMAR H. KOTHARI - AY 2005-06 - 3 - SUBSEQUENTLY SOLD @ 1483 PER CARAT ON 04.04.2008 WH ICH WAS WHY THE RATE OF CLOSING STOCK FOR THE YEAR WAS TAKEN AT THE MARKET PRICE. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO PROD UCE THE PRINCIPLE PERSONS OF SELLER PARTIES WHICH WAS NOT DONE. THE A SSESSING OFFICER, THEREFORE, WAS OF THE VIEW THAT THE CLOSING STOCK O F POLISHED DIAMONDS WAS UNDERVALUED AND ADOPTED THE VALUE AT R S.2965/- PER CARATS BEING THE COST PRICE AT ACCORDING TO THE ASS ESSEE AND MADE AN ADDITION OF RS.18,40,177/- ON THIS ACCOUNT. 4. ON APPEAL BEFORE THE CIT(A), THE ASSESSEE SUBMIT TED THAT THE VALUATION OF CLOSING STOCK OF POLISHED DIAMONDS WAS MADE ON ACCOUNT OF ITS SALE VALUE ON 04.04.2008. HE ALSO SUBMITTED THAT THE COMPARISON OF VALUATION OF ROUGH WITH POLISHED DIAM ONDS WAS NOT FAIR SINCE VALUATION OF ROUGH WAS BASED ON ITS POTENTIAL FUTURE VALUE AFTER MANUFACTURE WHEREAS POLISHED DIAMONDS WERE VALUED A T THE MARKET RATE. IT WAS FURTHER SUBMITTED THAT THE ASSESSING O FFICERS ACTION IN ASKING THE APPELLANT TO PRODUCE THE PRINCIPAL PARTN ERS OF SELLER PARTIES WAS NOT CORRECT SINCE THE SALE PROCEEDS HAD TAKEN P LACE IN THE SUBSEQUENT YEAR AND THE CONFIRMATION OF THE BUYER P ARTY HAS ALREADY BEEN FURNISHED BEFORE THE ASSESSING OFFICER. 5. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS MA DE BY THE ASSESSEE, CONFIRMED THE ADDITION OF RS.18,40,177/- MADE BY THE ASSESSING OFFICER, BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS AND GONE THROUGH THE DETAILS. IT IS SEEN THAT THERE IS A DRASTIC FALL IN THE GP RATE COMPARED TO LAST YEAR. THE REASON ADVANCED BY THE A PPELLANT THAT THE FALL WAS DUE TO EXCHANGE RATE VALUATION IS WITHOUT ANY BASIS. THE EXCHANGE RATE VALUATION WOULD BE THERE I N THE IMMEDIATELY PRECEDING YEAR ALSO AND EVEN IF THIS VA RIATION IS TAKEN AS A PART OF PURCHASE PRICE, IT WOULD NOT THE SUFFICIENT IN REDUCING GP TO 1/10 TH OF THAT OF PRECEDING YEAR. FURTHER, THE APPELLANTS ARGUMENT THAT THE CLOSING STOCK WAS VAL UED AT THE SALES MADE SUBSEQUENTLY ON 04.04.2008 IS ALSO NOT S UPPORTED ITA NOS 386/AHD/2009 & 2800/AHD/2010 - ASHOKKUMAR H. KOTHARI - AY 2005-06 - 4 - BY ANY EVIDENCE. THE APPELLANT HAS ALSO NOT BEEN AB LE TO PRODUCE THE PRINCIPLE PERSONS OF THE CONCERNS TO WH OM THE SAID STOCK WAS SOLD. IT IS ALSO NOT PROVED BY ANY DOCUME NTS OR EVIDENCE THAT IT WAS THE SAME LOT OF DIAMONDS WHICH WAS SOLD ON 04.04.2008. IT IS AGAIN VERY STRANGE TO NOTE TH AT THE ROUGH DIAMOND HAVE BEEN VALUED AT ALMOST DOUBLE THE PRICE OF POLISHED DIAMONDS. I ALSO DO NOT ACCEPT THE EXPLANA TION THAT THE ROUGH DIAMONDS HAD HIGHER VALUE BECAUSE OF THE POTENTIAL FUTURE VALUE OF POLISHED DIAMONDS WHICH COULD BE MA DE FROM SUCH ROUGH DIAMONDS. THE APPELLANT HAS NOT BEEN ABL E TO PROVE THE SELLING PRICE OF CLOSING STOCK WHICH HE CLAIMED AS INFERIOR NOR COULD THERE BE ANY JUSTIFICATION IN CLAIMING TH AT THE POLISHED DIAMONDS PURCHASED AT A HIGHER VALUE WERE SOLD AT T HE LOWER VALUE. THE APPELLANT IS IN THE DIAMOND BUSINESS FOR A LONG TIME HAVING A TURN OVER OF APPROXIMATELY RS.150 CRORES A ND IT IS NOT EXPECTED OF SUCH AN EXPERIENCED DEALER TO PURCHASE POLISHED DIAMONDS AT A HIGHER RATE THAN THE MARKET VALUE. IN VIEW OF THIS, I AM OF THE CONSIDERED VIEW THAT THE AOS ACT ION IN VALUING THE CLOSING STOCK OF POLISHED DIAMONDS AT THE RATE AT WHICH ROUGH DIAMONDS WERE VALUED, IS IN ORDER AND ADDITIO N ON THIS ACCOUNT IS CONFIRMED. 6. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE OR DERS OF THE LOWER AUTHORITIES, WHEREAS THE AUTHORIZED REPRESENT ATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND THE CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, THE ASSESSING OFFICER OBSERVED THAT THE ASSES SEE HAS VALUED CLOSING STOCK OF POLISHED DIAMONDS OF 1240.08 CARAT S @ RS.1481.08 PER CARAT AND VALUED THE SAME AT RS.18,36,660/-. T HE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE PURCHASED FINISH ED DIAMONDS @ RS.2965 PER CARAT AND THEREFORE, VALUED THE CLOSING STOCK OF 1240.08 CARATS @ RS.2965 PER CARAT AND THUS, ARRIVED AT THE IR VALUE AT RS.36,76,837/-. THUS, THE DIFFERENCE OF RS.18,40,17 7/- WAS ADDED TO THE INCOME OF THE ASSESSEE ON THE GROUND OF UNDERVA LUATION OF CLOSING STOCK. ITA NOS 386/AHD/2009 & 2800/AHD/2010 - ASHOKKUMAR H. KOTHARI - AY 2005-06 - 5 - 8. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF TH E ASSESSING OFFICER. 9. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE EXPLAINED THAT THE ASSESSEE DURING THE YEAR UNDER C ONSIDERATION WAS ENGAGED IN THE BUSINESS OF ROUGH DIAMONDS AND SELLI NG THE SAME AFTER POLISHING THE SAME AS WELL AS IN TRADING OF F INISHED DIAMONDS. HE FURTHER CONTENDED THAT THE CLOSING STOCK OF 1240 .08 CARAT OF DIAMONDS WERE DEFECTIVE DIAMONDS WHICH WERE ACTUALL Y SOLD ON 04.04.2005 TO M/S. PRIYA GEMS VIDE INVOICE NO.BAK/L P/APR/03 /2005-06 DATED 04.04.2005 FOR RS.18,39,039/-; THERE FORE, THE SAME WAS VALUED AS ON 31.03.2005 AT RS.18,36,660/-. HE F URTHER POINTED OUT THAT THE METHOD OF VALUATION OF CLOSING STOCK W AS COST OR MARKET VALUE WHICHEVER IS LESS. HE PLACED A COPY OF INVOIC E AT PAGE NO.25 OF THE PAPER-BOOK AND CERTIFIED THAT THE SAME WAS FILE D BEFORE THE ASSESSING OFFICER AND THE CIT(A). HE ALSO SUBMITTE D THAT THE PURCHASER WAS NOT IN HIS CONTROL AND THEREFORE, SIM PLY BECAUSE THE ASSESSEE COULD NOT PRODUCE THE PURCHASER BEFORE THE DEPARTMENT, AN ADVERSE VIEW THERE FROM CANNOT BE TAKEN AGAINST THE ASSESSEE. 10. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE O RDERS OF THE LOWER AUTHORITIES. 11. WE FIND THAT THAT THE DEPARTMENTAL REPRESENTATI VE COULD NOT DISPUTE THE CERTIFICATION OF THE ASSESSEE TO THE EF FECT THAT THE RELEVANT SALE INVOICE WAS FILED BEFORE BOTH THE LOW ER AUTHORITIES. 12. WE FIND FROM THE ABOVE SALE BILL THAT THE ROUGH DIAMONDS OF 1240.08 CARAT WAS SOLD ON 04.04.2005 FOR RS.18,39,0 39/-. THUS, AS THE CONSISTENT METHOD OF VALUATION OF CLOSING STOCK WAS COST OR MARKET VALUE WHICHEVER IS LESS, THE ASSESSEE VALUED 1240.08 CARAT OF ITA NOS 386/AHD/2009 & 2800/AHD/2010 - ASHOKKUMAR H. KOTHARI - AY 2005-06 - 6 - DIAMONDS AT ITS MARKET VALUE OF RS.18,36,660/-. WE FIND THAT NO MATERIAL WAS BROUGHT ON RECORD BY THE REVENUE TO SH OW THAT THE ROUGH DIAMONDS OF 1240.08 CARAT WAS NOT SOLD ON 04. 