The ACIT, Circle-9, Surat V. M/s. Anjana Exports, Surat

ITA 2833/AHD/2014

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2059 (ITAT-SURAT)
• Duration Of Justice: 5 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 21-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRINIVAS T BIDARI
• Keywords: Gross profit estimation; Rejection of books of accounts; Business income; Cost of acquisition; Speculation loss
• Section: 143(3); 43(5); 250; 13; 22; 54

Judgement Text

ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 1 OF 19 IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . .. . . .. . ./ ././ ./ I.T.A NOS.1879,1872/AHD/2013 & 2833/AHD/2014 / ASSESSMENT YEAR: 2009-10 1. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-9, SURAT. V . M/S. ANJANA EXPORTS, 1, KOHINOOR SOCIETY, OPP. G K CHAMBERS, VARACHHA ROAD, SURAT- 395 006. [PAN: AADFA 0943 R] 2. M/S. ANJANA EXPORTS, 1, KOHINOOR SOCIETY, OPP. G K CHAMBERS, VARACHHA ROAD, SURAT- 395 006. [PAN: AADFA 0943 R] V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-9, SURAT. 3 . ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-9, SURAT. V. M/S. ANJANA EXPORTS, 1, KOHINOOR SOCIETY, OPP. G K CHAMBERS, VARACHHA ROAD, SURAT- 395 006. [PAN: AADFA 0943 R] / APPELLANT /RESPONDENT /ASSESSEE BY SHRI MEHUL SHAH , CA /REVENUE BY SHRI SRINIVAS T. BIDARI, CIT(D.R.) / DATE OF HEARING: 11 - 02 - 2020 /PRONOUNCEMENT ON: 04 - 05 - 2020 /O R D E R PER O.P.MEENA, AM: 1. THE ABOVE TWO APPEALS FILED BY THE REVENUE ARE DIRE CTED AGAINST THE SEPARATE ORDERS OF COMMISSIONER OF INCOME-TAX (APPE ALS)-V, SURAT [IN SHORT THE CIT(A)] DATED 18-04-2013 AND 01-08-2014 FOR T HE AY. 2009-10 RESPECTIVELY & ONE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-V, SURAT [I N SHORT THE CIT(A)] DATED 18-04-2013 FOR THE AY. 2009-10. ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 2 OF 19 IN ITA NO.1879/AHD/2013/AY.2009-10 BY THE REVENUE:- 2. GROUND NO. 1& 2 RELATES TO DELETING THE ADDITION OF RS.5,58,41,797/- MADE ON ACCOUNT OF LOW GROSS PROFIT BY REJECTING TH E BOOKS RESULT U/S.145(3) OF THE ACT. 3. BRIEFLY STATED THE FACTS OF THE CASES ARE THAT THE ASSESSEE HAS SHOWN GP OF RS.8,12,24,118/- @ 3.7% ON THE TURNOVER OF RS.2 ,18,98,74,418/- IN COMPARISON TO THE EARLIER YEARS GP OF RS.9,50,28,00 6/- @ 6.14% ON THE TOTAL TURNOVER OF RS.1,54,61,22,671/-. THUS, THERE IS FAL L IN GP BY 2.44%. IT WAS FURTHER NOTICED THAT THE ASSESSEE HAS CLAIMED THE P ROFIT IN EXCESS AS A SUM OF RS.2.31 CRORE, IN THE GROSS RECEIPT IF THE FOREI GN EXCHANGE FLUCTUATION RATE IS REDUCED FROM THE GP RATIO, THEN 1% OF THE G P WILL FURTHER REDUCED OF THE ASSESSEE. THEREFORE, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF DIAMOND MANUFACTURING QUANTITYWISE AND QUALITYWISE AND THE BASIS OF VALUATION OF CLOSING STOCK ALONG WITH SUPPORTING EV IDENCES. BUT THE ASSESSEE NEITHER FURNISHED ANY EXPLANATION WITH REGARD TO TH E ABOVE DETAILS ASKED FOR NOR HE PRODUCED THE BOOKS OF ACCOUNTS FOR THE VERIF ICATION PURPOSES WHICH ARE CALLED ON SEVERAL TIMES. THEREFORE, THE AO OBSE RVED THAT THE ASSESSEE HAS PREVENTED HIS OFFICE FROM VERIFYING THE BOOKS O F ACCOUNTS. FURTHER, THE ASSESSEE HAS NOT MAINTAINED QUALITYWISE DETAILS OF POLISHED DIAMONDS WHICH HAS BEEN MANUFACTURED. THE ASSESSEE HAS NOT PROVIDE D CLOSING STOCK DETAILS QUALITYWISE AND PIECEWISE WHICH WILL HAVE SIGNIFICA NT IMPACT ON THE VALUATION ISSUES. THEREFORE, THE BASIS OF VALUATION OF CLOSING STOCK OF POLISHED DIAMONDS WAS REJECTING BY REJECTING BOOKS OF ACCOUNTS OF THE ASSESSEE U/S.145(3) OF THE ACT. THE AO FURTHER, OBS ERVED THAT THE ASSESSEE ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 3 OF 19 HAS NOT SUBSTANTIATED ITS CLAIM ALONG WITH FACT THA T HOW MUCH THE INCREASE IN THE PURCHASE COST AFFECT ITS GP, AND HOW MUCH TH E DECREASE OR INCREASE IN SALES PRICE HAVE AFFECTED ITS GP. BY MERELY STAT ING THAT THERE WAS A RECESSION IN THAT PERIOD DOES NOT DISCHARGE THE LIA BILITY OF THE ASSESSEE TO EXPLAIN THE REASONS FOR FALLING GP RATIO OF 2.44% W HICH IS ALMOST 40% FALL IN TERMS OF GP FROM THE PREVIOUS YEARS 2006-07 & 2007- 08. THE ASSESSEE HAS STATED THAT DUE TO FLUCTUATION IN PRICES OF EXCESS RATE OF DOLLAR, THE ASSESSEE HAS GOT LESS PRICES OF EXPORT AND PAID MORE PRICES ON IMPORT. BUT, THE AO OBSERVED THAT ASSESSEE HAS EARNED A NET FOREIGN EXC HANGE FLUCTUATION OF DOLLAR PRICES; THEREFORE THIS CONTENTION OF THE ASS ESSEE IS FACTUALLY INCORRECT. THE AO FURTHER NOTED THAT GP RATIO IN FI NANCIAL YEAR 2006-07 WAS AT 6.37% AND IN FINANCIAL YEAR 2007-08 WAS AT 6.15% , THE AVERAGE OF WHICH COMES TO 6.26%, WHEREAS IN THE ASSESSMENT YEAR UNDE R CONSIDERATION, THE GP IS SHOWN AT 3.71% WHICH IS INCLUSIVE OF NET FORE IGN EXCHANGE FLUCTUATION GAIN OF RS.2.13 CRORE. IN VIEW OF THIS, THE AO HAS CONSIDERED THE AVERAGE GP RATE OF TWO PRECEDING YEARS WHICH COMES TO 6.26%. A CCORDINGLY, WORKED OUT RATE WHICH THE DIFFERENCE IN GP COMES TO 2.55%, HEN CE APPLYING THE GP RATE OF 2.55% MADE ADDITION OF RS.5,58,41,797/- ON ACCOU NT OF FALL IN GP RATE. 4. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT(A), WHEREIN IT WAS SUBMITTED THAT THE TURNOVER OF THE A SSESSEE IS RS.218.98 CRORE AS AGAINST RS.157.09 CRORE IN THE IMMEDIATE P RECEDING YEAR. IN SUCH CASES, WHERE TURNOVER RUNS INTO CRORES OF RUPEES, I T IS NOT AT ALL NECESSARY THAT EVERY YEAR THERE WILL BE ALWAYS BE INCREASE IN GROSS PROFIT. THE GP RATE YEAR UNDER CONSIDERATION HAS GONE DOWN, BECAUSE OF UNFAVORABLE MARKET ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 4 OF 19 CONDITIONS AS ON ONE HAND, AND THERE IS A SUBSTANTI AL RISE OF GROSS IMPORT AND LOCAL PURCHASE OF 51% AND 31% RESPECTIVELY. ON THE OTHER HAND, THE EXPORT PRICE IS AN ONLY INCREASE BY 22.5% AND THIS HAS LED TO THE FALL IN GP RATIO. ALL THE PURCHASES/IMPORTS AS WELL AS EXPORTS/LOCAL SALE S ARE SUPPORTED BY PROPER PURCHASE BILLS/SALES BILLS. IT WAS FURTHER S UBMITTED THAT THE NON- COMPLIANCE BEFORE THE AO WAS NOT UNINTENTIONAL AND NOT DELIBERATE AS SUCH DETAILS WERE HANDED OVER TO THE COUNSEL, BUT WHO FA ILED TO PRODUCE THE SAME BEFORE THE AO FOR THE REASONS BEST KNOWN TO TH AT COUNSEL. DURING THE REMAND PROCEEDINGS, THE ASSESSEE HAS PRODUCED THE B OOKS OF ACCOUNTS AND OTHER DETAILS BEFORE THE AO. THE AO VIDE REMAND REP ORT SUBMITTED THAT THE BOOKS OF ACCOUNT HAVE BEEN RIGHTLY REJECTED AS THE LABOUR CHARGES TO THE EXTENT OF RS.17,76,00,000/- ENTERED IN THE REGISTER WERE FOUND TO BE DEFECTIVE AS SAME WERE NOT BEARING PROPER SIGNATURE . THERE WAS VARIATION IN SIGNATURES OF MANAGERS AND KARIGARS. HOWEVER, THE C IT(A) WAS OF THE VIEW THAT THE AO DOES NOT HAVE THE NECESSARY EXPERTISE T O EXAMINE AND COMMENT THAT THE SIGNATURES ARE DIFFERENT AS IT IS THE WORK OF A HAND WRITING EXPERT. THE PRIMA FACIE VARIATION OF SIGNATURES APPEARING IN THE REGISTERS CANNOT BE SOLE BASIS OF CONSIDERING THE BOOKS OF ACCOUNT AS D EFECTIVE AND NOT VERIFIABLE. THE GROSS OF CONSUMPTION OF ROUGH DIAMO ND IN AY.2008-09 IS 13.87% WHILE IN AY.2009-10; IT HAS COME DOWN TO 9.3 2%. THEREFORE, THE REJECTION OF BOOKS OF ACCOUNTS MERELY ON THE GROUND OF DIFFERENCE IN SIGNATURE IS NOT JUSTIFIED, HENCE, REJECTION OF BOO KS OF ACCOUNT U/S.145(3) WAS HELD TO BE NOT JUSTIFIED. WITH REGARD TO ADDITI ON OF RS.5,58,41,797/- BY ESTIMATING GP RATE AT 6.15%, THE CIT(A) HAS OBSERVE D THAT THE METHOD OF ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 5 OF 19 VALUATION OF CLOSING STOCK HAS BEEN CONSISTENTLY FO LLOWED BY THE ASSESSEE FROM YEAR TO YEAR AND THIS METHOD OF VALUATION ADOP TED BY THE APPELLANT IS SIMILAR TO THAT IN THE CASE OF M/S. DHAMI BROTHERS V. ACIT, CIRCLE-9, WHEREIN ITS METHOD HAS BEEN APPROVED BY A BENCH OF TRIBUN AL, AHMEDABAD VIDE ITS ORDER DATED 06-08-2010 IN ITA NO.2309/AHD/2008 FOR THE AY.2004-05. ON PERUSAL OF THIS ORDER OF THE ITAT, IT WAS FOUND THA T WHILE WORKING OUT COST OF PRODUCTION OF ROUGH DIAMONDS, THE ELECTRICITY EXPEN SES HAVE BEEN ADDED UNDER THE MANUFACTURING HEAD WHICH INCLUDES LABOUR WAGES AND ELECTRICITY EXPENSES TO WORK OUT THE TOTAL COST OF MANUFACTURED OF POLISHED DIAMONDS. SINCE, THE ASSESSEE HAS HIMSELF RELIED ON THIS JUDG EMENT OF ITAT REGARDING THE METHOD OF VALUATION OF CLOSING STOCK, THE AO IN THE REMAND REPORT HAS CORRECTLY INCLUDED THE ELECTRICITY EXPENSES OF RS.5 2,30,244/- TO WORK OUT THE TOTAL MANUFACTURING COST OF POLISHED DIAMONDS A T RS.2,10,11,22,627/- AS AGAINST THE APPELLANTS COST OF RS.2,09,58,81,383/- BY ADDING ELECTRICITY EXPENSES OF RS.52,30,244/- TO THE TOTAL MANUFACTURI NG OF POLISHED DIAMONDS. HENCE, THE CONTENTION OF THE APPELLANT OF NON-INCLUSION OF ELECTRICITY BILL TOWARDS MANUFACTURING COST WAS REJ ECTED AND FINDING OF THE AO WERE UPHELD. THE CIT(A) FURTHER OBSERVED THAT TH E ASSESSEE HAS PRODUCED THE RELEVANT RECORDS IN FORM OF EXPORT BIL LS, PURCHASE BILLS, CASH ETC. ALONG WITH THE BOOKS OF ACCOUNT AND NO DEFECTS HAS BEEN POINTED OUT BY THE AO IN THE PURCHASE SALE BILLS ETC., THEREFORE, GP ADDITION MADE BY THE AO AFTER REJECTION OF BOOKS OF ACCOUNT OF RS.5,58,4 1,797/- CANNOT BE UPHELD. THEREFORE, THE GP ADDITION OF RS.5,88,41,79 7/- MADE BY THE AO WAS DELETED BUT THE FINDINGS GIVEN BY THE AO IN THE REM AND REPORT INCLUDING THE ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 6 OF 19 ELECTRICITY EXPENSES OF RS.52,30,244/- IN THE MANUF ACTURING COST WAS FOUND TO BE CORRECT AND REVALUATION OF THE CLOSING STOCK AFTER INCLUDING THE ELECTRICITY EXPENSES WAS UPHOLD. THE AO WAS THEREFO RE DIRECTED TO RECALCULATE THE CLOSING STOCK AFTER INCLUDING THE E LECTRICITY EXPENSES OF RS.52,30,244/- IN THE MANUFACTURING COST AND TAKING THE AVERAGE COST OF RS.11318.91 AS SHOWN BY THE APPELLANT INSTEAD OF AV ERAGE COST OF RS.11211/- CONSIDERING BY THE AO IN THE REMAND REPORT. IN VIEW OF THESE FACTS, THE GP ADDITION OF RS.5,58,41,797/- WAS DELETED AND THE EL ECTRICITY EXPENSES AMOUNTING TO RS.52,30,244/- WAS DIRECTED TO BE ADDE D TO THE MANUFACTURING COST TO CALCULATE THE CLOSING STOCK AT AVERAGE COST OF RS.11318.91/- PER CARAT WHICH HAS BEEN ARRIVED AFTER REDUCING THE GP MARGIN OF 3.71% FROM AVERAGE EXPORT PRICE OF RS.11756.69 PER CARAT, HENC E, THE GROUND WAS PARTLY ALLOWED. 5. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE THIS TRIBUNAL AGAINST THE DELETION OF GP ADDITION OF RS.5,58,41,7 97/- AND THE ASSESSEE HAS ALSO FILED AN APPEAL AGAINST THE ORDER OF THE CIT(A ) DIRECTING THE REVALUATION OF CLOSING STOCK AFTER CONSIDERING THE ELECTRICITY EXPENSE OF RS.52,30,244/- THE LD. CIT(DR) SUBMITTED THAT THE LD. CIT(A) HAS N OT APPRECIATED THE FACTS THAT DURING THE COURSE OF REMAND REPORT PROCEEDINGS , THE AO OBSERVED THAT THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF SAL ARY REGISTER. FURTHER, DURING THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS FAILED TO GENUINENESS OF KARIGARS WAGES REGISTER, H ENCE, THE GENUINENESS OF BOOKS OF ACCOUNT IS NOT PROVED, THEREFORE, THE AO H AS CORRECTLY MADE ADDITION ON ACCOUNT OF FALL IN GP. THE LD. CIT(DR) ALSO RELIED ON THE ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 7 OF 19 STATEMENT OF FACTS SUBMITTED BY THE AO IN PARA 5 WH EREIN REVISED WORKING VALUATION OF CLOSING STOCK WAS CONSIDERED AT 11246. 34 PER CARAT AS AGAINST RS.9800/- PER CARAT SHOWN BY THE ASSESSEE. 6. ON THE OTHER HAND, THE LD. COUNSEL SUPPORTED THE OR DER OF THE CIT(A). THE LD. COUNSEL REFERRED TO WORKING CLOSING STOCK P LACED AT PAPER BOOK PAGE NO.25, ACCORDING TO WHICH AVERAGE COST OF MANUFACTU RING OF POLISHED DIAMONDS COMES TO 11326.78 PER CARAT AND CLOSING ST OCK HAS BEEN VALUED AT 998.00 PER CARAT. THE LD. COUNSEL REFERRED PARA 6.1 .1 OF THE OF THE CIT(A) WHEREIN IT WAS SUBMITTED THAT THE AO HAS CONTENDED THAT BOOKS OF ACCOUNTS ARE DEFECTIVE AS THE LABOUR CHARGES TO THE EXTENT O F RS.17,76,00,000/- ARE NOT VERIFIABLE. HOWEVER, THE LD. COUNSEL POINTED OU T VARIATION IN SIGNATURE OF MANAGERS AND KARIGARS CANNOT BE REGARDED AS A VALID GROUND FOR TREATING THE BOOKS OF ACCOUNTS AS DEFECTIVE AS IT IS A KNOWN-FAC T THAT THE WORKERS PUT THEIR SIGNATURE ON REGISTER IN A CASUAL MANNER AND MANY TIMES THEY DEPUTE SOMEBODY ON THEIR BEHALF TO COLLECT THEIR SALARIES. FURTHER, THE RATIO OF LABOUR WAGES TO THE COST OF CONSUMPTION OF ROUGH DI AMONDS IN AY.2008-09 WAS 13.87% WHEREAS THE SAME IN AY.2009-10 COMES TO ONLY 9.32% WHICH CLEARLY MANIFEST THAT THERE IS A SIGNIFICANT REDUCT ION IN CLAIM OF LABOUR CHARGES FOR THE YEAR UNDER CONSIDERATION. THEREFORE , THE GROUND OF REJECTION OF BOOKS OF ACCOUNTS U/S.145(3) OF THE ACT BY THE A O WAS RIGHTLY ALLOWED BY THE CIT(A). FURTHER, ELECTRICITY EXPENSES OF RS.52, 30,244/- RELATES MAINLY TO THE OFFICE PREMISES OF THE ASSESSEE AND THE SAME IS MORE OR LESS FIXED IN THE NATURE AS INCREASE/DECREASE IN MANUFACTURING ACTIVI TY DOES NOT HAVE ANY SIGNIFICANT IMPACT ON THE OVERALL ELECTRICITY EXPEN DITURE. THE ELECTRICITY ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 8 OF 19 EXPENSES WERE CONSIDERED IN THE WORKING OF TOTAL CO ST OF POLISHED DIAMONDS MANUFACTURED BECAUSE ASSESSEE HAS CONSISTENTLY ADOP TED THE POLICY TO TREAT THE ELECTRICITY EXPENDITURE, ADMINISTRATIVE EXPENSE S, AND THEREFORE THE SAME IS RECOGNIZED AS EXPLAINED IN PROFIT AND LOSS ACCOUNT. 7. IN REJOINDER TO ABOVE , THE LD. CIT(DR) SUBMITTED THAT THE ITAT, AHMEDABAD VIDE ITS ORDER DATED 06-08-2010 IN ITA NO . 2309/AHD/2008 FOUND THAT WHILE WORKING OUT THE COST OF PRODUCTION OF ROUGH DIAMONDS, THE ELECTRICITY EXPENSES HAVE BEEN ADDED UNDER THE MANU FACTURING EXPENSES WHICH INCLUDES LABOUR, WAGES AND ELECTRICITY EXPENS ES TO WORK OUT THE TOTAL COST OF MANUFACTURED POLISHED DIAMOND. THEREFORE, T HE CIT(A) HAS CORRECTLY DIRECTED THAT THE ELECTRICITY BILLS EXPENSES TO BE INCLUDED TOWARDS THE MANUFACTURING COST AND CONSEQUENTLY IN THE CLOSING OF MANUFACTURED DIAMONDS. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE BOOKS OF ACCO UNTS WERE REJECTED BY THE AO MERELY ON THE BASIS OF VARIATION OF SIGNATUR ES OF KARIGARS, WORKERS AS APPEARING IN THE SALARY REGISTER. HOWEVER, NO SPECI FIC DEFECTS HAVE BEEN POINTED OUT BY THE AO. THEREFORE, THE DIFFERENCE IN SIGNATURE CANNOT BE A GROUND TO REJECT THE BOOKS OF ACCOUNTS. THE CIT(A) HAS RIGHTLY OBSERVED THAT THE AO IS NOT HAND WRITING EXPERT TO DISTINGUISH TH E SIGNATURE OF THE KARIGAR. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT TH E CIT(A) HAS RIGHTLY ALLOWED THE GROUND OF REJECTION OF BOOKS OF ACCOUNT S U/S.145(3) OF THE ACT IN FAVOUR OF THE ASSESSEE. SO FAR, THE DELETION OF GP ADDITION OF RS.5,58,41,797/- IS CONCERNED. WE FIND THAT THE ASS ESSEE HAS PRODUCED THE ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 9 OF 19 RELEVANT RECORDS IN FORM OF EXPORT BILLS, PURCHASED BILLS AND CASH BOOKS ETC. ALONG WITH BOOKS OF ACCOUNTS AND NO DEFECTS HAVE BE EN POINTED OUT BY THE AO IN THE PURCHASE SALES BILLS ETC. THE ONLY REASON FOR MAKING GP ADDITION IS GIVEN THAT THERE IS A FALL IN GP AS COMPARED TO PRE CEDING YEAR. HOWEVER, IT HAS BEEN EXPLAINED THAT RATIO OF LABOUR CHARGES TO THE COST OF CONSUMPTION OF ROUGH DIAMOND WAS AT 13.87% IN AY.2008-09 WHICH HAS COME DOWN ONLY TO 9.32% IN THE ASSESSMENT YEAR UNDER CONSIDERATION. T HEREFORE, GENUINENESS OF THE LABOUR CHARGES CANNOT BE DOUBTED. FURTHER, T HE GP RATIO HAS GONE DOWN BECAUSE AS AGAINST THE RISE IN AVERAGE PURCHAS E COST OF IMPORTS AND LOCAL PURCHASES BY 51% AND 34% RESPECTIVELY IN AY.2 009-10, THE RISE IN AVERAGE PRICE OF EXPORT IS ONLY TO THE EXTENT OF 22 .51%, THEREFORE, THE FALL IN GP IS QUITE JUSTIFIED. FURTHER, THERE WAS OVERALL R ECESSION IN THE DIAMOND INDUSTRY DURING THE RELEVANT PERIOD AND MOST OF THE SALES WERE EXPORT SALES OF THE ASSESSEE, WHEREAS THE GP WAS DISCLOSED AT 3. 71%. THUS, THE EXPORT SALES OF THE ASSESSEE CONSTITUTED ALMOST 99% OF THE TOTAL SALES WHILE LOCAL SALES WERE ONLY AT 1.14%. THEREFORE, THE DELETION O F GP ADDITION IS JUSTIFIED, HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING OF GP ADDITION OF RS.5,58,41,797/-. WE FURTHER NOTE THAT THE CIT(A) HAS UPHELD THE ADDITION OF AN AMOUNT OF ELECTRICITY EXPENSES OF RS .52,30,244/- TO BE ADDED TO THE MANUFACTURING COST TO CALCULATE THE CLOSING STOCK BY TAKING THE AVERAGE COST OF RS.11318.91 PER CARAT WHICH HAS BEE N ARRIVED AFTER REDUCING THE GP MARGIN OF 3.71% FROM THE AVERAGE EXPORT PRIC E OF RS.11756.69 PER CARAT. THEREFORE, THIS GROUND OF ASSESSEE IS DISMIS SED. ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 10 OF 19 9. GROUND NO.3 RELATES TO ALLOWING FORWARD CONTRACT CA NCELLATION LOSS OF RS.7,55,57,457/- WITHOUT APPRECIATING THE FACT THAT THIS FORWARD CONTRACT WERE NOT BOOKED FOR ANY SPECIFIC EXPORT AND IMPORT AND NOT UTILIZED IN BUSINESS AND TERMINATED WITHOUT AFFECTING DELIVERY OF FOREIGN EXCHANGE. 10. SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE HAS E ARNED RS.16,60,97,357/- FOREIGN EXCHANGE FLUCTUATION GAI N ON EXPORT AND THE ASSESSEE HAS TAKEN SET-OFF OF THE FORWARD CONTRACT CANCELLATION LOSS OF RS.7,55,57,457/- AGAINST THE ABOVE FOREIGN EXCHANGE FLUCTUATION GAIN ON EXPORT AND THE NET AMOUNT HAS BEEN CREDITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT. SINCE, THE ASSESSEE DID NOT SUBMI T DETAILS OF FORWARD CONTRACT CANCELLATION LOSS. THEREFORE, THE AO OBSER VED THAT IT IS NOT DELIVERY BASED TRANSACTION. AS PER SECTION 43(5) OF THE ACT, THE TRANSACTION WHICH IS SETTLED OTHERWISE THAN ACTUAL DELIVERY WILL BE A SP ECULATIVE TRANSACTION. THEREFORE, THE FORWARD CONTRACT LOSS WAS A SPECULAT ION IN NATURE; HENCE, THE AO RELYING ON THE CBDT CIRCULAR NO.23 DATED 12-09-1 961 HAS DISALLOWED THE SAME. 11. BEING AGGRIEVE, THE ASSESSEE CARRIED THE MATTER BEF ORE CIT(A), WHEREIN IT WAS SUBMITTED THAT THE NET EXCHANGE DIFFERENCE G AIN ON EXPORT OF RS.8,65,35,472/- AFTER SETTING OFF LOSS ON CANCELLA TION OF FORWARD CONTRACT OF RS.7.55 CRORE. SINCE, THE BOTH ITEMS BEING LINKED W ITH FLUCTUATION IN EXCHANGE RATE, SET-OFF WHICH IS VERY MUCH ALLOWABLE . THE ASSESSEE HAS ALSO FILED A COPY OF LEDGER ACCOUNT OF EXCHANGE DIFFEREN CE ON EXPORT AS ALSO EXCHANGE DIFFERENCE ON IMPORTS. THE CIT(A) OBSERVED THAT THE PERUSAL OF DETAILS REVEALS THAT THE APPELLANT IS IN THE BUSINE SS OF EXPORT OF DIAMONDS. IT ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 11 OF 19 IS A KNOWN FACT THAT PERSONS WHO ARE ENGAGED IN THE BUSINESS OF IMPORT/ EXPORT ARE EXPOSED TO THE RISK OF FLUCTUATION IN TH E EXCHANGE RATE OF CURRENCY. THE AO HAS HELD THAT THE FORWARD CANCELLA TION LOSS IS SPECULATIVE IN NATURE AND IS NOT DELIVERY BASED TRANSACTION AND IS COVERED BY SECTION 43(5) OF THE ACT. HOWEVER, IT IS THE EVIDENT THAT T HE APPELLANT IS NOT A DEALER IN FOREIGN EXCHANGE, BUT AN EXPORTER OF DIAM ONDS. SECTION 43(5) OF THE ACT DEFINES SPECULATIVE TRANSACTION TO MEAN A T RANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OF SALE OF COMMODITY IS S ETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSACTION OF SUCH COMMODIT Y. IN ORDER TO HEDGE AGAINST LOSSES, THE APPELLANT HAD BOOKED FOREIGN EX CHANGE IN THE FORWARD MARKET WITH THE BANK. ON CANCELLATION OF CONTRACT, THE APPELLANT IS EITHER ENTITLED TO PROFIT OR LOSS DEPENDING ON RATES CONTR ACTED AND RATES PREVAILING AT THE TIME OF CANCELLATION. THE APPELLANT ENTERED INTO THIS FORWARD CONTRACT EXCHANGE IN ORDER TO PROTECT AGAINST THE F LUCTUATION IN THE RATE OF FOREIGN EXCHANGE CURRENCY. IT IS THEREFORE QUITE NA TURAL THAT IN ORDER TO MINIMIZE THE RISK, THEY MAY ENTER INTO SUCH CONTRAC TS WITH BANKS. AS SUCH THE FORWARD EXCHANGE CONTRACTS ARE VERY MUCH IN THE NATURE OF HEDGING TRANSACTIONS AND THEREFORE, THE SAME CANNOT BE TREA TED AS DONE WITH SPECULATIVE INTENT. HENCE, PROVISIONS OF SECTION 45 (3) OF THE ACT ARE NOT APPLICABLE. THE CIT(A) HAS ALSO SUPPORTED HIS VIEW BY PLACING RELIANCE ON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF VOLTA S INTERNATIONAL LTD. (2009) 126 TTJ 702 (MUM), BADRIDAS GAURIDU (P) LTD. (2004) 187 CTR 453/ (2003) 261 ITR 256 (BOM.). HENCE, CONSIDERING THE F OREIGN EXCHANGE CONTRACT ENTERED BY THE ASSESSEE IN THE NATURE OF H EDGING TRANSACTION, THE ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 12 OF 19 CIT(A) DELETED THE ADDITION OF DISALLOWANCE OF RS.7 ,55,57,457/- MADE BY THE AO. 12. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE THIS TRIBUNAL. THE LD. CIT(DR) RELIED ON THE WRITTEN STA TEMENT OF FACTS IN PARA 8.3 IN WHICH IT HAS BEEN MENTIONED THAT THE ASSESSE E HAS NOT BOOKED A FORWARD CONTRACT AGAINST ANY SPECIFIC EXPORT AND IM PORT TRANSACTION. THE ASSESSE IS NOT A DEALER OF FOREIGN EXCHANGE BUT IS A MERCHANT EXPORTER AGAINST IN THE BUSINESS OF DIAMOND. THIS SAID LOSS HAS ARISEN DUE TO NON- SURROUNDING/DELIVERY OF THE FOREIGN EXCHANGE TO THE BANKING INSTITUTION WITH WHOM THE ASSESSEE HAS ENTERED INTO FORWARD BOOKING CONTRACT. THIS IS A CLEAR CASE WHERE THE CONTRACT WAS TERMINATED WITHOU T AFFECTING THE DELIVERY TO THE FOREIGN EXCHANGE. THEREFORE, THE AO HAS RIGH TLY TREATED THE TRANSACTION AS SPECULATING U/S.43(5) OF THE ACT WHI CH IS NOT ALLOWABLE UNDER THE HEAD OF INCOME FROM BUSINESS AND PROFESSION. 13. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE BUSINESS ACTIVITY COMPRISES OF IMPORT OF D IAMONDS AND ITS MANUFACTURING POLISHED DIAMONDS, THE SAME ARE EXPOR TED. THEREFORE, IN THIS BUSINESS ACTIVITY, THE ASSESSEE IS VERY MUCH EXPOSE D TO EXCHANGE RATE RISK AND IN ORDER TO SAFEGUARD ITS BUSINESS INTEREST, TH E ASSESSEE ENTERS INTO FORWARD EXCHANGE CONTRACT. THEREFORE, THE GAIN OR L OSS ARISING ON ITS FOREIGN EXCHANGE CONTRACT IS NOT ANYTHING BUT GAIN OR LOSS ARISING IN THE COURSE OF BUSINESS CONTRACT, PREDOMINANTLY ENTERED BY THE IMP ORTER OR EXPORTER TO HEDGE AGAINST THE LOSS. THE ASSESSEE HAD BOOKED FOR EIGN EXCHANGE IN THE FORWARD MARKET WITH BANK. SUCH LOSS HAS BEEN RIGHTL Y ALLOWED BY THE CIT(A) ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 13 OF 19 FOR WHICH THE ASSESSEE HAS PLACED RELIANCE ON THE D ECISION OF HONBLE GUJARAT HIGH COURT IN THE CASES OF CIT V. PANCHMAHA L STEEL LTD. (2013) 215 TAXMAN 140 (GUJ) (HC), CIT V. FRIENDS & FRIENDS SHI PING PVT. LTD (2013) 34 TAXMAN.COM 553 (GUJ) (HC) AND CIT V. BADRIDAS GAURI DU PVT. LTD (2004) 134 TAXMANN 376 (BOM) (HC). 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAS EARNED FOREIGN EXCHANGE FLUCTUATION GAIN ON EXPORT AT RS.16,60,97,353/- AS AGAINST WHICH THE ASSESSEE HAS INCURRED FOREIGN CONTRACT CANCELLATION LOSS OF RS.7,55,57,457/- WHICH HAS BEEN SET-OFF AGAINST THE SAID FOREIGN EXC HANGE FLUCTUATION GAIN. THE ASSESSEE IS IN THE BUSINESS OF EXPORT OF DIAMON DS WHEREIN THE ASSESSEE IS EXPOSED TO THE RISK OF FLUCTUATION IN THE EXCHAN GE RATE OF CURRENCY. THEREFORE, IN ORDER TO HEDGE AGAINST LOSSES, THE AS SESSEE HAD BOOKED FOREIGN EXCHANGE IN THE FORWARD MARKET WITH BANK AND ON CAN CELLATION ON THE CONTRACTS, THE APPELLANT IS EITHER ENTITLED TO PROF IT OR LOSS DEPENDING ON THE RATE OF CONTRACTS PREVAILING AT THE TIME OF CANCELL ATION. THE ASSESSEE HAS ENTERED TO THIS FORWARD EXCHANGE CONTRACT IN ORDER TO PROTECT AGAINST FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE CURRENC Y TO MINIMIZE THE RISK. THEREFORE, THE ASSESSEE HAS NOT ENTERED INTO ANY SP ECULATION TRANSACTION AS HELD BY THE CIT(A). THE LD. COUNSEL HAS PLACED RELI ANCE ON THE DECISION OF FRIENDS & FRIENDS SHIPING PVT. LTD (SUPRA) WHEREIN THE HONBLE HIGH COURT HAS HELD THAT WHERE ASSESSEE EXPORTER ENTERED INTO FOREIGN EXCHANGE CONTRACT AS INCIDENTAL TO ITS EXPORT BUSINESS AND I NCURRED LOSS IN SAID CONTRACTS, SAID LOSS WAS NOT SPECULATIVE LOSS BUT B USINESS LOSS. SIMILAR LOSS ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 14 OF 19 WAS ALSO EXPRESSED IN THE CASE OF BADRIDAS GAURIDU (P) LTD (SUPRA) BY HONBLE HIGH COURT AND CIT V. PANCHMAHAL STEEL LTD. (SUPRA). IN VIEW OF THESE FACTS, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF CIT(A), ACCORDINGLY SAME IS UPHELD. THEREFORE, THIS GROUND NO. 3 OF THE APPEAL IS DISMISSED. 15. IN THE RESULT, THIS APPEAL OF REVENUE FOR AY.2009-1 0 IS DISMISSED. IN ITA NO.1872/AHD/2013/AY.2009-10 BY THE ASSESSEE: - 16. GROUND NO. 1 RELATES TO DIRECTION TO THE AO TO RECA LCULATE THE VALUE OF CLOSING STOCK AFTER CONSIDERING ELECTRICITY EXPENSE S OF RS.52,30,244/- IN MANUFACTURING EXPENSES AND THEREBY INCREASING THE V ALUE OF CLOSING STOCK. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WHILE DEALING WITH THE GROUND NO.1 & 2 OF APPEAL OF THE REVENUE, WE HAVE UPHELD THIS GROUND OF APPEAL IN FA VOUR OF THE REVENUE AND AGAINST THE ASSESSEE. ACCORDINGLY, THIS GROUND OF A PPEAL OF THE ASSESSEE FOR THE REASON DISCUSSED THEREIN IS THEREFORE DISMISSED . 18. GROUND NO.2 RELATES TO NOT GIVING DIRECTION TO GIVE THE DEDUCTION OF EQUIVALENT AMOUNT OF RS.52,30,244/- IN AY.2010-11 B Y WAY OF INCREASE IN VALUE OF OPENING STOCK. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS WE HAVE UPHOLD THAT FINDING OF CIT(A) TO CONSIDER, THE ELECTRICITY EXPENSES OF RS.52,30,244/- IN MANUFACTU RING EXPENSES AND THEREBY INCREASE THE VALUE OF CLOSING STOCK. SINCE THE VALUE OF CLOSING STOCK HAS BEEN INCREASED DURING THIS YEAR, IT BECOMES OPE NING STOCK FOR THE NEXT YEAR. THEREFORE, THE AO IS DIRECTED TO CONSIDER TO INCREASE THE OPENING ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 15 OF 19 STOCK OF THE EQUAL AMOUNT OF RS.52,30,244/- IN AY.2 010-11 IN THE OPENING STOCK. THEREFORE, THIS GROUND OF APPEAL OF THE ASSE SSEE IS ALLOWED. 20. IN THE RESULT, THIS APPEAL OF ASSESSEE FOR AY.2009- 10 IS PARTLY ALLOWED. IN ITA NO.2833/AHD/2014/AY.2009-10 BY THE REVENUE:- 21. THE GROUNDS RAISED BY THE ASSESSEE READS AS UNDER:- (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN HOLDING THAT THE ASSESSING OFFICER HAS COMMITTED AN ERROR WHILE GIVING EFFECT TO THE APPEAL ORDER THAT HE SHOULD HA VE CALCULATED THE CLOSING STOCK BY ADOPTING THE COST OF SALE AT RS.11 ,318.91/- PER CARAT, AFTER REDUCING THE G.P. MARGIN OF 3.71%, WITHOUT APPRECIA TING THE FACT THAT THE AO IN HIS ORDER U/S 250 OF THE INCOME-TAX ACT, 1961 , DATED 10.06.2013 HAS RIGHTLY CALCULATED THE VALUE OF CLOSING STOCK AS PE R THE DIRECTION OF THE LD. CIT (A) IN HIS ORDER NO. CAS/V/187/2011-12 DATED 18 .04.2013. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN CHANGING THE OPERATIVE DECISION TENDER ED BY HIM IN HIS ORIGINAL ORDER DATED 18.04.2013 (CONCLUDING PART OF PARA 6.2 .6 OF PAGE NOS. 16), WHEREIN HE HAS DIRECTED THE AO TO CALCULATE THE CLO SING STOCK AT THE AVERAGE COST OF RS.11318.91 PER CARAT, WHEREAS IN T HE ORDER DATED 01.08.2014 (AT PARA 6.1.3 AT PAGE NO. 6), HE HAS GI VEN A NEW DIRECTION THAT THE AO SHOULD HAVE CALCULATED THE CLOSING STOCK BY ADOPTING THE COST OF SALES AT RS.11318.91 PER CARAT AFTER REDUCING THE G P MARGIN OF 3.71%. THIS HAS RESULTED IN A CHANGE OF DECISION IN THE ORIGINA L ORDER OF THE LD. CIT (A) DATED 18.04.2013, WHERE THE SAID ORDER IS SUBJECT M ATTER OF APPEAL FILED BY THE REVENUE BEFORE THE HON'BLE ITAT ON 01.07.2013. (III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT (A) HAS ERRED IN DIRECTING THE AO, VIDE HIS ORDER DATED 01.08.2014, TO CALCULATE THE VALUE OF CLOSING STOCK BY ADOPTING THE VALUE OF RS.11318.91 PER CARAT AS COST OF SALE, WHICH HE HIMSELF HAS EARLIER REFUSED TO ENTERTAIN, VIDE HIS ORDER DATED 17.01.2014, ON AN RECTIFICATION APPLICATION F ILED BY THE ASSESSEE. CONFLICTING AND REPEATED DECISIONS ARE BAD IN LAW A ND NOT PERMISSIBLE WHILE DECIDING ON THE SAME ISSUE ON 154/ RECTIFICAT ION APPLICATIONS. (IV) THIS NEW DIRECTION ISSUED BY THE LD. CIT (A) V IDE HIS ORDER DATED 01.08.2014 IS VAGUE AND AMBIGUOUS, WITHOUT EXPLAINI NG HOW THE APPEAL EFFECT HAS TO BE EXACTLY DETERMINED AND AS SUCH THE ORDER OF THE LD. CIT (A) IS NOT IN LINE WITH THE PROVISIONS AS LAID DOWN UNDER SECTION 250 (6) OF THE INCOME TAX ACT, 1961.' 22. GROUND NOS. (I) TO (IV) STATES THAT THE CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSING OFFICER (AO) HAS COMMITTED AN ERROR W HILE GIVING EFFECT TO THE APPEAL EFFECTED TO THE APPEAL ORDER AND HE SHOULD H AVE CALCULATED THE ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 16 OF 19 CLOSING STOCK BY ADOPTING THE COST OF SALE AT RS.11 ,318.91/- PER CARAT, AFTER REDUCING THE GP MARGIN OF 3.71%, WITHOUT APPRECIATI NG THE FACT AND CHANGING ITS DECISION TENDERED BY HIM IN HIS ORIGIN AL ORDER DATED 18-04-2013 AND WHERE HE HAS HIMSELF REFUSED THE FACTS, THE REC TIFICATION APPLICATION FILED BY THE ASSESSEE. THEREFORE, THE NEW DIRECTION OF THE CIT(A) VIDE HIS ORDER DATED 01-08-2014 IS VAGUE AND AMBIGUOUS. THE ABOVE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AGAINST THE CALCUL ATION OF CLOSING STOCK BY ADOPTING THE COST OF SALE @11318.91 PER CARAT. HENC E, THESE ARE BEING CONSIDERED TOGETHER. 23. BRIEFLY STATED THE FACTS OF THE CASES ARE THAT IN T HIS CASE AN ORDER SECTION 143(3) DATED 23-12-2011 WAS PASSED BY THE A O, WHEREIN ADDITION OF RS.13,13,99,254/- AS AGAINST THE RETURN INCOME OF R S.6,94,479/- WERE MADE. THE ASSESSEE HAS FILED AN APPEAL BEFORE THE CIT(A)- V, SURAT WHO VIDE HIS ORDER DATED 18-04-2013, PARTLY ALLOWED THE APPEAL O F THE ASSESSEE WITH CERTAIN DIRECTIONS TO THE AO FOR CALCULATION OF THE CLOSING STOCK. IN CONSEQUENCE TO WHICH THE AO PASSED AN ORDER U/S.250 DATED 10-06-2013, GIVING EFFECT TO THE ORDER OF THE CIT(A) AGAINST TH E SAID ORDER, THE ASSESSEE FILED AN APPLICATION U/S.154 DATED 15-10-2013, CLAI MING THAT THERE WAS AN ERROR IN THE CALCULATION OF RELIEF ALLOWED TO IT U/ S.250 DATED 10-06-2013. HOWEVER, THE AO HAS REJECTED THIS APPLICATION U/S.1 54 VIDE HIS ORDER DATED 07-10-2013 HOLDING THAT THE ORDER PASSED U/S.250 WA S AS PER THE DIRECTIONS OF CIT(A). THE ASSESSEE THEREAFTER FILED AN APPEAL BEFORE THIS CIT(A) U/S.154 AND THE ORDER OF THE CIT(A) VIDE HIS ORDER DATED 01-08-2014 WHICH THE SUBJECT MATTER OF THIS APPEAL HAS ALLOWED THE APPEA L OF THE ASSESSEE BY ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 17 OF 19 OBSERVING THAT THE AO WHILE GIVING APPEAL EFFECT HA VE CALCULATED THE CLOSING STOCK BY ADOPTING THE COST OF SALES AT RS.11318.91 PER CARAT AFTER REDUCING THE GP MARGIN OF 3.71%. THE CIT(A) HAS GIVEN FOLLOW ING DIRECTIONS I.E. TO SUM UP THE GP ADDITION OF RS.5,58,41,797/- IS DELET ED AND THE ELECTRICITY EXPENSES AMOUNTING TO RS.52,30,244/- IS TO BE ADDED TO THE MANUFACTURING COST TO CALCULATE THE CLOSING STOCK AT THE AVERAGE COST OF RS.11,318.91 PER CARAT WHICH HAS BEEN ARRIVED AFTER REDUCING THE GP MARGIN OF 3.71% FROM THE AVERAGE EXPORT PRICE OF RS.11,756.69 PER CARAT. 24. BEING AGGRIEVED, THE REVENUE FILED THIS APPEAL BEFO RE THIS TRIBUNAL. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT THE AO HAS VALUED THE CLOSING STOCK @11318.91 PER CARAT, AS PER THE D IRECTIONS OF THE LD. CIT(A) VIDE HIS ORDER DATED 18-04-2013, REVISED INCOME HAS BEE N THEREAFTER DETERMINED AT RS.2,67,00,080/-. THE ASSESSEE HAS NO T FILED ANY APPEAL AGAINST THIS ORDER U/S.250 DATED 10-06-2013. BUT TH E ASSESSEE HAS PREFERRED TO MOVE AN APPLICATION U/S.154 BEFORE THE AO ON 15- 10-2013, WHICH WAS REJECTED ON 17-10-2013. THE ASSESSEE HAS FILED AN A PPEAL BEFORE THE CIT(A). IT WAS SUBMITTED THAT THE REVENUE HAS FILED ALREADY AN APPEAL BEFORE ITAT ON 02-07-2013 AGAINST THE ORDER OF CIT(A) OF QUANTU M ISSUE. IT WAS FURTHER SUBMITTED THAT THE CIT(A) HAS NOT POINTED OUT ANY D EFECT IN THE ORDER OF AO DATED 10-06-2013. 25. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDE R OF THE LD. CIT(A). 26. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE CIT(A) HAS GI VEN HIS DIRECTION VIDE HIS ORDER DATED 18-04-2013 VIDE WHICH THE GP ADDITION OF RS.5,58,41,797/- WAS ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 18 OF 19 DELETED AND THE ELECTRICITY EXPENSES AMOUNT OF RS.5 2,30,244/- IS TO BE ADDED TO THE MANUFACTURING COST TO CALCULATE THE CLOSING STOCK AT THE AVERAGE COST OF RS.11,318,91 PER CARAT WHICH HAS BEEN ARRIVED AFTER REDUCING THE GP MARGIN OF 3.70% FROM THE AVERAGE EXPORT PRICE OF RS.11,756,69 PER CARAT ON THE BASIS OF THE ABOVE DIRECTION, THE ASSESSING OFFICER MADE ADD ITION ON ACCOUNT OF CLOSING STOCK AT RS.2,98,36,191/- INSTEAD OF CORRECT ADDITI ON OF RS.52,30,244/- WHILE GIVING EFFECT TO DIRECTION OF CIT(A). 'THE APPELLAN T HAD SUBMITTED THAT THE AO HAS GIVEN A WRONG APPEAL EFFECT ON THE BASIS OF THE FINDING GIVEN IN THE APPELLATE ORDER THOUGH THERE WAS A CLEAR CUT DIRECT ION IN THE PRECEDING LINE OF PARA NO. 6.2. WHICH READS AS ' THE ASSESSING OFFICE R IS DIRECTED TO RECALCULATE THE CLOSING STOCK AFTER TAKING INTO THE ELECTRICITY EXPENSES OF RS.52,30,244/- INCLUDED IN THE MANUFACTURING COST AND TAKING THE A VERAGE COST OF RS.11,318.91/-AS SHOWN BY THE APPELLANT INSTEAD OF AVERAGE COST OF RS.11,211/- CALCULATED BY THE ASSESSING OFFICER IN THE REMAND R EPORT. 'THE APPELLANT REQUESTED TO REPLACE FOLLOWING LINE AS AGAINST THE ORIGINAL OBSERVATION TO CLARIFY MATTER TO ASSESSING OFFICER. IN THE APPEAL ORDER DA TED 18.04.2013 IT WAS HELD THAT THE WORKING OF THE AO IN THE REMAND REPORT OF RECALCULATION OF THE CLOSING STOCK BY INCLUDING EXPORTS SALES AND LOCAL SALES TO WORK OUT THE AVERAGE PRICE IS NOT THE CORRECT METHOD TO CALCULATE THE CLOSING STO CK. SO THE COST OF THE SALES SHOULD HAVE BEEN REDUCED AT RS.11,318/- PER CARAT I NSTEAD OF RS.11211 PER CARAT. THE AO SUGGESTED TO ENHANCE THE CLOSING STOC K BY RS.1,97 / 82,848/- IN THE REMAND REPORT AND THIS WORKING WAS NOT ACCEPTED IN THE APPEAL ORDER EXCEPT IN RESPECT OF THE ELECTRICITY EXPENSES OF RS. 52,30,2447- WHICH WAS TO BE INCLUDED IN THE MANUFACTURING COST. THE AO WHILE GI VING EFFECT TO THE APPEAL ORDER SHOULD HAVE CALCULATED THE CLOSING STOCK BY A DOPTING THE COST OF SALES AT ANJANA EXPORTS V. ACIT, CIRCLE-9, SURAT/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017 /A.Y.2009-10 PAGE 19 OF 19 RS.11,318.91/- PER CARAT AFTER REDUCING THE GP MARG IN OF 3.71%. SIMILAR DIRECTION WAS ALSO GIVEN WHILE DECIDING THE APPEAL ORDER AGAINST THE 154 APPLICATION DATED 17.01.2014. THE AO IS DIRECTED TO GIVE THE APPEAL EFFECT ORDER AS PER THE DIRECTIONS MENTIONED ABOVE. THE GR OUND OF APPEAL IS ALLOWED . CONSIDERING THESE FACTS, WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF CIT(A), HENCE, SAME IS UPHELD. ACCORDINGLY, GROUND NO. (I) TO (IV) OF APPEALS ARE DISMISSED. 27. IN THE RESULT, THE APPEAL OF REVENUE FOR AY.2009-10 IS DISMISSED. 28. IN THE RESULT, IN ITA NO.1879/AHD/2013 FOR AY.2009- 10 IS DISMISSED, IN ITA NO.1872/AHD/2013 FOR AY.2009-10 IS PARTLY ALLOW ED & IN ITA NO.2833/AHD/2014 FOR AY.2009-10 IS DISMISSED. 29. THE ORDER PRONOUNCED IN THE OPEN COURT ON 04-05-202 0 SD/- SD/- (SANDEEP GOSAIN) (O.P.MEEN A) JUDICIAL MEMBER AC COUNTANT MEMBER SURAT: DATED: 4 TH MAY, 2020 / SAMANTA, PS COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A) / ITAT (DR)/ GUARD FILE OF ITAT. BY ORDER // TRUE COPY // ASSISTANT REGISTRAR, SURAT