ITO, Jaipur V. M/S V RAJENDRA EXPORTS, Jaipur

ITA 322/JPR/2010

• Counselvise Citation: 32223114 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 12-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Transfer pricing; Diversion of income
• Section: 92A; 10B; 131; 92

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.322/ JP/2011 ASSESSMENT YEAR 2006-07 PAN: AACFV 5180 G THE ITO VS. M/S. V.RAJENDRA EXPORTS WARD- 2(1) 3946, MSB KA RASTA JAIPUR JOHRI BAZAR, JAIPUR (APPELLANT ) (RESPONDENT) DEPARTMENT BY :SHRI SANJAY KUMAR ASSESSEE BY : SHRI VIJAY GOYAL ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A)-1, JAIPUR DATED 13-01-2010 FOR THE ASSESSMENT YEAR 2 006-07. 2.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN DELETING THE TRADING ADDITION OF RS. 13,72 ,806/-. 2.2 THE ASSESSEE IS A MANUFACTURER AND EXPORTER OF PRECIOUS AND SEMI PRECIOUS STONES . THE ASSESSEE HAS DISCLOSED THE GR OSS PROFIT RATE OF 17.41%. ACCORDING TO THE AO, THE ASSESSEE HAS MAINTAINED T HE STOCK REGISTER IN WHICH THE QUANTITY OF STONE IS MENTIONED. NO QUALIT YWISE STOCK IS MAINTAINED . IN THE GEMS AND JEWELLERY BUSINESS QUALITY AND SH APE OF THE STONE HAS A 2 GREAT IMPORTANCE. THUS THE STOCK REGISTER SO MAINTA INED IS NOT HELPFUL IN IDENTIFYING THE SALES VIS A VIS PURCHASE. THE STOCK REGISTER IS ALSO NOT HELPFUL IN VERIFYING THE VALUATION OF STOCK BECAUSE ONE IS NOT ABLE TO ASCERTAIN THE QUALITY OF STONE LEFT IN THE STOCK. THE AO NOTICED THAT THE ASSESSEE HAS MADE PURCHASES FROM TWO PARTIES TO THE EXTENT OF RS. 4,9 4,757/-. THE ASSESSEE WAS REQUIRED TO PRODUCE TWO PARTIES FOR VERIFICATION OF THE PURCHASES. THE AO HAS REFERRED TO THE FACTS COLLECTED BY THE DEPARTMENT D URING THE COURSE OF SEARCH AND SURVEY OPERATIONS IN CERTAIN CASES AND THESE FA CTS SHOWS THAT THERE WERE CERTAIN PARTIES WHO WERE PROVIDING BOGUS BILLS BY C HARGING COMMISSION. SINCE THE PARTIES FROM WHOM THE ASSESSEE HAS MADE P URCHASES WERE NOT PRODUCED, THEREFORE, THE AO ISSUED SUMMONS U/S 131 OF THE ACT TO BOTH THE PARTIES. THE SUMMONS ISSUED WERE RETURNED BACK BY T HE POSTAL AUTHORITIES. THE INSPECTOR WAS ALSO DIRECTED TO PHYSICALLY VISIT AND CONDUCT LOCAL ENQUIRIES AT THE ADDRESS OF THE OF TWO CONCERNS AND THE INSPECTOR REPORTED THAT THESE TWO CONCERNS ARE NOT AVAILABLE AT THE AD DRESS MENTIONED IN THE BILLS ISSUED TO THE ASSESSEE. THE AO ISSUED THE SHOW CAUS E NOTICE TO THE ASSESSEE MENTIONING THAT AS TO WHY THE PURCHASES MADE FROM T HESE TWO PARTIES BE NOT HELD AS NON-VERIFIABLE AND BOOKS OF ACCOUNTS BE NOT REJECTED. THE ASSESSEE FILED THE REPLY VIDE LETTER DATED 12 TH DEC. 2008. THE ASSESSEE BASICALLY RELIED UPON THE BILLS ISSUED BY BOTH THE PARTIES, PAYMENT MADE THROUGH CHEQUES TO 3 THESE TWO PARTIES AND THESE TWO PARTIES WERE HAVING PAN AND SALES TAX REGISTRATION NO. THE AO WAS NOT SATISFIED WITH THE REPLY OF THE AO. THE AO HELD THAT BOOKS OF ACCOUNTS ARE TO BE REJECTED. FOR THIS PROPOSITION, THE AO RELIED UPON VARIOUS CASE LAWS INCLUDING THE DECISIO N OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDIAN WOO LEN CARPET FACTORY VS. ITAT AND OTHERS (2002) 178 CTR 420. 2.3 THE AO OBSERVED THAT THE ASSESSEE IS HAVING ONE SISTER CONCERN NAMELY M/S. KANCHAN TARA EXPORTS. THE SISTER CONCER N IS CLAIMING DEDUCTION U/S 10B OF THE ACT . THE AO WAS OF THE VI EW THAT THE ASSESSEE IS DIVERTING THE PROFIT TO THE SISTER CONCERN BECAUSE THE PROFIT IN THE SISTER CONCERN IS EXEMPT U/S 10B OF THE ACT. SIMILAR STAND WAS TAKEN IN THE IN THE IMMEDIATELY PRECEDING YEAR. THE AO HAS REFERRED TO THE GROSS PROFIT RATE AND NET PROFIT RATE OF BOTH THE CONCERNS FOR DIFFERENT ASSESSMENT YEARS AND THE CHART IS REPRODUCED AS BELOW. M/S. KANCHAND TARA EXPORTS M/S. V.RAJENDRA EXPORTS A.Y. TURNOVER G.P. RATE N.P.RATE TURNOVER G.P . RATE N.P.RATE 2006-07 9987600 34.95% 31.95% 12991414 17.41% 7.20% 2005-06 12207492 27.06% 22.97% 38477807 11.65% (-)1 1.48% 2004-05 12905586 30.45% 27.45% 10416281 13.51% 2.67 % 2003-04 12522602 19.41% 16.31% 19669188 22.11% 11.5 6% THEREAFTER THE AO HAS GIVEN THE P & L A/C, BALANCE SHEET DETAILS AND TRADING ACCOUNT OF BOTH THE CONCERNS AT PAGES 13 TO 15 OF T HE ASSESSMENT ORDER. AFTER CONSIDERING THE GROSS PROFIT RATE OF BOTH THE CONCE RNS, THE AO APPLIED THE 4 AVERAGE GROSS PROFIT RATE IN THE CASE OF THE ASSESS EE AND ACCORDINGLY MADE THE TRADING ADDITION OF RS. 13,72,806/-. 2.4 THE LD. CIT(A) HAS UPHELD THE REJECTION OF THE BOOKS OF ACCOUNTS. 2.5 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT M/ S. KANCHAN TARA EXPORTS IS NOT A COMPARABLE CASE BECAUSE THE FIRM W AS ENGAGED IN MANUFACTURING ACTIVITY WHILE THE ASSESSEE IS MAINLY ENGAGED IN TRADING ACTIVITY. M/S. KANCHAN TARA EXPORTS PURCHASES THE K HARAR AND EXPORTS THE FINAL PRODUCT WHEREAS THE ASSESSEE FIRM PURCHASES T HE FINAL PRODUCT FROM THE MARKET AND RESALE THEM IN THE INTERNATIONAL MARKET. M/S. KANCHAN TARA EXPORTS IS DEALING ONLY IN EMERALD WHILE THE ASSESS EE FIRM IS DEALING IN MANY ITEMS OF PRECIOUS AND SEMI PRECIOUS STONES. THE STA FF, MANAGEMENT, STOCK AND BOOKS OF ACCOUNT OF BOTH THE FIRMS ARE SEPARATE AND THIS HAS BEEN VERIFIED DURING THE COURSE OF SEARCH HELD ON 18 TH DEC. 203. THE AO WAS NOT JUSTIFIED FOR CONSOLIDATION OF TRADING RESULTS AND EXPENSES. 2.6 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE LD. AR DELETED THE TRADING ADDITION AFTER OBSERVING AS UND ER:- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUB MISSIONS MADE. THE TRADING ADDITION MADE BY THE AO BY CONSOL IDATING THE TRADING RESULTS AND EXPENSES OF THE APPELLANT AND M /S KANCHAN TARA EXPORTS IS NOT PROPER IN VIEW OF THE DETAILED SUBMI SSIONS MADE BY THE A/R STATED ABOVE WHICH ON EXAMINATION HAVE BEEN FOUND TO BE CORRECT AND REASONABLE. THERE BEING NO CONNECTION B ETWEEN THE TWO 5 CONCERNS EXCEPT FOR A PETTY TRANSACTION OF SALE OF EMERALDS. THERE WAS NO JUSTIFICATION FOR DOING THE EXERCISE AS DONE BY THE AO. SECONDLY, IT IS SEEN THAT THE APPELLANT HAD SHOWN G P RATE OF 17.41 % AS AGAINST 11.65 % IN THE IMMEDIATELY PRECEDING YEA R. THIS ASPECT HAD ALSO BEEN COMPLETELY IGNORED BY THE AO. IN THIS CONNECTION, THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CA SE OF GOTAN LIME KHANNIJ UDHYOG (256 ITR 243) IS RELEVANT WHEREIN IT WAS HELD THAT EVEN IF THE BOOKS OF ACCOUNTS WERE REJECTED IT WAS NOT NECESSARY FOR ANY TRADING ADDITION TO BE MADE. LASTLY, SIMILAR AD DITION MADE IN A.Y. 2005-2006 HAD ALSO BEEN DELETED IN ENTIRETY BY THE CIT(A)-I, JAIPUR IN THE APPELLANT'S OWN CASE. THERE BEING NO CHANGE IN MATERIAL FACT AND LEGAL POSITION THE ADDITION MADE BY THE AO IS DELETED. 2.7 WE HAVE HEARD BOTH THE PARTIES. SIMILAR ISSUE A ROSE IN THE CASE OF THE ASSESSEE FOR THE EARLIER ASSESSMENT YEAR. WHILE DEC IDING THE APPEAL IN THE CASE OF THE ASSESSEE FOR THE EARLIER ASSESSMENT YEA R, THE TRIBUNAL VIDE ORDER DATED 30-09-2010 IN ITA NO.1252/JP/2008 CONFIRMED T HE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION AFTER OBSERVING AS UNDER:- 11. WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE HAS FILED QUANTITATIVE DETAILS OF ITEM IN WHICH IT HAS DEALT AS PER ANNEXURE-D OF ANNUAL ACCOUNTS. WE ARE REPRODUCING D ETAILS IN RESPECT OF RAW MATERIAL WHICH IS USED FOR MANUFACT URING AND THE OTHER RAW MATERIAL IN WHICH TRADING DONE. EMERALD PINK TOURMALINE O.S. 0.000 850.00 PURCHASES 224730.00 00 CONSUMPTION 224730.00 00 6 SALES 0 850.00 YIELD OF FINISHED PRODUCT 235998 % YIELD 10.5% SIMILAR DETAILS HAVE BEEN GIVEN FOR FINISHED PRODUC TS PURCHASED AND SOLD 12. DETAILS OF CLOSING STOCK IN QUANTITY AND AMOUNT AS UNDER:- QTY. AMOUNT WHITE OPEN 1140 KG RS. 60242 AMETHYST 118780 CTS RS. 167896.00 SAPPHIRE 116919.50 CTS RS. 279841 YELLOW OPEL 1010 KG RS. 76476 EMERALD FINISHED 38597 CTS RS. 3550527 PINK TOURMALINE 100.20 CTS RS. 11102 FINISHED BLUE AGATE FINISHED 22000 RS. 154582 TAIL EMERALD 91339 RS. 91339 SAPPHIRE SEMI- FINISHED 16500 CTS RS. 84645 13. THUS THE TRADING ACCOUNT, PURCHASE AND SALES AR E VERIFIABLE AND CLOSING STOCK IS ALSO VERIFIABLE. TH E AO HAS NOT POINTED OUT ANY DISCREPANCY IN RESPECT OF PURCHASE OR SALES. EXCEPT SALES TO ASSOCIATED CONCERN, THE AO HAS NOT DOUBTED THE RATES. THE AO HAS ACCEPTED THE TURNOVER . IN RESPEC T OF ASSOCIATED CONCERN, THE AO HAS APPLIED THE PROVISIO NS OF SECTION 92C. BOOKS OF ACCOUNTS CANNOT BE REJECTED T O MAKE VARIATION IN INCOME ON ACCOUNT OF ARMS LENGTH PRICE . THE AO HAS NOTICED ONLY ONE PURCHASE WHICH ACCORDING TO HI M IS NON- 7 VERIFIABLE. THERE IS DIFFERENCE BETWEEN VERIFICATIO N OF A PARTICULAR TRANSACTION IN THE BOOKS OF ACCOUNTS AND REJECTION OF BOOKS OF ACCOUNTS. HOWEVER, THE ASSESSEE IS NOT IN APPEAL BEFORE US AND HENCE REJECTION OF BOOKS OF ACCOUNTS IS NOT AN ISSUE BEFORE US. IT IS NOT THE CASE OF REVENUE THAT PURCHASES AS SHOWN FROM M/S. NISHTHA GEMS ARE AT A RATE WHICH WA S ABNORMAL OR WAS NOT COMPARABLE TO THE MARKET RATE. 14. THE AO HAS PREPARED A CHART OF VARIOUS EXPENSES DEBITED IN THE TWO CONCERNS. THE AO HAS NOT MADE AN Y EFFORT TO SHOW THAT EXPENSES DEBITED IN KANCHAN TARA EXPORTS WERE NOT LAID WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE FIRM. WITHOUT COLLECTING MATERIAL EVIDENCE, THE AO MADE A SWEEPIN G STATEMENT HOLDING THAT EXPENSES OF BOTH THE CONCERN S ARE TO BE APPOINTED ON THE BASIS OF TURNOVER. BOTH THE CONCER NS HAVE DIFFERENT NATURE OF BUSINESS I.E. ONE CONCERN IS DO ING MANUFACTURING AND OTHER CONCERN IS DOING NOT ONLY T RADING BUT MANUFACTURING. MOREOVER, SOME OF THE PARTNERS ARE C OMMON. PROFIT CREDITED IN THE ACCOUNTS OF OTHER PARTNERS E XCEPT THE COMMON PARTNER HAS BEEN UNDER THEIR CONTROL FOR THE IR UTILIZATION. THE ONUS WAS HEAVILY ON THE REVENUE TO ESTABLISH THAT THERE IS DIVERSION OF INCOME FROM ONE ENTITY T O ANOTHER. NO MATERIAL EVIDENCE COLLECTED TO SUGGEST THAT THERE W AS DIVERSION OF INCOME EXCEPT THAT PROFIT IN BOTH THE CONCERNS I S DIFFERENT. SUCH DIFFERENCE IN PROFIT WAS ALSO THEIR IN EARLIER YEARS. 16. THE AO HAS ACCEPTED THE DIRECT AND INDIRECT EXP ENSES OF BOTH THE CONCERNS. THE AO HAS SIMPLY ASCERTAINED TH E NET PROFIT ON THE BASIS OF TURNOVER . THIS SHOWS THE RESULTS S HOWN BY BOTH 8 THE CONCERNS HAVE BEEN ACCEPTED. IF THE APPOINTMENT IS NOT HELD AS CORRECT THEN NET PROFIT SHOWN BY THE ASSESSEE IS TO BE ACCEPTED AS PER BOOKS OF ACCOUNTS. THE AO HAS HIMSE LF ACCEPTED THE ENTRIES IN THE BOOKS OF ACCOUNTS. THE GROSS PROFIT IN BOTH THE CONCERNS HAVE BEEN DIFFERENT DUE TO NAT URE OF BUSINESS. THERE IS NO CASE OF DETERMINING INCOME ON THE BASIS OF APPORTIONMENT OF TOTAL PROFIT. HENCE, THE LD. CI T(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 14,99,958 /-. 2.8 IN VIEW OF OUR FINDINGS GIVEN IN THE CASE OF TH E ASSESSEE FOR THE PRECEDING YEAR, WE HOLD THAT THE LD. CIT(A) WAS JU STIFIED IN HOLDING THAT THE AVERAGE GROSS PROFIT RATE OF BOTH THE CONCERNS CANN OT BE APPLIED. HOWEVER, THERE ARE NON-VERIFIABLE PURCHASES TO THE EXTENT OF RS. 4,94,757/- IT IS AN ACCEPTED POSITION THAT CERTAIN PARTIES WERE PROVIDI NG BOGUS BILLS BY CHARGING COMMISSION. THE AO HAS MENTIONED THAT THE COMMISSIO N CHARGED WAS 0.5% TO 0.6%. LOOKING TO THE NON-VERIFIABLE PURCHASES, W E HOLD THAT THE TRADING ADDITION TO THE EXTENT OF RS.2,500/- WILL MEET THE ENDS OF JUSTICE. 3.1 THE SECOND GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 10,56,127 /- ON WRONG APPRECIATION OF FACTS AND WITHOUT CONSIDERING THE APPLICABILITY OF PROVISIONS OF SECTION 92 OF THE ACT. 9 3.2 THE AO DURING THE COURSE OF ASSESSMENT PROCEEDI NGS REQUIRED THE ASSESSEE TO FURNISH THE LOTWISE SALE PRICE, COST AN D THE PROFIT EARNED SO AS TO ENABLE HIM TO DETERMINED THE ARMS LENGTH PRICE (IN SHORT ALP). THE ASSESSEE FILED THE CHART VIDE REPLY DATED 18 TH DEC. 2008. THE AO APPLIED THE COST PLUS METHOD TO DETERMINE THE ALP. THE ALP HAS BEEN DETERMINED AS PER FOLLOWING CHART. CONTENTS ASSOCIATE ENTERPRISE OTHERS SALES 5236308 7755106 COST OF SALES 4725825 5824262 PROFIT 510483 1930843 (10.80% OF COST PRICE) (33.15% OF COST PRICE) THEREFORE, THE ALP OF THE INTERNATIONAL TRANSACTI ON IS DETERMINED AT RS. 1566610/- BY APPLYING 33.15% RATE OF PROFIT ON COST PRICE AS AGAINST 10.80% , RESULTING IN AN A DDITION OF RS. 1056127/- 3.3 NO SEPARATE ADDITION HAS BEEN MADE ON ACCOUNT O F ALP AS ADDITION ON ACCOUNT OF ALP IS LESS THAN TRADING ADDITION. T HEREFORE, SAME WAS CONSIDERED TO BE TELESCOPED TO THE TRADING ADDITION . 3.4 THE LD. CIT(A) HAS DELETED THE ADDITION ON THE BASIS OF THE FINDINGS GIVEN IN THE ASSESSMENT YEAR 2005-06. 3.5 WE HAVE HEARD BOTH THE PARTIES. WHILE DECIDING THE APPEAL IN THE CASE OF THE ASSESSEE FOR THE EARLIER ASSESSMENT YEAR, TH E TRIBUNAL HAS HELD THAT M/S. PIONEER GEMS, NEW YORK IS AN ASSOCIATE ENTERPR ISE OF THE ASSESSEE IN 10 VIEW OF THE CLAUSE (J) OF SECTION 92A OF THE ACT. T HE AO HAS APPLIED THE COST PLUS METHOD FOR DETERMINING THE ALP. THE ASSES SEE IS DEALING IN VARIOUS PRECIOUS AND SEMI PRECIOUS STONES. THERE AR E ONLY TWO TYPES OF STONES IN WHICH THE SALES HAVE BEEN MADE TO ASSOCIA TE ENTERPRISE AND ALSO TO OTHER ENTERPRISES. THERE ARE OTHER TWO TYPES OF STO NES IN WHICH THE SALES HAVE BEEN MADE TO ASSOCIATE ENTERPRISE BUT NO SALES HAVE BEEN MADE TO OTHER ENTERPRISE. IN ORDER TO GIVE FACTUAL POSITION, IT W ILL BE USEFUL TO REPRODUCE THE DETAILS OF THE SALES MADE TO M/S. PIONEER GEMS, NEW YORK AS GIVEN BY THE ASSESSEE IN ITS PAPER BOOK AT PAGE 23 IS AS UNDER:- NAME OF ITEM SALE COST PROFIT OR LOSS %PROFIT SALE TO M/S PIONEER GEMS NEW YORK SALE TO OTHER THAN M/S PIONEER GEMS NEW YORK EXPORT SALES ACQUA 2169470 1577103 592367 27.30 0 2169470 AMETHYST 507493 390044 117449 23.14 0 507493 CITRINE 705840 538367 167473 23.73 0 705840 EMERALD 6073072 5261407 811665 13.36 4407596 1665476 GARNET 144474 104145 40329 27.91 0 144474 GREEN GOLD 338 217 121 35.80 0 338 IOLITE 34071 18953 15118 44.37 0 34071 MORGANITE 205995 104632 101363 49.21 205995 0 ONEX 8643 970 7673 88.78 8643 0 PARIDOT 59837 46014 13823 23.10 0 59837 RODOLIGHT 31988 19318 12670 39.61 0 31988 RUBY 961907 738839 223068 23.19 649907 312000 SAPPHIRE 107722 103697 4025 3.74 0 107722 TANZANITE 274342 206665 67677 24.67 0 274342 TOURMOLINE 1719582 1502650 216932 12.62 0 1719582 11 WHEN THE ASSESSEE IS NOT HAVING TRANSACTION OF SAME TYPE OF STONES WITH OTHER ENTERPRISE AS COMPARED TO THE TRANSACTION WIT H ASSOCIATE ENTERPRISE THEN COST PLUS METHOD CANNOT BE APPLIED. THE MARGIN OF P ROFIT DEPENDS UPON VARIOUS ITEMS OF SEMI PRECIOUS STONES AND THE QUAL ITY OF THE SEMI PRECIOUS STONES. THE ASSESSEE IN ITS PAPER BOOK HAS GIVEN TH E COMPARISON OF SALES MADE TO ASSOCIATE ENTERPRISE AS WELL AS SALES TO OT HER ENTERPRISES. IN RESPECT OF RUBY, THE MARGIN OF PROFIT ON SALES TO OTHER EN TERPRISE IS 21.64% WHILE MARGIN OF PROFIT OF SALES TO ASSOCIATE ENTERPRISE I S 23.93%. THE ASSESSEE HAS SALES TO IOLITE AND MORGANITE TO THE ASSOCIATE ENTE RPRISE AND THERE HAS BEEN NO SALES TO SUCH STONES TO OTHER CONCERNS. THE GROS S PROFIT RATE SHOWN IN RESPECT OF SALE OF THESE TWO TYPES IS 49.21% AND 88.78%. THERE IS NO CASE OF MAKING ADJUSTMENT IN ALP IN RESPECT OF SALES OF RUBY, IOLITE AND MORGANITE. IN RESPECT OF EMERALD, THE ASSESSEE HAS CONTENDED THAT KHARAD PURCHASED DID NOT YIELD GOOD QUALITY OF EMERALD AND DUE TO THAT THE ASSESSEE HAS SUFFERED LOSS IN EMERALD. THE ASSESSEE WAS HAV ING OPENING BALANCE OF EMERALD TO THE EXTENT OF 18525 CT. IN THE IMMEDIAT ELY PRECEDING YEAR ALSO, THERE WAS LOSS ON ACCOUNT OF SALES IN EMERALD. THE COST AT WHICH OPENING STOCK HAS BEEN VALUED IS AT RS. 171.9. THE PURCHASE RATE OF EMERALD VARIES FROM RS.371.5 PER CT TO RS. 3564.1 PER CT. TO THE ASSOCIATE ENTERPRISE SAL ES 12 HAVE BEEN MADE @ VARYING FROM RS. 89/- PER CT TO RS . 3383.4 /- PER CT. ONE HAS TO CONSIDER THE COMPARISON OF TRANSACTION FOR A SCERTAINING ALP. EACH TRANSACTION IS TO BE EVALUATED SEPARATELY AND ALL T HE TRANSACTIONS ARE NOT TO BE TAKEN TOGETHER. THE TRANSFER PRICING IS COMPARING A SINGLE TRANSACTION I.E. SALE PRICE AND TERMS OF SALES OF A PARTICULAR PRODU CT OR COMPARING A RESULT OF AN INDEPENDENT COMPANY AT GROSS MARGIN LEVEL. THE B ASIS OF AN ENQUIRY IS A SINGLE TRANSACTION. THE AO HAS APPLIED THE COST PLU S METHOD. COST PLUS METHOD IS APPLICABLE WHERE BOTH CONCERNS ARE INVOLV ED IN MANUFACTURING. IT IS ALSO APPLICABLE IN THE CASE OF THE SEMI FINISHE D GOODS WHICH ARE NOT SUBJECT MATTER OF NORMAL TRADE. THE ASSESSEE HAS GI VEN COMPARABLE UNCONTROLLED PRICE METHOD. THE DETAILS ARE AVAILABL E AT PAGE 39 OF THE PAPER BOOK. IN THE COMPARABLE UNCONTROLLED PRICE METHOD, THE ASSESSEE HAS MADE ADJUSTMENT ON ACCOUNT OF QUALITY DIFFERENCE. WE HA D ALREADY POINTED OUT THAT THE PRICE OF SEMI PRECIOUS STONES DEPENDS UPON THE QUALITY. THE AO HIMSELF AT PAGE 2 OF THE ASSESSMENT ORDER HAS ADMIT TED THAT IN THE GEMS AND JEWELLERY BUSINESS, THE QUALITY AND SHAPE OF THE ST ONE ALWAYS HAVE GREAT IMPORTANCE. IF ONE CONSIDERS THE ADJUSTMENT ON ACCO UNT OF QUALITY AS CONSIDERED BY THE ASSESSEE IN ITS TRANSFER PRICING REPORT THEN THE SALE ARE AT ALP. IN THE IMMEDIATELY PRECEDING YEAR, THE TRIBUNA L HAS DELETED THE ADJUSTMENT ON ACCOUNT OF ADJUSTMENT IN ALP. LOOKING TO THE ABOVE 13 DISCUSSIONS, WE FEEL THAT THERE WAS NO CASE OF MAKI NG ANY ADJUSTMENT IN ALP. THUS THE ADDITION MADE BY THE AO TO THE EXTENT OF RS. 10,56,127/- IS DELETED. 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 30-06 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 30 /06/2011 *MISHRA COPY FORWARDED TO :- 1. THE ITO , WARD- 2(1), JAIPUR 2. M/S. V. RAJENDRA EXPORTS, JAIPUR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.322/JP /10) A.R, ITAT, JAIPUR 14 15