The DCIT, Circle-9, Surat V. M/s. Nevil Gems, Surat

ITA 3257/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94799 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 01-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 26-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALBINUS TIRKEY
• Section: 143(3); 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE S/SHRI KUL BHARAT, JM, & MANISH BORAD, A M. ITA NO.3257/AHD/2011 ASST. YEAR:2008-09 DY. CIT, CIRCLE-9, SURAT. VS M/S NEVIL GEMS, 15, TAPOVAN ESTATE, OPP. GITANJALI CINEMA, VARACHHA ROAD, SURAT. (APPELLANT) (RESPONDENT) PA NO. AACFN 7029A APPELLANT BY SHRI ALBINUS TIRKEY, SR.DR RESPONDENT BY SHRI M. R. SHAH, AR DATE OF HEARING: 01.09.2015 DATE OF PRONOUNCEMENT: 30/11/2015 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER. THIS APPEAL OF REVENUE IS DIRECTED AGAINST THE ORD ER OF CIT(A)-V, SURAT, DATED 30.08.2011. THE ASSESSMENT W AS FRAMED U/S 143(3) OF THE I.T. ACT, 1961 (IN SHORT THE ACT) BY THE DY.CIT, CIRCLE-9, SURAT , FOR AY 2008-09, VIDE ORDER DATED 24.12.2010. 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE RE VENUE :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) HAS ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE REGARDING REJECTING THE BOOKS OF ACCOUNT B Y THE AO U/S 145(3) OF THE I.T. ACT, 1961. ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 2 (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.32,24,477/- MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF EXCESS LABOUR EXPENSES. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.23,08,633/- MADE BY THE A.O. ON ACCOUNT OF SUPPR ESSED YIELD. (4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF T HE AO. (5) IT IS, THEREFORE, PRAYED THAT THE APPELLATE ORD ER OF THE CIT(A) MAY BE CANCELLED AND THE ORDER OF THE AO MAY BE UPH ELD. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF POLISHED DIAMONDS. RETURN OF INCOME FOR ASST. YEAR WAS FILED ON 22.09.2008 DECLA RING LOSS OF (-) RS.3,31,547/-. ASSESSEES CASE WAS SELECTED FOR SCR UTINY ASSESSMENT. NOTICE UNDER SECTION 143(2) DATED 26.08 .2009 WAS DULY SERVED UPON ASSESSEE ON 01.09.2009. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSING OFFICER OBSERVED T HAT ASSESSEE WAS NOT ABLE TO PROVIDE QUALITY-WISE AND P IECE-WISE DETAILS OF GOODS, LABOUR EXPENSES WERE NOT PROPERLY SUPPORTED AS WELL AS THERE WAS SUPPRESSED YIELD AS THE ASSESSEE HAS SHOWN MORE WASTAGE DURING THE YEAR AND ACCORDINGLY MADE A DDITIONS TO THE INCOME OF THE ASSESSEE AND ASSESSED THE INCOME AT RS.52,01,560/-. ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 3 4. THE FIRST GROUND OF REVENUE RELATES CIT(A)S ALL OWING THE APPEAL OF ASSESSEE REGARDING INVOKING OF PROVISIONS OF SECTION 145(3) FOR REJECTING THE BOOKS OF ACCOUNTS OF ASSES SEE. 5. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ASKED THE ASSESSEE FOR SUBMITTING QUALITY-WISE AND PIECE-WISE DETAILS OF POLISHED DIAMONDS WHEREAS ASSESSEE HAS O NLY MAINTAINED QUANTITY-WISE DETAILS OF POLISHED DIAMON DS. ALSO DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT CAME TO THE NOTICE OF ASSESSING OFFICER THAT ASSESSEE HAS NOT P AID THE LABOUR CHARGES ON THE BASIS OF QUANTITY OF POLISHED/PROCES SED DIAMONDS BY THE LABOURERS WHEREAS IN THE SIMILAR TYPES OF CA SES LABOURERS HAVE BEEN PAID PIECE-WISE AND LABOUR CONTRACTORS HA VE BEEN PAID CARAT-WISE. ON THE CONTRARY IN THE CASE OF ASS ESSEE LABOUR CONTRACTOR DID NOT RAISE ANY BILL(S) OF PRODUCTION/ POLISHING AND ASSESSEE PRINTED ITS OWN BILLS GIVING CREDIT TO THE LABOUR CONTRACTORS WHICH WERE COUNTERSIGNED BY THE LABOUR CONTRACTORS. DUE TO THESE VERY REASONS THE ASSESSING OFFICER MAD E A FINDING THAT IT IS IMPOSSIBLE TO VERIFY CLOSING STOCK VALUE SUBMITTED BY ASSESSEE AS WELL AS THE PRODUCTION, QUALITY AND YIE LD OF THE MANUFACTURING ACTIVITIES BECAUSE THE ASSESSEE HAS O NLY MAINTAINED QUANTITY-WISE DETAILS AND NOT MAINTAINED QUALITY-WISE AND PIECE-WISE DETAILS OF THE POLISHED DIAMONDS AND OBSERVED THAT METHOD OF KEEPING BOOKS OF ACCOUNT BY THE ASSE SSEE IS FAULTY AND, THEREFORE, REJECTED THE SAME U/S 145(3) OF THE ACT. ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 4 6. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE THE CI T(A) WHO HELD THE ACTION OF ASSESSING OFFICER IN INVOKING TH E PROVISIONS OF SECTION 145(3) OF THE ACT TO BE NOT VALID BY, OBSER VING AS UNDER :- 4.3 I HAVE CONSIDERED THE REASONS GIVEN BY THE ASS ESSING OFFICER AND ALSO THE SUBMISSIONS OF APPELLANT. AFTE R CAREFULLY GOING THROUGH THE FACTS OF THE CASE, IT IS SEEN THA T BOOK RESULTS HAS BEEN REJECTED ONLY ON THE GROUND THAT QUALITYWI SE AND PIECEWISE DETAILS HAVE NOT BEEN MAINTAINED. HOWEVER , BOOK RESULTS CANNOT BE REJECTED ON THIS GROUND AS HELD B Y HONBLE ITAT AHMEDABAD BENCH IN THE CASE OF M/S DHAMI BROTHERS & M/S MANGUKIA BROTHERS CITED SUPRA. FURTHER, IT IS ALSO SEEN THAT ASSESSING OFFICER HAS NOT CITED ANY COMPARABLE INST ANCE WHERE DETAILS RELATING TO DIAMONDS HAVE BEEN MAINTAINED O N QUALITY WISE BASIS. IN VIEW OF THIS FACT, BOOK RESULTS OF ASSESS EE CANNOT BE REGARDED AS DEFECTIVE IF QUALITY WISE DETAILS HAVE NOT BEEN MAINTAINED & THIS IS MORE SO BECAUSE ASSESSEE HAS M AINTAINED COMPLETE DETAILS OF DIAMONDS ON QUANTITY WISE BASIS AND NO DEFECT IN THE SAME HAS BEEN POINTED OUT. EVEN AS RE GARDS THE VALUATION OF CLOSING STOCK, THE ASSESSING OFFICER H AS FAILED TO PROVE THAT THERE IS ANY UNDER VALUATION OF CLOSING STOCK. AS ASSESSEE HAS CONSISTENTLY ADOPTED THE METHOD TO VAL UE CLOSING STOCK ON THE BASIS OF MARKET PRICE LESS AVERAGE RAT E OF MARGIN, VALUATION OF STOCK CANNOT BE SAID TO BE DEFECTIVE. THERE ARE VARIOUS METHODS FOR ARRIVING AT THE COST OF CLOSING STOCK AND ABOVE METHOD IS ONE OF THE ACCEPTED METHODS OF VALU ATION AND THE SAME HAS BEEN CONSISTENTLY FOLLOWED BY ASSESSEE . AS NO SIGNIFICANT DEFECT HAS BEEN POINTED OUT IN THE BOOK S OF ACCOUNTS, THE REJECTION OF BOOK RESULTS BY INVOKING PROVISION S OF SECTION 145(3) OF THE ACT IS HELD TO BE NOT VALID. 7. AGGRIEVED, THE REVENUE IS NOW IN APPEAL BEFORE T HE TRIBUNAL. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF ASSESSING OFFICER. ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 5 8. ON THE OTHER HAND, LD. AR OF THE ASSESSEE SUBMIT TED THAT ASSESSEES BOOKS OF ACCOUNTS ARE AUDITED UNDER SECT ION 44AB OF THE ACT, COMPLETE QUANTITY-WISE DETAILS HAVE BEEN M AINTAINED AND CERTIFIED BY THE AUDITORS, GP RATE FOR THE YEAR UND ER APPEAL AT 6.38% WHICH IS HIGHER IN COMPARISON TO THE GP RATE DECLARED IN IMMEDIATELY PRECEDING YEAR AT 6.27%. THE LD. AR FUR THER SUBMITTED THAT A FEW LABOR PARTIES HAVE BEEN PRODUC ED BEFORE THE ASSESSING OFFICER AND THEY HAVE ACCEPTED TO HAVE RE CEIVED THE PAYMENTS FOR THE LABOUR CHARGES AS PER THE SUPPORTI NG VOUCHERS PREPARED BY THE ASSESSEE AND COUNTERSIGNED BY THE L ABOUR CONTRACTORS. THERE HAS BEEN NO OTHER SPECIFIC DEFAU LT POINTED OUT BY THE ASSESSING OFFICER IN THE BOOKS OF ACCOUNT. T HE LD. AR IN SUPPORT OF HIS SUBMISSIONS THAT ASSESSING OFFICER W AS NOT CORRECT IN INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT , RELIED ON VARIOUS JUDICIAL PRONOUNCEMENTS AS REFERRED IN THE PAPER BOOK. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD AND ALSO GONE THROUGH THE PAPER BOOK AND VARIOUS DECISIONS REFERRED AND RELIED UPON BY THE A SSESSEE. THE ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF MANUFACT URING OF POLISHED DIAMONDS HAS MAINTAINED REGULAR BOOKS OF A CCOUNTS, FINANCIAL STATEMENTS, ARE DULY AUDITED UNDER SECTIO N 44AB OF THE ACT, COMPLETE QUANTITY DETAILS HAVE BEEN MAINTAINED AND HAVE BEEN REPORTED BY THE AUDITORS IN THE TAX AUDIT REPO RT, NO SPECIFIC MISTAKE HAS BEEN REPORTED IN THE PURCHASE AND SALES OF THE ASSESSEE, GP RATE FOR THE YEAR UNDER APPEAL SHOWN A T 6.38% WHICH IS HIGHER THAN THE GP RATE OF 2.67% DECLARED BY ASSESSEE ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 6 IN THE IMMEDIATELY PRECEDING YEAR. THE ONLY REASON FOR WHICH THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT S IS FOR NON- MAINTENANCE OF QUALITYWISE AND PIECEWISE DETAIL OF POLISHED DIAMONDS AND HAS PREPARED VOUCHERS FOR PAYMENT OF L ABOUR CHARGES. WE FIND THAT SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL IN THE CASE OF IN THE CASE OF M/S DHAMI BROTHERS VS. ACIT, IN IN I TA NO.2309/AHD/2008, WHEREIN THE TRIBUNAL HAS DECIDED THE ISSUE VIDE ITS ORDER DATED 6.8.2010 BY OBSERVING AS UNDER :- 7. WE HAVE CONSIDERED THE ARGUMENTS OF BOTH THE SI DES AND PERUSED THE MATERIAL PLACED BEFORE US. THE AO HAS REJECTED THE ASSESSEES BOOKS OF ACCOUNTS AND ESTIMATED THE VALUE OF CLOSING STOCK A S WELL AS GP. THE REASONING GIVEN BY THE AO FOR REJECTING THE BOOKS O F ACCOUNTS READS AS UNDER: 5.8 IT WOULD NOT BE OUT OF PLACE TO MAKE A MENTION IN THIS CONTEXT THAT, AS PER THE PROVISIONS OF SECTION 44AA OF THE I.T. ACT, EVERY PERSON CARRYING ON BUSINESS IS COMPULSORILY REQUIRE D TO KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNTS AND OTHER DOCUMENTS AS MAY ENABLE THEM AO TO COMPUTE THE ASSESSEES TOTAL INCOME IN A CCORDANCE WITH THE PROVISIONS OF THE I.T. ACT. FROM THIS, IT FOLLO WS THAT THE PURPOSE AND INTENTION OF THE LEGISLATURE IN ENACTING THE PROVIS IONS OF SECTION OF 44AA OF THE ACT IS TO PUT AN OBLIGATION ON THE ASSE SSEE TO MAINTAIN AND KEEP PRIMARY RECORDS ON THE BASIS OF WHICH THE TAX AUTHORITIES ARE ABLE TO ASCERTAIN AND COMPUTE THE ASSESSEES CORREC T INCOME. FROM THIS IT ALSO FOLLOWS THAT IT IS NOT ALWAYS THE PRER OGATIVE OF THE ASSESSEE TO MAINTAIN THE RECORDS THE MANNER IN WHICH IT LIKE S. HOWEVER, AS NOTICED IN THE PRECEDING PARAS THE ASSESSEE HAS NOT MAINTAINED THE BOOKS OF ACCOUNTS AND DOCUMENTS ON THE BASIS OF WHI CH THE INCOME DECLARED IN THE RETURN COULD BE ASCERTAINED. IF THE PRIMARY RECORDS WERE MAINTAINED BY THE ASSESSEE THEY WERE NOT PRODU CED FOR EXAMINATION TO COMPUTE THE CORRECT INCOME. 5.9 HERE IT WOULD BE PERTINENT TO MENTION THAT THE ASSESSEE HAS HOWN CLOSING STOCK OF POLISHED DIAMONDS OF THE QUANTITY OF 44299.10 CTS. AT RS.54,23,81,050/-. THE DETAILED INVENTORY OF THE ST OCK IN TERMS OF QUALITY IS NOT FURNISHED. THEREFORE, IN ABSENCE OF DETAILS IN TERMS OF QUALITY WISE PRODUCTION OF DIAMONDS FROM EACH LOT I T IS NOT ASCERTAINABLE WHICH TYPE OF DIAMONDS WAS PRODUCED F ROM A PARTICULAR LOT IN ORDER TO DETERMINE THE VALUE. THEREFORE, IN VIEW OF THIS, IT WOULD RATHER BE CORRECT TO SAY THAT THE VALUATION OF STOC K IS NOT VERIFIABLE. HERE, IT WOULD BE PERTINENT TO MENTION THAT THE HON BLE SUPREME COURT ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 7 IN THE CASE OF BRITISH PRINTS INDIA LTD. REPORTED I N 188 ITR 44, HAS BEEN HELD THAT WHERE THE ACCOUNTS ARE PREPARED WITH OUT DISCLOSING THE REAL COST OF THE STOCK IN TRADE ALBEIT ON SOUND EXPERT ADVISE IN THE INTEREST OF EFFICIENT ADMINISTRATION OF BUSINESS, I T IS THE DUTY OF THE AO TO DETERMINE THE TAXABLE INCOME BY MAKING SUCH COMP UTATION AS HE THINGS FIT. THEREFORE,THE CLAIM OF THE ASSESSEE THA T IT IS ASSESSEES OPTION TO MAINTAIN THE BOOKS OF ACCOUNTS IN THE MAN NER THAT SUITS TO IT CAN NO LONGER BE ACCEPTED AND HAS TO BE REJECTED. I N THIS CONTEXT, RELIANCE IS ALSO PLACED UPON THE MUMBAI ITATS DECI SION IN THE CASE OF DCIT VS. SAMIR DIAMONDS EXPORT PVT. LTD. REPORTE D IN 71 ITD 75. 5.10 I, THEREFORE, IN VIEW OF THE ABOVE DEFECTS IN THE SYSTEM OF METHOD OF ACCOUNTING, REJECT THE BOOK RESULTS OF THE ASSES SEE UNDER SECTION 145(3) OF THE I.T. ACT AND PROCEED TO ESTIMATE THE VALUE OF CLOSING STOCK AND STIMATE THE GROSS PROFIT AS UNDER: IT WAS EXPLAINED BY THE LEARNED COUNSEL THAT THE AS SESSEE HAS MAINTAINED REGULAR BOOKS OF ACCOUNTS, WHICH WERE DULY AUDITED. EACH ITEMS OF SALE/PURCHASE IS VERIFIABLE. THE ONLY DISPUTE IS WI TH REGARD TO MAINTENANCE OF QUALITATIVE DETAILS FOR THE PROCESSING OF THE DIAMO ND BY THE ASSESSEE. THE ASSESSEE MAINTAINED COMPLETE DATE-WISE DETAILS OF Q UANTITY OF EACH LOT OF THE DIAMOND GIVEN FOR THE PROCESSING AS WELL AS POLISHE D DIAMONDS RECEIVED AFTER THE PROCESSING. SUCH DATE WISE DETAILS OF THE PROCESSING OF THE DIAMONDS WERE FURNISHED BEFORE THE AO AND COPY OF W HICH IS ALSO ENCLOSED FROM PAGE NO.63 TO 149 OF THE ASSESSEES PAPER BOOK . THE AO HAS STATED THAT IN THESE DETAILS QUALITY OF THE DIAMOND IS NOT MENTIONED. IT IS SUBMITTED BY THE LEARNED COUNSEL THAT IT IS NOT PRACTICAL TO MAINTAIN THE QUALITY WISE DETAILS OF EACH AND EVERY DIAMOND. EACH AND EVERY D IAMOND IS OF A SEPARATE QUALITY DEPENDING UPON ITS COLOUR, CLARITY, CUT ETC . AND THIS IS ALMOST IMPOSSIBLE TO MAINTAIN QUALITY WISE DETAILS FOR EAC H AND EVERY PIECE OF DIAMOND. THAT THE ASSESSEE IS MAINTAINING THE QUANT ITATIVE DETAILS IN THE SAME FASHION SINCE PRECEDING MANY YEARS AND IT WAS ALWAYS ACCEPTED IN THE PAST. SECTION 145(3) WHICH EMPOWERS THE AO TO REJEC T THE ASSESSEES TRADING RESULTS AND MAKE THE ASSESSMENT IN THE MANN ER PROVIDED UNDER SECTION 144 READS AS UNDER: 145. METHOD OF ACCOUNTING.--(1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'I NCOME FROM OTHER SOURCES' SHALL BE COMPUTED IN ACCORDANCE WITH THE M ETHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE (2) ....... (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR THE COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE , OR WHERE NO METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTING ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 8 STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE N OT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144. 8. FROM THE ABOVE, IT IS EVIDENT THAT IF THE AO IS NOT SATISFIED ABOUT THE CORRECTNESS OR THE COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, HE MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTIO N 144. IN THIS CASE, THERE IS NO DISPUTE ABOUT THE CORRECTNESS OF THE AS SESSEES ACCOUNTS. AS PER THE AO FOR WANT OF QUALITATIVE DETAILS OF THE PROCE SSING OF DIAMONDS, THE ACCOUNTS OF THE ASSESSEE CANNOT BE SAID TO BE COMPL ETE. WE ARE UNABLE TO AGREE WITH THE ABOVE VIEWS OF THE AO. SECTION 44AA PROVIDES FOR MAINTENANCE OF THE BOOKS OF ACCOUNTS. AS PER THE SU B-SECTION (2), EVERY PERSON CARRYING ON BUSINESS OR PROFESSION IS REQUIR ED TO KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNTS AND OTHER DOCUMENTS AS MAY E NABLE TO THE AO TO COMPUTE THE TOTAL INCOME OF ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT. SUB-SECTION (3) OF SECTION 44AA EMPOWERS THE CENTRAL BOARD OF DIRECT TAX TO PRESCRIBE BY RULES THE BOOKS AND OTHE R DOCUMENTS TO BE KEPT AND MAINTAINED BY THE ASSESSEE. THE CBDT AS PER RUL E 6F HAS PRESCRIBED THE BOOKS OF ACCOUNTS AND OTHER DOCUMENTS TO BE KEP T AND MAINTAINED BY THE PERSONS CARRYING ON CERTAIN SPECIFIC PROFESSION . HOWEVER, NO BOOKS OF ACCOUNTS ARE PRESCRIBED FOR THE PERSON CARRYING ON BUSINESS. THUS, THE ASSESSEES CARRYING ON BUSINESS ARE REQUIRED MAINTAI N SUCH BOOKS OF ACCOUNTS AS WILL ENABLE THE AO TO COMPUTE THE INCOM E OF THE ASSESSEE. THE PRESENT ASSESSEE HAS MAINTAINED THE REGULAR BOOKS O F ACCOUNTS WHICH WERE DULY AUDITED. THE SALE AND PURCHASE OF THE ASSESSEE IS VOUCHED AND VERIFIABLE.THE ASSESSEE HAS ALSO MAINTAINED QUANTIT ATIVE DETAILS IN RESPECT OF DIAMONDS PURCHASED AND SOLD BY IT AS WELL AS FOR PR OCESSING OF DIAMOND. THERE IS NO ADVERSE COMMENT FROM THE AUDITOR THAT T HE PROFIT CANNOT BE COMPUTED FROM THE BOOKS OF ACCOUNTS MAINTAINED BY T HE ASSESSEE. IN OUR OPINION, THE QUALITATIVE DETAILS OF EACH PIECE OF D IAMOND IS NOT NECESSARY FOR COMPUTATION OF THE INCOME OF THE ASSESSEE. INCOME O F THE ASSESSEE CAN BE VERY WELL COMPUTED ON THE BASIS OF ACCOUNTS ALREADY MAINTAINED BY THE ASSESSEE. IN VIEW OF THE ABOVE, WE ARE UNABLE TO AG REE WITH THE AO THAT THERE IS DEFECT IN THE SYSTEM OF METHOD OF ACCOUNTI NG OF THE ASSESSEE WHICH REQUIRES REJECTION OF THE BOOK RESULTS UNDER SECTIO N 145(3) OF THE ACT AND ESTIMATION OF THE GP. 10. THE FACTS DISCUSSED ABOVE IN THE ABOVE REFERRED DECISION OF THE CO-ORDINATE BENCH ARE ALMOST IDENTICAL TO THE F ACTS OF THE CASE OF ASSESSEE WHICH IS ALSO DEALING IN POLISHED DIAMO NDS, BETTER GP RATE IN COMPARISON TO PRECEDING YEAR, NO SPECIFI C DEFAULT IN THE BOOKS OF ACCOUNTS, PREPARED QUANTITATIVE DETAIL S WITH ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 9 CALCULATION OF WASTAGE AND YIELD DULY RECORDED IN B OOKS OF ACCOUNTS AND CERTIFIED BY CHARTERED ACCOUNTANT. IT SEEMS THAT ASSESSING OFFICER HAS TRIED TO IMPOSE HIS EXPERIENC E OF SIMILAR TYPES OF ASSESSMENT DONE BY HIM IN CASE OF OTHER AS SESSEE(S). THIS ACTION OF THE ASSESSING OFFICER CANNOT BE HELD CORRECT. HOWEVER, ASSESSEE HAS ITS OWN WAY OF DOING BUSINESS AND PREPARATION OF BOOKS OF ACCOUNTS AND THERE IS NO SE T BENCH MARK THAT THE QUALITY WISE OR PIECE WISE DETAILS OF GOOD S DEALT HAS TO BE KEPT BY EACH ASSESSEE. THEREFORE, APPLYING THE RATI O OF THE DECISION OF THE CO-ORDINATE BENCH AS DISCUSSED ABOV E AND DISCUSSIONS MADE BY US, WE ARE OF THE VIEW THAT ASS ESSING OFFICER WAS NOT CORRECT IN INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT AND ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) AND REJECT THIS GROUND OF REVENUE. 11. THE NEXT GROUND RELATES TO DELETION OF ADDITION OF RS.32,24,477/- ON ACCOUNT OF DISALLOWANCE OF EXCESS LABOUR EXPENSES. THE ASSESSING OFFICER MADE DISALLOWANCE O F EXCESS LABOUR EXPENSES OF RS. 32,24,477/- BY OBSERVING AS UNDER :- 8.1 DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSE E FAILED TO PRODUCE BASIC BOOKS OF ACCOUNTS LIKE PROPER LABOUR REGISTER, OR THE LABOUR CONTRACTORS WITH THEIR REGISTERS. THE ON LY SUPPORT OF LABOUR EXPENSES WERE THE SELF MADE VOUCHERS BY THE ASSESSEE ITSELF WHICH WERE THEN COUNTERSIGNED BY THE LABOUR CONTRACTORS. THIS LEADS ONE TO BELIEVE THAT THE LABOUR EXPENSES CANNOT BE PROVED IN ABSENCE OF QUALITYWISE DETAILS OF PRODUCT ION AND PIECEWISE DETAILS. IN THE DIAMOND MARKET IT IS A CO MMON PRACTICE TO PAY THE LABOURER ON PIECEWISE BASIS. ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 10 8.2 THE FACTS FOUND DURING THE VERIFICATION OF THE BOOKS, ISSUES RAISED, REPLIES BY THE ASSESSEE HAVE BEEN DISCUSSED IN THE EARLIER PARAS. AFTER DUE CONSIDERATION TO ALL THE SUBMISSIO N OF THE ASSESSEE, IT HAS BEEN HELD THAT THE BOOKS OF ACCOUN TS ARE NOT RELIABLE AND ARE REJECTED U/S 145 OF THE ACT. IT IS SEEN THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS EXPENSES ON LABOUR IN ABSENCE OF PROPER BOOKS OF ACCOUNTS. BESIDES, IT HA S BEEN NOTED THAT THE ASSESSEE HAS KEPT THE RATE OF LABOUR PAID PER CARAT ARTIFICIALLY HIGHER AT RS.375 PER CARAT DESPITE THE GLUT IN LABOUR MARKET DUE TO DEPRESSION. IT IS ALSO SEEN THAT THE ASSESSEE HAD BEEN CLAIMING INFLATED LABOUR PAYMENT PER CARAT AT RS.375 SINCE AY 2006-07 WHEN COMPARABLE CASES OF M/S FINE MANUFA CTURING EXISTS WHICH CLAIMS A MERE RS.236 PER CARAT THIS YE AR AND HAD BEEN CLAIMING ONLY RS.206 PER CARAT FOR AY 2006-07 AND 2007-08. THE ASSESSEE WAS ISSUED A SHOW CAUSE NOTICE DATED 1 6.12.2010. THE ASSESSEE HAS FAILED TO GIVE ANY SATISFACTORY EX PLANATION TO THE SAME. 8.3 THUS THE EXCESS PAYMENT PER CARAT IS FOUND TO B E AT RS.139 PER CARAT. CONSIDERING THE TOTAL MAKEABLE ROUGH CON SUMED DURING THE YEAR THE EXCESS LABOUR CHARGE FOUND UNSUBSTANTI ATED IS HELD TO BE RS.32,24,477/- AND DISALLOWED. THE EXCESS PAY MENT CONSIDERING THE TOTAL DIAMONDS POLISHED IS AT RS.32 ,24,477/-. THEREFORE, THE EXCESS PAYMENT OF LABOUR CHARGES IS HEREBY DISALLOWED. 12. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE T HE CIT(A) WHO DELETED THE DISALLOWANCE/ADDITION MADE BY ASSES SING OFFICER BY OBSERVING AS UNDER :- 5.3 I HAVE CONSIDERED THE REASONS GIVE BY ASSESSIN G OFFICER & ALSO THE SUBMISSIONS OF APPELLANT. AFTER GOING THRO UGH THE FACTS OF THE CASE, IT IS SEEN THAT ASSESSEE HAS FURNISHED CO MPLETE DETAILS RELATING TO PAYMENT OF LABOUR CHARGES. IT IS SEEN T HAT ASSESSING OFFICER HAS DRAWN ADVERSE INFERENCE MAINLY ON GROUN D THAT RATE OF LABOUR CHARGES HAS REMAINED STAGNANT SINCE, LAST TH REE YEARS AND ACCORDING TO HIM THE RATE OF LABOUR CHARGES SHOULD HAVE REDUCED ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 11 DURING THE YEAR UNDER CONSIDERATION AS THERE WAS PR OBLEM OF EXCESS LABOUR DUE TO RECESSION. IN THIS REGARD, THE ASSESSING OFFICER HAS ALSO PLACED RELIANCE ON THE RATE OF LAB OUR CHARGES PAID BY M/S FINE MANUFACTURING. IN THIS CONTEXT, I AM OF THE OPINION THAT RELIANCE CANNOT BE PLACED ON THE RATE OF LABOU R CHARGES PAID BY SAID ENTITY FIRSTLY BECAUSE COMPLETE DETAILS OF SAID ENTITY HAS NOT BEEN SUPPLIED TO ASSESSEE AND SECONDLY, THE ASS ESSING OFFICER HAS FAILED TO PROVE THAT THERE IS ABSOLUTEL Y NO DIFFERENCE IN THE QUALITY OF DIAMONDS MANUFACTURED BY SAID ENTITY . IT IS FURTHER SEEN THAT IN CASE OF SAID ENTITY ALSO THE RATE OF L ABOUR CHARGES HAS INCREASED TO RS.236 PER CARAT IN THE YEAR UNDER CON SIDERATION WHEREAS, THE SAME WAS ONLY RS.206 PER CARAT FOR TWO CONSECUTIVE ASSESSMENT YEARS VIZ. A.Y.2006-07 AND AY 2007-08. N OW WHEN THE RATE OF LABOUR CHARGES HAS INCREASED IN THE YEA R UNDER CONSIDERATION IN CASE OF ALLEGED COMPARABLE INSTANC E RELIED UPON BY ASSESSING OFFICER HIMSELF, HE IS NOT JUSTIFIED I N DRAWING ADVERSE INFERENCE IN ASSESSEES CASE ON THE GROUND THAT THE RATE OF LABOUR CHARGES SHOULD HAVE REDUCED IN ASSESSEES CASE FOR THE YEAR UNDER CONSIDERATION DUE TO GLUT IN THE DIAMOND MARK ET. THE MOST IMPORTANT FACT IS THAT THERE IS NO INCREASE IN THE RATE OF LABOUR CHARGES FOR YEAR UNDER CONSIDERATION AND EVEN THOUG H THERE IS RECESSION IN DIAMOND INDUSTRY AS PER OBSERVATION OF ASSESSING OFFICER HIMSELF, THERE IS INCREASE IN GP RATE OF AS SESSEE TO 6.38% IN THE YEAR UNDER CONSIDERATION FROM 6.27% IN IMMED IATELY PRECEDING YEAR. FURTHER ASSESSEE HAS ALSO PRODUCED TWO LABOUR PARTIES AND IT IS NOT THE CASE OF ASSESSING OFFICER THAT SAID PARTIES DENIED TO HAVE RECEIVED PAYMENT @ RATE OF RS.375 PE R CARAT. AS REGARDS THE CONTENTION OF AO THAT ASSESSEE HAS PRIN TED ITS OWN LABOUR BILLS IT IS SEEN THAT ALL THE BILLS HAVE BEE N COUNTER SIGNED BY THE LABOUR CONTRACTORS AND THUS, IT IS ACKNOWLEDGEM ENT BY THEM RELATING TO THE CONTENTS OF SAID LABOUR BILLS. IN V IEW OF ABOVE DISCUSSION, I AM OF THE OPINION THAT THERE IS NO JU STIFICATION IN TREATING THE RATE OF LABOUR CHARGES AS EXCESSIVE TO THE EXTENT OF RS.139 PER CARAT. HENCE, ADDITION MADE BY ASSESSING OFFICER IS HEREBY DELETED AND THE GROUND OF APPEAL IS ALLOWED. 13. AGGRIEVED, THE REVENUE IS NOW IN APPEAL BEFORE THE TRIBUNAL. THE LD. DR SUPPORTED THE ORDER OF ASSESSI NG OFFICER. ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 12 14. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THAT THE ASSESSEE HAS MAINTAINED SUFFICIENT DETAILS AND SUPP ORTING FOR THE LABOUR CHARGES PAID INCLUDING QUANTITY ISSUED TO LA BOUR CONTRACTORS AND THE QUANTITY OF POLISHED DIAMONDS R ECEIVED BACK FROM THEM AND THE SAME WERE PRODUCED BEFORE THE ASS ESSING OFFICER AT THE TIME OF ASSESSMENT PROCEEDINGS. THE LD. AR SUBMITTED THAT IT IS APPARENT THAT ASSESSING OFFICE R HAS MADE DISALLOWANCE MERELY ON THE GROUND THAT OTHER UNITS ARE MAKING PAYMENT AT LOWER RATES. IN THIS REGARD, IT IS SUBMI TTED THAT ASSESSING OFFICER HAS NOT GIVEN ANY DETAILS OF COMP ARABLE CASES CITED BY HIM. IT IS A SETTLED LAW THAT IF ASSESSING OFFICER WANTS TO PLACE RELIANCE ON CERTAIN MATERIALS WHICH HE HAS CO LLECTED ON HIS OWN, IT IS IMPERATIVE ON HIS PART TO SUPPLY DETAILS RELATING TO ALLEGED COMPARABLE CASES. IT IS ALSO SETTLED PRINCI PLES OF LAW THAT WHATEVER IS APPARENT IS REAL UNLESS THERE ARE COGEN T EVIDENCES WHICH INDICATES THAT WHATEVER IS APPARENT IS NOT RE AL. IN THE INSTANT CASE, IT IS FOR THE ASSESSING OFFICER TO BRING CONC RETE EVIDENCES ON RECORD IF HIS CONTENTION IS THAT WHATEVER IS APP ARENT IS NOT REAL. WHEREAS ON THE OTHER HAND, ASSESSEE HAS FILED ENOUG H EVIDENCES TO SUBSTANTIATE THE FACT THAT WHATEVER IS APPARENT IS REAL. IN ANY CASE, UNLESS & UNTIL IT IS ESTABLISHED THAT THERE IS ABSOLUTELY NO DIFFERENCE IN THE NATURE OF MANUFACTU RING OPERATIONS & THE QUALITY OF ROUGH DIAMONDS & POLISHED DIAMONDS MANUFACTURED, THE RATE OF LABOUR CHARGES PAID BY OT HER ENTITY CANNOT BE APPLIED TO THE FACTS OF INSTANT CASE. ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 13 15. AS ASSESSEE PRODUCED ALL THE RELEVANT RECORDS I N SUPPORT OF LABOUR CHARGES THE ONUS CAST ON ASSESSEE TO PROVE G ENUINENESS OF EXPENDITURE STANDS VERY MUCH DISCHARGED. IF ASSE SSING OFFICER IS STILL OF THE OPINION THAT EXPENDITURE IS INFLATE D IN THAT CASE IT IS VERY MUCH IMPERATIVE FOR HIM TO BRING COGENT EVIDEN CE ON RECORD TO INDICATE THE QUANTUM OF INFLATION. HOWEVER, IN T HE INSTANT CASE, ASSESSING OFFICER HAS NOT BROUGHT EVEN AN IOTA OF E VIDENCE ON RECORD & THUS, THE HUGE ADDITION MADE BY RESTRICTIN G THE LABOUR CHARGES AT THE RATE OF RS.238 PER CARAT IS ABSOLUTE LY ARBITRARY. AS ADDITION IS MADE TOTALLY ON THE BASIS OF CONJECTURE S AND SURMISES, THE SAME IS PRAYED TO BE DELETED. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSING OFFICER HAS TRIED TO COMPARE THE BUSINESS STYLE OF THE ASSESSEE WITH OTHER ASSES SEES ENGAGED IN SIMILAR TYPE OF BUSINESS, WHEREIN IN SOME CASES HE MAY HAVE OBSERVED THAT OTHER ASSESSEES PAID TO THE LABOURERS ON THE BASIS OF THEIR BILLS AND THE LABOUR CHARGES VARY ON THE B ASIS OF QUALITY OF GOODS WHEREAS IN THE CASE OF ASSESSEE THEY HAVE BEE N PAID ON THE BASIS OF QUANTITY. THE ASSESSEE HAS BEEN PAYING JOB CHARGES @ OF RS.375 PER CARAT OF ROOF DIAMOND CONSISTENTLY SINCE LAST THREE YEARS WHEREAS THE ASSESSING OFFICER ON THE BA SIS OF HIS EXPERIENCE OF ASSESSING ANOTHER UNIT HAS COME TO AN AVERAGE RATE OF RS.236 PER CARAT OF JOB WORK CHARGES. THIS COMPARISON AND IMPOSING OF RATES CHARGED BY OTHER UNITS CAN BE JUSTIFIED ONLY IF THE ASSESSING OFFICER PROVES THAT ASSESSEE HAD P AID LESS AMOUNT THAN THE AMOUNT ACTUALLY SHOWN IN THE SUPPOR TING ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 14 VOUCHERS AND THERE HAS BEEN NO SUCH CASE OBSERVED B Y THE ASSESSING OFFICER. SO MUCH SO THAT WHEN ASSESSING O FFICER CALLED A FEW LABOUR CONTRACTORS FOR CROSS EXAMINING AS TO WHAT IS ACTUAL AMOUNT THEY HAVE RECEIVED, THOSE LABOUR CONTRACTORS HAVE CONFIRMED THAT THEY HAVE RECEIVED THE SAME AMOUNT O F LABOUR CHARGES AS MENTIONED IN THE SUPPORTING VOUCHERS WHI CH HAVE BEEN COUNTERSIGNED BY THEM. SIMILAR ISSUE WAS ALSO DEALT BY THE TRIBUNAL IN THE CASE OF ACIT VS. VEER GEMS IN ITA NOS.4136/AHD/2008 FOR ASST. YEAR 2005-06 WHEREIN VI DE ORDER DATED 11.6.2010 THE CO-ORDINATE BENCH HAS HELD AS U NDER :- 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSID ERED THE MATERIAL AVAILABLE ON RECORD. THE A.O. DISALLOWED R S.10 PER CARAT LABOUR EXPENSES WOULD PROVE THAT SUBSTANTIAL EXPLAN ATION OF THE ASSESSEE HAS BEEN ACCEPTED BY THE AO. THE ASSESSEE PRODUCED ALL THE DETAILS OF THE EXPENDITURE AND BOOKS OF ACC OUNT BEFORE THE AO. THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE AUDITE D. THE GP RATE IS ADMITTEDLY BETTER IN THE ASSESSMENT YEAR UN DER APPEAL AS COMPARED WITH THE LAST YEAR. THE ASSESSEE IS ENGAGE D IN THE BUSINESS OF PURCHASE/IMPORT OF ROUGH DIAMONDS AND MANUFACTURING OF IT AND SALE/EXPORT OF POLISHED DIA MONDS. THE LABOUR CHARGES EXPENSES ARE THE MAIN COMPONENT FOR EARNING THE SUBSTANTIAL INCOME. THE RATES PAID TO THE JOB WORKE RS RANGES DIFFERENTLY. ACCORDING TO ASSESSEE ALL THE PAYMENT S ARE MADE THROUGH ACCOUNT PAYEE CHEQUES ONLY AFTER MAKING TDS . THEREFORE, CONSIDERING THE HISTORY OF THE ASSESSEE AND NATURE OF BUSINESS AND THAT PROFIT IS HIGHER AS COMPARED TO T HE PRECEDING ASSESSMENT YEAR, WOULD PROVE THAT ASSESSEE SPENT GE NUINE EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORIT IES BELOW AND DELETE THE ADDITION. THIS GROUND OF APPEAL OF THE A SSESSEE IS ALLOWED. ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 15 17. AS THE FACTS OF THE CASE OF ASSESSEE ARE SIMILA R TO THE FACTS DISCUSSED IN THE ABOVE REFERRED DECISION AND IN ABS ENCE OF ANY CONTRARY EVIDENCE PLACED ON RECORD BY THE ASSESSING OFFICER IN TERMS OF RATE OF LABOUR CHARGES PAID AS WELL AS IMP ROVED GP RATE, WE DO NOT FIND ANY REASON TO DIFFER FROM THE VIEW T AKEN BY THE CIT(A) AND ACCORDINGLY UPHOLD THE SAME. THIS GROUND OF REVENUE IS DISMISSED. 18. NEXT GROUND RELATES TO DELETION OF ADDITION OF RS.23,08,633/- MADE BY THE A.O. ON ACCOUNT OF SUPPRESSED YIELD. DU RING THE YEAR UNDER APPEAL ASSESSEE HAS SHOWN TOTAL CONSUMPT ION OF 23197.68 CARAT OF ROUGH DIAMONDS AND YIELD OF 29.25 % WAS ACHIEVED THEREBY GIVING PRODUCTION OF 6786.24 CARAT OF FINISHED/POLISHED DIAMONDS. IN THE PRODUCTION PROCE SS ASSESSEE HAD SHOWN 1.78% OF REJECTION/WASTAGE. ASSESSING OFF ICER OBSERVED THAT IN THE IMMEDIATELY PRECEDING FINANCIA L YEAR I.E. ASST. YEAR 2007-08 THERE WAS NIL REJECTION SHOWN BY THE ASSESSEE; WHEREAS REJECTION OF 1.78 % HAS BEEN SHOW N THIS YEAR AND ALSO THE PERCENTAGE OF YIELD HAS FALLEN FROM 29 .1% TO 28.7%. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE Q UANTITATIVE DETAILS WHICH WERE NOT PROVIDED TO HIM QUALITYWISE AND PIECEWISE AND, THEREFORE, RAISED DOUBT ON THE BOOKS OF ACCOUN T AS WELL AS YIELD OF THE ASSESSEE AND ACCORDINGLY MADE ADDITION ON ACCOUNT OF SUPPRESSED YIELD AT RS.23,08,633/- BY GIVING FOL LOWING FINDING:- 9.9 IN VIEW OF THE ISSUES DISCUSSED IN DETAIL AS A BOVE, I AM OF THE VIEW THAT THE ASSESSEES BOOKS RESULTS IN RESPE CT OF YIELD ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 16 CANNOT BE ENTIRELY RELIED UPON AND HENCE THE SAME A RE REJECTED U/S 145(3) OF THE I.T. ACT. FROM THE ABOVE DISCUSSI ON IT HAS BEEN ESTABLISHED THAT THE ASSESSEE HAS SUPPRESSED ITS YI ELD OF POLISHED DIAMONDS FROM THE ROUGH DIAMOND. THEREFORE , ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS MENTI ONED ABOVE AND IN LAW, AND TAKING A CONSIDERED VIEW, THE YIELD OF POLISHED DIAMOND SUPPRESSED BY THE ASSESSEE IS ESTIMATED AT 2% PERCENT OVER AND ABOVE, THE PERCENTAGE OF YIELD OF POLISHED DIAMOND SHOWN BY THE ASSESSEE DURING THE YEAR. THE VALUE OF 1% OF SUPPRESSED YIELDS OF THE POLISHED DIAMOND COMES TO THE SUPPRESSED PRODUCTION OF POLISHED DIAMONDS AT 231.9 7 CARATS (1% OF 23197.68 MAKEABLE ROUGHTS) WHICH RESULTS IN AN UNACCOUNTED SALE AT RS.23,08,633/- (SALE PER CARAT OF RS.9952/-) IS HEREBY WORKED OUT AS UNDER AND THE SAME IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 19. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE CIT(A ) WHO AFTER GOING THROUGH THE ASSESSMENT ORDER AND CONSID ERING THE SUBMISSIONS OF ASSESSEE, HELD THE ACTION OF ASSESSI NG OFFICER IN REJECTING THE BOOKS OF ACCOUNT AND INVOKING THE PRO VISIONS OF SECTION 145(3) OF THE ACT AS INVALID. FURTHER, ACCE PTING THE CONTENTIONS OF THE ASSESSEE THAT THE REASON OF REJE CTION OF DIAMONDS WAS DUE TO USE OF RELATIVELY INFERIOR QUAL ITY OF ROUGH DIAMONDS AS COMPARED TO PRECEDING YEAR WHICH WAS DU LY SUPPORTED BY THE FACT THAT COST OF ROUGH DIAMONDS F ELL DOWN FROM 2792.92 PER CARAT TO RS.2337.02 PER CARAT DURING TH E YEAR. LD. ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 17 CIT(A) DELETED THE ADDITION MADE BY ASSESSING OFFIC ER ON ACCOUNT OF SUPPRESSED YIELD BY OBSERVING AS BELOW : - 6.3 AFTER CAREFULLY GOING THROUGH THE FACTS OF THE CASE, IT IS SEEN THAT ADDITION HAS BEEN MADE ON THE BASIS OF ESTIMAT ION AND THERE IS NO EVIDENCE ON RECORD WHICH INDICATES THAT THERE IS UNACCOUNTED PRODUCTION OR UNACCOUNTED SALES. IT IS VERY RELEVANT TO CONSIDER HERE THAT THERE IS INCREASE IN GROSS PR OFIT RATIO FOR THE YEAR UNDER CONSIDERATION AS CAN BE SEEN FROM PARA 4 OF THE ASSESSMENT ORDER. IT IS SEEN THAT ASSESSING OFFICER HAS ARRIVED AT THE CONCLUSION THAT THERE IS A FALL IN YIELD BY COM PUTING YIELD % ON GROSS QUANTITY OF ROUGH DIAMOND I.E. WITHOUT CONSID ERING THE REJECTION DIAMONDS WHEREAS, ASSESSEE HAS COMPUTED T HE YIELD AT 29.25% AS AGAINST 29.12% FOR IMMEDIATELY PRECEDING YEAR ON THE NET QUANTITY SENT FOR MANUFACTURING I.E. AFTER CONS IDERING REJECTION DIAMONDS. HERE, IT IS RELEVANT TO NOTE THAT ASSESSI NG OFFICER HIMSELF DISCUSSED MANUFACTURING PROCESS OF CUT & PO LISHED DIAMOND IN PARA 9.1 OF HIS ORDER AND IT IS EVIDENT ON PERUSAL OF THE SAME THAT REJECTION DIAMOND MEANS THE BITS LEFT OVE R AFTER CLEAVING AND SAWING PROCESS WHICH CANNOT BE MANUFAC TURED DUE TO SOME DEFECTS. AS SUCH REJECTION DIAMOND CANNOT B E TAKEN INTO CONSIDERATION FOR WORKING OUT THE RATIO OF YIELD AS SAID QUANTITY IS NEVER SENT FOR MANUFACTURING OF CUT AND POLISHED DI AMOND. HENCE, YIELD % IS REQUIRED TO BE COMPUTED ONLY ON T HE NET QUANTITY OF ROUGH DIAMOND WHICH IS UTILIZED FOR MAN UFACTURING OF CUT & POLISHED DIAMONDS AND EVEN ASSESSING OFFICER HIMSELF MADE ADDITION AT THE RATE OF 1% ON THE NET QUANTITY OF MAKEABLE ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 18 ROUGH DIAMOND I.E. AFTER DEDUCTING REJECTION QUANTI TY. IT IS THUS, CLEAR THAT THERE IS INCREASE IN YIELD % FOR THE YEA R UNDER CONSIDERATION. NOT ONLY THIS, IT IS ALSO SEEN THAT THERE IS RISE IN GP RATIO FOR THE YEAR UNDER CONSIDERATION AS DISCUSSED IN THE EARLIER GROUND. AS REGARDS REJECTION DIAMOND OF 413.85% CAR ATS, THE CONTENTION OF ASSESSEE THAT IT HAS USED RELATIVELY INFERIOR QUALITY OF ROUGH DIAMOND AS COMPARED TO PRECEDING YEAR APPEARS TO BE CORRECT AS THERE IS FALL IN COST OF ROUGH DIAMOND T O RS.2337.02 PER CARAT FROM RS.2792.62 PER CARAT. HENCE, THIS IS NOT THE CASE WHERE ASSESSEE HAS SHOWN ANY SHORTFALL IN YIELD. IN ANY CASE ADDITION ON ACCOUNT OF ALLEGED LOW YIELD CANNOT BE MADE PURELY ON THE BASIS OF MATHEMATICAL CALCULATION AS THERE A RE SEVERAL FACTORS WHICH AFFECT THE PERCENTAGE OF YIELD. IT IS SEEN THAT THE HONBLE ITAT AHMEDABAD BENCH IN CASE OF ACIT VS. LA THIYA BROTHERS CITED SUPRA DELETED SIMILAR ADDITION MADE ON ACCOUNT OF LOW YIELD. HENCE, IN VIEW OF ABOVE FACTS AND DECISI ON OF HONBLE ITAT, I AM OF THE OPINION THAT ADDITION CANNOT BE M ADE MERELY ON THE BASIS OF PRESUMPTION THAT YIELD IS HIGH BY 1%. HENCE, THE ADDITION MADE BY THE ASSESSING OFFICER IS HEREBY DE LETED AND THE GROUND OF APPEAL IS ALLOWED. 20. AGGRIEVED, THE REVENUE IS NOW IN APPEAL BEFORE THE TRIBUNAL. THE LD. DR SUPPORTED THE ORDER OF ASSESSI NG OFFICER. 21. THE LD. AR OF THE ASSESSEE SUBMITTED THAT IT IS PERTINENT TO POINT OUT THAT YIELD FOR THE YEAR UNDER CONSIDERATI ON IS HIGHER AS COMPARED TO PRECEDING YEAR AS THE SAME IS 29.25% FO R THE YEAR ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 19 UNDER CONSIDERATION AS AGAINST 29.12% FOR THE IMMED IATELY PRECEDING YEAR. THE ASSESSING OFFICER HAS MADE ERRO NEOUS OBSERVATION THAT ASSESSEE HAS SHOWN HIGHER YIELD ON THE BASIS OF WINDOW DRESSING. THE ASSESSING OFFICER COMPUTED YIE LD ON THE TOTAL QUANTITY OF ROUGH DIAMOND INCLUDING REJECTION DIAMONDS WHICH IS ABSOLUTELY INCORRECT AS REJECTION OCCURS A T THE STAGE OF CLEAVING, SAWING ETC. & SAID QUANTITY IS NOT CAPABL E OF MANUFACTURING OF CUT & POLISHED DIAMONDS. AS SUCH Y IELD IN DIAMOND INDUSTRY IS COMPUTED ONLY ON THE NET QUANTI TY OF ROUGH DIAMONDS WHICH IS ACTUALLY UTILIZED FOR MANUFACTURI NG OF CUT AND POLISHED DIAMONDS. IN FACT IT IS ALSO RELEVANT TO P OINT OUT THAT ASSESSING OFFICER HIMSELF MADE ADDITION ON ACCOUNT OF ALLEGED SUPPRESSED YIELD AT THE RATE OF 1% ON MAKEABLE ROUG H DIAMOND QUANTITY OF 23197.68 CARATS. 22. IT IS FURTHER SUBMITTED THAT YIELD IN DIAMOND I NDUSTRY VARIES FROM UNIT TO UNIT & FROM YEAR TO YEAR. IT CANNOT RE MAIN SAME IN DIFFERENT UNITS AS THE SAME DEPENDS NOT ONLY UPON T HE VALUE OF ROUGH DIAMONDS BUT ALSO ON VARIOUS OTHER FACTORS VI Z. SIZE OF ROUGH DIAMONDS, PURITY REQUIRED OF POLISHED DIAMOND S, COLOUR OF DIAMOND, SHAPE OF DIAMONDS ETC. IF THE THRUST IS ON TO OBTAIN MORE YIELD IN THAT CASE THE QUALITY/PURITY OF POLISHED D IAMONDS WILL BE LOWER & CONSEQUENTLY ITS SELLING PRICE WILL ALSO BE ON THE LOWER SIDE. FURTHER EVERY UNIT HAS ITS OWN QUALITY BASED ON WHICH THEY HAVE THEIR OWN CUSTOMERS & OWN MARKET. IT IS BECAUS E OF THIS REASON THAT ADDITION ON THE GROUND OF LOW YIELD CAN NOT BE MADE SIMPLY BY COMPUTING YIELD OF OTHER ENTITIES. IT IS FURTHER RELEVANT TO ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 20 MENTION HERE THAT ASSESSEE HAS USED RELATIVELY INFE RIOR QUALITY OF ROUGH DIAMOND AS COMPARED TO PRECEDING YEAR AS IS E VIDENT FROM THE FACT THAT THERE IS FALL IN COST OF ROUGH DIAMON D TO RS.2337.02 PER CARAT FROM RS.2792.62 PER CARAT & AS A RESULT O F THE SAME THERE IS REJECTION OF NOMINAL QUANTITY OF 413.85 CA RATS WHICH COMES TO JUST 1.68% OF TOTAL PURCHASES OF ROUGH DI AMOND. 23. AS REGARDS AOS OBSERVATION IN PARA 9.4 OF THE ORDER THAT THERE IS VARIATION IN YIELD % WITHIN THE SAME LOT, IT IS RELEVANT TO POINT OUT THAT ASSESSEE GAVE COGENT EXPLANATION FOR THE SAME IN HIS LETTER DATED 21/12/2010 BUT THE SAME HAS NOT BE EN PROPERLY CONSIDERED BY A.O. IT WAS EXPLAINED THAT THE IMPORT BILLS REFERRED TO BY AO CONTAINS DIFFERENT LOTS AS IS EVIDENT FROM THE FACT THAT THERE IS VARIATION IN THE RATE OF DIFFERENT PACKETS OF ROUGH DIAMOND IN THE SAME IMPORT BILL. AS SUCH IT IS QUITE NATURA L THAT IT IS NOT POSSIBLE TO OBTAIN UNIFORM YIELD IN RESPECT OF SING LE LOT PERTAINING TO SAME IMPORT BILL. HOWEVER, THE ASSESSING OFFICER HAS NOT CORRECTLY UNDERSTOOD ABOVE ASPECT & THUS, HAS CONCL USION IS TOTALLY INCORRECT. 24. IT IS ALSO PERTINENT TO POINT OUT THAT THERE IS NO QUESTION OF DRAWING ADVERSE INFERENCE AS THERE IS INCREASE IN G P RATIO FOR THE YEAR UNDER CONSIDERATION AS COMPARED TO PRECEDING Y EAR & EVEN THE YIELD IS BETTER AS COMPARED TO PRECEDING YEAR. THE CONTENTION OF ASSESSING OFFICER THAT REJECTION IS A GREY AREA & IT IS THE MOST COMMON WAY OF SUPPRESSION OF PRODUCTION IS GROSSLY INCORRECT AS STOCK OF REJECTION DIAMOND IS SEPARATELY SHOWN IN A UDITED ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 21 ACCOUNTS & WHEN THE SAME IS SOLD IN MARKET THE PAYM ENT IS RECEIVED THROUGH ACCOUNT PAYEE CHEQUES ONLY AND THE TRANSACTION IS DULY SUPPORTED BY RELEVANT SALES BIL LS MAKING IT CAPABLE OF COMPLETE VERIFICATION. THERE IS NO BASIS IN THE ACTION OF ASSESSING OFFICER IN MAKING ADDITION ON ACCOUNT OF ALLEGED LOW YIELD AT THE RATE OF 1% AS UNACCOUNTED SALES AS THE RE IS NOT EVEN AN IOTA OF EVIDENCE ON RECORD. 25. RELIANCE IS PLACED ON HONBLE ITAT AHMEDABAD BE NCH IN CASE OF ACIT VS. M/S LATHIYA BROS. & CO. ITA NO.33 87/AHD/2008 DATED 13/01/2011 WHEREIN SIMILAR ADDITION MADE ON A CCOUNT OF LOW YIELD HAS BEEN DELETED. RELIANCE CAN ALSO BE PL ACED ON ITAT AHMEDABAD BENCH DECISION IN CASE OF M/S LADHIYA BRO S. & CO. FOR AY 2001-02 WHEREIN ADDITION ON ACCOUNT OF LOW Y IELD WAS DELETED BY HONBLE ITAT VIDE ITS RDER DATED 29.4.20 05. HENCE THE ABOVE ISSUE STANDS COVERED BY THE ORDER OF ITAT & T HUS ADDITION MADE BY ASSESSING OFFICER IS REQUIRED TO BE DELETED . 26. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE MAIN REASONS WHICH AROSE IN THE MIND OF ASSESSING OFFICER TO MAKE THE ADDITION ON ACCOUNT O F SUPPRESSED YIELD WAS THAT THERE WAS NIL REJECTION IN THE PRECE DING YEAR IN COMPARISON TO 1.78% REJECTION DURING THE YEAR AND S ECONDLY QUALITYWISE AND PIECE WISE DETAILS WERE NOT AVAILAB LE AND HE HAS TRIED TO PLACE IN THE FACTS OF OTHER ASSESSEES ASSE SSED BY HIM. ASSESSING OFFICER DID NOT APPRECIATE THE FACT THAT YIELD IN THE CASE OF PRECIOUS STONE CANNOT BE SET BY A SIMILAR BENCH MARK BECAUSE ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 22 NO BODY CAN PREDICT THE POSSIBLE YIELD OF FINISHED GOODS WHICH CAN BE DERIVED FROM CUTTING AND POLISHING ROUGH DIA MONDS AND ALSO ROUGH DIAMONDS ARE IN ITSELF DIFFERENT IN THEI R QUALITY BUT GENERALLY WHEN THERE IS FINE QUALITY OF ROUGH DIAMO NDS THERE IS ALWAYS A POSSIBILITY OF HIGHER YIELD AND VICE VERSA IN CASE OF INFERIOR TYPE OF ROUGH DIAMOND. AS SUBMITTED BY ASS ESSEE THAT VARIATION IN YIELD HAS ARISEN DUE TO VARIATION IN R ATES AND USE OF LITTLE INFERIOR QUALITY OF ROUGH DIAMOND DURING THE YEAR IN COMPARISON TO PREVIOUS YEAR. HOWEVER, OVERALL YIELD IN ASST. YEAR 2008-09 IS 29.25% IN COMPARISON TO 29.12% YIELD IN ASST. YEAR 2007-08. FURTHER REGARDING REJECTION IT IS ONLY FRO M THE ROUGH DIAMONDS OF LOWER PURCHASE PRICE. ASSESSEE HAS PROP ERLY MAINTAINED QUANTITATIVE DETAILS ALONG WITH QUANTITY OF GOODS PRODUCED AND QUANTITY OF WASTAGE AND YIELD. THE VER Y BASIS TAKEN BY ASSESSING OFFICER THAT THERE WAS NO WASTAGE IN P RECEDING YEAR AND, THEREFORE, THE WASTAGE IN THIS YEAR IS MANIPUL ATED IS FAR FROM TRUTH AND WITHOUT ANY BASIS AND THEREFORE, THERE IS NO WEIGHTAGE IN THE OBSERVATION MADE BY THE ASSESSING OFFICER. AS DISCUSSED EARLIER BUSINESS STYLE OF EACH ASSESSEE HAS ITS OWN UNIQUE WAY OF WORKING AND ALL CANNOT BE EXAMINED WITH A SIMILAR B ENCH MARK ELSE THERE ALWAYS BE THE SIMILAR PERCENTAGE OF PROF IT EARNED BY EVERY ASSESSEE. BUSINESS IS CONTROLLED BY THE OWNER OR THE MANAGEMENT AND THE LEVEL OF YIELD, GP/NP ACHIEVED W ILL VARY FROM CASE TO CASE DEPENDING ON THE APPLICATION OF S TRATEGIC MIND BY THE BUSINESSMAN. IN VIEW OF ABOVE DISCUSSIONS, W E FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A) AND UPHOLD THE SAME. THIS GROUND OF REVENUE IS DISMISSED. ITA NO. 3257/AHD/2011 ASST. YEAR 2008-09 23 27. GROUND NOS.4 & 5 ARE OF GENERAL NATURE, WHICH N EED NO ADJUDICATION. 28. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOV 2015 SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 30/11/2015 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASSTT.. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 19/11/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 20/11/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 30/11/2015 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: