ASST CIT 16(2), MUMBAI V. MINESTONE, MUMBAI

ITA 4220/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0257 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 30-03-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 12-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Unexplained investment; Capital asset; Opportunity of being heard
• Section: 143(3); 14A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 4219 / MUM/20 14 ASSESSMENT YEAR: 2007 - 08 ASST CIT 16(2) V M/S. MINESTONES 2 RD FLOOR, MATRU MANDIR 514, PANCHRATNA, 5 TH FLOOR, MAMA TARDEO ROAD PARAMAND MARG, OPERA HOUSE MUMBAI - 400007 MUMBAI - 400004 PAN NO. AAAFM0444L ITA NO. 4220 /MUM/20 14 ASSESSMENT YEAR: 2008 - 09 ASST CIT 16(2) V M/S. MINESTONES 2 RD FLOOR, MATRU MANDIR 514, PANCHRATNA, 5 TH FLOOR, MAMA TARDEO ROAD PARAMAND MARG, OPERA HOUSE MUMBAI - 400007 MUMBAI - 400004 PAN NO. AAAFM0444L (APPELLANT) (RESPONDENT) REVENUE BY : SHRI B.S. BIST, DR ASSESSESE BY: SH RI SANJAY R. PARIKH, AR DATE OF HEARING : 05/04 /2017 DATE OF PRONOUNCEMENT: 22/06/2017 ORDER PER N.K. PRADHAN, AM TH E CAPTIONED APPEAL S FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APPEALS) 28, MUMBAI AND ARISE OUT OF THE ORDER OF U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). AS COMMON ISSUES ARE INVOLVED, WE PROCEED TO DISPOSE THEM OFF THROUGH A CONSOL IDATED ORDER FOR THE SAKE OF CONVENIENCE. IT (SS) A NO. 4219 & 4420 /MUM/201 4 2 2. THE GROUNDS OF APPEAL FILED BY THE REVENUE READ AS UNDER : - ITA NO. 4219/MUM/2014 A.Y. 2007 - 08 I. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ASSESSING OFFICERS FINDINGS OF REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE U/S 145(3) OF THE ACT EVEN THOUGH PROPER MANDATORY ACCOUNTING STANDARDS WERE NOT ADHERED TO BY THE ASSESSEE? II. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1.34 CRORES RELYING ON THE SUBMISSION MADE BY THE ASSESSEE WHERE AS THE ASSESSING OFFICER HAD NO OPTION BUT TO MA K E A SSESSMENT ON ESTIMATION BASIS WHICH WAS BASED ON PREVIOUS YEAR ESTIMATE IN VIEW OF REJECTION OF BOOKS OF ACCOUNTS? III. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. ITA NO. 4220/MUM/2014 A.Y. 2008 - 09 I. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ASSESSING OFFICERS FINDINGS OF REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE U/S 145(3) OF THE ACT EVEN THOUGH PROPER MAN DATORY ACCOUNTING STANDARDS WERE NOT ADHERED TO BY THE ASSESSEE? II. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 50 LACS RELYING ON THE SUBMISSION MADE BY THE ASSESSEE WHERE AS THE ASSESSING OFFI CER HAD NO OPTION BUT TO MA K E ASSESSMENT ON ESTIMATION BASIS WHICH WAS BASED ON PREVIOUS YEAR RESULTS IN VIEW OF REJECTION OF BOOKS OF ACCOUNTS? III. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. WE MENTION AT THE BEGINNING THAT THE GROUNDS OF APPEAL FOR BOTH THE IMPUGNED ASSESSMENT YEARS ARE SAME EXCEPTING THE AMOUN T IN DISPUTE. WE TAKE UP FIRST THE GROUNDS OF APPEAL FOR THE A . Y . 2007 - 08. IT (SS) A NO. 4219 & 4420 /MUM/201 4 3 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT TH E ASSESSEE - FIRM DEALS IN IMPORT OF ROUGH DIAMONDS, MANUFACTURE AND EXPORT OF POLISHED DIAMONDS . IT IS ALSO ENGAGED IN THE MANUFA CTURE ON SALE OF JEWELL ERY. THE ASSESSING OFFICER (AO) OBSERVED THE FOLLOWING : 1. THE OPENING STOCK OF ROUGH DIAMONDS WAS SHOWN AT 73,321.28 CARATS, WHEREAS IN FACT IT WAS 1,02,269.37 CARATS. WITH THIS FIGURE OF OPENING STOCK, THE AVERAGE VALUE OF OPENING ST OCK OF ROUGH DIAMONDS DID NOT TALLY WITH THE SUBMISSIONS GIVEN BY THE ASSESSEE AND THE VALUATION OF CLOSING STOCK ETC. 2. IN THE AUDIT REPORT, THE METHOD OF VALUATION OF CLOSING STOCK WAS STATED TO BE RAW MATERIAL AT COST AND FINISHED GOODS AT ESTIMATED CO ST. WHEREAS THE ASSESSEE NOW SUBMITS THAT THE OPENING AND CLOSING STOCK OF ROUGH DIAMONDS IS AT COST ON FIFO BASIS. THUS THERE WAS A CLEAR DEVIATION FROM THE METHOD OF VALUATION REGULARLY FOLLOWED BY THE ASSESSEE. 3. THE STOCK STATEMENTS SUBMITTED BY THE ASSESSEE TO THE BANK (AS ON 31.03.2007) SHOWED VALUE OF ROUGH AND POLISHED DIAMONDS AT MUCH HIGHER VALUE THAN WHAT IS SHOWN IN THE BOOKS OF ACCOUNTS. 4. THERE IS LOSS OF 604.8 CARATS OF POLISHED DIAMONDS, WHICH IS NOT EVIDENT FROM RECORDS. 5. THERE IS A FALL IN YIELD BY 0.23%. THE EXPLANATION OF THE ASSESSEE THAT THE NEW MACHINERY WAS PURCHASED TO INCREASE THE MANUFACTURING CAPACITY AND NOT TO INCREASE YIELD, WAS NOT ACCEPTABLE AS IT WAS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCES. 6. NO LOG BOOK HAS BEEN MAINTAINED BY THE ASSESSEE FOR THE RUNNING OF THE CAR AND NO CALL REGISTER HAS BEEN MAINTAINED FOR USE OF TELEPHONE. 7. THE ASSESSEE HAS INCURRED INTEREST EXPENSES ON FUNDS USED FOR NON BUSINESS PURPOSES AND FOR INVESTMENTS IN CAPITAL ASSETS. SUCH INTEREST EXPENSES CAN NOT BE ALLOWED IN THE COMPUTATION OF INCOME FOR THE CURRENT YEAR. 8. PROVISIONS OF SECTION 14A ARE APPLICABLE ON INVESTMENTS MADE IN SHARES TO THE EXTENT OF RS. 1 CRORES. IT (SS) A NO. 4219 & 4420 /MUM/201 4 4 4.1. THE AO HAS NOTED THAT IN THE STOCK STATEMENT FURNISHED TO BANKS, AS ON 31.03.2007, THE VALUE OF ROUGH DIAMONDS HAS BEEN SHOWN AT RS.38,80,61,000/ - FOR 66,201.50 CARATS, WHICH GIVES AN AVERAGE RATE OF RS.5,861.86/ - PER CARAT. IN THE CLOSING STOCK, VALUE OF 92,530.81 CARATS OF ROUGH DIAMONDS HAS BEEN SHOWN AT RS.43,63,99,412/ - WHICH GIVES AN AVERAGE OF RS.4,716.26/ - PER CARAT. SIMILARLY, THE VALUE OF POLISHED DIAMONDS AS STATED TO THE B ANK HAS BEEN SHOWN AT RS.71,98,43,000/ - FOR 39,343.75 CARATS, WHICH GIVES AN AVERAGE RATE OF RS.18,296.24/ - PER CARAT. WHEREAS IN THE CLOSING STOCK, THE VALUE OF 37,839.96 CARAT S OF CUT AND POLISHED DIAMONDS HAS BEEN SHOWN AT RS.65,15,70,989/ - GIVING AN AVERAGE RATE OF RS.17,219.12/ - PER CARAT. THE WEIGHT AND VALUE FURNISHED TO THE B ANK AND THAT RECORDED IN THE BOOKS DO NOT TALL Y AND THERE IS A BIG DIFFERENCE. THE AO HAS CONCLUDED THAT WHEN THE RECORDS ARE SUCH THAT THE VALUE OF RAW MATERIAL (ROUGH DIAMONDS) AND FINISHED GOODS (POLISHED DIAMONDS) AT DIFFERENT STAGES ARE NOT VERIFIABLE OR COMPARABLE , THE PROVISIONS OF SECTION 145(3) ARE FULLY APPLICA BLE . HE REFERRED TO THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF KANCHWALA GEMS VS. JCIT , JA IPUR, (2007) 158 TAXMAN 71 (SC) AND MADE AN ADDITION OF RS.1,50,00,000/ - TO THE INCOME SHOWN BY THE ASSESSEE. 5. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) HAS HELD THAT (I) IT CANNOT BE EXPECTED THAT THE NET PROFIT RATE AND YIELD FROM ROUGH DIAMONDS REMAINS THE SAME OVER THE YEARS, (II) VARIATION OF 0.23% IS NOT MATERIAL, LOOKING TO THE IMPROVEMENT IN GROSS PROFIT RATE FROM LAST YEAR AND OTHERWISE HEALTHY GP RATE OF 9.77% IN THIS DIAMOND IT (SS) A NO. 4219 & 4420 /MUM/201 4 5 BUSINESS, (III) THE INTERPRETATION OF THE AO REGARDING THE DISCREPANCIES IN THE RATE OF OPENING STOCK, PURCHASE AND CLOSING STOCK OF DIAMOND IS FAUL TY AND INCORRECT, (IV) THE ALLEGATION OF THE AO THAT THERE WAS A CHANGE IN THE METHOD OF VALUATION / ACCOUNTING WHICH WAS NOT REPORTED IN THE TAX AUDIT REPORT IS ALSO BASED ON IMPROPER UNDERSTANDING OF THE NAT URE OF BUSINESS OF THE ASSESSEE, (V) THE OBSERV ATION OF THE AO THAT THE VALUE OF CLOSING STOCK MENTIONED BY THE ASSESSEE TO THE B ANK DIFFERS FROM THE VALUE OF CLOSING STOCK SHOWN IN THE BOOKS OF ACCOUNTS AND THIS AMOUNTS TO DEFECTS IN THE BOOKS OF ACCOUNTS IS NOT CORRECT. FOR VALUATION OF CLOSING STOCK , THE ASSESSEE HAS ADOPTED COST OR MARKET VALUE WHICHEVER IS LOWER AND FOR THE PURPOSE OF DECLARING THE VALUE TO THE B ANK, THE ASSESSEE HAS ADOPTED ESTIMATED REALISABLE VALUE, (VI) THE MARGINAL FAULT IN THE YIELD OF POLISHED DIAMONDS COMPARED TO LAST YEAR CANNOT BE TAKEN AS A DEFECT IN THE BOOKS TO MAKE THE ADDITION, AS IS DONE BY THE AO, (VII) LOSS OF DIAMONDS AT 604.18 CARATS IS ABOUT 0.5% OF THE TOTAL DIAMONDS MANUFACTURED (FINISHED) BY THE ASSESSEE, (VIII) THE NON - MAINTENANCE OF LOG BOOK FOR RUNNING THE CAR AND USE OF TELEPHONE CANNOT BE CONSIDERED AS DEFECTS IN THE BOOKS OF ACCOUNTS, (VIIII) INTEREST EXPENSES ON THE FUNDS USED FOR NON - BUSINESS PURPOSE FOR CAPITAL INVESTMENT AND AMOUNT DISALLOWABLE U/S 14A FOR INVESTMENTS IN SHARES ARE ISSUES WHICH ARE D IFFERENT IN NATURE AND CANNOT BE CONSIDERED AS DEFECTS IN THE BOOKS OF ACCOUNTS. THEREFORE, THE LD. CIT(A) DELETED THE ADDITION OF RS.1,50,00,000/ - MADE BY THE AO. 6. BEFORE US, THE LD. DR RELIES ON THE ORDER OF THE AO . R EFERENCE IS MADE BY HIM TO THE FINDING OF THE AO THAT THERE EXISTS DIFFERENCE IN THE STOCK STATEMENT OF ROUGH AND POLISHED DIAMONDS SHOWN IN THE IT (SS) A NO. 4219 & 4420 /MUM/201 4 6 BOOKS OF ACCOUNTS AND THE ONE FURNISHED TO THE B ANKS. THE LD. DR ALSO REFERS TO THE FINDING OF THE AO THAT THE WEIGHT AND VALUE FURNISHED TO THE B ANK S AND THE ONE RECORDED IN THE BOOKS OF ACCOUNTS DO NOT TALLY AND THERE IS A BIG DIFFERENCE. THEREFORE, HE SUPPORTS THE ORDER PASSED BY THE AO. 7. PER CONTRA THE LD. COUNSEL OF THE ASSESSEE FILES A PAPER BOOK (P/B) CONT AINING (I) COMPUTATION OF TOTAL INCOME, (II) COPY OF TAX AUDIT REPORT IN FORM NO.3CB ALONG WITH BALANCE SHEET, PROFIT & LOSS ACCOUNT AND RELEVANT SCHEDULES, (III) COPY OF TAX AUDIT REPORT IN FORM NO. 3CD ALONG WITH RELEVANT ANNEXURES, (IV) COPY OF TABLE GI VEN IN ASSESSMENT ORDER WITH RESPECT TO STOCK ITEMS, (V) COPY OF TABLE SHOWING WORKING AS PER AO AND CORRECT WORKING, (VI) COPY OF LETTER DATED 03.12.2009 FILED WITH AO ALONG WITH RELEVANT ENCLOSURES,(VII) COPY OF LETTER DATED 29 TH NOVEMBER, 2011 FILED WIT H THE COMMISSIONER OF INCOME TAX (APPEALS) ALONG WITH ENCLOSURES, (VIII) COPY OF LETTER DATED 1 ST DECEMBER, 2010 WITH THE COMMISSIONER OF INCOME TAX (APPEALS), ( IX ) COPY OF LETTER DATED 24 TH JANUARY, 2010 FILED WITH THE COMMISSIONER OF INCOME TAX (APPEALS) , (X) COPY OF LETTER DATED 15 TH MARCH, 2011 FILED WITH THE COMMISSIONER OF INCOME TAX (APPEALS), (XI) COPY OF SYNOPSIS OF ARGUMENTS FILED WITH COMMISSIONER OF INCOME TAX (APPEALS), (XII) COPY OF LETTER DATED 11 TH DECEMBER, 2011 FILED WITH THE COMMISSIONER OF INCOME TAX (APPEALS), (XIII) COPY OF LETTER DATED 28 TH AUGUST, 2012 FILED WITH AO DURING REMAND PROCEEDINGS, (XIIII) COPY OF LETTER DATED 21 ST JANUARY, 2013 FILED WITH AO DURING REMAND PROCEEDINGS ALONG WITH ENCLOSURES, (XV) COPY OF REMAND REPORT, (XVI) COPY OF LETTER DATED 26 TH FEBRUARY, 2016 FILED WITH THE COMMISSIONER OF INCOME TAX (APPEALS) WITH ENCLOSURES, (XVII) COPY OF LETTER DATED 7 TH MARCH, 2014 FILED WITH THE COMMISSIONER OF INCOME TAX (APPEAL) ALONG WITH IT (SS) A NO. 4219 & 4420 /MUM/201 4 7 ENCLOSURES, (XVIII) EXPLANATORY NOTE ON PROCESS (WEIGHT) LOSS WITH ENCLOSURES . 8. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT IN THE STATEMENT OF FACTS FILED ALONG WITH FORM NO. 35 BEFORE THE LD. CIT(A), THE ASSESSEE HAS STATED THAT IN DECLARI NG THE VALUE TO THE BANKS OF THE POLISHED DIAMONDS, ONE IS NOT UNDER OBLIGATION TO STATE THE VALUE AT COST OR MARKET PRICE WHICHEVER IS LOWER. ASSESSEE CAN DECLARE IT AT HIGHER VALUE AT THE ESTIMATED REALIZABLE RATE. FURTHER IN THE STOCK STATEMENT IT IS CLEARLY MENTIONED THAT THE VALUE DECLARED IS S UBJECT TO AUDIT & FINALIZATION . THIS CANNOT BE TREATED AS A DEFECT IN THE AC COUNTS. THE ACCOUNTS ARE CORRECTLY MAINTAINED AND NO INACCURACY OR MISTAKE HAS BEEN FOUND. THE CLAIM THAT A STOCK STATEMENT MADE FOR THE BANK SHOULD BE IGNORED BECAUSE OF THE PRACTICE TO INFLATE STOCK SO AS TO GET LARGER CREDIT FROM THE BANK CANNOT BE LI GHTLY ACCEPTED AS WAS DECIDED BY THE HON'BLE MADRAS HIGH COURT IN COIMBATORE SPINNING AND WEAVING CO. VS. CIT (1974) 95 ITR 375 (MAD). FOLLOWING THE SAID DECISION, IT WAS HELD THAT IN SIMILAR CIRCUMSTANCES, THE ADDITION WAS JUSTIFIED. WE MAY REFER TO THE D ECISION IN THE CASE OF DHANSIRAM AGARWALLA VS. CIT (1993) 201 ITR 192 (GAU) ASSESSEES SLP DISMISSED IN (1993) 204 ITR ST. 45 (SC). IN RAMANLAL KACHARULAL TEJMAL VS. CIT (1983) 12 TAXMAN 130 (BOM.), THE ASSESSEE OBTAINED LOANS FROM BANKS FOR FINANCING CERTA IN FIRMS BY PLEDGING GOODS WHICH WERE FOUND IN EXCESS OF STOCK . THE HONBLE BOMBAY HIGH COURT HELD EXCESS STOCK REPRESENTED ASSESSEE'S PROPERTY ASSES SABLE AS UNEXPLAINED INVESTMENT . 8.1. IN VIEW OF THE ABOVE, THE ORDER OF THE LD. CIT(A) IS SET ASIDE ONLY TO THE LIMITED EXTENT OF THE DIFFERENCE, IF ANY, IN THE STOCK STATEMENT IN IT (SS) A NO. 4219 & 4420 /MUM/201 4 8 THE BOOKS OF ACCOUNTS AND THE ONE GIVEN TO THE BANK BY THE ASSESSEE. THE AO IS DIRECTED TO VERIFY THE SAME AND PASS AN ORDER AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. THE ASSESSEE IS DIRECTED TO FILE THE RELEVANT DETAILS BEFORE THE AO. 9. IN THE RESULT, THE APPEAL OF THE REVENUE FOR A.Y. 2007 - 08 IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 4220/MUM - 2014 AY 2008 - 09 1 0 . WE NOW TURN TO THE APPEAL FOR THE A.Y. 2008 - 09. THE AO OBSERVE D THAT ALTHOUGH THE TURNOVER AND THE TOTAL INCOME HA D GONE UP FROM LAST YEAR, THERE WAS A MARGINAL FALL OF 0.03% IN GP RATE AND 0.38% IN THE YIELD OF POLISHED DIAMONDS OUT OF THE ROUGH DIAMONDS PROCESSED BY THE ASSESSEE. SINCE THE VALUE OF CLOSING STOCK OF POLISHED DIAMONDS WAS TAKEN AT ESTIMATED VALUE AND DETAILS OF CLOSING STOCK OF POLISHED DIAMONDS DID NOT GIVE NUMBER OF PIECES, SIZE, WEIGHT, QUALITY ETC. , T HE AO CONCLUDED THAT THE ESTIMATED V ALUE WAS NOT VERIFIABLE AND NOT RELIABLE. THE AO ALSO NOTED THAT THE VALUATION OF CLOSING STOCK OF GOLD WAS NOT CORRECT AS THE LAST THREE PURCHASES OF GOLD WERE @ RS.1040 TO RS.1181 PER 10 GRAMS, WHEREAS THE VALUE ADOPTED FOR VALUING CLOSING STOCK WAS RS. 964.28 PER 10 GRAMS. THE AO CONCLUDED THAT IN VALUING THE STOCK OF GOLD, GOLD JEWELLERY AND DIAMONDS ETC. NO SCIENTIFIC METHOD HA D BEEN ADOPTED AND IT WA S ALL ESTIMATION/ GUESS WORK. THE AO THEREFORE, INVOKED THE PROVISIONS OF SECTION 145 AND REJECTED THE BOOKS OF ACCOUNTS AND MADE AN ADDITION OF RS.50,00,000/ - . 1 1 . AGGRIEVED BY THE ORDER OF THE AO , THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) ALLOWED THE APPEAL ON THE GROUND THAT (I) THE GP RATE OBTAINED FOR AY 2005 - 06 AN D 2006 - IT (SS) A NO. 4219 & 4420 /MUM/201 4 9 07 WAS LESSER THAT THE GP RATE FOR THE AY 2008 - 09, (II) TO EXPECT THE ASSESSEE TO MAINTAIN THE LOTS OF DIAMONDS EXACTLY AS THEY WERE PURCHASED, TILL THEY ARE FINALLY SOLD OR VALUED FOR CLOSING STOCK IS PRACTICALLY NOT POSSIBLE, (III) NO DISCREPANCY HAS BEEN FOUND BY THE AO TO ESTABLISH THAT THE CLOSING STOCK OF POLISHED DIAMONDS IS UNDER - VALUED OR VALUED INCORRECTLY, (IV) THE MARGINAL FALL IN YIELD FROM 37.47% LAST YEAR TO 37.09% THIS YEAR CANNOT BE TAKEN AS DEFECT IN THE BOOKS OF ACCOUNTS FOR REJECT ION OF BOOK RESULTS AND ESTIMATION OF PROFITS AS DRAWN BY THE AO. THEREFORE, THE LD. CIT(A) DELETED THE ADDITION OF RS.50,00,000/ - MADE BY THE AO. 1 2 . BEFORE US, THE LD. DR RELIES ON THE ORDER OF THE AO. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESSEE FILES A PAPER BOOK (P/B) ENCLOSING THEREIN (I) COMPUTATION OF TOTAL INCOME, (II) COPY OF TAX AUDIT REPORT IN FORM NO. 3CB ALONG WITH BALANCE SHEET, PROFIT & LOSS ACCOUNT AND RELEVANT SCHEDULES, (III) COPY OF TAX AUDIT REPORT IN FORM NO. 3CD ALONG WITH RELE VANT ANNEXURES, (IV) COPY OF LETTER DATED 11.12.2001 FILED WITH THE COMMISSIONER OF INCOME TAX(APPEALS), (V) COPY OF REMAND REPORT, (VI) COPY OF LETTER DATED 7 TH MARCH, 2014 FILED THE COMMISSIONER OF INCOME TAX (APPEALS) ALONG WITH ENCLOSURES, (VII) COPY OF LETTER DATED 13 TH MARCH, 2014 FILED WITH THE COMMISSIONER OF INCOME TAX (APPEALS) ALONG WITH ENCLOSURES. 1 3 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ALLEGATION OF THE AO THAT GROSS PROFIT FOR THE YEAR INCLUDES SUBSTANTIAL INCOME FROM FOREIGN EXCHANGE RATE FLUCTUATION AND HENCE THE REAL GP RATE IS MUCH LESSER IS NOT CORRECT. THE FLUCTUATION OF EXCHANGE RATE IS AN INTEGRAL PART OF ANY EXPORT BUSINESS. IT (SS) A NO. 4219 & 4420 /MUM/201 4 10 WE ALSO FIND THAT POLISHED DIAMONDS FINALLY RECEIVED BACK AFTER MANUFACTURING ARE NOT IN THE SAME LOT AND IN THE SAME ORDER AS THE PURCHASE OF ROUGH DIAMONDS. POLISHED DIAMONDS ARE RECEIVED IN VARYING QUANTITIES FROM TIME TO TIME FROM DIFFERENT KARIGARS. E VEN AFTER THE RECEIPT OF THE POLISHED DIAMONDS, THE EMPLOYEES AGAIN ASSORT THEM ACCORDING TO WEIGHT, QUALITY, SIZE AND SHAPE. IN SUCH CIRCUMSTANCES, IT IS NOT POSSIBLE FOR THE ASSESSEE TO MAINTAIN SAME LOT WISE DETAILS IN WHICH THE ROUGH DIAMONDS WERE PURC HASED. GIVEN THE NATURE AND SIZE OF THE BUSINESS OF THE ASSESSEE, THE METHOD OF VALUATION OF ROUGH DIAMONDS IN STOCK OR ISSUED FOR MANUFACTURING IS SATISFACTORY, ESPECIALLY WHEN WE LOOK AT THE GROSS PROFIT RATE. WE FURTHER FIND THAT NO DISCREPANCY HAS BEE N POINTED OUT BY THE AO TO ESTABLISH THAT THE CLOSING STOCK OF POLISHED DIAMONDS IS UNDERVALUED OR VALUED INCORRECTLY. IN RESPECT OF OPENING STOCK AND CLOSING STOCK OF ROUGH DIAMONDS, THE AO HAS NOT BEEN ABLE TO DISTINGUISH BETWEEN THE ROUGH DIAMONDS AND R OUGH REJECTIONS, WHICH DIFFER IN RATE TO A GREAT EXTENT. THE OTHER REASON FOR REJECTION OF BOOK RESULT IS THE FALL IN THE YIELD OF POLISHED DIAMONDS, WHICH IS 37.09% FOR THE CONCERNED YEAR COMPARE D TO 37.47% IN YEAR BEFORE. THE MARGINAL FALL IN YIELD COMP ARED TO LAST YEAR CANNOT BE A GROUND FOR REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION OF PROFITS AS DONE BY THE AO. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF THE LD. CIT(A). 1 4 . IN THE RESULT, THE APPEAL OF THE REVENUE FOR THE AY 2008 - 09 IS DISMISSED . ORDER PRONOUNCED IN THE OPEN C OURT ON 22 /06/2017. IT (SS) A NO. 4219 & 4420 /MUM/201 4 11 SD/ - SD/ - ( MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : DATED: 22/06/2017 RAHUL SHARMA , SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI