M/s. Balar Exports, Surat V. The Dy.CIT.,Cent. Circle-1, Surat

ITA 3010/AHD/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2013 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-01-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 03-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: J P SHAH
• Keywords: Rejection of books of accounts
• Section: 143(3); 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER) ITA NO.3010/AHD/2010 [ASSTT. YEAR : 2007-2008] M/S.BALAR EXPORTS BALAR BUILDING OPP: PANCHRATNA TOWER LAMBE HANUMAN ROAD SURAT 395 006. PAN : AACFB 4703 H VS. DCIT, CENT.CIR.1 SURAT. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI J.P. SHAH REVENUE BY : SHRI K. MADHUSUDAN O R D E R PER G.D. AGARWAL, VICE-PRESIDENT : THIS IS ASSESSEES APPEAL AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TA X (A)-II, AHMEDABAD DATED 24.09.2010 ARISING OUT OF THE ORDER OF THE AS SESSING OFFICER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE MAIN TWO GROUNDS RAISED IN THE APPEAL OF ASS ESSEE READ AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE LD.AO IN REJECTING THE BOOKS OF ACCOU NTS AND BOOK RESULTS OF THE APPELLANT U/S.145 OF THE ACT. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN C ONFIRMING THE ADDITION ON ACCOUNT OF ALLEGED UNDERVALUATION OF CL OSING STOCK TO THE TUNE OF RS.2,96,08,019/- 3. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTE D BY THE LEARNED COUNSEL THAT THE ASSESSEE IS DERIVING INCOME FROM THE BUSIN ESS OF PURCHASING/IMPORTING ROUGH DIAMONDS WHICH IS SOLD AFTER PROCESSING/POLIS HING IN THE NATIONAL AND INTERNATIONAL MARKET; THAT AS PER THE METHOD OF ACC OUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE IT VALUED CLOSING STOCK AT COST OR MARKET VALUE WHICHEVER IS LESS; THAT ON THE LAST DATE OF EVERY YEAR, THE ASSESSEE TAKES ITA NO.3010/AHD/2010 -2- DETAILED PHYSICAL QUALITY-WISE STOCK OF DIAMONDS AN D THEN THE MARKET VALUE OF SUCH STOCK IS WORKED OUT. THE ASSESSEE HAS TAKEN T HE MARKET VALUE WHERE THE MARKET VALUE IS LESSER THAN THE COST AND IN THE CAS E OF REMAINING DIAMONDS IT HAS TAKEN THE COST. THE COMPLETE QUALITY WISE INVEN TORY OF THE CLOSING STOCK OF DIAMOND IS AT PAGE NOS.30 AND 31 OF THE PAPER BOOK; THAT TO SUPPORT THE ASSESSEES CONTENTION THAT MARKET VALUE OF THE PART OF THE STOCK OF THE DIAMOND WAS LESS THAN THE COST, THE ASSESSEE HAS GIVEN SALE VALUE OF SUCH DIAMOND IN THE SUBSEQUENT YEAR. COMPLETE DETAILS OF SALE OF EACH AND EVERY DIAMOND ARE GIVEN AT PAGE NO.36 AND 37 OF THE ASSESSEES PAPER BOOK. HE THEREFORE SUBMITTED THAT VALUATION MADE BY THE ASSESSEE IS DULY SUPPORTED BY THE DOCUMENTARY EVIDENCES IN THE FORM OF SALE BILL OF SUCH DIAMONDS IN THE IMMEDIATELY SUBSEQUENTLY YEAR; THAT THE AO ADOPTED THE AVERAGE COST FOR DETERMINING THE VALUE OF THE CLOSING STOCK OF THE DIAMOND. THE AO DETERMINED THE VALUE OF THE CLOSING STOCK AT COST AS AGAINST THE METHOD OF COS T OR MARKET VALUE WHICHEVER IS LESS BEING FOLLOWED BY THE ASSESSEE. IT IS A LSO CONTENDED BY THE LD. COUNSEL THAT THE GP RATE AS WELL AS NP RATE OF THE YEAR UND ER CONSIDERATION IS BETTER THAN EARLIER YEARS, WHICH WAS ACCEPTED BY THE REVENUE. HE THEREFORE SUBMITTED THAT THE ORDER OF THE AO AS WELL AS THE CIT(A) ON THIS P OINT MAY BE REVERSED AND VALUE OF THE CLOSING STOCK AS SHOWN BY THE ASSESSEE MAY BE ACCEPTED. HE ALTERNATIVELY SUBMITTED THAT IF THE CLOSING STOCK I S VALUED AT COST, THE OPENING STOCK SHOULD ALSO BE VALUED IN THE IDENTICAL MANNER . IN SUPPORT OF THIS CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I) 4 ITC 245 (PC); II) COMMISSIONER OF INCOME-TAX VS VISWESWARDAS GOKULDAS (SRI), (1946) 14 ITR 110 (MAD); III) CIT VS. BRITISH PAINTS, (1991), 188 ITR 44 AT 48, 5 6 SC, IV) (1992) 107 CTR 34 (CAL) V) (1999) 60 TTJ 125 (AHD) VI) (2008) 14 DTR 206 (MUM) (T) VII) (COMMISSIONER OF INCOME-TAX VS MAHAVIR ALLUMINIUM L TD., (2008) 297 ITR 77 (DEL), DEPTTS SLP DISMISSED 307 ITR 4(ST) ITA NO.3010/AHD/2010 -3- VIII) DC VS. BECK INDIA LTD. (2010) 127 TTJ 410 (MUM) 4. THE LEARNED DR, ON THE OTHER HAND RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW. HE HAS SUBMITTED THAT THE AO, A FTER CONSIDERING FACTS OF THE CASE IN DETAIL, REJECTED THE BOOKS OF ACCOUNTS AND HAS ALSO RECORDED THE FINDING THAT THE VALUATION OF THE CLOSING STOCK BY THE ASSE SSEE WAS NOT CORRECT. THEREAFTER, THE AO DETERMINED THE COST OF THE CLOSI NG STOCK AND WORKED OUT THE VALUE OF CLOSING STOCK ON THE BASIS OF SUCH COST. THE ASSESSEE HAS NOT POINTED OUT ANY MISTAKE IN THE WORKING OF THE VALUATION BY THE AO; THAT THE ASSESSEE CLAIMED THE MARKET VALUE OF THE PART OF THE CLOSING STOCK TO BE LOWER THAN THE COST. IN SUPPORT OF THIS CONTENTION THE ASSESSEE HA S PRODUCED THE SALE BILL OF SOME DIAMONDS IN THE SUBSEQUENT YEARS; THAT THE SAL E BILL OF THE DIAMOND IS FOR NEXT FIVE MONTHS AFTER THE CLOSE OF THE ACCOUNTING YEAR. NO EVIDENCE IS BROUGHT ON RECORD BY THE ASSESSEE THAT THE SALE OF SUCH DIA MOND WAS OUT OF THE CLOSING STOCK ONLY. IN THE NEXT FIVE MONTHS THE ASSESSEE M ADE PURCHASES OF THE DIAMOND AS WELL. THE ASSESSEE HAS NOT CO-RELATED T HE SALE OF THE DIAMOND WITH THE CLOSING STOCK. IF THE DETAILS OF THE CLOSING S TOCK AS GIVEN AT PAGE NO.30 AND 31 IS COMPARED WITH THE DETAILS OF THE SALE AT PAGE NO.36 & 37, NOT A SINGLE ITEM TALLIES WITH THE EACH OTHER. THEREFORE, THE CONTEN TION OF THE ASSESSEE THAT THE MARKET VALUE OF THE CLOSING STOCK WAS LESS THAN THE COST HAS NOT BEEN ESTABLISHED; THAT THE VALUE OF DIAMOND DEPENDS UPON THE QUALITY OF THE DIAMOND. LOWER QUALITY OF THE DIAMOND IS PURCHASED AT THE LOWER RATE AND THEREFORE THE SAME IS SOLD AT A LOWER RATE AFTER PR OCESSING. THE ASSESSEE HAS SOLD VARIOUS LOTS OF DIAMONDS FOR MUCH HIGHER RATE THAN THE COST PRICE. THE DETAILS OF WHICH IS GIVEN AT PAGE NO.11 AND 12 OF T HE ASSESSMENT ORDER WHICH PROVES THAT VARIOUS PIECES OF THE DIAMONDS WERE SOL D BY THE ASSESSEE AT AS HIGH AS RS.36941/- PER CARRAT AS AGAINST THE AVERAGE COS T OF RS.9,943/- PER CARRAT; THAT IN FACT THE ASSESSEE SELECTED CERTAIN SALE INS TANCES WHERE THE DIAMOND WAS OF INFERIOR QUALITY AND THE SAME WAS SOLD AT LOWER RATE AND ATTACHED THOSE SALE BILLS TO CLAIM THAT THE MARKET VALUE OF THE DIAMOND WAS LOWER THAN THE COST; THAT ITA NO.3010/AHD/2010 -4- THE ASSESSEE HAS NOT GIVEN ITEM-WISE COST AND MARKE T VALUE OF EACH LOT. MOREOVER, THE ASSESSEE HAS NOT GIVEN THE MARKET VAL UE OF ENTIRE CLOSING STOCK. HE FURTHER SUBMITTED THAT BURDEN IS UPON THE ASSESS EE TO ESTABLISH THAT THE MARKET VALUE OF THE DIAMOND WAS LOWER THAN THE COST WHICH THE ASSESSEE FAILED TO PROVE AND THEREFORE THE AO RIGHTLY ADOPTED THE C OST OF THE CLOSING STOCK OF DIAMOND. IN SUPPORT OF THIS CONTENTION, HE RELIED U PON THE FOLLOWING DECISIONS: I) BRITISH PAINTS INDIA LTD., 188 ITR 44 (SC) II) SAMIR DIAMONDS EXPORTS LTD., 71 ITD 75 (ITAT MUM) III) KUTCHWALA GEMS VS. JCIT, 288 ITR 10 (SC); IV) ASHWINI KUMAR MEHRA VS. ITO, 33 TTJ 300 (ITAT DELHI ) 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. IT IS UNDISPUTED FACT THAT THE ASSESSEE IS FO LLOWING COST OR MARKET VALUE WHICHEVER IS LOWER, METHOD FOR VALUATION OF THE CL OSING STOCK. THE AO DETERMINED THE COST OF THE CLOSING STOCK OF POLISHI NG DIAMONDS AT RS.13,27,06,527/-. THE VALUE OF THE CLOSING STOCK DISCLOSED BY THE ASSESSEE WAS RS.10,30,98,508/-. HE THEREFORE WORKED OUT THE DIFFERENCE OF RS.2,96,08,019/-. THE WORKING GIVEN BY THE AO AT P AGE NO.4 OF THE ASSESSMENT ORDER READS AS UNDER: TOTAL PRODUCTION OF POLISHED DIAMOND (Z) 52894.75 C ARAT TOTAL COST OF CONSUMPTION OF ROUGH DIAMOND (A) RS.4 7,63,19,661 TOTAL MANUFACTURING COST (B) RS.4,96,46,473 TOTAL COST FOR PRODUCTION OF POLISHED DIAMOND C=A+B RS.52,59,66,134 AVERAGE COST OF POLISHED DIAMOND D=C/Z 9943.64 PER CARAT CLOSING STOCK OF POLISHED DIAMOND E 13345.87 CARAT SO VALUATION OF CLOSING STOCK OF POLISHED DIAMOND I S E X D = RS.13,27,06,527 CLOSING STOCK OF POLISHED DIAMOND SHOWN IN BOOKS R S.10,30,98,508 DIFFERENCE RS.2,96,08,019 6. THE ASSESSEE HAS NOT DISPUTED THE CORRECTNESS OF THE ABOVE WORKING OF THE COST OF THE CLOSING STOCK OF POLISHED DIAMONDS BY THE AO ON THE BASIS OF THE AVERAGE COST OF POLISHED DIAMONDS. HOWEVER, HIS C ONTENTION WAS THAT MARKET VALUE OF THE PART OF THE STOCK WAS LESS AND THEREFO RE WHEN THE VALUE OF THE CLOSING STOCK IS WORKED AS PER THE ASSESSEES METHO D OF VALUATION OF CLOSING ITA NO.3010/AHD/2010 -5- STOCK I.E. COST OR MARKET VALUE WHICHEVER IS LOWER , THE VALUE OF THE CLOSING STOCK WORKS OUT TO RS.10,30,98,508/-. THE ASSESSEE HAS GIVEN THE DETAILS OF LOT- WISE PHYSICAL STOCK OF THE CLOSING STOCK OF POLISHE D DIAMONDS. THE SAME IS AT PAGE NO.30 AND 31 OF THE ASSESSEES PAPER BOOK WHIC H IS REPRODUCED BELOW FOR READY REFERENCE: SR.NO. DESCRIPTION OF DIAMONDS CTS. 1 CUT & POLISHED DIAMOND 185.99 2 D/CUT TILC + 9 VS 1 167.93 3 D/CUT TILC -9 VS 1 167.14 4 D/CUT TILC-6.5 VS 1 110.11 5 F CUT WHITE VS 1 20.29 6 F CUT WHITE VS 1 20.55 7 F CUT WHITE VS 1 20.28 8 CUT & POLISHED DIAMOND 277.56 9 CUT & POLISHED DIAMOND 923.63 10 CUT & POLISHED DIAMOND 660.33 11 CUT & POLISHED DIAMOND 259.12 12 CUT & POLISHED DIAMOND 452.21 13 CUT & POLISHED DIAMOND 401.51 14 CUT & POLISHED DIAMOND 49.20 15 CUT & POLISHED DIAMOND 102.06 16 CUT & POLISHED DIAMOND 74.22 17 WHITE D/C ND PK2 52.35 18 WHITE D/C ND PK3 11.52 19 WHITE PRINCE PK1 33.05 20 F/C WHITE VS1 48.60 21 F/C WHITE S11 20.44 22 F/C WHITE VS1 113.04 23 F/C WHITE S11 35.71 24 CUT & POLISHED DIAMOND 1072.85 25 WHITE TAPPERS S1 100.00 26 WHITE TAPPERS PK 4 78.00 27 WHITE BUGGETS PK 4 116.00 28 WHITE BUGGETSS1 3 48.00 29 CUT & POLISHED DIAMOND 187.36 30 CUT & POLISHED DIAMOND 45.89 31 CUT & POLISHED DIAMOND 250.15 32 WHITE BGTS PK 2 (PL) 185.55 33 WHITE BGTS PK 2 (PL) 11.96 34 D/C TLB NTS SI 1 (PL) 2.03 35 D/C TLB NTS PK 1 0.54 36 CUT & POLISHED DIAMOND 231.32 37 CUT & POLISHED DIAMOND 505.35 38 WH BUG I 3 0.14 39 WH TAP BUG 1 3 132.88 40 D/CUT TTLB PK 1,2 42.97 41 D/CUT TTLB VS 1,2 47.38 ITA NO.3010/AHD/2010 -6- 42 TAP/BUG TTLB PK 1,2 228.96 43 D/CUT TLB PK 1,2 119.74 44 TAP/BUG TTLC S1 1,2 50.00 45 WHITE BUGGETS PK 2 (PL) 72.32 46 WHITE BUGGETS PK 2 (PL) 5.78 47 D CUT TTLB S1 1 2 37.52 48 SCUT TTLB PK 2 3 21.47 49 S CUT TLB PK 1 2 61.89 50 D CUT TTLC PK 1 2 50.00 51 PRN TTLC S1 1 2 106.34 52 D CUT TTLB PK 1 2 177.33 53 TAP + BUG TTLB S1 1 2 36.84 54 D CUT TTLC PK 1 2 55.74 55 TAP + BUG TTLB PK 1 2 140.00 56 TAP + BUG TLB PK 1 2 20.26 57 D CUT TTLB PK 1 2 236.25 58 D.CUT WHITE PK 172.17 59 CUT & POLISHED DIAMOND 1445.20 60 D/CUT WHITE WHITE PK 3 382.00 61 D/C 12 TTLCS 45.98 62 F/CUTTOP TTLB VS 190.42 63 F/CUT WHITE I2 268.58 64 F/CUT WHITE PK 30.01 65 F/CUT WHITE PK 2 30.00 66 F/CUT WHITE PK 3 21.51 67 WHITE FULLCUT PK 2 19.07 68 WHITE FULLCUT PK 1 3.50 69 WHITE FULLCUT PK 2 44.00 70 WHITE FULLCUT PK 2 22.31 71 F/C WHITE S1-3 143.83 72 F/C WHITE PK 1 154.28 73 WHITE TAPP S1 31 1 37.12 74 F/C BLACK DIA. 55.67 75 F/C BLACK DIA. 61.52 76 F/C BLACK DIA. 65.76 77 F/C BLACK DIA. 35.94 78 F/C BLACK DIA. 51.98 79 F/C BLACK DIA. 66.19 80 F/C BLACK DIA. 88.00 81 BUG WH PK 3 50.90 82 BUG WH PK 2 60.00 83 CUT & POLISHED DIAMOND 528.27 84 F CUT TTLC VS 2 32.35 85 CUT & POLISHED DIAMOND 250.09 86 P/C WHITE I 3 303.60 TOTAL 13345.87 ITA NO.3010/AHD/2010 -7- 7. WHILE VALUING THE CLOSING STOCK, THE ASSESSEE HA S CLAIMED THAT 9405.61 CARAT OF THE DIAMONDS WAS HAVING LESS VALUE THAN TH E COST. THE WORKING GIVEN BY THE ASSESSEE AT PAGE NO.36 AND 37 READS AS UNDER : VALUATION SHEET FOR COSTING DONE AT MARKET VALUE BE CAUSE THE SAME IS LOWER THAN COST OF RS.9,943/- PER CARAT. SR. NO. DESCRIPTION SUPPORTING SALE BILL NO. MARKET VALUE PER CARAT AS ON 31-03-07 QUANTITY (IN CARATS) AMOUNT (RS.) 1 CUT & POLISHED DIAMONDS 2 9,000.00 277.56 2,498,041 2 CUT & POLISIIED DIAMONDS 4 5,100.00 660.33 3,367,683 3 CUT & POLISHED DIAMONDS 7 3,950.00 401.51 1,585,965 4 WHITE TAPPERS SI 4 7,821.00 100.00 782,100 5 WHITE TAPPERS PK - 4 4 3,910.50 78.00 305 6 WHITE BUDGGETS PK -4 4 3,910.50 116.00 453,618 7 WHITE BUDGGETS SI. 3 4 8,690.00 48.00 417,120 8 CUT & POLISHED DIAMONDS 12 8,480.00 187.36 1,588,813 9 CUT & POLISHED DIAMONDS 12 7,700.00 45.89 353,353 10 CUT & POLISHED DIAMONDS 1 7,594.19 250.15 1,899,687 11 WHITE BGTS PK -2 (PL) 8 9,029.05 185.55 1,675,340 12 WHITE BGTS PK - 2 (PL) 8 9,029.05 11.96 107,987 13 D/C TL8 NTS SI- I (PL) 8 9,119.00 2.03 18,512 14 D/C TLB NTS PK- 1 (PL) 8 8,704.05 0.54 4,700 15 CUT & POLISHED DIAMONDS 23 9,900.00 505.35 5,002,965 16 CUT & POLISHED DIAMONDS 3 8,729.43 231.32 2,019,292 17 WH BUG 1-3 12 7,150.80 0.14 1,001 18 ML TAP BUG 1- 3 12 6,270.08 132.88 833,168 19 D/CUT TTLB PK- 1 2 13 569,640.00 42.97 244,774 20 D/CUT TTLB VS 1 2 13 8,362.80 47.38 396,229 21 TAP/BUG TTLB PK 1 2 13 3,555.20 228.96 813,999 22 D/CUT TLB PK 1 2 13 5,534.80 119.74 662,737 23 TAP/BUG TTLC SI 1 2 13 8,201.20 50.00 410,060 24 WHITE BUGGETS PK-2 (PL) 14 8,524.40 72.32 616,485 25 WHITE BUGGETS PK -2 (PL) 14 8,524.40 5.78 49,271 26 D CUT TTLB SI - 1 2 15 8,484.00 37.52 318,320 27 S CUT TTLB SI - 2 3 15 1,212.00 21.47 26,022 28 S CUT TLB PK - 12 15 1,454.40 61.89 90,013 29 D CUT TTLC PK - 12 15 4,726.80 50.00 236,340 30 PRN TTLC SI - 1 2 15 8,080.00 106.34 859,227 31 D CUT TTLB PK - 12 15 5,938.80 177.33 1,053,127 32 TAP+BUG TTLB SI - 1 2 15 6,464.00 36.84 238,134 ITA NO.3010/AHD/2010 -8- 33 0 CUT TTLC PK - 1 2 15 7,999.20 55.74 445,875 34 TAP+BUG TTLB PK-1 2 15 5,252.00 140.00 735,280 35 TAP+BUG TLB PK - 1 2 15 4,444.00 20.26 90.035 36 D CUT TTLB PK - 12 15 3,636.00 236.25 859,005 37 D.CUT WHITE PK 18 7,272.00 172.17 1,252,020 38 CUT & POLISHED DIAMONDS 4 7,271.00 1445.20 10,608,049 39 D/CUT WHITE PK - 3 19 8,515.50 382.00 3,252,921 40 D/C 12 TTLC DIAMONDS 23 8,312.75 45.98 382,220 41 F/CUT TOP TTLB VS 25 8,718.25 190.42 1,660,129 42 F/CUT WHITE 12 25 7,299.00 268.58 1,960,365 43 F/CUT WHITE PK 25 8,110.00 30.01 243,381 44 F/CUT WHITE PK - 2 25 6,082.50 30.00 182,475 45 F/CUT WHITE PK - 3 25 4,055.00 21.51 87,223 46 WHITE FULLCUT PK -2 27 7,704.50 19.07 146,925 47 WHITE FULL CUT PK - 1 27 8,718,25 13.50 30,514 48 WHITE FULLCUT PK-2 27 7,299.00 44.00 321,156 49 WHITE FULLCUT PK - 3 27 6,690.75 22.31 149,271 50 F/C WHITE SI -3 28 9,022.50 1143.83 1,297,706 51 F/C WHITE PK -1 28 7,517.55 154.28 1,159,608 52 WHITE TAPP SI 3 1 1 29 7,619.00 137.12 282,817 53 F/C BLACK DIA 31 3,007.50 155.67 167,428 54 F/C BLACK DIA 31 2,606.50 161.52 160,352 55 F/C BLACK DIA 31 2,406.00 65.76 158,219 56 F/C BLACK DIA 31 2,205.50 35.94 79,266 57 F/C BLACK DIA 31 2,205.50 51.98 114,642 58 F/C BLACK DIA 31 2,005.00 66.19 132,711 59 F/C BLACK DIA 31 1,604.00 88.00 141,152 60 BUG WH PK -3 31 2,406.00 50.90 122,465 61 BUG WH PK - 2 31 2,807.00 60.00 168,420 62 CUT & POLISHED DIAMONDS 44 9,600.00 528.27 5,071,392 63 F CUT TTLC VS 2 33 8,621.50 32.35 278,906 64 CUT& POLISHED DIAMONDS 48 9,001.00 250.09 2,251,060 65 P/C WHITE 13 40 3,609.00 303.60 1,095,892 TOTAL [A] 9,405.61 63,917,981 FOR REMAINING STOCK OF 3940.26 CARRAT, THE ASSESSEE ADOPTED COST PRICE AND ACCORDINGLY DETERMINED THE VALUE OF THE CLOSING STO CK AT RS.10,30,98,508/- AS UNDER: I) STOCK TAKEN AT MARKET VALUE (9461 CARRAT) : RS.6 ,39,17,981 II) STOCK VALUE AT COST (3940.26 CARRAT) : RS.3,91, 08,527 TOTAL : RS.10,30,98,527 ITA NO.3010/AHD/2010 -9- =========== 8. IT WAS CLAIMED BY THE ASSESSEE THAT OUT OF 13,34 7.87 CARRAT OF THE CLOSING STOCK, THE MARKET VALUE OF 9,405.61 CARRAT WAS LESS THAN THE COST AND THEREFORE THE ASSESSEE ADOPTED MARKET VALUE WHILE FOR THE REM AINING STOCK OF 3940.26 CARRAT MARKET VALUE WAS MORE THAN THE COST, THEREFO RE, THE ASSESSEE ADOPTED COST PRICE. HE HAS ALSO CLAIMED THAT THE ASSESSEE HAS A RIGHT OF FOLLOWING COST OR MARKET VALUE WHICHEVER IS LOWER AS ITS METHOD OF A CCOUNTING FOR VALUATION OF CLOSING STOCK AND SUCH METHOD IS BEING CONSISTENTLY FOLLOWED BY THE ASSESSEE SINCE PAST SEVERAL YEARS AND BEING ACCEPTED BY THE REVENUE AS SUCH. 9. SO FAR THE LEGAL ARGUMENT IS CONCERNED THAT THE ASSESSEE HAS RIGHT TO FOLLOW COST OR MARKET VALUE WHICHEVER IS LOWER ME THOD FOR VALUATION OF CLOSING STOCK IS CONCERNED, WE ENTIRELY AGREE WITH THE ASSESSEE AND HOLD THAT THE ASSESSEE HAS THE RIGHT TO FOLLOW THIS METHOD. HOWE VER, THE QUESTION IS WITH REGARD TO DETERMINATION OF COST AS WELL AS MARKET V ALUE OF THE CLOSING STOCK AS ON 31-3-2007. IT IS CONTENDED BY THE LEARNED COUNS EL THAT THE ASSESSEE HAS TAKEN THE LOT-WISE STOCK INVENTORY AS ON 31-3-2007 PHYSICALLY. THE DETAIL OF WHICH IS GIVEN AT PAGE NO.30 AND 31 OF THE ASSESSEE S PAPER BOOK AND HAS ALSO BEEN REPRODUCED BY US ABOVE IN PARA-6 FOR READY REF ERENCE. FROM THE PERUSAL OF THE ABOVE DETAILS, WE FIND THAT THE ASSESSEE HAS BIFURCATED THE CLOSING STOCK OF 13,345.87 CARRAT INTO 86 LOTS. HOWEVER, HE HAS NOT GIVEN EITHER COST OR MARKET VALUE OF EACH LOT. UNLESS THE ASSESSEE GIVE S COST AND MARKET VALUE OF EACH AND EVERY LOT SEPARATELY, PERHAPS NO USEFUL PU RPOSE IS SERVED BY DIVIDING THE CLOSING STOCK INTO 86 DIFFERENT LOTS. IN THE A BSENCE OF SUCH LOT-WISE DETAILS OF COST OR MARKET VALUE OF EACH LOT, THE AO HAS WOR KED OUT THE COST OF THE CLOSING STOCK ON AVERAGE BASIS. THE ASSESSEE HAS N OT POINTED OUT ANY DISCREPANCY IN THE WORKING OF THE VALUE OF THE CLOS ING STOCK ON THE BASIS OF AVERAGE COST METHOD. THE CONTENTION OF THE LEARN ED COUNSEL BEFORE US IS THAT THE MARKET VALUE OF THE 9405.61 CARRAT OF THE DIAMO NDS WAS LOWER THAN THE COST. THIS CONTENTION OF THE ASSESSEE IS BASED UPON THE S ALE OF THE DIAMONDS IN THE SUBSEQUENT YEAR. THE AO HAS RECORDED THE FINDING T HAT THE SALE BILLS ARE FOR ITA NO.3010/AHD/2010 -10- FIVE MONTHS IN THE NEXT YEAR. THE DETAILS OF THESE SALE BILLS ARE GIVEN BY THE ASSESSEE AND ARE REPRODUCED BY US ABOVE IN PARA NO. 7. WHEN WE COMPARED THE DETAILS OF THE CLOSING STOCK, WHICH IS GIVEN IN PAR A NO.6, WITH THE DETAILS OF SALES BILL, WHICH IS GIVEN IN PARA-7, WE DO NOT FIND EVEN A SINGLE LOT COMPARABLE WITH EACH OTHER. IN THE DETAILS OF THE CLOSING STOCK, F IRST ITEM IS OF CUT AND POLISHED DIAMOND OF 185.99 CARRAT. HOWEVER, THERE IS NO SAL E BILL FOR THE SALE OF 185.99 CARRAT OF CUT AND POLISHED DIAMOND. SIMILAR IS THE POSITION WITH REGARD TO EACH AND EVERY LOT OF STOCK OF DIAMOND. NOT A SINGLE LO T GIVEN IN THE STOCK OF POLISHED DIAMONDS COMPARES WITH THE SALE BILL SUBMI TTED BY THE ASSESSEE IN SUPPORT OF HIS CONTENTION THAT MARKET VALUE OF THE DIAMOND WAS LOWER. MOREOVER, THE AO AT PAGE NO.11 AND 12 OF HIS ORDER HAS GIVEN THE VARIOUS SALES INSTANCES DURING APRIL TO AUGUST, 2007 WHERE THE SA LE VALUE OF THE DIAMOND WAS AS HIGH AS RS.44,076/- PER CARRAT. THESE DETAI LS ARE REPRODUCED BELOW: DATE BILL NO. RATE PER CARAT IN INDIAN RS. 05.04.07 1 12810.68 16.04.07 2 12735.89 17.04.07 3 32108.06 10.05.07 5 12416.43 18.05.07 6 25765.22 21.05.07 7 23871.60 21.05.07 8 10346.96 25.05.07 9 11174.62 28.05.07 10 12435.00 29.05.07 11 25536.67 13.06,07 14 10165.48 18.06.07 16 11392.80 22.06.07 17 11900.27 09.07.07 20 14844.55 10.07.07 21 11398.85 11.07.07 22 11556.75 23.07.07 23 14951.70 ITA NO.3010/AHD/2010 -11- 27.07.07 24 13770.15 30.07.07 25 9494.00 31.07.07 26 15790.78 31.07.07 27 11045.66 03.08.07 29 9991.32 06.08.07 30 20809.89 07.08.07 32 11335.04 10.08.07 33 15350.86 