M/S. ANJANA EXPORTS,,SURAT vs. THE DCIT, CENT. CIRCLE, 9,, SURAT

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 1 of 19 IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER आ.अ.सं././././I.T.A Nos.1879,1872/AHD/2013 & 2833/AHD/2014 िनधा�रणवष�/Assessment Year: 2009-10 1. Assistant Commissioner of Income V. M/s. Anjana Exports, Tax, Circle-9, Surat. 1, Kohinoor Society, Opp. G K Chambers, Varachha Road, Surat- 395 006. [PAN: AADFA 0943 R] V. 2. M/s. Anjana Exports, Assistant Commissioner 1, Kohinoor Society, Opp. G K of Income Tax, Circle-9, Chambers, Varachha Road, Surat. Surat- 395 006. [PAN: AADFA 0943 R] V. 3. Assistant Commissioner of Income M/s. Anjana Exports, Tax, Circle-9, Surat. 1, Kohinoor Society, Opp. G K Chambers, Varachha Road, Surat- 395 006. [PAN: AADFA 0943 R] अपीलाथ� / Appellant ��थ�/Respondent िनधा�रतीकीओरसे /Assessee by Shri Mehul Shah, CA राज�कीओरसे /Revenue by Shri Srinivas T. Bidari, CIT(D.R.) सुनवाईकीतारीख/ Date of hearing: 11-02-2020 उद्घोषणाकीतारीख/Pronouncement on: 04-05-2020 आदेश /O R D E R PER O.P.MEENA, AM: 1. The above two appeals filed by the Revenue are directed against the separate orders of Commissioner of Income-Tax (Appeals)-V, Surat [in short “the CIT(A)”] dated 18-04-2013 and 01-08-2014 for the AY. 2009-10 respectively & one appeal filed by the Assessee is directed against the order of Commissioner of Income-Tax (Appeals)-V, Surat [in short “the CIT(A)”] dated 18-04-2013 for the AY. 2009-10.

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 2 of 19 In ITA No.1879/AHD/2013/AY.2009-10 by the Revenue:- 2. Ground No. 1& 2 relates to deleting the addition of Rs.5,58,41,797/-

made on account of low gross profit by rejecting the books result u/s.145(3)

of the Act. 3. Briefly stated the facts of the cases are that the assessee has shown GP

of Rs.8,12,24,118/- @ 3.7% on the turnover of Rs.2,18,98,74,418/- in

comparison to the earlier years GP of Rs.9,50,28,006/- @ 6.14% on the total

turnover of Rs.1,54,61,22,671/-. Thus, there is fall in GP by 2.44%. It was

further noticed that the assessee has claimed the profit in excess as a sum

of Rs.2.31 crore, in the gross receipt if the foreign exchange fluctuation

rate is reduced from the GP ratio, then 1% of the GP will further reduced of

the assessee. Therefore, the assessee was asked to furnish the details of

diamond manufacturing quantitywise and qualitywise and the basis of

valuation of closing stock along with supporting evidences. But the assessee

neither furnished any explanation with regard to the above details asked for

nor he produced the books of accounts for the verification purposes which

are called on several times. Therefore, the AO observed that the assessee

has prevented his office from verifying the books of accounts. Further, the

assessee has not maintained qualitywise details of polished diamonds which

has been manufactured. The assessee has not provided closing stock details

qualitywise and piecewise which will have significant impact on the

valuation issues. Therefore, the basis of valuation of closing stock of

polished diamonds was rejecting by rejecting books of accounts of the

assessee u/s.145(3) of the Act. The AO further, observed that the assessee

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 3 of 19 has not substantiated its claim along with fact that how much the increase

in the purchase cost affect its GP, and how much the decrease or increase

in sales price have affected its GP. By merely stating that there was a

recession in that period does not discharge the liability of the assessee to

explain the reasons for falling GP ratio of 2.44% which is almost 40% fall in

terms of GP from the previous years 2006-07 & 2007-08. The assessee has

stated that due to fluctuation in prices of excess rate of dollar, the assessee

has got less prices of export and paid more prices on import. But, the AO

observed that assessee has earned a net foreign exchange fluctuation of

dollar prices; therefore this contention of the assessee is factually

incorrect. The AO further noted that GP ratio in financial year 2006-07 was

at 6.37% and in financial year 2007-08 was at 6.15%, the average of which

comes to 6.26%, whereas in the assessment year under consideration, the

GP is shown at 3.71% which is inclusive of net foreign exchange fluctuation

gain of Rs.2.13 crore. In view of this, the AO has considered the average GP

rate of two preceding years which comes to 6.26%. Accordingly, worked out

rate which the difference in GP comes to 2.55%, hence applying the GP rate

of 2.55% made addition of Rs.5,58,41,797/- on account of fall in GP rate. 4. Being aggrieved, the assessee filed an appeal before the ld. CIT(A),

wherein it was submitted that the turnover of the assessee is Rs.218.98

crore as against Rs.157.09 crore in the immediate preceding year. In such

cases, where turnover runs into crores of rupees, it is not at all necessary

that every year there will be always be increase in gross profit. The GP rate

year under consideration has gone down, because of unfavorable market

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 4 of 19 conditions as on one hand, and there is a substantial rise of gross import and

local purchase of 51% and 31% respectively. On the other hand, the export

price is an only increase by 22.5% and this has led to the fall in GP ratio. All

the purchases/imports as well as exports/local sales are supported by

proper purchase bills/sales bills. It was further submitted that the non-

compliance before the AO was not unintentional and not deliberate as such

details were handed over to the counsel, but who failed to produce the

same before the AO for the reasons best known to that counsel. During the

remand proceedings, the assessee has produced the books of accounts and

other details before the AO. The AO vide remand report submitted that the

books of account have been rightly rejected as the labour charges to the

extent of Rs.17,76,00,000/- entered in the register were found to be

defective as same were not bearing proper signature. There was variation in

signatures of managers and karigars. However, the CIT(A) was of the view

that the AO does not have the necessary expertise to examine and comment

that the signatures are different as it is the work of a hand writing expert.

The prima facie variation of signatures appearing in the registers cannot be

sole basis of considering the books of account as defective and not

verifiable. The gross of consumption of rough diamond in AY.2008-09 is

13.87% while in AY.2009-10; it has come down to 9.32%. Therefore, the

rejection of books of accounts merely on the ground of difference in

signature is not justified, hence, rejection of books of account u/s.145(3)

was held to be not justified. With regard to addition of Rs.5,58,41,797/- by

estimating GP rate at 6.15%, the CIT(A) has observed that the method of

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 5 of 19 valuation of closing stock has been consistently followed by the assessee

from year to year and this method of valuation adopted by the appellant is

similar to that in the case of M/s. Dhami Brothers v. ACIT, Circle-9, wherein

its method has been approved by ‘A’ Bench of Tribunal, Ahmedabad vide its

order dated 06-08-2010 in ITA No.2309/AHD/2008 for the AY.2004-05. On

perusal of this order of the ITAT, it was found that while working out cost of

production of rough diamonds, the electricity expenses have been added

under the manufacturing head which includes labour wages and electricity

expenses to work out the total cost of manufactured of polished diamonds.

Since, the assessee has himself relied on this judgement of ITAT regarding

the method of valuation of closing stock, the AO in the remand report has

correctly included the electricity expenses of Rs.52,30,244/- to work out

the total manufacturing cost of polished diamonds at Rs.2,10,11,22,627/- as

against the appellant’s cost of Rs.2,09,58,81,383/- by adding electricity

expenses of Rs.52,30,244/- to the total manufacturing of polished

diamonds. Hence, the contention of the appellant of non-inclusion of

electricity bill towards manufacturing cost was rejected and finding of the

AO were upheld. The CIT(A) further observed that the assessee has

produced the relevant records in form of export bills, purchase bills, cash

etc. along with the books of account and no defects has been pointed out by

the AO in the purchase sale bills etc., therefore, GP addition made by the

AO after rejection of books of account of Rs.5,58,41,797/- cannot be

upheld. Therefore, the GP addition of Rs.5,88,41,797/- made by the AO was

deleted but the findings given by the AO in the remand report including the

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 6 of 19 electricity expenses of Rs.52,30,244/- in the manufacturing cost was found

to be correct and revaluation of the closing stock after including the

electricity expenses was uphold. The AO was therefore directed to

recalculate the closing stock after including the electricity expenses of

Rs.52,30,244/- in the manufacturing cost and taking the average cost of

Rs.11318.91 as shown by the appellant instead of average cost of Rs.11211/-

considering by the AO in the remand report. In view of these facts, the GP

addition of Rs.5,58,41,797/- was deleted and the electricity expenses

amounting to Rs.52,30,244/- was directed to be added to the manufacturing

cost to calculate the closing stock at average cost of Rs.11318.91/- per

carat which has been arrived after reducing the GP margin of 3.71% from

average export price of Rs.11756.69 per carat, hence, the ground was partly

allowed. 5. Being aggrieved, the Revenue has filed this appeal before this Tribunal

against the deletion of GP addition of Rs.5,58,41,797/- and the assessee has

also filed an appeal against the order of the CIT(A) directing the revaluation

of closing stock after considering the electricity expense of Rs.52,30,244/-

The ld. CIT(DR) submitted that the ld. CIT(A) has not appreciated the facts

that during the course of remand report proceedings, the AO observed that

the assessee failed to prove the genuineness of salary register. Further,

during the assessment proceedings, the AO observed that the assessee has

failed to genuineness of karigars wages register, hence, the genuineness of

books of account is not proved, therefore, the AO has correctly made

addition on account of fall in GP. The ld. CIT(DR) also relied on the

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 7 of 19 statement of facts submitted by the AO in Para 5 wherein revised working

valuation of closing stock was considered at 11246.34 per carat as against

Rs.9800/- per carat shown by the assessee. 6. On the other hand, the ld. counsel supported the order of the CIT(A).

The ld. counsel referred to working closing stock placed at paper book page

no.25, according to which average cost of manufacturing of polished

diamonds comes to 11326.78 per carat and closing stock has been valued at

998.00 per carat. The ld. counsel referred Para 6.1.1 of the of the CIT(A)

wherein it was submitted that the AO has contended that books of accounts

are defective as the labour charges to the extent of Rs.17,76,00,000/- are

not verifiable. However, the ld. counsel pointed out variation in signature of

managers and karigars cannot be regarded as a valid ground for treating the

books of accounts as defective as it is a known-fact that the workers put

their signature on register in a casual manner and many times they depute

somebody on their behalf to collect their salaries. Further, the ratio of

labour wages to the cost of consumption of rough diamonds in AY.2008-09

was 13.87% whereas the same in AY.2009-10 comes to only 9.32% which

clearly manifest that there is a significant reduction in claim of labour

charges for the year under consideration. Therefore, the ground of rejection

of books of accounts u/s.145(3) of the Act by the AO was rightly allowed by

the CIT(A). Further, electricity expenses of Rs.52,30,244/- relates mainly to

the office premises of the assessee and the same is more or less fixed in the

nature as increase/decrease in manufacturing activity does not have any

significant impact on the overall electricity expenditure. The electricity

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 8 of 19 expenses were considered in the working of total cost of polished diamonds

manufactured because assessee has consistently adopted the policy to treat

the electricity expenditure, administrative expenses, and therefore the

same is recognized as explained in profit and loss account. 7. In rejoinder to above, the ld. CIT(DR) submitted that the ITAT,

Ahmedabad vide its order dated 06-08-2010 in ITA No. 2309/AHD/2008

found that while working out the cost of production of rough diamonds, the

electricity expenses have been added under the manufacturing expenses

which includes labour, wages and electricity expenses to work out the total

cost of manufactured polished diamond. Therefore, the CIT(A) has correctly

directed that the electricity bill’s expenses to be included towards the

manufacturing cost and consequently in the closing of manufactured

diamonds. 8. We have heard the rival submissions and perused the relevant material

available on record. We find that the books of accounts were rejected by

the AO merely on the basis of variation of signatures of karigars, workers as

appearing in the salary register. However, no specific defects have been

pointed out by the AO. Therefore, the difference in signature cannot be a

ground to reject the books of accounts. The CIT(A) has rightly observed that

the AO is not hand writing expert to distinguish the signature of the karigar.

Therefore, we are of the considered opinion that the CIT(A) has rightly

allowed the ground of rejection of books of accounts u/s.145(3) of the Act

in favour of the assessee. So far, the deletion of GP addition of

Rs.5,58,41,797/- is concerned. We find that the assessee has produced the

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 9 of 19 relevant records in form of export bills, purchased bills and cash books etc.

along with books of accounts and no defects have been pointed out by the

AO in the purchase sales bills etc. The only reason for making GP addition is

given that there is a fall in GP as compared to preceding year. However, it

has been explained that ratio of labour charges to the cost of consumption

of rough diamond was at 13.87% in AY.2008-09 which has come down only to

9.32% in the assessment year under consideration. Therefore, genuineness

of the labour charges cannot be doubted. Further, the GP ratio has gone

down because as against the rise in average purchase cost of imports and

local purchases by 51% and 34% respectively in AY.2009-10, the rise in

average price of export is only to the extent of 22.51%, therefore, the fall in

GP is quite justified. Further, there was overall recession in the diamond

industry during the relevant period and most of the sales were export sales

of the assessee, whereas the GP was disclosed at 3.71%. Thus, the export

sales of the assessee constituted almost 99% of the total sales while local

sales were only at 1.14%. Therefore, the deletion of GP addition is justified,

hence, we do not find any infirmity in the order of CIT(A) for deleting of GP

addition of Rs.5,58,41,797/-. We further note that the CIT(A) has upheld the

addition of an amount of electricity expenses of Rs.52,30,244/- to be added

to the manufacturing cost to calculate the closing stock by taking the

average cost of Rs.11318.91 per carat which has been arrived after reducing

the GP margin of 3.71% from the average export price of Rs.11756.69 per

carat. Therefore, this ground of assessee is dismissed.

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 10 of 19 9. Ground No.3 relates to allowing forward contract cancellation loss of

Rs.7,55,57,457/- without appreciating the fact that this forward contract

were not booked for any specific export and import and not utilized in

business and terminated without affecting delivery of foreign exchange. 10. Short facts of the case are that the assessee has earned

Rs.16,60,97,357/- foreign exchange fluctuation gain on export and the

assessee has taken set-off of the forward contract cancellation loss of

Rs.7,55,57,457/- against the above foreign exchange fluctuation gain on

export and the net amount has been credited by the assessee in the profit

and loss account. Since, the assessee did not submit details of forward

contract cancellation loss. Therefore, the AO observed that it is not delivery

based transaction. As per section 43(5) of the Act, the transaction which is

settled otherwise than actual delivery will be a speculative transaction.

Therefore, the forward contract loss was a speculation in nature; hence, the

AO relying on the CBDT Circular No.23 dated 12-09-1961 has disallowed the

same. 11. Being aggrieve, the assessee carried the matter before CIT(A), wherein it was submitted that the net exchange difference gain on export of

Rs.8,65,35,472/- after setting off loss on cancellation of forward contract of

Rs.7.55 crore. Since, the both items being linked with fluctuation in

exchange rate, set-off which is very much allowable. The assessee has also

filed a copy of ledger account of exchange difference on export as also

exchange difference on imports. The CIT(A) observed that the perusal of

details reveals that the appellant is in the business of export of diamonds. It

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 11 of 19 is a known fact that persons who are engaged in the business of import/

export are exposed to the risk of fluctuation in the exchange rate of

currency. The AO has held that the forward cancellation loss is speculative

in nature and is not delivery based transaction and is covered by section

43(5) of the Act. However, it is the evident that the appellant is not a

dealer in foreign exchange, but an exporter of diamonds. Section 43(5) of

the Act defines speculative transaction to mean a transaction in which a

contract for the purchase of sale of commodity is settled otherwise than by

the actual delivery or transaction of such commodity. In order to hedge

against losses, the appellant had booked foreign exchange in the forward

market with the bank. On cancellation of contract, the appellant is either

entitled to profit or loss depending on rates contracted and rates prevailing

at the time of cancellation. The appellant entered into this forward

contract exchange in order to protect against the fluctuation in the rate of

foreign exchange currency. It is therefore quite natural that in order to

minimize the risk, they may enter into such contracts with banks. As such

the forward exchange contracts are very much in the nature of hedging

transactions and therefore, the same cannot be treated as done with

speculative intent. Hence, provisions of section 45(3) of the Act are not

applicable. The CIT(A) has also supported his view by placing reliance on the

decision of ITAT, Mumbai Bench in the case of Voltas International Ltd.

(2009) 126 TTJ 702 (Mum), Badridas Gauridu (P) Ltd. (2004) 187 CTR 453/

(2003) 261 ITR 256 (Bom.). Hence, considering the foreign exchange

contract entered by the assessee in the nature of hedging transaction, the

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 12 of 19 CIT(A) deleted the addition of disallowance of Rs.7,55,57,457/- made by

the AO. 12. Being aggrieved, the Revenue has filed this appeal before this

Tribunal. The ld. CIT(DR) relied on the written statement of facts in Para

8.3 in which it has been mentioned that the assessee has not booked a

forward contract against any specific export and import transaction. The

assesse is not a dealer of foreign exchange but is a merchant exporter

against in the business of diamond. This said loss has arisen due to non-

surrounding/delivery of the foreign exchange to the banking institution with

whom the assessee has entered into forward booking contract. This is a

clear case where the contract was terminated without affecting the delivery

to the foreign exchange. Therefore, the AO has rightly treated the

transaction as speculating u/s.43(5) of the Act which is not allowable under

the head of income from business and profession. 13. Per contra, the ld. counsel for the assessee submitted that the

assessee business activity comprises of import of diamonds and its

manufacturing polished diamonds, the same are exported. Therefore, in this

business activity, the assessee is very much exposed to exchange rate risk

and in order to safeguard its business interest, the assessee enters into

forward exchange contract. Therefore, the gain or loss arising on its foreign

exchange contract is not anything but gain or loss arising in the course of

business contract, predominantly entered by the importer or exporter to

hedge against the loss. The assessee had booked foreign exchange in the

forward market with bank. Such loss has been rightly allowed by the CIT(A)

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 13 of 19 for which the assessee has placed reliance on the decision of Hon’ble

Gujarat High Court in the cases of CIT v. Panchmahal Steel Ltd. (2013) 215

taxman 140 (Guj) (HC), CIT v. Friends & Friends Shiping Pvt. Ltd (2013) 34

taxman.com 553 (Guj) (HC) and CIT v. Badridas Gauridu Pvt. Ltd (2004) 134

taxmann 376 (Bom) (HC). 14. We have heard the rival submissions and perused the relevant material

available on record. We find that the assessee has earned foreign exchange

fluctuation gain on export at Rs.16,60,97,353/- as against which the

assessee has incurred foreign contract cancellation loss of Rs.7,55,57,457/-

which has been set-off against the said foreign exchange fluctuation gain.

The assessee is in the business of export of diamonds wherein the assessee

is exposed to the risk of fluctuation in the exchange rate of currency.

Therefore, in order to hedge against losses, the assessee had booked foreign

exchange in the forward market with bank and on cancellation on the

contracts, the appellant is either entitled to profit or loss depending on the

rate of contracts prevailing at the time of cancellation. The assessee has

entered to this forward exchange contract in order to protect against

fluctuation in the rate of foreign exchange currency to minimize the risk.

Therefore, the assessee has not entered into any speculation transaction as

held by the CIT(A). The ld. counsel has placed reliance on the decision of

Friends & Friends Shiping Pvt. Ltd (supra) wherein the Hon’ble High Court

has held that where assessee exporter entered into foreign exchange

contract as incidental to its export business and incurred loss in said

contracts, said loss was not speculative loss but business loss. Similar loss

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 14 of 19 was also expressed in the case of Badridas Gauridu (P) Ltd (supra) by Hon’ble High Court and CIT v. Panchmahal Steel Ltd. (supra). In view of these facts, we do not find any infirmity in the order of CIT(A), accordingly same is upheld. Therefore, this ground no. 3 of the appeal is dismissed. 15. In the result, this appeal of Revenue for AY.2009-10 is dismissed. In ITA No.1872/AHD/2013/AY.2009-10 by the Assessee:- 16. Ground No. 1 relates to direction to the AO to recalculate the value of closing stock after considering electricity expenses of Rs.52,30,244/- in manufacturing expenses and thereby increasing the value of closing stock. 17. We have heard the rival submissions and perused the relevant material available on record. While dealing with the ground no.1 & 2 of appeal of the Revenue, we have upheld this ground of appeal in favour of the revenue and against the assessee. Accordingly, this ground of appeal of the assessee for the reason discussed therein is therefore dismissed. 18. Ground No.2 relates to not giving direction to give the deduction of equivalent amount of Rs.52,30,244/- in AY.2010-11 by way of increase in value of opening stock. 19. We have heard the rival submissions and perused the material available on record. As we have uphold that finding of CIT(A) to consider, the electricity expenses of Rs.52,30,244/- in manufacturing expenses and thereby increase the value of closing stock. Since the value of closing stock has been increased during this year, it becomes opening stock for the next year. Therefore, the AO is directed to consider to increase the opening

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 15 of 19

stock of the equal amount of Rs.52,30,244/- in AY.2010-11 in the opening

stock. Therefore, this ground of appeal of the assessee is allowed.

In ITA No.2833/AHD/2014/AY.2009-10 by the Revenue:-

“(i) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in holding that the Assessing officer has committed an error while giving effect to the Appeal order that he should have calculated the closing stock by adopting the cost of sale at Rs.11,318.91/- per carat, after reducing the G.P. margin of 3.71%, without appreciating the fact that the AO in his order u/s 250 of the Income-tax Act, 1961, dated 10.06.2013 has rightly calculated the value of closing stock as per the direction of the Ld. CIT (A) in his order No. CAS/V/187/2011-12 dated 18.04.2013.

(ii) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in changing the operative decision tendered by him in his original order dated 18.04.2013 (concluding part of para 6.2.6 of page Nos. 16), wherein he has directed the AO to calculate the closing stock at the average cost of Rs.11318.91 per carat, whereas in the order dated 01.08.2014 (at para 6.1.3 at page No. 6), he has given a new direction that the AO should have calculated the closing stock by adopting the cost of sales at Rs.11318.91 per carat after reducing the GP margin of 3.71%. This has resulted in a change of decision in the original order of the Ld. CIT (A) dated 18.04.2013, where the said order is subject matter of appeal filed by the Revenue before the Hon'ble ITAT on 01.07.2013.

(iii) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in directing the AO, vide his order dated 01.08.2014, to calculate the value of closing stock by adopting the value of Rs.11318.91 per carat as cost of sale, which he himself has earlier refused to entertain, vide his order dated 17.01.2014, on an rectification application filed by the assessee. Conflicting and repeated decisions are bad in law and not permissible while deciding on the same issue on 154/ rectification applications.

(iv) This new direction issued by the Ld. CIT (A) vide his order dated 01.08.2014 is vague and ambiguous, without explaining how the appeal effect has to be exactly determined and as such the order of the Ld. CIT (A) is not in line with the provisions as laid down under section 250 (6) of the Income tax Act, 1961."

the Assessing Officer (AO) has committed an error while giving effect to the

appeal effected to the appeal order and he should have calculated the

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 16 of 19 closing stock by adopting the cost of sale at Rs.11,318.91/- per carat, after

reducing the GP margin of 3.71%, without appreciating the fact and

changing its decision tendered by him in his original order dated 18-04-2013

and where he has himself refused the facts, the rectification application

filed by the assessee. Therefore, the new direction of the CIT(A) vide his

order dated 01-08-2014 is vague and ambiguous. The above grounds of

appeal raised by the Revenue are against the calculation of closing stock by

adopting the cost of sale @11318.91 per carat. Hence, these are being

considered together. 23. Briefly stated the facts of the cases are that in this case an order

Section 143(3) dated 23-12-2011 was passed by the AO, wherein addition of

Rs.13,13,99,254/- as against the return income of Rs.6,94,479/- were made.

The assessee has filed an appeal before the CIT(A)-V, Surat who vide his

order dated 18-04-2013, partly allowed the appeal of the assessee with

certain directions to the AO for calculation of the closing stock. In

consequence to which the AO passed an order u/s.250 dated 10-06-2013,

giving effect to the order of the CIT(A) against the said order, the assessee

filed an application u/s.154 dated 15-10-2013, claiming that there was an

error in the calculation of relief allowed to it u/s.250 dated 10-06-2013.

However, the AO has rejected this application u/s.154 vide his order dated

07-10-2013 holding that the order passed u/s.250 was as per the directions

of CIT(A). The assessee thereafter filed an appeal before this CIT(A) u/s.154

and the order of the CIT(A) vide his order dated 01-08-2014 which the

subject matter of this appeal has allowed the appeal of the assessee by

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 17 of 19 observing that the AO while giving appeal effect have calculated the closing

stock by adopting the cost of sales at Rs.11318.91 per carat after reducing

the GP margin of 3.71%. The CIT(A) has given following directions i.e. to

sum up the GP addition of Rs.5,58,41,797/- is deleted and the electricity

expenses amounting to Rs.52,30,244/- is to be added to the manufacturing

cost to calculate the closing stock at the average cost of Rs.11,318.91 per

carat which has been arrived after reducing the GP margin of 3.71% from

the average export price of Rs.11,756.69 per carat. 24. Being aggrieved, the Revenue filed this appeal before this Tribunal.

The ld. Departmental Representative (DR) submitted that the AO has valued

the closing stock @11318.91 per carat, as per the directions of the ld. CIT(A)

vide his order dated 18-04-2013, revised income has been thereafter

determined at Rs.2,67,00,080/-. The assessee has not filed any appeal

against this order u/s.250 dated 10-06-2013. But the assessee has preferred

to move an application u/s.154 before the AO on 15-10-2013, which was

rejected on 17-10-2013. The assessee has filed an appeal before the CIT(A).

It was submitted that the Revenue has filed already an appeal before ITAT on 02-07-2013 against the order of CIT(A) of quantum issue. It was further

submitted that the CIT(A) has not pointed out any defect in the order of AO

dated 10-06-2013. 25. Per contra, the ld. counsel for the assessee relied on the order of the

ld. CIT(A). 26. We have heard the rival submissions and perused the relevant material available on record. We find that the CIT(A) has given his direction vide his order dated 18-04-2013 vide which the GP addition of Rs.5,58,41,797/- was

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 18 of 19 deleted and the electricity expenses amount of Rs.52,30,244/- is to be added

to the manufacturing cost to calculate the closing stock at the average cost of

Rs.11,318,91 per carat which has been arrived after reducing the GP margin of

3.70% from the average export price of Rs.11,756,69 per carat On the basis of

the above direction, the assessing officer made addition on account of closing

stock at Rs.2,98,36,191/- instead of correct addition of Rs.52,30,244/- while

giving effect to direction of CIT(A). "The appellant had submitted that the AO

has given a wrong appeal effect on the basis of the finding given in the

appellate order though there was a clear cut direction in the preceding line of

para no. 6.2. which reads as " The assessing Officer is directed to recalculate

the closing stock after taking into the electricity expenses of Rs.52,30,244/-

included in the manufacturing cost and taking the average cost of

Rs.11,318.91/-as shown by the appellant instead of average cost of Rs.11,211/-

calculated by the assessing officer in the remand report. "The appellant

requested to replace following line as against the original observation to clarify

matter to assessing officer. In the appeal order dated 18.04.2013 it was held

that the working of the AO in the remand report of recalculation of the closing

stock by including exports sales and local sales to work out the average price is

not the correct method to calculate the closing stock. So the cost of the sales

should have been reduced at Rs.11,318/- per carat instead of Rs.11211 per

carat. The AO suggested to enhance the closing stock by Rs.1,97/82,848/- in

the remand report and this working was not accepted in the appeal order

except in respect of the electricity expenses of Rs.52,30,2447- which was to be

included in the manufacturing cost. The AO while giving effect to the appeal

order should have calculated the closing stock by adopting the cost of sales at

Anjana Exports v. ACIT, Circle-9, Surat/ITA. 1879 & 1872/AHD/2013/AY.2009-10 & 2833/AHD/2014/SRT/2017/A.Y.2009-10 Page 19 of 19 Rs.11,318.91/- per carat after reducing the GP margin of 3.71%. Similar direction was also given while deciding the appeal order against the 154 application dated 17.01.2014. The AO is directed to give the appeal effect order as per the directions mentioned above. The ground of appeal is allowed. Considering these facts, we do not find any infirmity in the order of CIT(A), hence, same is upheld. Accordingly, ground no. (i) to (iv) of appeals are dismissed. 27. In the result, the appeal of Revenue for AY.2009-10 is dismissed. 28. In the result, in ITA No.1879/AHD/2013 for AY.2009-10 is dismissed, in ITA No.1872/AHD/2013 for AY.2009-10 is partly allowed & in ITA No.2833/AHD/2014 for AY.2009-10 is dismissed. 29. The order pronounced in the open Court on 04-05-2020 Sd/- Sd/- (SANDEEP GOSAIN) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat: Dated: 4th May, 2020/Samanta, PS Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/ Guard file of ITAT. By order

// TRUE COPY // Assistant Registrar, Surat