M/s. Ajanta Exports, Surat V. The ACIT.,.C.C.- 2, Surat

ITA 939/AHD/2008

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89790 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 26-05-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 12-03-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: MEHUL R SHAH
• Keywords: Cost of acquisition
• Section: 80HHC; 10B; 145; 28; 144

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ ITA NO.938, 939 AND 3775/AHD/2008 /BLOCK ASSTT. YEAR: 2003-2004, 2004-2005 AND 2005-06 M/S.ANJANA EXPORTS ASHWIN PAREKH & CO. 410, KASHI PLAZZA, MAJURA GATE SURAT. VS ACIT, CENT.CIR.2 SURAT. ./ ITA NO.965/AHD/2008 /BLOCK ASSTT. YEAR: 2003-2004 DCIT, CENT.CIR.2 SURAT. VS M/S.ANJANA EXPORTS ASHWIN PAREKH & CO. 410, KASHI PLAZZA, MAJURA GATE SURAT. %& / (APPELLANT) '( %& / (RESPONDENT) ASSESSEE BY : SHRI MEHUL R. SHAH REVENUE BY : SHRI M.K. SINGH, SR.DR / DATE OF HEARING : 26/05/2015 / DATE OF PRONOUNCEMENT: 24/07/2015 )*/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE ASSESSEE IS IN APPEAL AGAINST SEPARATE ORDERS OF EVEN DATE I.E. 10.1.2008 PASSED BY THE LD.CIT(A)-II, AHMEDABAD DAT ED 10.1.2008 FOR THE ASSTT.YEARS 2004-05 AND 2005-06, WHILE, THE ASS ESSEE AND THE REVENUE ARE IN CROSS-APPEAL AGAINST THE ORDER OF TH E CIT(A) DATED 10.1.2008 FOR THE ASSTT.YEAR 2003-2004. ITA NO.938/AHD/2008 2 2. SINCE THE ISSUES ARE COMMON, THEREFORE, WE HEARD THE APPEALS TOGETHER AND DEEM IT APPROPRIATE TO DISPOSE OF THEM BY THIS COMMON ORDER. 3. FIRST, WE TAKE APPEAL OF THE ASSESSEE FOR THE AS STT.YEAR 2003-04 IN ITA NO.938/AHD/2008. 4. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE NOT IN CONSONANCE WITH RULE 8 OF INCOME TAX (APPELLATE TRI BUNAL) RULES, THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. 5. IN THE FIRST GROUND OF APPEAL, IT IS PLEADED THA T THE CIT(A) HAS ERRED IN UPHOLDING THE REJECTION OF THE BOOKS OF AC COUNTS AND PASSING THE ASSESSMENT ORDER UNDER SECTION 144 R.W.SECTION 145(3) OF THE INCOME TAX ACT. 6. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE MANUFACTURE OF DIAMONDS AND ITS EXPORT. IT HAS FIL ED ITS RETURN OF INCOME ON 20.10.2003 DECLARING AN INCOME OF RS.25,6 8,598/-. ALONG WITH RETURN OF INCOME, THE ASSESSEE HAS FILED TAX AUDIT REPORT IN FORM NO.3CB AND 3CD. THE ASSESSEE HAS ALSO CLAIMED DEDU CTION UNDER SECTION 80HHC AND SUBMITTED A REPORT IN FORM NO.10C CAC. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMEN T, AND NOTICE UNDER SECTION 143(2) DATED 26.2.2004 WAS ISSUED AND SERVE D UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT IT IS DIFFICULT TO DEDUCE TRUE INCOME FROM THE ACCOUNTS O F THE ASSESSEE. HE ACCORDINGLY REJECTED BOOK RESULTS AS PER SECTION 14 5(3) OF THE ACT. THE REASONS ARE ASSIGNED BY THE AO IN PARA 7.1 OF THE A SSESSMENT ORDER. 7. THIS ACTION OF THE AO HAS BEEN UPHELD BY THE LD. CIT(A). 8. WITH THE ASSISTANCE OF THE LEARNED REPRESENTATIV E, WE HAVE GONE THROUGH THE RECORD CAREFULLY. SECTION 145 HAS A DI RECT BEARING ON THE ITA NO.938/AHD/2008 3 CONTROVERSY, THEREFORE, IT IS SALUTARY UPON US TO T AKE NOTE OF THIS PROVISION. '145(1) INCOME CHARGEABLE UNDER THE HEAD PROFITS A ND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURC ES SHALL, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE CO MPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOW ED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF IN COME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECT ION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE ASSESS ING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SE CTION 144.' 9. FROM THE BARE READING OF THIS SECTION, IT WOULD REVEAL THAT IT PROVIDES THE MECHANISM HOW TO COMPUTE THE INCOME OF THE ASSESSEE. ACCORDING TO SUB-CLAUSE (I), THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF THE BUSINESS OR PROFESSIONS O R INCOME FROM OTHER SOURCES' SHALL BE COMPUTED IN ACCORDANCE WITH THE M ETHOD OF ACCOUNTANCY EMPLOYED BY AN ASSESSEE REGULARLY SUBJE CT TO THE SUB- SECTION (2) OF SECTION 145 OF THE ACT. SUB-SECTION (2) PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZET TE FROM TIME TO TIME THE ACCOUNTING STANDARD REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE IN RESPECT OF ANY CLASS OF INCOME. THUS, I T INDICATES THAT INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE ME THOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE, I.E., CASH OR MERCANTILE. SUCH METHOD HAS TO BE FOLLOWED KEEPING IN VIEW THE ACCOU NTING STANDARD NOTIFIED BY THE CENTRAL GOVERNMENT FROM TIME TO TIM E. SUB-CLAUSE (3) PROVIDES A SITUATION, I.E., IF THE ASSESSING OFFICE R IS UNABLE TO DEDUCE THE TRUE INCOME ON THE BASIS OF METHOD OF ACCOUNTANCY F OLLOWED BY AN ASSESSEE THEN HE CAN REJECT THE BOOK RESULTS AND AS SESS THE INCOME ITA NO.938/AHD/2008 4 ACCORDING TO HIS ESTIMATE OR ACCORDING TO HIS BEST JUDGMENT. THE ASSESSING OFFICER IN THAT CASE IS REQUIRED TO POINT OUT THE DEFECTS IN THE ACCOUNTS OF ASSESSEE AND REQUIRED TO SEEK EXPLANATI ON OF THE ASSESSEE QUA THOSE DEFECTS. IF THE ASSESSEE FAILED TO EXPLAI N THE DEFECTS THEN ON THE BASIS OF THE BOOK RESULTS, INCOME CANNOT BE DET ERMINED AND ASSESSING OFFICER WOULD COMPUTE THE INCOME ACCORDIN G TO HIS ESTIMATION KEEPING IN VIEW THE GUIDING FACTOR FOR ESTIMATING S UCH INCOME. 10. IN THE LIGHT ABOVE, IF WE EXAMINE THE FACTS OF THE PRESENT CASE, THEN IT WOULD REVEAL THAT THE DEFECTS POINTED OUT B Y THE AO IN PARA 7.1 ARE OF SUCH A NATURE, WHICH AUTHORIZE HIM TO HARBOU R A BELIEF THAT TRUE INCOME OF THE ASSESSEE CANNOT BE DEDUCED FROM THOSE ACCOUNTS. FOR EXAMPLE, THE ASSESSEE HAD ADOPTED INCORRECT METHOD OF ACCOUNTING WITH REGARD TO THE PURCHASES AND SALE OF LICENCE PREMIUM IN TRADING AND PROFIT & LOSS ACCOUNT. THE ASSESSEE HAS BEEN SHOWI NG SUCH SALES IN PROFIT & LOSS ACCOUNT, BUT IT HAS NOT BEEN RECOGNIZ ING ANY OPENING AND CLOSING STOCK OF LICENCE PREMIUM. IT IS QUITE DIFF ICULT TO CROSS VERIFY SUCH AN ITEM. THE ELECTRICITY EXPENSE ARE MANUFACTURING EXPENSES, THESE MUST HAVE BEEN DEBITED TO MANUFACTURING ACCOUNT, WH EREAS, THE ASSESSEE HAS DEBITED IN THE PROFIT & LOSS ACCOUNT. THEREFORE, CONSIDERING THE CONCURRENT FINDINGS OF BOTH THE AUT HORITIES ON THIS ISSUE, WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF THE CIT(A) ON THIS ISSUE. THE FIRST GROUND OF APPEAL IS REJECTED. 11. IN THE GROUND NO.2, THE ASSESSEE HAS PLEADED TH AT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.45,44,02 9/-. 12. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS PURCHASED ROUGH DIAMONDS, WHICH WERE POLISHED AND MANUFACTURED AS F INISHED PRODUCT. IT HAS PROCESSED 75,733.82 CARATS. IT HAD INCURRED JOB WORK CHARGES AT THE RATE OF RS.300/- PER CARAT. THE LEARNED AO ALL OWED LABOUR CHARGES AT THE RATE OF RS.240 PER CARAT. THIS DISALLOWANCE OF RS.60/- PER CARAT ITA NO.938/AHD/2008 5 IS MULTIPLIED WITH THE TOTAL CARATS OF DIAMONDS, TH EN THE ADDITION, THEREFORE, WORKED OUT TO RS.45,44,029/-. THE REAS ONING ASSIGNED BY THE AO IS THAT SISTER CONCERNS AND M/S.R. VIPUL & C O. HAD INCURRED JOB WORK CHARGES AT THE RATE OF RS.245/- PER CARAT IN A SSTT.YEAR 1998-99, RS.222/- PER CARAT IN ASSTT.YEAR 1999-2000, RS.239. 50 PER CARAT IN ASSTT.YEAR 2000-01. THEREFORE, THE ASSESSEE IS NOT JUSTIFIED TO MAKE PAYMENT OF RS.300/- PER CARAT IN THIS ASSESSMENT YE AR. 13. THE APPEAL TO THE CIT(A) DID NOT BRING ANY RELI EF TO THE ASSESSEE. 14. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT IMMEDIATELY PRECEDING YEAR, A SIMILAR DISALLOWANCE WAS MADE WHICH WAS DELETED BY THE CIT(A) AND CONFIRMED BY THE ITAT VIDE ORDER IN ITA NO.2243/AHD/2007. HE PLACED ON RECORD COPY OF THE TRIBUNAL ORDER. 15. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES. 16. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES, WE FIND THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES. ALMOST VERBATIM DISCUSSION WAS MADE BY THE AO IN THE PRECEDING YEAR . THE MAIN ARGUMENTS OF THE AO IS THAT 47% OF THE LABOUR PAYME NT IN THE UNIT-WISE JOB WORK DONE, WAS FOUND TO BE OUTSTANDING, WHICH I S AGAINST HUMAN PROBABILITIES. THE LABOURERS CANNOT ALLOW ANY CONC ERN TO KEEP THE OUTSTANDING AT SUCH A MAGNITUDE FOR A LONG PERIOD. THUS, ACCORDING TO THE AO, THE LABOUR CHARGES HAVE BEEN DESIGNED BY TH E ASSESSEE FOR WORKING OUT A SUITABLE RATE OF PROFIT. BUT, WE FIN D THAT IN ASSTT.YEAR 2002-03, 71% OF THE LABOUR CHARGES WERE FOUND TO BE UNPAID. INSPITE OF THAT THE CIT(A) HAS DELETED THE DISALLOWANCE AND CONFIRMED THE ADHOC DISALLOWANCE OF RS.8.00 LAKHS. THE FINDINGS OF TH E CIT(A) AND AS TO HOW THE TRIBUNAL HAS CONFIRMED IT, READS AS UNDE R: ITA NO.938/AHD/2008 6 7. IN APPEAL, THE LEARNED CIT(A) PARTLY ALLO WED THE APPEAL OF THE ASSESSEE BY HOLDING AS UNDER : 'REGARDING THE DISALLOWANCE OF LABOUR CHARGES OF RS .56.,86,937/- IT WAS SUBMITTED THAT AO'S ACTION IN ALLOWING LABOU R CHARGES @RS.240 PER CARAT AGAINST HE CLAIM OF RS..300 PER C ARAT WAS NOT CORRECT. THE AVERAGE LABOUR CHARGES PA/D IN AY 2000 -01 WAS RS.230/- WHEREAS IN AY 2001-02, IT WAS RS.284/- THE AO VERIFIED AT THE JOB WORKERS BY MAKING INQUIRIES THROUGH THE INSPECTOR OF THE OFFICE. THE AO HAS SIMPLY REPRODUCED THE RELEVA NT . PART OF ASSESSMENT ORDER OF M/S M KANTILAL EXPORTS, SINCE O UT OF 21 JOB WORKERS MENTIONED IN THE CASE, ONLY 5 PERTAIN TO TH E APPELLANT. IN THE CASE OF THE APPELLANT SUMMONS WERE ISSUED TO 5 JOB WORKERS WHICH COULD NOT BE SERVED BUT ALL OF THE THEM WERE LOCATED BY THE INSPECTORS AND THEIR PLACE OF WORK CAN RESIDENCE .W AS ALSO VERIFIED. ALL OF THEM WERE ASSESSED TO TAX AND FILE D COMPLETE DETAILS OF THEIR FACTORY PREMISES AND RESIDENTIAL P REMISES. ACCORDING TO THE AO, THE ELECTRIC EXPENSES WERE NOT COMMENSURATE WITH THE JOB CHARGES BUT THIS WAS NOT CORRECT. THE JOB WORKERS WERE BASICALLY LABOUR CONTRACTORS AND A N AVERAGE RATE OF RS.300 PER CARAT WAS BEING PAID SINCE JANUARY, 2 001 WHICH WAS ACCEPTED BY THE AO IN AY 2001-02 ALSO. THE AO DISRE GARDED ALL THESE FACTS AND MADE THE ADDITION ON A HYPOTHETICAL BASIS. I HAVE GONE THROUGH THE DETAILS AND FIND THAT APPEL LANT WAS PAYING JOB WORK CHARGES AT AN AVERAGE RATE OF RS.28 4/-PER CARAT IN AY 2001-02. THIS WAS INCREASED TO RS.300 PER CAR AT IN THE YEAR UNDER CONSIDERATION AND IS IN THE NORMAL COURSE OF BUSINESS. THE AO HAS NOT BROUGHT ON RECORD ANY INSTANCE THAT THE- JOB WORKERS DENIED TO HAVE RECEIVED THIS AMOUNT PER CARTE FROM THE APPELLANT. IT IS FURTHER SEEN THAT THE CHART OF JOB WORKERS DR AWN BY THE AO ON PAGE 22 AND 23 OF THE ASSESSMENT ORDER IS EXACTL Y THE SAME AS IN THE CASE OF M/S KANTILAL EXPORTS FOR AY2002-03. IT IS NOT UNDERSTOOD AS TO HOW THE SAME JOB WORKERS WOULD BE WORKING IN TWO DIFFERENT UNITS AT THE SAME TIME AND THE AO'S I NFERENCE ON THIS ACCOUNT APPEARS TO BE ERRONEOUS. I AM INCLINED TO AGREE WITH THE APPELLANT, THERE WOULD BE NO CORRELATION BETWEE N THE ELECTRICITY EXPENSES AND WAGES PAID TO THE JOB WORK ERS, IT IS ALSO NO MATERIAL, IF THE ADDRESSES OF THE JOB WORKERS WE RE THEIR RESIDENTIAL ADDRESSED. SINCE ALL THESE PEOPLE WERE WORKING IN FIVE FACTORY PREMISES OF THE APPELLANT GROUP WITH COMMON ELECTRICITY CONNECTION. IT IS ALSO SEEN THAT THESE JOB WORKERS WERE KIND OF LABOR CONTRACTORS AND THEREFORE IT IS NOT VERY SURP RISING THAT FAIR PERCENTAGE OF LABOUR CHARGES REMAINED OUTSTANDING A T THE END OF THE YEAR. SINCE THE AO HAS NOT BROUGHT ANY ADVERSE FINDINGS ON RECORD TO SUPPORT THAT THE JOB CHARGES PAID WERE BO GUS OR HIGHLY ITA NO.938/AHD/2008 7 INFLATED, DISALLOWANCE ON THIS ACCOUNT CANNOT BE SU STAINED . IT IS ALSO SEEN THAT SUCH LABOUR CONTRACTORS ARE ALSO INC OME TAX ASESEEE. HOWEVER, SINCE COMPLETE RECORD OF SUCH LAB OUR CHARGES WERE NOT PRODUCED AND A FEW PERSONS TO WHOM SUMMONS WERE ISSUED, DID NOT APPEAR BEFORE THE AO, IT IS NOT IM PROBABLE THAT THAT SOME PART OF THE LABOUR PAYMENT IS: EXCESSIVE. I AM THEREFORE OF THE CONSIDERED VIEW THAT A TOKEN DISAL LOWANCE OF RS.8 LACS OUT OF LABOUR CHARGES PAID WILL SERVE THE INTE REST OF JUSTICE AND THE BALANCE DISALLOWANCE OF RS. 48,86,837/- IS DIRECTED TO BE DELETED. 9. SHRI V K SEHGAL, THE LEARNED DEPARTMENTAL REPRESENTATIVE APPEARED ON BEHALF OF THE REVENUE AND HE RELIED ON THE ORDER OF THE AO. 10. SHRI ASHWIN PAREKH, THE LEARNED AR APPEARED FO R THE ASSESSEE. HE REITERATED THE SAME CONTENTIONS AS MAD E BEFORE THE CIT(A) WHICH ARE PART OF HIS APPELLATE ORDER AND TH EREFORE DO NOT REQUIRE TO BE REPEATED AGAIN IN OUR ORDER. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND NO INFIRMITY IN THE ORDERS OF THE LEARNED CIT(A) WHO H AS CORRECTLY APPRECIATED THE FACTS OF THE CASE. ACCORDINGLY, WE DISMISS THE FIRST GROUNDS OF APPEAL OF THE REVENUE. 17. IT IS ALSO PERTINENT TO NOTE THAT EVEN IF THIS DISALLOWANCE IS CONFIRMED, THEN THE ASSESSEE WILL NOT BE BURDENED W ITH ANY TAX LIABILITY, BECAUSE THE MOMENT THE EXPENSES WILL BE DISALLOWED, ITS PROFIT RATIO WILL INCREASE AND IT WILL CLAIM DEDUCTION UNDER SECTION 80HHC AT AN HIGHER AMOUNT. THEREFORE, FOR THE PURPOSE OF TAXABILITY, IT IS AN ACADEMIC ISSUE AND REVENUE NEUTRAL. RESPECTFULLY FOLLOWING THE OR DER OF THE ITAT IN THE ASSTT.YEAR 2002-03, COUPLED WITH THE FACT THAT ULTI MATELY THIS ISSUE WILL NOT BRING ANY TAX TO THE REVENUE, WE ALLOW THIS GRO UND OF APPEAL PARTLY, AND CONFIRM THE ADHOC DISALLOWANCE OF RS.10 LAKHS, WHICH IS IN THE SAME RATIO, AS MADE AND CONFIRMED IN THE ASSTT.YEAR 2002 -03. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 18. IN THE GROUND NO.3, THE REVENUE HAS PLEADED THA T THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.2,14,86, 709/-. ITA NO.938/AHD/2008 8 19. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS 8748.66 CARAT OF POLISHED DIAMONDS IN STOCK. IT VALUED THE CLOSING STOCK AT THE RATE OF RS.1775/- PER CARAT AND WORKED THE TOTAL VALUE OF R S.1,55,28,871/-. THE LEARNED AO HAS OBSERVED THAT IN THE MONTH OF MA RCH, 2003, THE AVERAGE SALE PRICE OF POLISHED DIAMOND WAS RS.4070/ - PER CARAT. THE AVERAGE MANUFACTURING COST DURING THE YEAR IS RS.42 31/- PER CARAT. THE AVERAGE SALE PRICE OF THE DIAMOND FOR THE WHOLE YEA R WORKED OUT TO RS.6695.20 PER CARAT. THE ASSESSEE IS REQUIRED TO DETERMINE THE VALUE OF ITS CLOSING STOCK EITHER AT COST OR AT MARKET PR ICE WHICHEVER IS LOWER. THE ASSESSEE HAS VALUED THE CLOSING STOCK AT RS.1,7 75/-. ACCORDING TO THE AO, THERE IS NO BASIS FOR ADOPTING THIS VALUE, THEREFORE, THE LD. AO TOOK THE VALUE OF THE DIAMOND AT COST. HE ADOPTED THE AVERAGE MANUFACTURING COST OF RS.4,231/- MULTIPLIED WITH TH IS AMOUNT WITH NUMBER OF DIAMOND AVAILABLE WITH THE ASSESSEE I.E. 8748.66 CRATE. THE TOTAL VALUE COMES TO RS.3,70,15,580/-. AFTER GIVIN G CREDIT OF THE VALUE SHOWN BY THE ASSESSEE AT RS.1,55,28,871/-, THE LEAR NED AO MADE ADDITION OF RS.2,14,86,709/-. 20. ON APPEAL, THE LEARNED CIT(A) HAS CONFIRMED THE CONCLUSIONS OF THE AO. 21. THE FINDINGS OF THE LEARNED CIT(A) READS AS UND ER: 6.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND TH E ABOVE SUBMISSIONS. I HAVE ALSO PERUSED THE INVOICES FOR SALE SUBMITTED BY THE APPELLANT ALONG WITH JARIGAD CHITIES AND THE DETAILS OF STOCK OF POLISHED, DIAMONDS GIVEN WITH APPELLANT'S SUBMIS SIONS. ON PERUSAL OF THE DETAILS, IT IS FOUND THAT THE APPELL ANT HAS NOT CO- RELATED ITEM TO ITEM STOCK OF POLISHED DIAMOND REMA INING WITH THE APPELLANT IN THE CLOSING STOCK WITH THE COST OF ROU GH DIAMOND WITH PARTICULAR INVOICE. IT IS NOWHERE SHOWN AS TO HOW A PPELLANT HAS CLAIMED THAT LOTWISE VALUE AND ITS MANUFACTURING CO ST IS BEING MAINTAINED ON PACKETS OF THE DIAMONDS. IN THE CIRCU MSTANCES THE A.O. HAS RIGHTLY ARRIVED AT THE VALUE OF STOCK ON T HE BASIS OF AVERAGE COST. AS CAN BE SEEN THE SALE VALUE BEING H IGHER, THE AVERAGE COST IS ADOPTED BY THE A.O. THE APPELLANT H AS GIVEN ITS ITA NO.938/AHD/2008 9 WORKING ON PAGE 11 & 12 OF THE SUBMISSIONS WHICH AL SO GIVES THE WORKING ON THE BASIS OF AVERAGE COST. THE ASSESSEE HAS ARRIVED AT THE VALUE OF STOCK BY WORKING OUT THE COST OF TOTAL POLISHED DIAMOND WHICH IS INCLUDING OPENING STOCK, PURCHASES AND MANUFACTURING COST. THIS VALUE IS ARRIVED AT RS.9,8 8,48,995/- FOR TOTAL DIAMOND OF 23364.58 CARATS. OUT OF THIS THE A PPELLANT HAS DEDUCTED THE SALE VALUE OF DIAMOND SOLD WHICH IS 22 289.36 CARATS SOLD FOR RS. 12,60,99,552/-. THUS THE BALANCING FIG URE IS ARRIVED AT THE VALUE/ COST OF CLOSING STOCK OF 8.748.66 CAR ATS VALUED AT RS.1,55,28,871/-. THUS WHAT THE APPELLANT HAS DONE IS TO REDUCE THE COST BY THE SALE VALUE OF THE ITEMS SOLD. ACTU ALLY IF HE WANTS TO ARRIVE AT THE CORRECT COST OF THE POLISHED DIAMO ND LYING IN THE STOCK, HE HAS TO BE REDUCE THE COST BY THE COST OF ITEMS SOLD. IF THAT IS DONE, THE WORKING OF THE A.O. TALLIES WITH IT. THE A.O. WAS, THEREFORE, JUSTIFIED IN MAKING ADDITION IN THE VALU E OF CLOSING STOCK OF POLISHED DIAMONDS BY RS.2,14,86,709/-. THIS GROU ND OF APPEAL IS DISMISSED. 22. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS REITERATED HIS CONTENTIONS AS WERE RAISED BEFORE THE CIT(A). ON T HE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDER OF THE REVENUE AUT HORITIES BELOW. 23. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT CLOSING STOCK IS TO BE VALUED EITHER AT THE MARKET PRICE OR AT COST, WHICHEVER IS LOWER. THE WORKING GIVEN BY THE ASSES SEE BEFORE THE CIT(A) [PRODUCED AT PAGE NO.11] AS WELL AS BEFORE U S IN THE PAPER BOOK IS ALTOGETHER AN UNSCIENTIFIC CALCULATION, BECAUSE, THE ASSESSEE HAS REDUCED THE COST BY SALE VALUE OF THE ITEMS SOLD. WHEREAS, IT OUGHT TO HAVE REDUCED THE COST BY THE COST OF ITEMS SOLD. IN SALE VALUE, PROFIT IS ALSO EMBEDDED. THEREFORE, THE METHOD OF THE ASSESS EE IN WORKING OUT THE BALANCING FIGURE IS NOT CORRECT. THE LEARNED F IRST APPELLATE AUTHORITY HAS RIGHTLY REJECTED THE CONTENTIONS OF THE ASSESSE E. WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. IT IS REJECTED . BUT, WE DIRECT THE AO TO GIVE CREDIT OF THIS ADDITION IN THE OPENING STOC K OF THE DIAMONDS IN THE NEXT YEAR. ITA NO.938/AHD/2008 10 24. IN THE NEXT GROUND OF APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS CONFIRMED THE DISALLOWANCE O F LABOUR EXPENSES OF RS.10,24,967/-. 25. THE BRIEF FACTS OF THE CASE ARE THAT ONE OF THE CONCERNS OF THE ASSESSEE IS ENGAGED IN THE JOB WORK. IT HAS SHOWN LABOUR RECEIPT OF RS.1,04,54,602/- AND LABOUR CHARGE PAYMENT OF RS.1, 02,49,678/-. THE NET PROFIT HAS BEEN SHOWN AT RS.2,04,924/- WHICH WO RKS OUT TO 1.96% OF THE LABOUR RECEIPTS. THE LEARNED AO HAS OBSERVE D THAT LABOUR PAYMENTS ARE NOT VERIFIABLE. THE ASSESSEE COULD NO T PRODUCE JOB WORKERS BEFORE HIM, AND THERE ARE SPECIFIC DEFECTS IN THE PAYMENTS. THE LEARNED AO ALSO OBSERVED THAT JOB WORKERS HAD D ONE THEIR WORK IN THE PREMISES OF THE ASSESSEE, BUT THE ASSESSEE HAS NOT DEBITED ANY ELECTRICITY EXPENDITURE OR OTHER EXPENDITURE. TAKI NG INTO CONSIDERATION OVERALL FLAWS IN THE DETAILS MAINTAINED BY THE ASSE SSEE, HE DISALLOWED 10% OF THE LABOUR PAYMENT. 26. ON APPEAL, THE CIT(A) HAS CONFIRMED THE DISALLO WANCE. 27. AFTER DUE CONSIDERATION OF THE RECORD, AND WELL REASONED FINDINGS RECORDED BY THE AO, POINTING OUT DEFECTS IN THE DET AILS MAINTAINED BY THE ASSESSEE, WE ARE OF THE VIEW THAT THE CIT(A) HA S RIGHTLY UPHELD THE DISALLOWANCE. THIS GROUND OF THE APPEAL IS REJECTE D. 28. IN THE GROUND NO.5, THE ASSESSEE HAS NOT PLEADE D ANY INDEPENDENT GRIEVANCE, RATHER, IT IS AN ANCILLARY A RGUMENTS TO GROUND NO.4. HENCE, THIS IS ALSO REJECTED. 29. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. 30. NOW WE TAKE THE APPEAL OF THE REVENUE I.E. ITA NO.965/AHD/2008. ITA NO.938/AHD/2008 11 31. THOUGH, THE REVENUE HAS TAKEN THREE GROUNDS OF APPEAL, BUT ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE, WHEREBY, IT HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN DIRECTING THE AO TO RE-C OMPUTE THE DEDUCTION UNDER SECTION 80HHC AFTER EXCLUDING THE JOB WORK RE CEIPTS FROM THE TOTAL TURNOVER. 32. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS CLAIMED DEDUCTION UNDER SECTION 80HHC OF THE ACT. ACCORDING TO THE AO, IT HAS FILED REPORT IN FORM NO.10CCAC SHOWING TOTAL TURNOV ER OF RS.14,16,28,527/-. ACCORDING TO THE AO, THE ASSESS EE DID NOT MAINTAIN SEPARATE ACCOUNTS FOR ITS DIFFERENT ACTIVITIES. TH EREFORE, THE LABOUR RECEIPT OF RS.1,04,54,602/- OUGHT TO BE INCLUDED IN THE TOTAL TURNOVER, WHILE COMPUTING ELIGIBLE PROFIT FOR THE PURPOSE OF DEDUCTION UNDER SECTION80HHC. IN RESPONSE TO THE QUERY OF THE AO, IT WAS CONTENDED BY THE ASSESSEE THAT M/S.ANJANA EXPORTS (JOB) WAS ENGA GED IN JOB WORK ONLY. IT HAS RECEIVED TOTAL JOB WORK RECEIPTS OF R S.1,04,54,602/-. IT HAS PAID LABOUR CHARGES OF RS.1,02,49,678/-. THUS, THE NET PROFIT WITH THIS CONCERN IS OF RS.2,04,929/-. ACCORDING TO THE ASSESSEE, UNDER CLAUSE (BAA) OF SECTION 80HHC(3) OF THE INCOME TAX ACT, 90% OF NET JOB WORK RECEIPTS OUGHT TO BE REDUCED FROM THE PROF IT AND GAINS OF THE BUSINESS WHILE WORKING OUT ADMISSIBLE DEDUCTION UND ER SECTION 80HHC. THE LD. AO DID NOT FIND MERIT IN THIS CONTENTION OF THE ASSESSEE. HE OBSERVED THAT THE ASSESSEE IS NOT MAINTAINING SEPAR ATE ACCOUNT OF DIFFERENT UNITS WHERE, DIFFERENT TYPE OF ACTIVITIES ARE CLAIMED TO HAVE BEEN UNDERTAKEN. HE HELD THAT DEDUCTION UNDER SECT ION 80HHC IS TO BE WORKED AFTER INCLUDING THIS JOB WORK RECEIPTS IN TH E TOTAL TURNOVER. 33. DISSATISFIED WITH THE ACTION OF THE AO, THE ASS ESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). IT WAS CONTEND ED THAT THE ASSESSEE HAS BEEN MAINTAINING SEPARATE BOOKS OF ACCOUNTS FOR THREE DIFFERENT ACTIVITIES. FOR THE EXPORT ACTIVITIES, ROUGH DIAMO NDS ARE IMPORTED AND MANUFACTURING WAS DONE ON JOB WORK BASIS. THEREAFTE R, EXPORT WAS ITA NO.938/AHD/2008 12 MADE FOR POLISHED DIAMONDS. IN RESPECT OF JOB WORK ACTIVITY, THEY RECEIVED ONLY COMMISSION. THERE IS NO INTER-CONNEC TION BETWEEN BOTH THESE ACTIVITIES. THE LD.FIRST APPELLATE AUTHORITY HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND HELD THAT JOB WORK ACTIVITY IS AN INDEPENDENT ACTIVITY OF THE ASSESSEE, WHICH IS NOT ASSOCIATED WITH THE EXPORT. THE LD.FIRST APPELLATE AUTHORITY OBSERVED THAT OUT OF THE ALLEGED NET PROFIT ON JOB WORK CHARGES ONLY 90% AMOUNT IS T AKEN, WHICH IS TO BE REDUCED FROM THE PROFIT OF THE BUSINESS WHILE WORKI NG OUT THE DEDUCTION. THE CIT(A) FURTHER OBSERVED THAT SINCE 10% OF THE L ABOUR CHARGES HAVE ALSO BEEN DISALLOWED, WHICH AKIN TO JOB WORK CHARGE S, THIS AMOUNT WILL ALSO BE CONSIDERED FOR WORKING OUT THE DEDUCTION AD MISSIBLE UNDER SECTION 80HHC. 34. WITH THE ASSISTANCE OF THE LEARNED DR, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE ASSESSEE HAS A UNIT VIZ. ANJ ANA EXPORTS (JOB). IT IS AN EXPORT ORIENTED UNIT. THE ASSESSEE HAS MAINT AINED SEPARATE BANK ACCOUNT. IT HAS NOT USED FUNDS OF ONE BUSINESS FOR THE PURPOSE OF OTHER ACTIVITIES. SIMILARLY, EOU WAS CONSTITUTED IN ACCO RDANCE WITH THE PROVISIONS OF SECTION 10B OF THE I.T.ACT. IT HAS S EPARATE TRADING AND PROFIT & LOSS ACCOUNT. ACCORDING TO IT, ALL THE TH REE ACTIVITIES CAN BE DIRECTLY IDENTIFIED FROM THE BOOKS OF ACCOUNTS. TH E LD.FIRST APPELLATE TRIBUNAL HAS ACCEPTED THIS CONTENTION OF THE ASSESS EE. THE LEARNED DR WAS UNABLE TO CONTROVERT THIS FINDING OF FACT. NOW QUESTION IS WHETHER THE TOTAL JOB RECEIPTS, 90% OF THE NET PROFIT IN TH E JOB WORK ACTIVITY IS TO BE DEDUCTED OUT OF THE PROFIT OF THE BUSINESS. IN THE EXPLANATION (BAA) APPENDED TO SUB-SECTION (3) OF SECTION 80HHC, IT HA S BEEN PROVIDED THAT 90% OF THE SUM REFERRED IN CLAUSE (IIIA), (III B) AND (IIIC) WILL BE REDUCED. THE PROVISION OF (BAA) READS AS UNDER: (BAA) 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BU SINESS OR PROFESSION' AS REDUCED BY ITA NO.938/AHD/2008 13 (1) NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSES ( IIIA), (IIIB), (IIIC), OF SECTION 28 OR OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR 8 ANY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFIT S ; AND (2) THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA . 35. THE LD. CIT(A), AFTER TAKING INTO CONSIDERATION THE JOB WORK RECEIPT, COMMISSION, INTEREST ETC. DIRECTED THE AO TO REDUCE 90% OF NET RECEIPTS FROM THE ELIGIBLE PROFIT WHILE WORKING OUT THE DEDUCTION ADMISSIBLE UNDER SECTION 80HHC OF THE ACT. IN OUR OPINION, THE LD.CIT(A) HAS APPRECIATED THE CONTROVERSY IN RIGHT PERSPECTIVE AND DOES NOT CALL FOR ANY INTERFERENCE. THE ORDER OF LD.CIT (A) IS IN LINE OF LATEST DECISION OF HONBLE SUPREME COURT IN THE CASE OF AC G ASSOCIATES CAPSULES LTD. VS. CIT, 343 ITR 89. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THIS APPEAL. IT IS DISMIS SED. 36. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR T HE ASSTT.YEAR 2004-05 I.E. ITA NO.939/AHD/008. 37. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF R S.5,45,30,060/- WHICH WAS ADDED ON ACCOUNT OF VALUATION OF CLOSING STOCK OF ROUGH DIAMOND. 38. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAS FILED ITS RETURN OF INCOME ON 30.10.2004 DECLARING AN INCOME OF RS.51,13,244/-. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS 1,17,668 CARAT OF ROUGH DIAMOND VALUED AT RS.209,03 ,014/-. ACCORDING TO THE ASSESSEE IT HAS PURCHASED ROUGH DIAMONDS IN DIFFERENT LOTS. AT THE END OF THE YEAR, THE DIAMOND PURCHASED ON 7.11. 2003 AMOUNTING TO 1,15,667 CARAT AND DIAMOND PURCHASED ON 23.2.2004 A MOUNTING TO 2000 CARAT WERE AVAILABLE. THE VALUE OF THESE DIAM ONDS HAS BEEN TAKEN AT COST. THE INVOICE RATE OF THE DIAMONDS PU RCHASED ON ITA NO.938/AHD/2008 14 7.11.2003 WAS RS.152.57 AND DIAMOND PURCHASED ON 23 .2.2003 WAS RS.1627.90. AFTER APPLYING THESE RATES, THE ASSES SEE HAS WORKED OUT INVOICE COST AT RS.209,03,024/-. THE LEARNED AO HA S REJECTED THIS EXPLANATION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE IS NOT MAINTAINING DAY-TO-DAY STOCK QUANTITY WISE. IT MUS T HAVE CONSUMED DIAMONDS WHICH WERE PURCHASED FIRST IN TIME. HE AP PLIED FIFO METHOD FOR WORKING OUT THE AVAILABILITY OF ROUGH DIAMONDS IN THE CLOSING STOCK. THE LEANED AO HAS ADOPTED THE RATE WHICH IS AVAILAB LE IN THE LOTS OF THE CLOSING STOCK AND WORKED OUT THE VALUE AT RS.7,54,3 3,074/-. THE DIFFERENCE BETWEEN THESE TWO HAS BEEN ADDED AS UNDI SCLOSED VALUE OF THE STOCK. 39. ON APPEAL TO THE CIT(A), DID NOT GET ANY RELIEF . THE FINDINGS RECORDED BY THE CIT(A) READS AS UNDER: 2.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE ABOVE SUBMISSIONS. THE APPELLANT HAS CLAIMED THAT IT HAS MAINTAINED THE DETAILS OF QUANTITY LOTWISE FOR THE STOCK ISSUED FO R MANUFACTURING. HOWEVER, ON PERUSAL OF THE DETAILS I AM OF THE VIEW THAT THE APPELLANT HAS NOT CO-RELATED ITEM TO ITEM STOCK REMAINING WIT H THE APPELLANT AS CLOSING STOCK WITH THE COST AS PER PARTICULAR INVOI CE. IT IS ALSO NOT FOUND TO BE CORRECT THAT ONLY THE LOWER VALUE STOCK OF ROUGH DIAMONDS REMAINED 1 IN CLOSING STOCK. THE JANGAD ISSUED ARE FROM APPEL LANT'S BOMBAY OFFICE TO SURAT OFFICE BUT NO JANGADS FOR RO UGH DIAMONDS ISSUED TO THE JOB WORKERS OR LABOURERS IS PRODUCED. ON PERUSAL OF THE COPIES OF JANGADS IT IS FOUND THAT THERE ARE OVER W RITINGS ON CERTAIN JANGADS. THUS THERE IS NO BASIS FOR STATING THAT DI AMONDS REMAINING IN CLOSING STOCK ARE OUT OF A PARTICULAR PURCHASE HAVI NG LOWER COST. THE A.O., THEREFORE, JUSTIFIABLY ADOPTED A SCIENTIFIC B ASIS OF FIFO METHOD TO FIND OUT THE STOCK OF ROUGH DIAMONDS REMAINING I N CLOSING STOCK, TO WHICH HE HAS APPLIED THE PURCHASE COST ON THE BASIS OF PURCHASE VALUE. THE METHOD ADOPTED BY THE A.O. IS THUS FOUND TO BE JUSTIFIABLE METHOD AND ACCORDINGLY THE FIRST GROUND OF APPEAL S TANDS REJECTED AND ADDITION OF RS.5,45,30,060/- MADE BY THE ASSESSING OFFICER IS CONFIRMED. 40. WITH THE ASSISTANCE OF THE LEARNED REPRESENTATI VES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE ASSESSEE HAS PRO DUCED COPIES OF ITA NO.938/AHD/2008 15 IMPORT INVOICE. COPIES OF ALL JANGADS FOR MOVEMENT OF ROUGH DIAMONDS FROM MUMBAI TO SURAT, COPY OF MANUFACTURING CHART S HOWING THE ISSUE, CONSUMPTION AND DATE WISE MANUFACTURING. WE HAVE GO NE THROUGH ALL THESE DOCUMENTS. AS FAR AS PURCHASE OF DIAMOND IS CONCERNED, THERE IS NO DISPUTE. THUS, THE INVOICES ARE OF NO HELP FOR THE ASSESSEE. SIMILARLY, AS FAR AS THE TRANSMISSION OF ROUGH DIAM ONDS FROM MUMBAI TO SURAT, IS ALSO NOT A RELEVANT FACT FOR DECIDING THI S ISSUE. THE ASSESSEE IS REQUIRED TO DEMONSTRATE ON THE BASIS OF DAY-TO-DAY STOCK REGISTER IN QUALITY-WISE, THAT A PARTICULAR ROUGH DIAMOND WERE PURCHASED BY IT WERE CONSUMED IN MANUFACTURING. THE REMAINING DIAMONDS IN THE CLOSING STOCKS ARE DIRECTLY LINKED TO A PARTICULAR PURCHASE INVOICE. THERE IS NO SUCH DETAILS MAINTAINED BY THE ASSESSEE. IT IS NOT CROSS-VERIFIABLE. THE CHART PREPARED BY THE ASSESSEE IS SELF-STYLED, JUST MENTIONING ABOUT THE AVAILABILITY OF ONE LOT OF DIAMONDS IN THE CLOSING STOCK. THE LD.CIT(A) HAS APPRECIATED THE CONTROVERSY IN RIGHT PERSPECTIV E, AND HAS GONE THROUGH THE STAND OF THE ASSESSEE. THEREFORE, WE D O NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD.CIT(A) O N THIS ISSUE. THE FIRST GROUND APPEAL OF THE ASSESSEE IS REJECTED. 41. IN THE NEXT GROUND OF APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.1,51,364/-. 42. THE BRIEF FACTS OF THE CASE ARE THAT THE CERTAI N DIAMONDS WERE REJECTED. THE ASSESSEE HAS VALUED THOSE REJECTED D IAMONDS AT RS.10 PER CARAT. THE LD.AO HAS ADOPTED THE VALUE IN THE STOCK AT RS.11.58 PER CARAT. ACCORDING TO THE AO, THERE IS NO BASIS FOR ADOPTING THE VALUE OF REJECTION AT RS.10 PER CARAT. THE ASSESSEE HAS SUP PORTED ITS CLAIM WITH THE HELP OF A BILL DATED 23.10.2003. BUT, ACCORDIN G TO THE AO, IT IS MUCH PRIOR TO THE DATE OF VALUATION. IT IS FOR THE MONTH OF OCTOBER, 2003. THE AO HAS ADOPTED THE VALUE ON NET REALIZED AVERAGE VALUE OF REJECTION. THE LD.CIT(A) DID NOT FIND ANY ERROR IN THE METHOD ADOPTED BY THE AO. ITA NO.938/AHD/2008 16 43. ON DUE CONSIDERATION OF THE FACTS, WE ALSO DO N OT FIND ANY ERROR IN THE METHOD ADOPTED BY THE AO. HE VALUED THE REJECT ED DIAMONDS AT NET REALIZED AVERAGE VALUE, WHEREAS, THE ASSESSEE DID N OT DISCLOSE ANY BASIS. THEREFORE, WE DO NOT FIND ANY ERROR IN THE O RDER OF THE CIT(A). THUS THIS GROUND OF APPEAL IS REJECTED. 44. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DIS MISSED. 45. NOW WE TAKE UP THE ASSESSEES APPEAL FOR THE AS STT.YEAR 2005-06 IN ITA NO.3775/AHD/2008. 46. THIS APPEAL IS DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)DATED 8.9.2008 FOR THE ASSTT.YEA R 2005-06. IN THIS APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE L D.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.82,40,453/-. 47. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS FILED ITS RETURN OF INCOME ON 28.10.2005 DECLARING TOTAL INCOME AT RS.1 ,78,40,140/-. ITS CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTIC E UNDER SECTION 143(2) OF THE INCOME TAX ACT WAS ISSUED ON 7.3.2006 . 48. ON SCRUTINY OF THE ACCOUNTS, IT WAS REVEALED TO THE AO THAT THE ASSESSEE HAS A CLOSING STOCK OF POLISHED DIAMONDS A T 11272.85 CARATS. THE ASSESSEE HAS VALUED THE SAME AT RS.6900/- PER C ARAT, AGGREGATING TO RS.7,77,82,665/-. 49. THE LD.AO HAS ALSO OBSERVED THAT THE AVERAGE CO ST OF POLISHED DIAMONDS DURING THE YEAR COMES TO RS.7631/-, AND TH E AVERAGE SALE PRICE COMES TO RS.7744/- PER CARAT. THE AO HAS ADO PTED THE VALUE OF THE CLOSING STOCK OF POLISHED DIAMONDS AT THE RATE OF AVERAGE COST AND DETERMINED THE TOTAL VALUE AT RS.8,60,23,118/-. TH E DIFFERENCE BETWEEN THIS VALUE WORKED OUT BY THE AO AND THE VALUE ADOPT ED BY THE ASSESSEE ITA NO.938/AHD/2008 17 HAS BEEN WORKED OUT AT RS.82,40,453/-. THIS AMOUNT HAS BEEN ADDED IN THE INCOME OF THE ASSESSEE. 50. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION. 51. WITH THE ASSISTANCE OF THE LEARNED CIT(A), WE H AVE GONE THROUGH THE RECORD CAREFULLY. AN IDENTICAL ISSUE HAS BEEN DISCUSSED BY US WHILE DEALING GROUND NO.3 IN THE APPEAL OF THE ASSESSEE F OR THE ASSTT.YEAR 2003-04 IN THE EARLIER PART OF THE ORDER. WE HAVE UPHELD THAT THE VALUE OF THE CLOSING STOCK HAS TO BE ADOPTED BY THE ASSES SEE EITHER AT MARKET PRICE OR AT COST, WHICHEVER IS LOWER. THE AO HAS A DOPTED THE AVERAGE COST FOR THE PURPOSE OF VALUE OF THE CLOSING STOCK. WE HAVE UPHELD THE SAME IN THE ASSTT.YEAR 2003-04. RELYING UPON OUR O RDER IN THE EARLIER PART OF THIS ORDER, WE DO NOT FIND ANY REASON TO IN TERFERE WITH THE ORDER OF THE CIT(A). THE SOLITARY GROUND OF APPEAL RAISE D FOR THE ASSTT.YEAR 2005-06 IS REJECTED, AND CONSEQUENTLY THE APPEAL OF THE ASSESSEE IS DISMISSED. 52. IN THE RESULT, THE ITA NO.938/AHD/2008 IS PARTL Y AND THE OTHER APPEALS I.E. ITA NO.965/AHD/2008, 939/AHD/2008 AND ITA NO.3775/AHD/2008 ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 24 TH JULY, 2015 AT AHMEDABAD. SD/- SD/- (ANIL CHATURVEDI) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 24/07/2015