10.08.07 34 19069.25 17.08.07 35 20062.84 20.08.07 36 44076.14 20.08.07 37 10028.13 20.08.07 38 14150.09 10. IF WE CONSIDER THE ENTIRE DETAILS, IT IS OBVIOU S THAT THE ASSESSEE HAS TAKEN THE INVENTORY OF THE CLOSING STOCK LOT-WISE, HOWEVE R, NEITHER THE COST NOR THE MARKET VALUE OF EACH LOT IS GIVEN BY THE ASSESSEE. IN THE NEXT YEAR, THE ASSESSEE CONTINUED ITS BUSINESS OF PURCHASING ROUGH DIAMOND, ITS CUTTING AND POLISHING AND SALE OF POLISHED DIAMOND. SALE OF DIAMOND WAS AT DIFFERENT RATES VARYING FROM RS.1212/- PER CARAT TO RS.44,076/- PER CARAT. THE ASSESSEE HAS PICKED UP THE SALE INSTANCES WHERE THE DIAMONDS WERE SOLD AT A PRICE BELOW THE COST PRICE AND IGNORED THE SALE INSTANCES WHERE THE DIAMONDS W ERE SOLD AT A PRICE MUCH HIGHER THAN THE COST PRICE. AS WE HAVE ALREADY MEN TIONED, THE VALUE OF DIAMOND VARIES BECAUSE OF QUALITY AS WELL AS SIZE O F THE DIAMONDS. THIS VALUE VARIES IN THE CASE OF ROUGH DIAMONDS AS WELL AS POL ISHED DIAMONDS. THE ASSESSEE HAS NOT GIVEN EITHER THE COST OR MARKET VA LUE OF EACH LOT OF CLOSING STOCK OF DIAMOND. IF WE PERUSE THE SALE GIVEN BY T HE ASSESSEE, WE FIND THAT THE SALE VALUE OF THE DIAMOND VARIES FROM RS.1212 PER C ARRAT TO RS.9900/- PER CARRAT. FROM THE SALE INSTANCES GIVEN BY THE AO, W E FIND THAT THE SALE OF DIAMOND WAS AS HIGH AS RS.44,076.14 PER CARRAT. TH EREFORE, ON THE BASIS OF THESE DETAILS, THE ONLY INFERENCE THAT CAN BE DRAWN IS THAT THE ASSESSEE HAS SELECTED THE SALE BILLS WHERE THE DIAMOND WAS SOLD AT A LESSER RATE. AT THE COST OF REPETITION, WE MAY REITERATE THAT THE DESCRIPTIO N AND QUANTITY GIVEN IN THE ITA NO.3010/AHD/2010 -12- SALE INSTANCES DOES NOT TALLY WITH THE DESCRIPTION AND QUANTITY GIVEN IN THE DETAILS OF THE LOT-WISE PHYSICAL STOCK OF THE INVEN TORY. IN THE ABSENCE OF SUCH CO-RELATION THE CONTENTION OF THE ASSESSEE THAT THE MARKET VALUE OF THE PART OF THE DIAMOND WAS LOWER THAN THE COST CANNOT BE ACCEP TED. EXCEPT SOME SALE BILLS, NO OTHER EVIDENCES WAS PRODUCED BY THE ASSES SEE TO ESTABLISH THAT THE MARKET VALUE OF THE DIAMOND WAS LOWER THAN THE COST . WHEN ANY ASSESSEE CLAIMS THAT THE MARKET VALUE OF THE CLOSING STOCK W AS LOWER THAN THE COST, BURDEN WOULD BE UPON THE ASSESSEE TO ESTABLISH SO B Y PRODUCING THE DOCUMENTARY EVIDENCES. IF THE CLOSING STOCK IS OF DIAMOND, THIS BURDEN WOULD BE EVEN HEAVIER BECAUSE THE ASSESSEE IS CLAIMING TH AT THE MARKET VALUE OF 9405.61 CARRAT OF THE CLOSING STOCK OF DIAMOND OUT OF THE TOTAL CLOSING STOCK OF 13,345.87 CARRAT WAS LOWER THAN THE COST. NO EVIDE NCE IS PRODUCED BY THE ASSESSEE TO ESTABLISH THIS CONTENTION. THE SALE BI LLS PRODUCED BY THE ASSESSEE IN RESPECT OF SALE OF DIAMONDS FROM APRIL, 2007 ONWARD S CANNOT BE SAID TO BE THE EVIDENCES FOR LOWER MARKET VALUE OF THE PART OF THE CLOSING STOCK AS ON 31-3-07 AS NEITHER DESCRIPTION NOR QUANTITY OF LOT-WISE STO CK TALLIES WITH THE SALE BILLS. THE ASSESSEE HAS NOT KEPT QUALITY-WISE OR LOT-WISE STOCK REGISTER SO AS TO CORRELATE SALE INSTANCE WITH PARTICULAR LOT OF CLOS ING STOCK OF POLISHED DIAMOND. IN THE ABOVE CIRCUMSTANCES, WE AGREE WITH THE REVEN UES CONTENTION THAT THE ASSESSEE SELECTED SALES BILLS WHERE THE SALE RATE O F DIAMOND WAS COMPARATIVELY LOWER AND IGNORED THE SALE BILL WHERE SALE RATE WAS SUBSTANTIALLY HIGHER. THEREFORE, WE HOLD THAT THE ASSESSEE WAS UNABLE TO ESTABLISH THAT MARKET VALUE OF PART OF CLOSING STOCK OF POLISHED DIAMOND WAS LO WER THAN THE COST. THE AO HAS WORKED OUT THE VALUE OF CLOSING STOCK ON AVERA GE COST METHOD BASIS. NO DISCREPANCY IN THE WORKING OF THE AO IS POINTED OUT BY THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO CONTENDED THA T THE GP/NP FOR THE YEAR UNDER CONSIDERATION IS BETTER THAN EARLIER YEARS, T HEREFORE, THE VALUATION OF THE CLOSING STOCK SHOULD NOT BE DISTURBED. WE ARE UNAB LE TO ACCEPT THIS CONTENTION OF THE LEARNED COUNSEL, IF THE ASSESSEE HAS NOT VAL UED THE CLOSING STOCK ITA NO.3010/AHD/2010 -13- CORRECTLY, THE AO CAN CERTAINLY MAKE THE CORRECT VALUATION OF THE CLOSING STOCK. 11. THE LEARNED COUNSEL HAS ALSO MADE AN ALTERNATE CLAIM THAT IF THE AO CHANGES THE METHOD OF VALUATION OF CLOSING STOCK, T HE OPENING STOCK SHOULD ALSO BE VALUED IN THE IDENTICAL MANNER AS THE CLOSING ST OCK. IN SUPPORT OF THIS CONTENTION, HE HAS RELIED UPON THE SEVERAL DECISION S, WHICH ARE REPRODUCED BY US IN PARA-3 ABOVE. IN OUR OPINION, IN THIS CASE, THE AO HAS NOT MODIFIED THE METHOD OF ACCOUNTING FOR VALUATION OF THE CLOSING S TOCK. THE METHOD OF ASSESSEE FOR VALUING THE CLOSING STOCK AT COST OR MARKET VALUE WHICHEVER IS LOWER IS NOT DISTURBED BY AO. WHAT IS DISTURBED B Y THE AO IS THE WORKING BY THE ASSESSEE WITH REGARD TO THE MARKET VALUE OF THE CLOSING STOCK. AS WE HAVE ALREADY MENTIONED, IN SUPPORT OF LOWER MARKET VALUE OF THE CLOSING STOCK, THE ASSESSEE HAS ONLY GIVEN A FEW SALE INSTANCES IN THE SUBSEQUENT YEAR WHICH DID NOT CO-RELATE WITH THE DESCRIPTION OR QUANTITY OF V ARIOUS LOTS OF THE CLOSING STOCK AS SUBMITTED BY THE ASSESSEE HIMSELF. THEREFORE, T HE ASSESSEES CONTENTION THAT THE MARKET VALUE IS LOWER THAN THE COST WAS NOT ACC EPTED BY THE AO WITH WHICH WE ALSO AGREE. WHEN THE ASSESSEE HAS NOT PROVED TH AT MARKET VALUE IS LOWER THAN THE COST, THE AO WAS LEFT WITH NO OPTION BUT T O DETERMINE THE VALUE OF STOCK AT COST. THEREFORE, WE HOLD THAT THE AO HA S NOT REJECTED OR DISTURBED THE METHOD FOR VALUATION OF CLOSING STOCK FOLLOWED BY THE ASSESSEE. HE HAS ONLY MADE CORRECT VALUATION OF CLOSING STOCK AS PER METHOD FOLLOWED BY THE ASSESSEE. SINCE THE AO HAS NOT DISTURBED THE METHOD OF VALUATION OF THE CLOSING STOCK OF THE ASSESSEE, THE QUESTION OF REVALUATION OF THE OPENING STOCK AS PER THE CHANGED METHOD DOES NOT ARISE. IT IS NOT A CASE OF EITHER THE REVENUE OR THE ASSESSEE THAT THE OPENING STOCK WAS NOT CORRECTLY V ALUED AS PER THE ASSESSEES METHOD OF ACCOUNTING FOR VALUATION OF CLOSING STOCK . IN VIEW OF THE ABOVE FACTUAL POSITION, THE RATIO OF VARIOUS CASE LAWS RE LIED UPON BY THE LEARNED COUNSEL IN THIS REGARD DOES NOT REQUIRE DETAILED DI SCUSSION. IN VIEW OF THE ITA NO.3010/AHD/2010 -14- ABOVE, WE UPHOLD THE ORDER OF THE LEARNED CIT(A) AN D DISMISS THE APPEAL OF THE ASSESSEE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN OPEN COURT ON 11 TH FEBRUARY, 2011. SD/- SD/- (MUKUL KR. SHRAWAT) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 11-02-2011 COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD