D.R. IMPEX, MUMBAI V. ITO 16(3)(1), MUMBAI

ITA 4799/MUM/2009

• Counselvise Citation: 479919914 RSA 2009
• Duration Of Justice: 1 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 12-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 19-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: AJAY R SINGH; DR K SHIVARAM

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI R.S.SYAL, AM AN D SHRI R.S.PADVEKAR, JM ITA NO.4799/MUM/2009 : ASST.YEAR 2006-2007 M/S.D.R.IMPEX 2205-A, PANCHRATNA, OPERA HOUSE MUMBAI 400 004. PAN : AABFD9734B. VS. THE INCOME TAX OFFICER WARD 16(3)(1) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : DR.K.SHIVARAM & SHRI AJAY R.SINGH RESPONDENT BY : SHRI C.G.K.NAIR O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 29.06.2009 IN RELATI ON TO THE ASSESSMENT YEAR 2006-2007. 2. THE ONLY ISSUE RAISED THROUGH VARIOU S GROUNDS IS AGAINST THE CONFIRMATION OF TRADING ADDITION AT RS.8,15,241. BRIEFLY ST ATED THE FACTS OF TH E CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTUR ING OF ROUGH DIAMONDS TO POLISHED DIAMONDS AND THEREAFTER EXPOR TING POLISHED DIAMONDS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD GIVEN DETAILS OF ONLY OPENING AND CL OSING STOCK OF POLIS HED DIAMONDS I.E. QUALITY-WISE, QUANTITY-WISE AND VALUE-WI SE WITHOUT ANY DAY-TO-DAY QUALITY-WISE STOCK. THE A.O. NOTICED THAT THE GROSS PROFIT RATE DECLARED IN THIS YEAR AT 4.26% WAS LOWER THAN THE G.P. RATE OF 11.60% FO R ASSESSMENT YEAR 2 004-2005 AND 5.10% FOR ASSESSMENT YEAR 2005-2006. IT WAS STILL FURT HER NOTED THAT THE YIELD OF FINISHED GOODS WAS AT 23.92% WHICH WAS VERY LO W AS COMPARED TO THE OTHER BUSINESS ORGANIZATIONS DEALING IN DI AMONDS, GENERALLY GIVING YIEL D AT 30 TO 35%. ON BEING SHOW CAUSED TO EXPLAIN THE REASONS FOR THE DECLINE IN G. P. RATE, THE ASSESSEE STATED CERTAIN REASONS VIDE LETTER DATED 13.12. 2008, RELEVANT PART OF WHICH HAS BEEN ITA NO.4799/MUM/2009 M/S.D.R.IMPEX. 2 REPRODUCED ON PAGES 2 AND 3 OF THE ASSESSMENT ORDER. THE ASSESSEE ADMITTED THAT IT WAS NOT IN A POSITION TO GI VE QUANTITY OF SALES AND PURC HASES AS PER INVOICE OF THE DIAMONDS. AS THE ASSESSEE ADM ITTED THAT IT WAS COMPLETELY IMPOSSIBLE TO FIND OUT POLISHED DIAMONDS QUALITY-WISE, BILL-WISE AND RATE-WISE, IT WAS REQUIRED TO PRODUCE COPIES OF JHANGAD SLIPS AND PRODUCE ORIGINAL FOR VERIFI CATION. THE ASSESSEE STATED THAT JHANGADS WERE PREPARED AT THE TIME OF DELIVERY OF GOODS TO THE KARIGARS AND WHEN MATERIAL CAME BACK AFTER POLISHING, THE JHANGADS WERE DESTROYED AND HENCE IT WAS NOT IN A POSITION TO PRO DUCE ANY JHANGAD SLIPS. TH E ASSESSING OFFICER OBSERVED THAT IN THE ABSENCE OF DETA ILS AS DISCUSSED ABOVE IT WAS NOT POSSIBLE TO VERIFY THE BOOK RESULTS. RELYING ON TRIBUNAL ORDER IN THE CASE OF SURGEMS VS. JT.CIT IN ITA NO.376/MUM/2008 DATED 26 TH MAY, 2008 WHEREIN THE ASSESS ING OFFICERS ACTION OF REJECTING THE BOOKS OF ACC OUNT AND MAKING ADDITION OF RS.50 LAKHS ON ACCOUNT OF G.P. WAS APPROVED, THE ASS ESSING OFFICER REJECT ED THE BOOK RESULTS AND TOOK AVERAGE OF PRECEDING TWO YEARS G.P. RATE AT 8.35%, OUT OF WHICH THE G.P. DECLARED AT 4.26% BY THE ASSESSEE IN THIS YEAR WAS REDUCED AND ADDITION WAS MADE TOWARDS 4% G.P. RATE, WHICH WORKED OUT AT RS.8,15,241. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. 3. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED THAT THE VALUE OF THE CLOSING STOCK OF DIAM ONDS HAS BEEN SHOWN AT RS.79,74,000 IN THE BALANC E SHEET, DETAIL OF WHICH IS AVAILABLE ON SCHEDULE-E WHICH STATES : POLISHED DIAMONDS (1000.36 CTS.). EXCEPT THAT THERE IS NO OTHER DETAIL. THE SAID VALUE AT RS.79,74,000 HAS BEEN DETERMINED ON PA GE 33 OF THE PAPER BOOK WHICH SHOWS QUALITY-WISE PIECES OF DIAMONDS AND TH E RATE IS VARYING FROM RS.3,200 TO RS.31,915. THE LD. AR CLAIME D THAT THE CLOSING STOCK VALUATION AT RS.79,74,000 WAS DONE BY THE PARTNERS AS PER THEIR EXPERTISE BY EXAMINING THE QUANTITY AVAILABLE AT THE END OF THE YEAR W ITH CTS. APART FROM VALUATION DONE BY THE PARTNERS THEMSELVES AT THE END OF THE YEAR , THERE IS NO CORROBORATION OF THE FIGURE OF CLOSING STOCK DETERMINED BY THE ASSESSEE. IN SIMPLE WORDS IF CERTAIN HIGHER QUALITY DIAMOND IN THE CLOSING STOCK ARE INCLUDE D IN THE QUANTITY OF LOWER VALUE OF ITA NO.4799/MUM/2009 M/S.D.R.IMPEX. 3 DIAMONDS AND SUCH LOWER RATE IS APPLIED EVEN ON THE HI GHER QUALITY OF DIAMONDS, THE FIGURE OF CLOSING STOCK WOULD BE DISTOR TED. THE VALUE SO APPLIED BY THE PARTNERS CANNOT BE ACCEPTED AT THE FACE VALUE. SOME SORT OF CHECK ON SUCH VALUE THROUGH CORROBORATION WITH SOME EVID ENCE FROM THE BOOKS OF ACCOUNTS, IS NECESSARY. THE ASSESSEE DID NOT MAINTAIN QUANTITATIVE TALLY ON DAY TO DAY B ASIS AND FURTHER THE JHANGAD SLIPS WHICH COULD HAVE THROWN SOME LIGHT ON THE QUALITY OF DIAMOND AVAILABLE IN THE STOCK, WERE ALSO NOT PRODUCED BY THE AS SESSEE. IN SUCH CIRCUMSTANCES THE BOOKS OF ACCOUNT CANNOT BE HELD TO BE PROPERLY MAINTAINED. WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE AUTHORITIES BELO W IN REJECTING THE BOOKS OF ACCOUNT. 4. NOW COMING TO THE ESTIMATION OF G.P. RATE, IT IS SEEN TH AT THE ASSESSING OFFICER HAS TAKEN AVERAGE OF LAST TWO YEARS GROSS PROFIT RATE A ND THEN APPLIED SUCH RATE ON TURNOVER FOR THIS YEAR . AS AGAINST THE RATE DECLAR ED BY THE ASSESSEE AT 4.26%, THE A.O. HAS MADE ADDITION FOR A FURTHER 4%. TAKING INTO CONSIDERATION THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE OTHER RE LEVANT DETAILS, SINCE IT IS A QUESTION OF MAKING ESTIMATION OF G.P. RATE, WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE JUST AND FAIR IF THE GROSS PROFIT RATE IN THE INST ANT YEAR IS APPLIED AT 6.26%, MEANING THEREBY THAT THE ADDITION ON ACCOUNT OF 4% IS REDUCED TO 2%. WE ORDER ACCORDINGLY. THIS WOULD LEAD TO REDUCTION IN ADDITION TO RS.4,07,620. 5. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 24 TH DAY OF JUNE, 2011. SD/- SD/- ( R.S.PADVEKAR ) ( R.S.SYAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 24 TH JUNE, 2011. DEVDAS*` ITA NO.4799/MUM/2009 M/S.D.R.IMPEX. 4 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - XVII, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.