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Income Tax Appellate Tribunal, SURAT BENCH - SURAT
Before: SHRI SANDEEP GOSAIN & SHRI O.P.MEENA, ACCOUTANT MEMBER
Balar Exports v. DCIT-CC-1-Surat & vice- versa /I.T.A.No’s. 3189 & 3188/AHD/2011/A.Y.2008-09 Page 1 of 49 आयकर अपीलीय अिधकरण, सुरत �यायपीठ, सुरत IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH - SURAT BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUTANT MEMBER आ.अ.सं/.I.T.A No’s.3188 & 3189/AHD/2011 िनधा�रण वष�/Assessment Year: 2008-09 1. Deputy Commissioner of Vs. 1.M/s. Balar Exports, Income Tax, Central Circle-1, Balar Building, Opp. Surat. Panchratna Tower, Lambe Hanuman Road, Surat-395 006. [PAN: AACFB 4703 H] 2.M/s. Balar Exports, 2. Deputy Commissioner of Balar Building, Opp. Income Tax, Central Panchratna Tower, Lambe Circle-1, Surat. Hanuman Road, Surat-395 006. [PAN: AACFB 4703 H] अपीलाथ� Appellant ��यथ�/Respondent िनधा�रती क� ओर से /Assessee by Shri Rasesh Shah - CA Shri Srinivas T. Bidari - CIT(D.R.) राज�व क� ओर से /Revenue by 11.12.2019 सुनवाई क� तारीख/ Date of hearing: उ�ोषणा क� तारीख/Pronouncement on: 04.02.2020 आदेश /O R D E R PER O. P. MEENA, AM: 1. The above cross appeals by the Revenue and Assessee are directed against the order of learned Commissioner of Income tax (Appeals)-II, Ahmedabad (in short “the CIT (A)”) dated 19.10.2011 for the Assessment Year 2008-09, which in turn has arisen from the assessment order passed under section 143(3) dated 31.12.2010 of
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Income Tax Act, 1961 (in short ‘the Act’) by the Deputy Commissioner of Income-Tax, Central Circle –1, Surat (in short “the AO”).
I.T.A.No. 3188/AHD/2011/A.Y.2008-09 (BY Revenue): 2. Ground No.1 states that the Ld. CIT(A) has erred in law and on facts in deleting the addition made by the Assessing Officer on account of unexplained investment of Rs.45,31,58,0507/- even though it was categorically analyzed in the body of assessment order that there was unaccounted investment in rough diamonds by the assessee on the date of survey.
Succinctly, facts as culled out from the orders of lower authorities are that the assessee is a partnership firm engaged in the business of manufacturing and export of polished diamonds. The assessee has filed return of income on 30.09.2008 declaring total income of Rs.8,52,39,087/-. The assessment was made under section 143(3) on 31.12 2010 by assessing total income at Rs.88,09,26,973/-. During the course of survey proceedings under section 133A conducted on 14.02.2008 at business premises of the assessee, various document i.e. registers BS-1, 2 & 3 were found and impounded based on which the assessee has admitted additional income of Rs.5 crores on account of excess stock of diamonds and
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income from unaccounted sales. During the course of survey proceedings, deficit stock of rough diamonds of 6146.57 carats was found. However, during the course of assessment proceedings, the AO noted that the assessee failed to produce satisfactory evidence for not entering the stock of rough diamond issued to laser department as evident from the impounded books BF-8 to BF-17. The AO observed that, the document and papers impounded clearly proves that the assessee-firm has been maintained lot wise details, but the same were not produced and referred by various impounded evidences viz. the register of laser Department inventoried as annexure BF-8 to 17, the registers related to Ghat process as per annexure BF-39,40 & 42, registers to manufacturing of finished diamonds as per Annexure B S-1,2,& 3, Noting of lot number, number of diamonds yield on Page No. 90 to 103 of Annexure BF-47 and BF- 46. From all, such registers of laser Department, the AO estimated rough diamonds stock at 220873 carats and after allowing set off of rough diamonds issued and as noted in the stock register of rough diamonds for the period 27.11.2997 to 14.02.2008 at 35098.43 cts (excluding 3939.24.cts recorded in rough diamonds stock register on 03.11.2007), treated the balance rough diamonds of 185774.24 cts valued at Rs.45,31,58,050/-, received in laser Department as
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unaccounted stock and added the same to total income as per observations made in para 7.5 and 7.6 of assessment order u/s. 69 of the Act.
Being, aggrieved, the assessee filed an appeal before the Ld.CIT(A). Wherein, it was explained that stock entered in Annexure BF-16 has been added twice i.e.: firstly at the time of main process as noted in Annexure BF-15 to BF-17 and thereafter at the time of resending for reprocess as noted in Annexure BF-16.Thus, it was contended that the stock of rough diamonds of 220873 carats was not properly computed by the AO. It was pointed out that the original weight in carats was totaled as gross weight and not sawed weight i.e. net weight. There were repetitive notings of gross weight/carats of various lots in various laser machines/shifts. It was contended that when one lot / packet (with kapan number) is laser processed in two shifts or sawed on more than one laser machines, the gross weight was noted as original weight/carats 2-3 times and totaled twice/ thrice, whereas the sawed weight/ carats on all such machines / shifts is equal to one gross weight/carats only. Due to this mistake gross weight /carats of rough diamonds was added twice/ thrice. The assessee has filed a statement of such instances Annexure wise i.e. annexure BF-8 to 15 & 17 along with its notings in other shifts / other
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lesser machines, sample notings in Annexure BF8 to 15 & 17 and worked out the diamonds sent to laser department at 97837.27 carats excluding Annexure BF-16 and duplicate entries taking net weight, which has been reproduced by the Ld. CIT (A) at Page No. 37 to 39 of appellate order. The CIT(A) observed that he has verified the contention of the assessee that there is availability of total rough diamonds to the tune of 114603.95 carats against which rough diamonds sent to the laser department are of 97837.27 carats. Thus, the rough diamonds available are much more than the diamonds sawed/cut in laser process. The AO has given set-off 35098.43 carats whereas the assessee-firm was having 114603.95 carats of rough diamonds stock and without considering the accounted rough diamonds available, the AO has treated all the rough diamonds noted in laser process registers as unaccounted. This shows that the AO, merely on the basis of notings in laser register and Kapan No. has treated all impounded registers, as maintained for unaccounted business, without having any corroborating evidences found during survey for purchase of rough diamonds nor he has not given proper set off of rough diamonds available, while rejecting plausible explanation of the assessee and treated the huge quantity of rough diamonds i.e. equal to the total purchases of the appellant as
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unaccounted and made addition of Rs.45,31,58,050/- as unexplained investment. In view of these facts, the ld. CIT (A) has considered the stock of rough diamonds from stock register of rough diamonds from 27.11.2007 to 14.02.2008 at 114603.95 carats and observed that he has verified all objections of the appellant and found that the AO has wrongly taken 220873 carats rough diamonds and made addition of difference rough diamonds of 185774.57 carats valued at Rs.45,31,58,050/- on mere presumption basis. Whereas, as per impounded register of laser department and difference of rough diamonds issued to laser department were very much less than the stock on hand of the assessee for which findings were given at para No. 9 & 9.1 of the appellate order. In view of these facts, the ld.CIT(A) has deleted the addition of Rs.45,31,58,050/- made by the AO.
Being aggrieved, the Revenue has filed this appeal before the Tribunal. The Ld. CIT (DR) supporting the assessment order submitted that during survey several loose papers including loose paper file annexure BF-45 were found and impounded. These register were maintained for laser department as well as for polished diamonds. However, polishing work of diamonds and Ghat work was not being done at the factory premises of the assessee. The total stock of rough
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diamonds as per impounded register of laser department was at 220873 carats and during this period, the rough diamonds issued as per register were at 35,098.43 carats. Hence, rough diamonds issued were not found matching. Although the assessee has failed to reconcile the lot wise matching and even benefit of rough diamonds issued is given from stock of rough diamonds, still there was difference of 1,85,774.57 cts [220873-35098.43]. The CIT (A) has simply relied on the details given by the assessee. The entries made in laser register was unexplained investment in the hands of the assessee. Therefore, the AO was right in making addition on this account.
Per contra, the learned counsel for the assessee supporting the order of Ld. CIT (A) submitted based on seized papers, the assessee has proved that the AO has wrongly made addition by holding that the assessee was having more rough diamonds stock issued to the laser department. Whereas no excess stock of rough diamonds was found at the time of survey. Without prejudice, it was contended that when no excess physical stock found at the time of survey, then at most the profit could be estimated by the AO for unaccounted sales. Such profit is also covered by declaration made by the assessee. The movement of rough diamonds might have been more because of the
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unrecorded sales declared by the assessee. The assessee has declared Rs.5 crores and therefore, considering the Gross Profit @6.27% of the unaccounted turnover comes to Rs.79,74,48,166/-, which worked out less than the declaration made by the assessee. It is well settled principle that whole sales, cannot be added, and only percentage of profit can be added as held in the case of CIT v. President Industries 258 ITR 654 (Gujarat) by the Hon’ble Gujarat High Court. Unless there is concrete, evidence that the assessee has made investment outside books of accounts before receipts of the sale consideration no addition can be made. The assessee has declared the peak investment of the excess stock of polished diamonds at the time of survey, hence, no addition can be made. Therefore, CIT (A) has rightly deleted the addition by giving detailed findings in the appellate order.
We have heard the rival submissions and perused the relevant material on record. We find that the CIT (A) observed that there were repetitive notings of gross weight/carats of various lots in various laser machines/shifts. It was noticed that when one lot / packet (with kapan number) is laser processed in lesser Department in two shifts or sawed on more than one laser machines, the gross weight was noted as original weight/carats 2-3 times and totaled twice/ thrice, whereas the sawed weight/ carats on all such machines/ shifts is
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equal to one gross weight/ carats only. Due to this mistake, gross weight /carats of rough diamonds was considered twice/ thrice. The assessee has furnished a statement of such instances giving Annexure wise details i.e. annexure BF-8 to 15 & 17 along with its notings in other shifts/other lesser machines, sample notings in Annexure BF-8 to15 & 17 and worked out the diamonds sent to laser department at 97837.27 carats excluding Annexure BF-16 and duplicate entries taking net weight, which has been reproduced by the Ld. CIT (A) at Page No. 37 to 39 of appellate order. Accordingly, the CIT (A) considered the stock of rough diamonds from stock register of rough diamonds from 27.11.2007 to 14.02.2008 at 114603.95 carats and found that the AO has wrongly taken 220873 carats rough diamonds and made addition of difference rough diamonds of 185774.57 carats valued at Rs.45,31,58,050/- on mere presumption. However, as per impounded register of laser department and difference of rough diamonds issued to laser department was very much less than the stock on hand maintained by the assessee for of which findings are given at para No. 9 & 9.1 of the appellate order. We are therefore, of the opinion that in such a situation, no addition on account of excess stock can be made. We also notice that there was no excess stock of rough diamonds found during survey. Further, the Ld. CIT
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(DR) has also not controverted these facts and findings as recorded by the Ld.CIT(A) and simply supported the AO`s observations. In alternate, where no physical stock was found at the time of survey, and there is shortage, then in such situation, at the most the profit can be estimated by the AO on account of unaccounted sales, if it is proved that there were unrecorded sales, which are also covered by declaration made by the assessee and shown in that returned income. The movement of rough diamonds might have been more because of the unrecorded sales declared by the assessee. The assessee has declared Rs.5 crores and therefore, considering the Gross Profit @6.27%, the unaccounted turnover comes to Rs.79,74,48,166/- of which profit is far less than declaration as made by the assessee. This view is also fortified by decision of Hon’ble Gujarat High Court in the case of CIT v. President Industries 258 ITR 654 (Gujarat) wherein it was held that only percentage of profit could be considered for addition where shortage of stock. Therefore, considering the all the facts on record, circumstances of the case and the facts that the ld.CIT(A) has carried out detailed verification and working as filed before him, we therefore, do not find any infirmity in the order of ld.CIT(A), accordingly, same is upheld. This grounds of appeal of revenue is therefore, dismissed.
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Ground No. 2 states that the Ld.CIT(A) has erred in law and on facts in deleting the addition made by the Assessing Officer of Rs.22,47,56,571/- in respect of unaccounted income from sale of polished diamonds on suppression of yield even though it was categorically analyzed in the body of assessment order that the assessee had suppressed its yield.
Short facts of this ground are that the AO observed that as per Annexure B S-1, 2 & 3 registers, total rough diamonds were recorded at 4232.92 carats and total finished diamonds were recorded at 1920.68 carats. The AO viewed that the assessee-firm produced more polished diamonds from rough diamonds as compared to what was shown in the books of accounts and sold the same outside books. The AO, therefore, calculated yield at 45.37% as against which the assessee has shown yield at 34.65%. Therefore, the AO proposed an addition of Rs.22,47,56,571/- in show-cause notice issued on 09.12.2010. The assessee has replied that yield noted in registers BS 1 to 3 is in respect of the polishing activity (Talia, Mathla, Pale & Dhar) by job-workers after the Ghat process. It was also stated that registers identified as Annexure BS 1, 2 & 3 were found and seized from 1-Diamond Park , Kohinoor Road, Surat where only the process
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known as Talia, Mathla, Pale & Dhar etc. are carried out by the job- work parties. However, the AO was not satisfied with reply and made addition of Rs.22 47,56,571/- by applying yield ratio of 45.37% as per his observation in para No. 24-26 of the assessment order by holding that yield in the Ghat process is around at 69%.
Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). Where it was submitted that average yield up to Ghat process comes to 69.25% and average yield after Ghat process comes to 49.45% on the basis of seized material inventoried at BF-47 and BF- 49. Therefore, it was submitted that if average yield of 49.45% is calculated on 69.24% and not on 100%, the ultimate yield comes to 34.25%. The assessee in its audited accounts has shown yield at 34.65%. Considering these facts, the ld.CIT(A) observed that that the yield ratio for manufacturing diamonds is near to 34% to 36% and not 45.37% as assumed by the AO. The yield working in the impounded pages of Annexure BF-47 gives average yield at 36.33%; similarly, yield working in inventoried computerized printouts of Annexure B- 49 gives yield at 34.25%. Therefore, CIT (A) held that the AO has merely assumed yield from Annexure B5-1/2/3, which are registers for polishing process and gives yield from Ghat process to polishing process at 45.37% and worked out unaccounted income of
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Rs.22,47,56,571/- from alleged sales of excess finished diamonds on suppression of yield at 45.37% on wrong presumption whereas the evidences of yield working are available in impounded records. Since the appellant has shown yield at 34.67%, which is correct, therefore, there is no suppressed sales or suppressed production. In view of the addition of unaccounted income of Rs.22,47,56,571/- was deleted was deleted as per observation made at para No. 53 of the appellate order.
Being aggrieved, the Revenue has filed this appeal before the Tribunal. The Ld. CIT (DR) submitted that the AO based on Register BS 1, 2 &3 worked out yield at 45.37% as against the assessee has shown yield at 34.65%. However, the ld. CIT (A) had compared BF-49 register, on which no discussion is found in the assessment order. Therefore, the Ld. CIT (DR) relied on the order of the AO.
Per contra, Learned counsel for the assessee submitted as per impounded Annexure B-47 Page No. 90 to 99 & 10 to 104 , the yield till Ghat process comes to 69.86% and yield after Ghat process comes to 52.30% and therefore, the overall yield of rough diamonds polished diamonds was 36.24% as per notings of Page nos. of BS -47. The ld. CIT (A) has summarized the yield on the basis of the Annexure BF-47
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on Page No. 50 to 51 of the appellate order. Even, the AO has stated that the yield till Ghat process is 69%. There is always further, loss of 50% after Ghat process and even the seized material shows such as loss at 49.45% and therefore, the yield shown by the assessee is about 35% which is more reasonable. Further, it was submitted that if the yield is suppressed it will reflect in unaccounted sales and unaccounted stock of rough diamonds and polished diamonds. No evidence was found of unaccounted sales in the course of survey and even than assessee declared Rs.4,01,17,636/- on account of suppression sales. The assessee has himself declared Rs.98,82,364/- for excess stock of polished diamonds found. Therefore, whatever the leakage if any is also covered by extra declaration made by the assessee and reflected in the return of income.
We have heard the rival submissions and perused the relevant material on record. We find that as per impounded Annexure B-47 Page No. 90 to 99 & 10 to 104, the yield till Ghat process comes to 69.86% and yield after Ghat process comes to 52.30% and therefore, the overall yield of rough diamonds polished diamonds was 36.24% as per notings of Page nos. of Annexure B S -47. The AO has also stated that the yield till Ghat process is 69%. There is always, further loss of 50% after Ghat process and even the seized material shows such as
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loss at 49.45%, therefore, the yield shown by the assessee is about 35% which was very much reasonable. Hence, the addition made by the AO was rightly deleted by the Ld. CIT (A). Therefore, we do not find any infirmity in the order of CIT (A). In view of these facts and circumstances, this ground of appeal is therefore, dismissed.
Ground No. 3 states that the Ld.CIT(A) has erred in law and on facts in deleting Rs.9,55,04,826/- out of total addition of Rs.10,81,01,908/- in respect of unaccounted manufacturing expenses even though it was categorically analyzed in the body of assessment order by support of seized material that the assessee had suppressed its yield. Whereas, the assessee has taken Ground No.2 in his appeal against the confirmation addition of Rs.1,25,97,082 being manufacturing expenses out of total addition of Rs.10,81,01,908/-.
Ground no.3 of Revenue and Ground no.2 of assessee are being considered together.
Brief facts are that impounded papers showed various job work done by the assessee. The verification of same revealed that these pages name of workers along with total nag (quantity) of diamond issued for processing with rate mentioned thereon. On these pages
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impounded as per annexure BF-45 and BF-46, it was specifically mentioned as "Karigar Pagar" i.e. labour charges. As the assessee had also mentioned in his submission that these pages are related to Majuri expenses. Therefore, the same were considered as labour expenses. As the assessee was unable to explain and reconcile them with books, hence the same were treated as unaccounted. Similarly, during the course of survey, loose papers from page 38 to 46 of annexure BF-46 were found and impounded. After careful examination of these papers, it was noticed that these papers are related to unaccounted job charges of expenses and not for unaccounted sale receipts. All these papers are of similar in nature like pages Nos. 1, 4, 5, 6, 7, 9, 16, 17, 18, 22,111 etc. “Total Pagar” word is also mentioned in bottom of these pages and near the total side. On some pages like on page 98, some narration of Annya Majuri (i.e. other labour) and “office kharch” (i.e. office exp.) also written which clearly prove that these papers are related to expenses. These papers contained in first column the name written like Himmetbhai, Devchand, Mansukhbhai etc. are the name of the person to whom the job work has been given and the term like Ghat, Chowki and Fancy are the types of the work or it can be said like various stages in manufacturing process of finished diamond from rough diamond. In
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second column, the type of work mentioned for which the labour charges paid. In third column the total number of pieces of diamond is mentioned which were given for job work. In forth column, total amount of job charges is written. In fifth column, total outstanding amount to be paid is mentioned because it can be seen that initially a lump sum amount has been paid and the balance were outstanding. For example, in first entry out of total charges of Rs.98,690/, initially Rs 65,000/- paid and balance Rs.33,690/- outstanding. Similarly, in second and third entry Rs.1,00,000/- and Rs.2,30,000/- charges were paid and Rs.32,183/- and Rs.3,98,993/- were outstanding respectively. In sixth column, the rate/cost per piece is mentioned. For example in first entry, total 2642 pieces were issued for process of Ghat for which the job charges incurred at 98690. By dividing from piece, the rate comes at Rs 22.92. In addition, it can be seen that rate of job charges is the least for Ghat work (involving less labour) and highest for fancy work (involving highest labour). The similar trend has been seen in all these pages. From the above analysis, It was very much evident that these impounded papers are related to job work expenses/ majuri expense etc. and do not pertain to unaccounted sale receipt. During the course of survey proceeding, the statement of partner and key person Shri Manu J. Balar was
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recorded on 15.02.08. The same was very much admitted by the partner of the assessee firm during survey action, but during the course of assessment proceeding, initially the assessee contended that these are sale receipt details, but after careful analysis of these pages, it was proved that the details on these pages were related to unaccounted expenditure incurred on majuri expenses for manufacturing and producing of unaccounted finished diamond from unaccounted rough diamond. It shows that the assessee was changing his replies, as he was unable to reconcile the expenditure with books. It is seen that nowhere in the books, the assessee claimed these expenses against the name mentioned in these pages. This fact clearly proves that these expenses are completely unaccounted. The assessee was given many opportunities during the course of assessment proceeding to reconcile these expenses with the books, but the assessee failed to reconcile even single expenses details from books of accounts. Further, in assessee’s submission, it had also admitted that the same are not accounted in books. Therefore, a show-cause notice dated 09.12.2010 was issued as to why expenses of Rs.10,81,01,908/- should not be treated as unaccounted expenditure and why it should not be added to total income. It was explained that that expenses be treated as having been incurred in
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relation to unaccounted turnover of the firm in respect of which additional income of Rs. 5 crores has been disclosed. However, the AO rejected the contention of the assessee and made addition of Rs.10,81,01,908/- as per his finding given in para No. 9.6 & 9.7 of the assessment order.
Being, aggrieved, the assessee filed an appeal before the Ld.CIT(A). Before whom, detailed submissions was made. After considering the same, the ld.CIT(A) has given partial relief and confirmed the addition of Rs.1,25,97,082/- as per his findings as given in para No. 13 & 13.1 of the appellate order and deleted the balance addition of Rs.9,55,04,825/-. The Ld.CIT(A) stated that some expenses are repetitive in nature and some belongs to earlier years. The CIT(A) observed that out of alleged unaccounted manufacturing expenses of Rs.10,81,01,908/-, the amount of Rs.6,04,11,050/- only could be determined and the remaining amount was pertaining to the financial year 2006-07 as per notings in Page nos. 1, 4 to 6, 17 & 19 of Annexure BF-45 and there were duplicate notings of advances by workers as per Page No. 8,10,11,20 & 23 of Annexure BF-45. The ld.CIT(A) has discussed the issue at Page No. 61 and 62 of appellate order at para No. 13. The ld. CIT (A) further held that the figure of Rs.6,04,11,050/- is for 8 months and not for 10 months. The ld.CIT(A)
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has therefore, given set off of Rs.4,21,09,258/- on proportionate basis for labour charges shown in the books of accounts for 8 months only. The ld.CIT(A) has further given set off Rs.57,04,710/- for majuri expenses against unaccounted production on which disclosure for unaccounted sales of Rs.4,01,17,636/- shown by the assessee. Accordingly, the addition of Rs.1,25,97,082/- was confirmed by treating as unaccounted payments by the appellant under section 69C of the Act and balance addition of Rs.9,55,04,826/- was deleted as per findings as given in para No. 13 & 13.1 of the appellate order.
Being aggrieved, the Revenue has filed this appeal before the Tribunal against the deletion of addition of Rs.9,55,04,826/- and the assessee has filed the appeal against the confirmation of addition of Rs.1,25,97,082/- vide Ground No. 2 of appeal of the assessee. The Ld.CIT(DR) submitted that the ld.CIT(A) merely relied upon the submission that part expenses were related to earlier year without reconciling them with books of accounts. The assessee neither during the assessment proceedings nor at the appellate stage was able to reconcile the expenses of earlier years from the books of accounts of the earlier years. These expenses were not accounted for in the books neither in current year nor in earlier years so in absence to the evidence all expenses should be treated for current year, only. The
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provisions of section 69C were directly applicable in this case and the unexplained expenditure are treated as deemed income of the assessee. Section 69C deals with unexplained source of expenditure. Section 69C was inserted on the statute book by the Taxation Laws (Amendment) Act, 1975 w.e.f. 1st April, 1976 and reads as under: "S.69C. Unexplained Expenditure, etc. - Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year: Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income." From seized documents, it Is evident that there have been expenditures to the tune of Rs.10,81,01,908/- for which, its source has not been satisfactorily explained. Thus as per section 69C, the expenditure is deemed to be the income of the assessee for relevant financial year. The assessee had undertaken unaccounted majuri expenses for which he had not maintained any accounts or
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journals. Also no satisfactory explanation about the source of such expenditure had been provided.
Au contraire, the learned counsel for the assessee submitted that the ld. CIT (A) has allowed set off 8 months only instead of 10 months on the ground that impounded materials did not contain details of September 2007 & October 2007. According to the assessee, the full set off of 10 months should be given as there may not be unaccounted majuri for September 2007 & October 2007, but the Majuri payments made in succeeding month may be relating to the work done in September 2007 and October 2007, if the set off for 10 months is allowed, then there would not be any addition, which could have been sustained. Even otherwise, the Ld.CIT(A) has confirmed the addition of Rs.1,25,97,082/- under section 69C of the Act, which debars corresponding deduction as business expenditure, if the source of the expenditure would not be explained by the assessee as per its proviso. It was submitted that the proviso to section 69C provides that if the assessee could not explain source of expenditure, then no deduction from business income be allowed. However, the impounded material on the basis of which addition was made was received from the factory premises where the survey was conducted. So obviously, the source of the expenditure was out of business
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receipts as in the course of survey, the assessee was not found to be deriving any other income except the income from business. Accordingly, the assessee is entitled to deduction under section 37 of the Act as per the decision of Hon’ble Gujarat High Court in the case of DCIT vs. Radhe Developers [2011] 329 ITR 1 (Guj). Although this decision was relating to financial year prior to amendment made under section 69C with effect from 01. 04. 1999, the decision is applicable to after amendment as per the ratio of this decision, as followed by Hon'ble Gujarat High Court in the case of CIT v. Shilpa Dyeing and Printing Mills Pvt. Ltd. 381 DTR 0381 (Gujarat) which was relating to period after amendment. Without prejudice, it was submitted that the assessee made the disclosure of Rs.5 crores after considering the unaccounted expenses. The disclosure of Rs. 5 crores was net income offered by the assessee after considering all the expenses by the assessee and therefore, no addition is required to be made for unaccounted expenditure, when the unaccounted expenditure is less than Rs.5 crores. The assessee has declared Rs.5 crores and therefore, considering GP of 6.27%, the unrecorded turnover comes to Rs.79,74,48,166/- and, therefore, manufacturing expenses are clearly deductible under section 69C of the Act.
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We have heard the rival submissions and perused the relevant material on record. We observe that the Ld. CIT(A) stated that some expenses are repetitive in nature and some expenses are pertains to earlier years. Therefore, no disallowance of such expenses can be made during year under consideration u/s.69C of the Act. The ld.CIT(A) observed that out of alleged unaccounted manufacturing expenses of Rs.10,81,01,908/-, the amount of Rs.6,04,11,050/- only could be determined and the remaining amount was pertaining to the financial year 2006-07 asper notings in Page nos. 1,4 to 6, 17 & 19 of Annexure BF-45 and there were duplicate notings of advances by workers as per Page No. 8,10,11,20 & 23 of Annexure BF-45. The ld.CIT(A) has discussed the issue at Page No. 61 and 62 of appellate order at para No. 13. Therefore, these expenses could not be added u/s.69C of the Act. We find that that the ld. CIT (A) has allowed set off of 8 months only instead of 10 months on the ground that impounded materials did not contain details of September 2007 & October 2007. According to the assessee, if the full set off of 10 months is given, then there may not be unaccounted majuri for September 2007 & October 2007, but the Majuri payments made in succeeding month may be relating to the work done in September 2007 and October 2007, if the set of for 10 months are allowed then
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there would not be any addition, which would have been sustained. On careful consideration of facts, we are inclined to agree with submissions of the Learned Counsel of the assessee that the set off for 10 months should be allowed. If that is done, then there would not be any addition which could be sustained. Therefore, we allow the set off for 10 months, and delete the addition of Rs.1,25,97,082/- sustained by the ld. CIT(A). Even otherwise, we also observe that the addition of Rs.1,25,97,082/- has been confirmed under section 69C of the Act, which debars the corresponding deduction as business expenditure, if the source of the expenditure is not explained by the assessee as per its proviso. It was submitted that the proviso to section 69C provides that if source of expenditure could not be explained by the assessee, then no deduction from business income be allowed. However, it is discernible from the impounded material on the basis of which addition was made were recovered from the factory premises only, and were related to business of the assessee firm, where the survey was conducted. The AO has not found any other source of income other then business of the assessee. Therefore, obviously, the source of the expenditure was out of business receipts as found during the course of survey. The assessee was not found to be deriving any other income i.e. other than income
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from business. Accordingly, the assessee is entitled to get deduction under section 37 of the Act in the light of ratio laid down by the Hon’ble Gujarat High Court in the case of DCIT vs. Radhe Developers [2010] 329 ITR 1 (Guj). Wherein in para No. 24 & 25 the Hon`ble High Court has observed as under: “24. Therefore, the only issue is, as to whether such a finding can be termed to be perverse. For determining as to whether a particular order suffers from vice of perversity or not, the well settled parameters may be applied to the facts of the case. This is not a case where relevant evidence has been ignored and irrelevant evidence has been taken into consideration. The only test that is thereafter required to be applied is: whether on the facts found and the state of evidence on record the conclusion arrived at by the Tribunal is one, which could have been arrived at by a reasonable person properly informed in law. Applying the previously mentioned test, it cannot be said that the decision recorded by the Tribunal is one, which could not have been arrived at by a reasonable person properly informed in law considering the state of evidence on record. Hence, in so far as the addition to the extent of Rs. 12,80,00,000 being upheld by the Tribunal is concerned, no interference is warranted and the Revenue cannot succeed on this count. 25. In so far as the connected issue regarding deduction of the amount paid for acquiring the development rights is concerned, suffice it to state that initially, the onus was on the Revenue to point out that such payment had not been made or that the amount of payment differed from the aforesaid figure of Rs. 12,80,00,000. Neither from the seized material nor from any other evidence recovered during the search proceedings has the Revenue been in a position to point out any such difference, viz., either there being no payment, or the payment being at variance with the amount claimed by the assessee. The Revenue does not dispute the fact of acquisition of the development rights. It is not the case of the Revenue that the said development rights were gifted by the co-operative society to the assessee. In the circumstances, if the Tribunal has stated that the amount of payment towards acquisition of the development rights has to be deducted even if the provisions of section 69C of the Act are attracted, no infirmity can be found in the order of the Tribunal. Admittedly, the proviso inserted below section 69C of the Act has been made effective from April 1, 1999 as inserted by the Finance (No. 2) Act, 1998”. 21. However, the above decision was relating to financial year prior to amendment made under section 69C with effect from 01.04.1999, however, this decision is applicable to and after amendment as per the ratio of this decision and followed by Hon`ble Gujarat High Court
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in the case of CIT v. Shilpa Dyeing and Printing Mills Pvt. Ltd. 381 DTR 0381 (Gujarat) which was relating to period after amendment. Without prejudice, it was submitted that the disclosure of Rs.5 crores was made by the assessee after considering the unaccounted expenses. The disclosure of Rs. 5 crores was net income offered by the assessee after considering all the expenses by the assessee and therefore, no addition is required to be made for unaccounted expenditure, when the unaccounted expenditure is less than Rs. 5 crores. The assessee has declared Rs.5 crores and therefore, considering GP of 6.27%, the unrecorded turnover comes to Rs. 79, 74, 48, 166 and, therefore, manufacturing expenses are clearly deductible under section 37 of the Act. In view of above facts and circumstances, we dismissed the appeal of the Revenue and allow the appeal of the assessee. Accordingly, Ground No. 3 of revenue is dismissed and Ground No. 2 of the appeal of the assessee is allowed.
Ground No.4: is against the deletion of unaccounted income from unaccounted manufacturing of finished diamonds from rough diamond and sold outside Books of Rs.5,31,93,421/-.
Facts apropos of this ground are that the A.O. made the addition of Rs.5,31,93,421/- as the assessee was found to be
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indulging itself in manufacturing of unaccounted finished diamond
from unaccounted rough diamond and selling the same out of books
of accounts.
Being, aggrieved, the assessee filed an appeal before the
Ld.CIT(A). The Ld.CIT(A) allowed the appeal of the assessee by
observing as under:
“17. I have carefully perused the assessment order, facts of the case and submissions of the appellant-firm, findings of the Assessing Officer, rebuttal explanations & evidences furnished by the appellant-firm, verification of contention of. Appellant with impounded registers 7 papers abstracts of accounts, etc. I am inclined to agree with the appellant's view for the following reasons:
“(i) The appellant pointed out that the AO calculated unaccounted sales of Rs.20,77,21,0007- after decoding notings on Pg. no 90 to 103 of Annexure BF-47, whereas these pages-are not financial records but contains notings -of rough diamonds in number and carats, rough diamonds received after Ghat process in number and carats, and rough diamonds after Ghat process to polishing process i.e. polished diamonds in number and carats, these pages also shows yield ratio at various processes, discussion in length is made in Ground No. 3 above. The notings of pages of Annexure BF-47, as summarized the appellate order, are as under:
Pg. Kapan Rough Diamond Chat Process Yield Polished Diamond Yield Overall Yield No. No. % No. of PCS Cts. No. of PCS Cts. % No. of PCS Cts. %
90 AY 68 !761 317.24 1760 227.46 71.70 1760 114.22 50.22 36.00 575.36 71 64.33 71 37.80 58.76 71 26.09 69.02 40.56 90B AY 71 74 10.54 74 7.07 67.08 74 3.39 47.95 32.16 AY 65 86 24.22 85 16.42 67.80 85 8.53 51.95 35.22 91 AY 66 251 115.29 251 60.33 52.33 251 46.87 77.69 40.65 9IB AY 58 471 60.59 468 41.14 67.90 468 20.1 48.86 33.17 92 AY 73 1214 550.25 1214 387.75 70.47 1214 220.98 56.99 40.16 93 AY 78 1297 530.79 1297 376.55 70.94 1297 216.83 57.58 40.85 93 B AY 75 1628 291.73 1626 207.39 71.09 1626 106.26 51.24 36.42 A 70 45 6.88 45 4.92 71.51 45 2.32 47,15 33.72 42.93 6 1.5 6 0.99 66.00 6 0.5 50.51 33.33
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94 AY 63 48 6 48 4.72 78.67 48 2.21 46.82 36.83 AY 69 72 16.09 72 10.72 66.63 72 5.43 50.65 33.75 94B AY 67 1641 435.49 1641 305.27 70.10 1641 164.15 53.77 37.69 AY61 56 6.2 55 4.49 72.42 55 2.13 47.44 34.35 95 . AY 218 60.18 217 41.85 69.54 217 21.55 51.49 35.81 72 AY 79 91 18.44 90 13.46 72.99 90 6.95 51.63 37.69 AY 88 37 4.85 37 3.33 68.66 35 1 .48 44.44 30.52 98 AY 85 40 6.54 40 4.53 69.27 40 2.27 50. tl 34.71 77.08 7 1.82 7 1.43 78.57 7 0.72 50.35 39.56 118.61 5 1.71 5 1.3 76.02 5 0.61 46.92 35.67 224.28 6 1.24 6 0.94 ' 75.81 6 0.49 52.13 39.52 98B AY 74 315 72.85 313 52.06 71.46 311 27.8 53.40 38.16 AY 83 103 14.52 102 9.97 68.66 102 5.14 ' 51.55 35.40 AY 77 49 8.39 49 5.95 70.92 . 49 2.81 47.23 33.49 AY 80 59 12.74 57 8.47 66.48 57 4.23 49.94 33.20 99 AY 82 1444 637.16 1444 449. 1 70.50 1444 253.88 56.52 39.85 8 99B AY 76 2165 241.82 2161 171.13 70.77 2161 85.43 49.92 35.33 101 AY 54 39 4.62 39 3.36 72.73 39 1.71 50.89 37.01 AY 49 33 6,18 33 4.29 69.42 33 2.16 50.35 34.95 AY 52 27 4.01 27 2.85 71.07 27 1.42 49.82 35.41 AY 42 •78 12.2 78 8.55 70.08 78 4.24 49.59 34.75 I01B 300.45 949 266.32 949 166.89 62.67 946 100.26 60.08 37.65 - 103 AY 47 129 28.54 129 20.24 70.92 129 10.64 52.57 37.28 I03B AY 44 1484 262.24 1484 191.7 73.10 1484 99.13 51.71 37.80 104 AY 64 2289 253.39 2286 181.18 71.50 2286 89.18 49.22 35.19 104B AY 62 1454 593.89 1454 417.64 70.32 1454 239.97 57.46 40.41 TOTA L 19742 4950.7 19720 3453.3 69.86 19713 1902.0 52.30 36.33 9 2 8
I have verified notings of impounded Annexure BF-47 on Pg.no.90 to 99 and 101. to 104, these pages contains yield for rough diamonds to Ghat process, Ghat process to polishing process and overall yield. The said fact was also confronted with the Assessing Officer that notings on these pages are related to quantities and yield of all stages, whereas he decoded polished diamonds produced noted in carats (Page 98) as unaccounted sale amount. Hence, the contention of the appellant is found to be correct. Impounded pages of Annexure BF-47 contains notings of pieces and carats of polished diamonds and yield thereof and there are no notings of any unaccounted sales as decoded by the AO.
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(ii) Similarly, notings on Pg. no. 3 to 7 of Annexure BF-51 and 67 & 68 of- Annexure BF-45 are not related to any unaccounted sales, but these pages are stray pages containing merely notings & jottings of nonspecific details. (iii) The AO has computed production of unaccounted polished diamonds by applying yield @ 45.37% on unaccounted stock of rough diamonds and worked out unaccounted profit of Rs.5,31,93,4217- by applying GP @ 6.27% on unaccounted turnover i.e. sale of unaccounted polished diamonds produced. In Ground no. 2 above, I have made discussion at length with regard to unaccounted stock of rough diamonds in laser process and held that there is no unaccounted rough diamonds, accordingly deleted addition of unexplained investment of Rs.45,31,58,0507/- made by AO. In Ground no. 3 above, I have made discussion at length with: regard to unaccounted income from sale of polished diamonds on suppression of yield and held that the evidences of yield working are available in impounded records and yield shown by appellant at 34.67% is correct. Accordingly, there is no suppression in sales of polished diamonds and deleted addition of unaccounted income of Rs.22,47,56,6717/- made by AO. Therefore, when there is no unaccounted rough diamonds, the yield is correct, then there cannot be estimation of production of unaccounted polished diamonds and sales thereof to earn unaccounted profits. (iv) The appellant has admitted additional income of Rs. 5 crores, which includes unaccounted stock of polished diamonds found of Rs.98,82,3647/- and unaccounted sales of Rs.4,01,17,6367/-, thus, if there are any discrepancies or unaccounted sales, the disclosure take care of the same. 17.1 Having considered the above, I am of the opinion that the impounded pages relied by AO contains notings of production of polished diamonds in carats and yield, ratio, but there are no notings of any unaccounted sale proceeds as decoded by AO. In Ground No. 2 above, I have made discussion at length with regard to unaccounted stock of rough diamonds in laser process and held that there is .no, unaccounted rough diamonds and deleted addition of unexplained investment of Rs.45,31,58,0507/- made by AO and similarly, in Ground no. 3 above with regard to unaccounted income from sale of polished, diamonds on suppression of yield and held that yield shown by appellant at 34.67% is correct and deleted addition of unaccounted income of Rs.22,47,56,6717/- made by AO. Therefore, when there are no unaccounted rough diamonds, the yield is absolutely correct, how there can be estimation of production and sale of unaccounted polished diamonds to earn unaccounted profits. Furthermore, the appellant has disclosed, unaccounted income, of Rs.4,01,17,6367/- during survey, being unaccounted sales and receivable thereof the set-off would take care of any discrepancy regarding rough diamonds, yield, and sales. Accordingly, there are no unaccounted production and unaccounted sales of polished diamonds, therefore addition of unaccounted profits of Rs.5,31,93,4217/- made by AO is deleted. Ground No.6 is allowed." 25. Being aggrieved, the Revenue has filed this appeal before the Tribunal. The Ld.CIT(DR) submitted that the impounded material and
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other factors clearly proved that the assessee was indulged into manufacturing of finished diamond and sell the same out of books and accordingly keep the profit out of tax orbit. During the course of survey for each stages of process, various incriminating evidence has been found which proved that the assessee had done manufacturing activity. The AO has correctly calculated yield ratio @45.37% on unaccounted stock of rough diamonds and worked out the unaccounted profits of Rs.5,31,93,421/- by applying G.P at 6.27% on unaccounted polished diamonds produced.
Per contra, the learned counsel for the assessee submitted that the ld. CIT (A) has considered stock of rough diamonds from the stock register of rough diamonds from 27.11.2007 to 14.02.2008 carats. The ld.CIT(A) therefore, held that the rough diamonds issued to the lesser Department was very much less than the stock in hand by the assessee as per his findings at para No. 9 & 9.1 of the appellate order. The CIT(A) also took note of the facts that there was deficit found at the time of survey and not excess of rough diamonds. The ld.CIT(A) deleted the addition of gross profit in consequence as per his findings given at para No. 17 and 17.1. It was submitted that the assessee has proved on the basis of seized paper only that to the AO wrongly made the addition that the assessee was having more stock then the rough
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diamonds stock issued to the lesser Department and so Ld.CIT(A) has rightly deleted by giving detailed findings. Further no excess stock of rough diamonds was found at the time of survey. Thus, no physical stock was found at the time of survey, at the most the profit can be estimated by the AO for unaccounted sales which is covered by the declaration made by the assessee. The movement of rough diamonds might have been more because of unrecorded sales declared by the assessee. The assessee has declared Rs.5 crores and therefore, considering Gross Profit of 6.27% , the unrecorded turnover comes to Rs.79,74,48,166/-. It is well settled that the whole sales cannot be added and only % of the profit can be added in view of the decision of Hon’ble Gujarat High Court in the case of CIT v. president Industries 258 ITR 654 (Gujarat) and CIT Samir Synthetics 326 ITR 410 (Gujarat) unless there is no concrete evidence that the assessee has made investment outside the books before receipts of the sale consideration.
We have heard the rival submissions and perused the relevant material on record. We find that the assessee has declared Rs.5 crores and therefore, considering Gross Profit of 6.27%, the unrecorded turnover comes to Rs.79,74,48,166/-. It is well settled that the whole sales cannot be added and only % of the profit can be
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added in view of the decision of Hon’ble Gujarat High Court in the case of CIT v. president Industries 258 ITR 654 (Gujarat) and CIT Samir Synthetics 326 ITR 410 (Gujarat) unless there is no concrete evidence that the assessee has made investment outside the books before receipts of the sale consideration. The assessee has proved on the basis of seized paper only that to the AO wrongly made the addition that the assessee was having more stock then the rough diamonds stock issued to the lesser Department and so Ld.CIT(A) has rightly deleted by giving detailed findings. Further, there was no excess stock of rough diamonds was found at the time of survey. Thus, no physical stock was found at the time of survey, hence, at the most the profit can be estimated by the AO for unaccounted sales which is covered by the declaration made by the assessee. The assessee has declared peak investment found of polished diamonds at the time of survey. In view of these facts and circumstances, we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. Accordingly, Ground No.4 of appeal of revenue is therefore, dismissed.
Ground No. 5: states that the Ld. ClT(A) has erred in law and on facts in allowing set-off of Rs.98,41,832/- in ground no.5 Para 15.1 even though no such addition of undervaluation of closing
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stock was made by the Assessing Officer as the set off of the same was already allowed in the assessment order.
Brief facts are that the assessee disclosed Rs 5 crore as unaccounted income during survey. During the course of assessment proceeding, it was stated by the assessee that the figure of closing stock was taken from P&L A/c from the head "cost of sale" at Rs.11,27,57,4057-but in the Balance sheet, schedule 6 the value of closing stock was taken at Rs.12,26,39,769/- taking into account of the income disclosed under the head of polished diamond stock of Rs.98,82,364/- . Therefore, the closing stock was valued on the correct figure and no further addition was made. The available disclosure amount is only of Rs 4,01,17,636/- (5,00,00,000 - 98,82,364), therefore the benefit of disclosure only income to the tune of Rs.4,01,17,6367- was made available after making addition on all points as discussed in the assessment order.
Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). However, Ld. CIT (A) has given his findings as under: "I have carefully pursued the assessment order facts of the case and submissions of the appellant-firm, findings of the assessing Officer, rebuttal explanations & evidences furnished by the appellant -firm, contents of disclosure at the time of survey etc. Assessing Officer has made addition of Rs.98,41,8327/- on account of undervaluation of closing stock of polished diamonds and allowed set-off of disclosure of Rs. 98.82.364/- against this addition. I am inclined to agree with the appellant's view for the following reasons:
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(i) The appellant has offered disclosure of Rs. 5 crores and the same is credited to profit and loss account as income disclosed during survey u/s 133A of the Act. The disclosure includes Rs. 98,82,364/- on account of excess polished diamonds weighing 988.71 cts found and Rs. 4,01,17,6367- on account of unaccounted sale of polished diamonds/receivables. (ii) The appellant worked out closing stock as manufactured stock of polished diamonds weighing 11281.14 cts valued @ Rs. 9995.21 per carat, valuing at Rs. 11,27,57,4057- and disclosure of polished diamonds weighing 988.71 cts valued at Rs. 9995.21 per carat valuing at Rs.98,82,364/- thus, total weight of polished diamonds stock with firm was 12269.85 cts valued @ Rs.9995.21 per carat, totaling to carats 12,26,39,769/-, whereas the A.O. worked out average cost at 9991.91 per carat. (iii) The stock of polished diamonds at Rs.11,25,57,4057- shown in profit and loss account as closing stock and disclosed stock of polished diamonds at Rs.98,82,364/- shown in profit and loss account as part of income disclosed of Rs. 5 crores whereas total of both stock of polished diamonds at Rs. 12,26,39,769/- is shown in schedule-6 of Balance sheet as closing stock of polished diamonds. 21.1 Having considered the above, I am of the opinion that the Assessing Officer has computed the average cost of polished diamonds @ Rs.9991.91 per carat, worked out value of polished diamonds to the tune of Rs.12269.85 carats in closing stock at Rs.12,25,99,237/-. Against this the A.O. has taken value of closing stock of polished diamonds at Rs.11,27,57,4057- (11281.14 carats), whereas the appellant has valued closing stock of polished diamonds at average cost of Rs.9995.21 per carat and valued closing stock at valued at Rs.12,26,39,769/- (12269.85carats) as shown in schedule-6 of the ; balance sheet and in Profit and loss account also. Thus against valuation by the A.O. of Rs.12,25,99,237/-the appellant has shown higher value of closing stock at Rs12,26,39,7697-. Therefore, there is no undervaluation of closing stock as worked out by the AO of Rs.98,41,832/-. The AO has not made addition on account of undervaluation of closing stock of Rs.98,41,832/- in assessment order as he allowed set-off of disclosure on account of, excess polished diamonds found of Rs.98,82,3647- at the time of survey. However, I have allowed set-off of disclosure of excess polished diamonds to the extent of Rs.98,82,364/- as , discussed in para 15.1 while deciding ground of appeal No.5 as above. Accordingly as there is no undervaluation of closing stock of polished diamond, the survived addition of undervaluation of polished diamond of Rs.98,41,8327- is deleted.” 31. Being aggrieved, the Revenue has filed this appeal before the Tribunal. The learned D.R. submitted that during the assessment proceedings addition of Rs.98,41,832/- was proposed on account undervaluation of closing stock. The same issue was also raised in
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A.Y. 2007-08 in which the Ld. CIT(A) as well as the Hon'ble ITAT had confirmed the addition. During this A.Y. 2008-09 also when this issue was proposed for addition, the assessee had submitted to set-off the above addition with the excess stock of finished diamond of Rs.98,82,364/-offered and disclosed in the balance-sheet. Accordingly, no separate addition of Rs.98,41,832/- under the head undervaluation of finished stock was made and set off had been granted against excess finished stock disclosed of Rs.98,82,364/-. The assessee had disclosed Rs.5 Crore as unaccounted income including excess stock of Rs.98,82,364/- and set-off of excess finished stoke of Rs.98,82,364/- has already been granted against the proposed addition of Rs.98,41,832/-. The Ld. CIT(A) has further granted set-off of Rs.98,41,832/- on account of undervaluation of polished diamond by deleting the addition of undervaluation of polished diamond.
The learned counsel for the assessee submitted that the CIT (A) has allowed set off of Rs.98,41,832/- as per para No. 15.1 but he allowed the set off of Rs.98,82,364/- for which the assessee has made declaration. This grounds of appeal of revenue does not survive as the AO is also opinion that set off should be allowed.
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We have heard the rival submissions and perused the relevant material on record. The perusal of assessment order and findings of CIT (A) reveals that no separate addition of Rs. 98,41,832/- under the head undervaluation of finished stock was made and set off had been granted against excess finished stock disclosed at Rs.98,82,364/-. The assessee had disclosed Rs.5 Crore as unaccounted income including excess stock of Rs.98,82,364/- and set-off of excess finished stoke of Rs.98,82,364/- has already been granted against the proposed addition of Rs.98,41,832/-. The Ld. CIT(A) has further granted set-off of Rs.98,41,832/- on account of undervaluation of polished diamond by deleting the addition of undervaluation of polished diamond. The AO has also of the view that set off should be allowed. In view of this matter, this ground of appeal is therefore, dismissed.
Ground No. 6 states that the Ld.CIT(A) has erred in law and on facts in deleting the addition made by the Assessing Officer on account of undervaluation of closing stock of Rs.98,82,364/- even though the same was offered by the assessee in his disclosure and disclosed it in the balance sheet.
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Briefly, stated the facts of the case are that the AO vide para No. 12 at para page No. 54 observed that there is undervaluation of closing stock of polished diamonds buyers 98,41,832 and this difference is set off against income disclosed on account of excess stock of polished diamonds of Rs.98,82,364/-. Accordingly, no further addition was made.
In appeal CIT (A) has deleted the addition as per his findings at para No. 21 and 21.1 on the ground that the assessee has shown the valuation at Rs.12,26,39,769/- in the audited financial statement as against the valuation of Rs. 12,25,99,237/- taken by the AO. Therefore, there is no under valuation of closing stock of Rs.98,41,832/- in assessment order as he allows set off of disclosure on account of excess polished diamonds found of Rs.96,82,364/- at the time of survey.
Being aggrieved, the Revenue has filed this appeal before the Tribunal. The ld. D.R. submitted that the CIT (A) was not justified in deleting the addition as the AO had made addition on the ground that the assessee has not shown excess stock of Rs.98,82,364/- in the Profit & Loss Account.
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Au contraire, the learned counsel for the assessee submitted that the assessee has shown the stock of polished diamonds at Rs.11,27,57,405/- in the Profit & Loss Account but in the balance sheet it was shown at Rs.12,26,39,769/-. The stock disclosure of Rs.98,82,364/- was included in the disclosure of Rs. 5 crores that was credited separately into Profit & Loss Account and therefore, Ld.CIT(A) has rightly deleted the addition on merits.
We have heard the rival submissions and perused the relevant material on record. We find that the assessee has included the excess stock of polished diamonds in the disclosure of Rs. 5 crores and not shown separately in the Profit & Loss Account but has shown the same in balance sheet at Rs.12,26,39,769/- inclusive of excess stock of polished diamonds. Therefore, the findings recorded before the CIT(A) are appears to be correct. Hence, no interference is called for. Accordingly, this ground of appeal is therefore, dismissed.
Ground No. 7 states that the Ld. CIT(A) has erred in law and on facts in accepting the stock register prepared by the assessee although the assessee was maintaining Lot Wise Registers which were impounded during survey for each of the manufacturing process.
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We have heard the rival submissions and perused the relevant material on record. We find that there is no discrepancy between lot wise register impounded during the course of survey and stock register produced by the assessee as Ld. CIT (A) has deleted the addition based on the lot wise register. Accordingly, this ground is dismissed.
Ground No. 8 states that the Ld. CIT(A) has erred in law and on facts in admitting the additional evidences from the assessee without granting opportunity to the Assessing Officer under Rule 46A to comment/counter on the same for calling remand report on the same, more particularly considering that on few issues the Assessing Officer at the time of hearing had not agreed to the prima facie conclusion recorded by the CIT(A) and had expressed so by nothing in the order sheet itself.
We have heard the rival submissions and perused the relevant material on record. We find that the assessee has not produced any additional evidence before Ld. CIT (A). In fact, the AO himself agreed in remand report to the conclusion recorded by the CIT (A). Therefore, we do not find any violation of Rule 46A, nor there is any violation of the same, hence, neither it has been controverted by the
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Ld. D.R., hence, this ground of appeal is being without any basis, therefore, same is rejected and accordingly, dismissed.
I.T.A.No.3189/AHD/2011/By the Assessee: 44. Ground No.1 is against confirming the action of the AO in rejecting books of accounts under section 145 of the Act.
The AO noticed that the assessee has made disclosure of income on account of excess furnished stock as well as profit from unaccounted turnover. Besides this, there are several discrepancies in the form of stock of rough diamonds, low yield ratio shown in the books of accounts. Unexplained expense of labour majoori, unaccounted expenses of manufacturing of polished diamonds and sales outside books. Therefore, relying on the decision of Hon`ble Delhi High Court in the case of Action Electrical v. DCIT [2002] 258 ITR 188 (Delhi) held that where there is disclosure of unaccounted income then books of accounts are not complete hence, same were rejected under section 145 of the Act.
Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). Wherein it was contended that books of accounts are audited and complete records are made. It was explained that impounded register BF-8 to 17 don’t indicate any unaccounted stock of rough
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diamonds and impounded material BF 39,42,46 & 51 did not indicate any unaccounted production. Similarly, Annexure BF-45,47,& 51 do not represent any earning of unaccounted sale proceeds and requested that books of accounts be not rejected. However, CIT (A) observed that during the course of survey, there was impounding of registers and the papers related to diamond manufacturing business, discrepancies in stock and Appellant firm admitted additional income of Rs. 5 crores. The AO cited decision of Hon`ble Delhi High Court in the case of Action Electrical v. DCIT [2002] 258 ITR 188 (Delhi) held that books of accounts cannot be relied to be complete and liable to be rejection, as the same does not give correctness and completeness to the accounts. Therefore, the CIT (A) respectfully following the ratio of Hon'ble Delhi High Court upheld the rejection of books of accounts.
Being aggrieved, the Assessee has filed this appeal before this Tribunal. Learned counsel of the assessee submitted that the AO has rejected the books of accounts, as the books are not maintained lot wise. The learned counsel for the assessee submitted that books of accounts could not be rejected as the assessee has taken into consideration declaration of Rs.5 crores in its books of accounts and profits shown by audited accounts include declaration of Rs.5 crores.
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The observation of the AO regarding unaccounted production of the rough diamonds is not true. However, during the course of survey proceedings, it was found that books of accounts are maintained lot wise (PB-79). However, the AO cannot say that books of accounts are maintained lot wise. Hence, rejection of books of accounts on that account cannot be justified. Further, ld.CIT(A) considering merit, has given relief, therefore, rejection of books of accounts is not justified.
Per contra, learned CIT (D.R.) relied on lower authorities.
We have heard the rival submissions and perused the relevant material on record. We find that during the course of survey, there was impounding of registers, the papers related to diamond manufacturing business, discrepancies in stock, and Appellant firm admitted additional income of Rs. 5 crores. The AO cited decision of Hon`ble Delhi High Court in the case of Action Electrical v. DCIT [2002] 258 ITR 188 (Delhi) held that books of accounts cannot be relied to be complete and liable to be rejection, as the same does not give correctness and completeness to the accounts. In view of this matter, we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. This ground of appeal is therefore, dismissed.
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Ground No. 2 is against confirmation of addition of Rs.1,25,97,082/- made under section 69C of the Act on the ground that alleged unaccounted manufacturing expenditure incurred under section 69C of the Act.
We have heard the rival submissions and perused the relevant material on record. We find that this grounds of appeal is covered by Ground No. 3 of appeal of revenue, wherein we have held that the manufacturing expenditure is allowable as deduction in the light of judgements of Hon’ble Gujarat High Court in the case of CIT v. Shilpa Dyeing and Printing Mills Pvt. Ltd. 381 DTR 0381 (Gujarat). Therefore, this grounds of appeal is allowed in the favour of the assessee as per findings given in Ground No. 3 of revenue appeal.
Ground No. 3 states that Ld. CIT (A) has erred in law and on facts in confirming the addition made under section 69 of the Act to the tune of Rs.1,86,08,268/- on the ground of alleged unexplained investment made in finished diamonds.
During the course of survey, the excess stock of polished diamonds was found by 2851.37 Cts and deficit in Diamonds was found by 6146.57 cts. The discrepancy was explained by the assessee firm
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that from the quantity of lessor of rough diamonds of 6146.57 carats, finished/on its diamonds weighing 2129.79cts were manufactured (6146.57 cts x 34.65% yield). Thus, there was unaccounted excess stock of finished/polished diamonds to the tune of 721.58 Cts (excess polished diamonds 2851.37 cts less 2121.79 cts) polished diamonds manufacture from lessor rough diamonds only. The assessee firm actually offered excess unaccounted stock of polished diamonds found on survey dated 14. 02. 2008 at 9 88.71 cts as against actual discrepancy of 721.56 Cts. Accordingly, assessee has declared addition on account of unaccounted polished diamonds was of Rs.98,82,364/-. However, the AO considered the excess stock of polished diamonds at 2851.37 Carats by valuing at Rs.2,62,03,491/- rejecting assessee’s claim of excess diamonds of 988.71 Carats as declared by the assessee. The AO has taken the average cost of finished diamonds at Rs.9189.79 per carats. The AO observed that the part of the production of the polished diamonds out of the deficit of rough diamonds could not be adjusted for working out the excess stock.
Being, aggrieved, the assessee filed an appeal before the Ld.CIT(A). However, ld.CIT(A) concurred with the AO, instead addition of Rs.2,62,03,491/-, determined the excess stock at
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Rs.2,84,90,632/- by taking rate of 9991.91 per carats as the AO has erroneously taken the rate of 9189.79 per carats. However, the CIT(A) has allowed set off of declaration of 98,82,364 made at the time of survey and restricted the addition to Rs.1,86,08,268/- as per his findings given in para No. 15 and 15.1 of appellate order.
Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee submitted that the assessee has made excess declaration as deficit of rough diamonds were found which was as adjusted for working out quantity and value of the excess stock. When rough diamonds are found to be short, it did not mean that the polished diamonds were manufactured afterwards, but in fact, it means that either the polished diamonds have already been manufactured out of the shortage of rough diamonds or rough diamonds were sold which is available for investment in excess stock. Even otherwise, assessee is entitled to set of the addition against the balance declaration of Rs.4,01,17,636/-. It is to be noted that the AO has given the set off Rs.5 crores against all the additions, which has been withdrawn by the Ld.CIT(A) without giving notice of enhancement. Therefore, either the addition is not sustainable on merits or telescoping is allowed against declaration.
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Per contra, learned CIT(D.R.) vehemently supported the order of Ld.CIT(A).
We have heard the rival submissions and perused the relevant material on record. We find that that the assessee has made excess declaration as deficit of rough diamonds were found which were adjusted for working out quantity and value of the excess stock. When rough diamonds are found to be short, it did not mean that the polished diamonds were manufactured afterwards, but in fact, it means that either the polished diamonds have already been manufactured out of the shortage of rough diamonds or rough diamonds were sold which is available for investment in excess stock. Even otherwise, assessee is entitled to set off the addition against the balance declaration of Rs.4,01,17,636/-. It is to be noted that the AO has given the set off Rs.5 crores against all the additions, which has been withdrawn by the Ld.CIT(A) without giving notice of enhancement. No enhancement can be made without giving show- cause notice as held by various court’s , hence, on that count also this addition of Rs.1,86,08,268/- is required to be deleted. We are therefore, of the considered opinion the assessee is entitled to set off against declaration as allowed by the AO in assessment himself in assessment order. Further, the shortage of rough diamonds means
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either same were sold outside India of which are available for investment or it has been used in manufacturing of polished diamonds. Therefore, same are covered either by disclosure hence, telescoping of the same is allowable against excess polished diamonds sales of Rs.4.01 crores. Therefore, in any circumstances, no separate addition is sustainable in law. Therefore, the addition of Rs.1,86,08,268/- is therefore, deleted. This ground of appeal is accordingly, allowed in favour of the assessee.
In the result, the appeal of the Assessee is partly allowed.
In the result, the appeal of the Revenue in I.T.A.No.3188/AHD/2013 for A.Y.2008-09 is dismissed and appeal of the Assessee in I.T.A.No.3189/AHD/2013 for A.Y.2008-09 is partly allowed.
This order pronounced in the open court on 04-02-2020.
Sd/- Sd/- (SANDEEP GOSAIN) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat: Dated: January 4th, 2020/opm Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/ Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat
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