04.2005 FOR RS.18,39,039/- AND THE SAME IN FACT WAS SOLD AT A H IGHER VALUE. WE FIND THAT IT IS NOT STATED BY THE DEPARTMENTAL REPR ESENTATIVE THAT THE NAME AND ADDRESS OF THE PARTIES TO WHOM DIAMONDS IN QUESTION WERE SOLD WAS NOT SUBMITTED BEFORE THE LOWER AUTHORITIES . IN THE ABOVE CIRCUMSTANCES, IN OUR CONSIDERED VIEW, THE ADDITION OF RS.18,40,177/- MADE ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK IS NOT SUSTAINABLE. WE, THEREFORE, DELETE THE ADDITION OF RS.18,40,177/- AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 13. GROUND NO.2 OF THE ASSESSEES APPEAL READS AS U NDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A S WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED CONFIRMING THE ACTION OF THE AS SESSING OFFICER IN MAKING ADDITION OF RS.9,03,387/- ON ACCO UNT OF LOW GROSS PROFIT. 14. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER ESTIMATED THE GP AT THE SAME RATE AS IN THE PRECEDI NG YEAR I.E. 0.21% AS AGAINST 0.023% SHOWN BY THE ASSESSEE ON TU RNOVER RS.1,46,55,24,662/- OF THE YEAR UNDER CONSIDERATION AND THEREFORE, THE GP WORKED OUT TO RS.30,77,602/- AS AGAINST THE GP OF RS.3,34,038/- SHOWN BY THE ASSESSEE. THE ASSESSING OFFICER WORKED OUT THE DIFFERENCE IN GP AT RS.27,43,564/-. SINCE THE ADDITION ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK HAS ALR EADY BEEN MADE BY HIM AT RS.18,40,177/-, HE RESTRICTED THE ADDITION O N ACCOUNT OF LOW GP AT RS.9,03,387/- (RS.27,43,564/- - RS.18,40,177/ -) AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 15. ON APPEAL BEFORE THE CIT(A), THE AUTHORIZED REP RESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE BOOKS OF ACCOUNTS O F THE ASSESSEE ITA NOS 386/AHD/2009 & 2800/AHD/2010 - ASHOKKUMAR H. KOTHARI - AY 2005-06 - 7 - WERE AUDITED AND NO DEFECTS WERE FOUND IN THE SAID BOOKS BY THE ASSESSING OFFICER. HE FURTHER SUBMITTED THAT THE O NLY REASON FOR REJECTING THE BOOKS BY THE ASSESSING OFFICER WAS ON ACCOUNT OF FALL IN GP WHICH WAS NOT CORRECT. HE ALSO RELIED ON VARIOUS JUDICIAL DECISION IN SUPPORT OF HIS CLAIM THAT FALL IN GP WOULD NOT B E A REASON FOR INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT. 16. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS O F THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE, CONFIRMED THE ADDIT ION OF RS.9,03,387/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF LOW GP, BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS. IT IS SEEN THA T THE MAJOR REASON FOR REJECTION BOOKS OF ACCOUNT IS UNDER VALU ATION OF CLOSING STOCK AND NON APPEARANCE OF THE PRINCIPLE P ERSONS OF THE PURCHASED PARTIES OF ROUGH DIAMONDS. FURTHER, T HE GENUINENESS OF RATES AT WHICH THE DIAMONDS WERE CLA IMED TO HAVE BEEN SOLD HAS ALSO NOT BEEN ESTABLISHED. THES E FACTS IN MY VIEW ARE SUFFICIENT TO WARRANT INVOCATION OF PRO VISIONS OF SECTION 145(3) OF THE ACT. THE AOS ACTION IN REJEC TING THE BOOK RESULTS AND ESTIMATING PROFIT AT THE SAME RATE AS P ER LAST YEAR IS THEREFORE IN ORDER AND ADDITION ON THIS ACCOUNT IS CONFIRMED. 17. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE O RDERS OF THE LOWER AUTHORITIES, WHEREAS THE AUTHORIZED REPRESENT ATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND THE CIT(A). 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. THE ASSESSING OFFICER OBSERVED THAT THE GROSS PROFIT DISCLOSED BY THE ASSESSEE COMES TO 0.023% OF SALES. THE ASSESSING OFFICER OBS ERVED THAT THE GROSS PROFIT OF THE ASSESSEE IN THE IMMEDIATELY PRE CEDING YEAR WAS 0.21%. ACCORDING TO THE ASSESSING OFFICER, THE ASS ESSEE EXPLAINED THE LOSS DUE TO EXCHANGE RATE FLUCTUATION AS THE MA IN CAUSE OF ITA NOS 386/AHD/2009 & 2800/AHD/2010 - ASHOKKUMAR H. KOTHARI - AY 2005-06 - 8 - FANTASTIC REDUCTION IN THE GROSS PROFIT RATE WHICH IS NOT ACCEPTABLE. FURTHER, THE ASSESSEE COULD NOT PRODUCE SUPPLIERS O F DIAMOND FOR VERIFICATION. THEREFORE, IN ABSENCE OF PRODUCTION O F SUPPLIERS OF DIAMONDS, THE PURCHASES CLAIMED BY THE ASSESSEE ARE NOT VERIFIABLE. HE, THEREFORE, REJECTED THE BOOK RESULT AND ESTIMAT ED THE GROSS PROFIT OF THE ASSESSEE @ 0.21% WHICH WORKED OUT TO RS.27,4 3,564/-. HE THEREAFTER ALLOWED TELESCOPING OF ADDITION OF RS.18 ,40,177/- MADE ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK AND THER EFORE, ADDED RS.9,03,387/- TO THE INCOME OF THE ASSESSEE. 19. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF T HE ASSESSING OFFICER. 20. WE FIND THAT THE ONLY EXPLANATION OF THE ASSESS EE FOR FALL IN GROSS PROFIT RATE WAS THAT THE ASSESSEE HAS INCURRE D FOREIGN EXCHANGE FLUCTUATION LOSS OF RS.37,06,513/- AND IF THE SAME IS REMOVED FROM THE EXPENDITURE SIDE OF THE TRADING ACCOUNT, THEN T HE GROSS PROFIT OF THE ASSESSEE WOULD WORK OUT TO 0.27% WHICH IS BETTE R THAN THE GROSS PROFIT RATE OF 0.21% SHOWN IN THE IMMEDIATELY PRECE DING YEAR. WE FIND THAT THIS ARGUMENT OF THE AUTHORIZED REPRESENT ATIVE OF THE ASSESSEE IS FALLACIOUS, BECAUSE THE ASSESSEE HAS FI LED COPY OF TRADING AND P&L ACCOUNT AT PAGE NOS.12 AND 13 OF THE PAPER- BOOK FROM WHICH IT IS OBSERVED THAT THE FOREIGN EXCHANGE DIFF ERENCE HAS BEEN DEBITED IN THE PROFIT & LOSS ACCOUNT BY THE ASSESSE E AND NOT IN THE TRADING ACCOUNT. THUS, IN WORKING OUT THE GROSS PRO FIT AT 0.023%, THE FOREIGN EXCHANGE DIFFERENCE IS NOT CONSIDERED B Y THE ASSESSEE. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE RS OF THE LOWER AUTHORITIES IN ESTIMATING GROSS PROFIT OF THE ASSES SEE @ 0.21% AT RS.27,43,564/-. WE HAVE, WHILE DECIDING THE GROUND NO.1 OF THE APPEAL ABOVE, HELD THAT THE ADDITION MADE IN RESPEC T OF UNDERVALUATION OF CLOSING STOCK IS NOT SUSTAINABLE. THUS, THE ITA NOS 386/AHD/2009 & 2800/AHD/2010 - ASHOKKUMAR H. KOTHARI - AY 2005-06 - 9 - ASSESSEE IS NOT ENTITLED FOR BENEFIT OF TELESCOPING AND CONSEQUENTIALLY, THE ADDITION OF RS.27,43,564/- ON ACCOUNT OF LOW GROSS PROFIT IS SUSTAINED. THUS, THIS GROUND OF APP EAL OF THE ASSESSEE IS DISMISSED AND THE ASSESSING OFFICER IS DIRECTED TO WITHDRAW THE BENEFIT OF TELESCOPING. 21. GROUND NO.3 OF THE ASSESSEES APPEAL READS AS U NDER:- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF THE INCOME TAX (APPEALS) HAS ERRED CONFIRMING THE ACTION OF TH E ASSESSING OFFICER IN DISALLOWING 20% FOREIGN TRAVELLING, CONV EYANCE AND TELEPHONE EXPENSES AGGREGATING TO RS.10,92,036/-. 22. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER OBSERVED, DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THAT THE ASSESSEE HAS NEITHER PRODUCED ANY PROPER DOCUMENT N OR HAS SHOWN ANY EXPENSES WHICH WERE RENDERED WHOLLY AND EXCLUSI VELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. HE ALSO OBSE RVED THAT THE ASSESSEE HAS FAILED TO CORRELATE ALL EXPENSES WITH SALE OR PURCHASE TRANSACTIONS. THEREFORE, THE ASSESSING OFFICER DIS ALLOWED A SUM OF RS.10,92,036/- OUT OF FOREIGN TRAVELING EXPENSES, C ONVEYANCE EXPENSES, OFFICE EXPENSES, TELEPHONE EXPENSES, TRAV ELLING EXPENSES ETC. CLAIMED BY THE ASSESSEE. 23. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANC E OF RS.10,92,036/- MADE BY THE ASSESSING OFFICER BY FOL LOWING HIS EARLIER ORDER PASSED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05. 24. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE O RDERS OF THE LOWER AUTHORITIES, WHEREAS THE AUTHORIZED REPRESENT ATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND THE CIT(A). ITA NOS 386/AHD/2009 & 2800/AHD/2010 - ASHOKKUMAR H. KOTHARI - AY 2005-06 - 10 - 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, DISALLOWANCE OF RS.10,92,036/- WAS MADE BY TH E ASSESSING OFFICER OUT OF EXPENSES INCURRED UNDER THE HEAD OF FICE EXPENSES, CONVEYANCE EXPENSES, TELEPHONE EXPENSES, TRAVELLING EXPENSES, BROKERAGE AND FOREIGN TRAVELLING EXPENSES. 26. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE POINTED OUT THAT THE DISALLOWANCE WAS MADE ON AD-HO C BASIS. HOWEVER, THE AUTHORIZED REPRESENTATIVE OF THE ASSES SEE WAS FAIR TO CONCEDE THAT ON SIMILAR FACTS, DISALLOWANCE OF RS.1 0 LACS WAS CONFIRMED BY THE TRIBUNAL IN THE CASE OF ASSESSEE I N THE IMMEDIATELY PRECEDING YEAR. AS THE FACTS AND CIRCUMSTANCES OF T HE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS AND CIRCUMST ANCES OF THE IMMEDIATELY PRECEDING YEAR, AND THE DISALLOWANCE MA DE IN THE YEAR IS IN TUNE WITH THE AMOUNT OF DISALLOWANCE CONFIRME D BY THE TRIBUNAL IN THE IMMEDIATELY PRECEDING YEAR; THEREFORE, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDERS OF THE LOW ER AUTHORITIES. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 27. GROUND NO.4 OF THE ASSESSEES APPEAL READS AS UNDER:- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF THE INCOME TAX (APPEALS) HAS ERRED CONFIRMING THE ACTION OF TH E ASSESSING OFFICER IN DISALLOWING BROKERAGE EXPENSES OF RS.2,7 4,787/- U/S 40(A)(IA). 28. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE PAID BROKERAGE CHARGES F OR PURCHASE AND SALES OF DIAMONDS AND DEDUCTED TDS IN THE MONTHS OF JANUARY & FEBRUARY, 2005 BUT THE SAME WAS DEPOSITED IN THE GO VERNMENT ACCOUNT ONLY ON 02.04.2005. THEREFORE, THE ASSESSI NG OFFICER HELD ITA NOS 386/AHD/2009 & 2800/AHD/2010 - ASHOKKUMAR H. KOTHARI - AY 2005-06 - 11 - THAT THE ASSESSEE WAS IN DEFAULT AND MADE DISALLOWA NCE ON ENTIRE EXPENDITURE. 29. ON APPEAL BEFORE THE CIT(A), THE ASSESSEE HAS S UBMITTED THAT THE TOTAL TDS MADE ON BROKERAGE IN THE MONTH OF JAN UARY & FEBRUARY, 2005 WAS DEPOSITED IN THE GOVERNMENT ACCO UNT ON 02.04.2005 BUT AS PER THE AMENDED PROVISION OF SECT ION 40(A)(IA) OF THE ACT, THE DUE DATE FOR DEPOSITING THE TDS WAS SP ECIFIED IN SECTION 139(1) OF THE ACT FOR FILING THE RETURN OF INCOME. 30. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE, HELD AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS BUT I AM NOT INC LINED TO AGREE WITH THE APPELLANT. AS PER THE AMENDED PROVI SION, IF THE TAX IS DEDUCTED IN THE LAST MONTH OF THE PREVIOUS Y EAR, ONLY THEN IT CAN BE DEPOSITED IN THE GOVT. A/C. UP TO TH E DATE OF FILING THE RETURN. HOWEVER, IN ANY OTHER CASE, IT H AS TO BE DEPOSITED ON OR BEFORE THE LAST DATE OF THE PREVIOU S YEAR. IN THIS CASE, THE TAX HAS BEEN DEDUCTED IN THE MONTHS OF JANUARY & FEBRUARY AND THE SAME SHOULD HAVE BEEN DEPOSITED IN GOVT. A/C. ON OR BEFORE 31.03.2005. THAT BEING THE CASE, THE APPELLANTS CLAIM IS WITHOUT ANY MERITS AND THIS GR OUND FAILS. 31. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE O RDERS OF THE LOWER AUTHORITIES, WHEREAS THE AUTHORIZED REPRESENT ATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND THE CIT(A). 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, THE UNDISPUTED FACTS ARE THE ASSESSEE DEDUCTE D BROKERAGE CHARGES FROM THE PURCHASE AND SALES OF DIAMONDS FOR THE MONTH OF JANUARY AND FEBRUARY 2005, FROM WHICH PAYMENTS TDS WAS DEDUCTED BY THE ASSESSEE AND THE SAME WAS DEPOSITED TO THE C REDIT OF THE ITA NOS 386/AHD/2009 & 2800/AHD/2010 - ASHOKKUMAR H. KOTHARI - AY 2005-06 - 12 - CENTRAL GOVERNMENT ON 02.04.2005. THE ASSESSING OF FICER DISALLOWED THE DEDUCTION FOR THE ENTIRE BROKERAGE O F RS.2,74,787/- BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ON THE GROUND THAT THE TDS WAS NOT DEPOSITED BEFORE THE END OF TH E FINANCIAL YEAR AND THE SAME WAS CONFIRMED IN APPEAL BY THE CIT(A). 33. WE FIND THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. B.M.S. PROJECTS P. LTD., (2014) 361 ITR 195 (GU J.), HAS HELD THAT WHERE PAYMENTS WERE MADE TO SUB-CONTRACTORS FOR TH E PERIOD FROM APRIL 2004-FEBRUARY 2005 ON WHICH TDS HAS BEEN PAID ON 24.05.2005, NO DISALLOWANCE OF THE EXPENDITURE CLAI MED COULD BE MADE U/S 40(A)(IA) OF THE ACT AS THE PAYMENTS WERE MADE BY THE ASSESSEE BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME U/S 139(1) OF THE ACT, AS THE AMENDMENT MADE BY FINANCE ACT, 2 010 WITH EFFECT FROM 1 ST APRIL 2010 WAS RETROSPECTIVE IN OPERATION. THERE FORE, WE DELETE THE DISALLOWANCE OF RS.2,74,787/- AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 34. IN THE APPEAL OF THE REVENUE, THE SOLE GROUND O F APPEAL TAKEN BY THE REVENUE READS AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN DELETING THE PENALTY OF RS.9,28 ,617/- LEVIED U/S 271(1)(C) OF THE ACT FOR CONCEALMENT OF INCOME BY WAY OF FURNISHING INACCURATE PARTICULARS OF INCOME IN RESP ECT OF ON ACCOUNT OF CLOSING STOCK AND GROSS PROFIT. 35. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. THE ASSESSING OFFICER LEVIED PENALTY U/S 271(1)(C) OF RS.9,28,617 /- IN RESPECT OF ADDITION OF RS.18,40,177/- MADE IN ASSESSMENT ON AC COUNT OF UNDERVALUATION OF CLOSING STOCK AND IN RESPECT OF A DDITION OF RS.9,03,387/- MADE ON ACCOUNT OF LOW GOSS PROFIT. ITA NOS 386/AHD/2009 & 2800/AHD/2010 - ASHOKKUMAR H. KOTHARI - AY 2005-06 - 13 - 36. ON APPEAL, THE CIT(A) DELETED THE ABOVE LEVY OF PENALTY BY OBSERVING AS UNDER:- I HAVE CAREFULLY CONSIDERED BOTH THE POSITION. I H AVE ALSO GONE THROUGH THE VARIOUS DOCUMENTARY EVIDENCES FURNISHED BY THE AR AS ALSO THE ASSESSMENT ORDER AND APPELLATE ORDER . A COMBINED READING OF THE ASSESSMENT ORDER AND THE PE NALTY ORDER SHOWS THAT THE PENALTY WAS LEVIED BY THE AO O N THE ESTIMATION OF GP WHICH PRIMA FACIE DID NOT REPRESEN T ANY CONCEALMENT OF INCOME OR THE FURNISHING OF ANY INAC CURATE PARTICULARS. REGARDING PENALTY ON UNDERVALUATION OF CLOSING STOCK, THE ASSESSEE HAD FAILED TO PRODUCE SO CALLED BUYER IN PERSON BEFORE AO FOR VERIFICATION. ON THE OTHER HAN D HE HAD FILED ALL THE OTHER EVIDENCE LIKE NAME AND ADDRESS OF THE PARTY, COPY OF SALE BILLS AS WELL AS CONFIRMATION OF THE B UYER. THE AO ON HIS SIDE MAY CALLED FOR DETAILS BY ISSUING NOTIC E U/S 133(6) OR MAY ISSUE SUMMONS TO VERIFY THE SAME WHICH HE FA ILED TO DO SO. APPLYING MY MIND TO THE ISSUE I AM OF THE OPINI ON THAT MERE FAILURE ON THE PART OF THE ASSESSEE REGARDING UNABLE TO PRODUCE BUYER FOR VERIFICATION BEFORE AO CANNOT BE CONSIDERED AS CONCEALMENT. FURTHER, IN THE LIGHT OF HON'BLE SUPREME COURT'S RE CENT JUDGMENT IN CASE OF RELIANCE PETRO PRODUCTS PVT. LT D. (322 ITR 158) WHICH CLEARLY INDICATES THAT PENALTY CAN BE LE VIED BY THE AO ONLY ONCE HE PROVE THAT THE ASSESSEE HAS CONCEAL ED THE PARTICULARS OF INCOME OR HAS FURNISHED INACCURATE P ARTICULARS OF INCOME AT THE TIME OF FILLING THE RETURN OF INCOME OR ANY SUBMISSIONS THEREAFTER (WHETHER WILLFUL OR OTHERWIS E). MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LA W, BY ITSELF, WILL NOT AMOUNT TO FURNISH INACCURATE PARTICULARS R EGARDING INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETU RN OF INCOME CANNOT AMOUNT TO FURNISH OF INACCURATE PARTI CULARS. UNLESS THERE IS FINDING THAT ANY DETAILS SUPPLIED B Y THE ASSESSEE IN ITS RETURN OF INCOME WERE FOUND TO BE I NCORRECT OR ERRONEOUS OR FALSE, THERE IS NO QUESTION OF LEVYING PENALTY U/S 271 (1) (C). IF THE CONTENTIONS OF THE REVENUE ARE ACCEPTED, THEN IN CASE OF EVERY RETURN WHERE CLAIM IS NOT ACC EPTED BY THE AO FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY U/S 271(L)(C). THAT IS CLEARLY NOT INTENDMENT OF THE LE GISLATURE. I HAVE EXAMINED THE VARIOUS CORRESPONDENCES OF THE AR WITH THE AO. THESE CORRESPONDENCES CLEARLY SHOW THAT THE ASSESSEE HAD FURNISHED ALL THE BOOKS OF ACCOUNT, ALONG WITH SUPPORTING BILLS/VOUCHERS, THE NAMES AND ADDRESSES OF THE PART IES FROM ITA NOS 386/AHD/2009 & 2800/AHD/2010 - ASHOKKUMAR H. KOTHARI - AY 2005-06 - 14 - WHOM PURCHASE WERE MADE AND A DETAILED BREAK-UP OF THE EXPENSES, THE AR HAD SUBMITTED THE REASONS FOR DECR EASE IN GP ALONG WITH COPIES OF THE BILLS AND BOOKS OF ACCOUNT S. ALL THESE CORRESPONDENCE CLEARLY SHOW THAT THE RECORDS AND DE TAILS WHICH ARE ESSENTIAL FOR THE AO TO ASCERTAIN THE CORRECTNE SS OF THE CLAIMED OF THE ASSESSEE, WERE ALL AVAILABLE WITH TH E AO. THEREFORE, THE NON-FURNISHING OF CERTAIN DETAILS OR UNABLE TO PRESENT THE BUYER IN PERSON COULD NOT BE GROUND FOR LEVYING PENALTY. THUS FACT OF THE MATTER THAT THE CLAIM OF THE ASSES SEE HAS BEEN DISREGARDED WITH THE MAIN REASON OF NON PRODUCTION OF BUYER BEFORE AO. SIMILARLY THE DETAILS AVAILABLE ON RECOR D HAVE BEEN CHOSEN TO BE IGNORED WHILE ASCERTAINING THE GENUINE NESS OF THE CLAIM OF THE ASSESSEE. FOR A MOMENT LET US ASSUME T HAT THE ASSESSEE WAS NOT ABLE TO PRODUCE THE SO CALLED BUYE R AND SELLER. WILL THAT ALONE RENDER THE CLAIM OF THE ASS ESSEE LIABLE TO REJECTION IS THE POINT THAT REQUIRES CONSIDERATION. CAN THE AVAILABLE MATERIAL ON RECORD LEND ANY CREDENCE TO T HE APPELLANT'S CLAIM IS TO BE CONSIDERED. MY FIRM VIEW THAT THE ABSENCE OF PERSONS FOR WHATEVER REASON CANNOT DIREC TLY RESULT IN CONCEALMENT ON THE PART OF THE ASSESSEE OR FURNI SHING INACCURATE PARTICULAR OF INCOME. HENCE I DELETE THE PENALTY OF RS.9,28,617. IN THE R ESULT THIS APPEAL IS ALLOWED. 37. THE DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND CONTENDED THAT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE PENALTY U/S 271(1)(C) OF THE ACT. 38. ON THE OTHER HAND, THE AUTHORIZED REPRESENTATIV E OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 39. WE FIND THAT NO SPECIFIC ERROR IN THE FINDING O F THE CIT(A) COULD BE POINTED OUT BY THE REVENUE. IN THE INSTANT CASE, THE ADDITION WAS MADE BECAUSE OF THE INABILITY OF THE ASSESSEE TO SU BSTANTIATE ITS CLAIM BY PRODUCING THE SELLER AND PURCHASER. WE FI ND THAT NO POSITIVE MATERIAL COULD BE BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT ANY PARTICULAR OF INCOME FURNISHED IN THE RETURN WAS IN CORRECT OR ANY ITA NOS 386/AHD/2009 & 2800/AHD/2010 - ASHOKKUMAR H. KOTHARI - AY 2005-06 - 15 - INCOME ACTUALLY EARNED WAS UNDISCLOSED. IN THE ABOV E FACTS, WE FIND NO GOOD REASON TO INTERFERE WITH THE CONCLUSION AS ARRIVED AT BY THE CIT(A). THEREFORE, THE APPEAL OF THE REVENUE IS DI SMISSED. 40. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED, WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 16 TH OF JANUARY, 2015 AT AHMEDABAD. SD/- SD/- ( G.C. GUPTA ) VICE PRESIDENT ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 16/01/2015 *BIJU T, PS (7 4 18 9(8. (7 4 18 9(8. (7 4 18 9(8. (7 4 18 9(8./ COPY OF THE ORDER FORWARDED TO : 1. /0 / THE APPELLANT 2. 12/0 / THE RESPONDENT. 3. %% : / CONCERNED CIT 4. : ( ) / THE CIT(A)- IV, SURAT 5. 8$= 1& , , / DR, ITAT, AHMEDABAD 6. - >3 / GUARD FILE. (7& (7& (7& (7& / BY ORDER, //TRUE COPY// / // / % % % % ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD