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Facts
The assessee, a firm engaged in trading and manufacturing of diamonds, filed its return of income. The Assessing Officer (AO) selected the case for scrutiny and, dissatisfied with the details of stock provided, added Rs. 1,75,56,107 to the total income by estimating the gross profit (GP) under Section 145(3). The CIT(A) confirmed this addition.
Held
The Tribunal held that the qualitative details of stock, such as piece-wise, color-wise, data-wise, and grade-wise, are not mandatory requirements under the Income Tax Act for a business of this nature, especially when quantitative details and proper books of accounts are maintained and audited. The previous year's and subsequent year's assessments also indicate acceptance of the assessee's accounting method.
Key Issues
Whether the addition of Rs. 1,75,56,107/- based on the estimation of gross profit due to the alleged lack of qualitative stock details is legally tenable, and whether the assessee's books of accounts were maintained in accordance with the Act.
Sections Cited
143(3), 144, 145(3), 44AB, 44AA
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
O R D E R
PER SUNIL KUMAR SINGH, JM:
This appeal has been preferred against the impugned order dated 8th September, 2023 passed by the learned CIT(A) confirming the additions in the total income of the assessee to the extent of Rs. 1,75,56,107/- made vide assessment order passed Under Section 143(3) r.w.s.144 of the Income Tax Act, [Hereinafter referred to as “Act”] related to the assessment year 2017-18.
The brief facts under appeal state that the appellant assessee, a firm carrying of business of trading and manufacturing of diamonds, filed its return of income on
Assessee has filed the appeal on the following grounds:
“I. ADDITION ON ACCOUNT OF GROSS PROFIT RS. 1,75,56,107/-: 1.1.] On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals), the National faceless Appeals Centre, New Delhi, [CIT(Appeals)], erred in confirming the addition to the extent of Rs.1,75,56,107/- made by the learned Assessing Officer by invoking provisions of Section 145(3) of the Act, though not applicable, and thereby estimating the Gross Profit for the above year 1.2] The learned CIT(Appeals) failed to appreciate the explanations/submissions furnished by the Appellant. The appellant has explained as to why the details called for by the learned Assessing Officer could not be furnished due to non- availability of Inward/Outward data in the manner as asked for by the learned Assessing Officer
2. Whether the maintenance of assessee’s books of accounts for the relevant Assessment Year 2017- 18, is in accordance with the provision of the Act? 7. Both the aforesaid issues, covering almost all the grounds of appeal, are inter-related, Hence, these issues are being taken together for the sake of convenience.
8. Learned representative for the appellant assessee has argued that assessee’s books of accounts have been audited Under Section 44AB of the Act. There is no requirement for maintenance of register on the basis of quality of stock of each and every diamond. It is sufficient to maintain stock of diamond on the basis of quantity
9. Per contra learned DR has supported the impugned order and referred Kachwala Gems V Joint Commissioner of Income–tax, Jaipur [2007] 158 Taxman 71 (SC) and Oopal Diamond vs. ACIT-19(2) Mumbai [2022] 1971TD827/144 Taxmann.com 184 (Mumbai- Trib) in support of impugned order.
The relevant paras 7 and 8 of the aforesaid order dated 30th November, 2015 passed by the coordinate Ahmedabad Bench of the Tribunal read as under:
“7. ………………..The assessee who is engaged in the business of manufacturing of polished diamonds has maintained regular books of accounts, financial statements, are duly audited under section 44AB of the Act, complete quantity details have been maintained and have been reported by the auditors in the Tax Audit report, no specific mistake has been reported in the purchase and sales of the assessee, GP rate for the year under appeal shown at 6.38% which is higher than the GP rate of 2.67% declared by assessee in the immediately preceding year. The only reason for which the Assessing Officer has rejected the books of accounts is for non- maintenance of qualitywise and piecewise detail of polished diamonds and has prepared vouchers for payment of labour charges. We find that similar issue came up before the Tribunal in the case of in the case of M/s Dhami Brothers vs. ACIT, in in ITA Assessing Officer 2309/Ahd/2008, wherein the Tribunal has decided the issue vide its order dated 6.8.2010 by observing as under :-
The facts of Kanchwala Gems (Supra) are in respect of bogus purchases and non maintenance of quantitative details of stock. The facts of Oopal Diamonds (Supra) are related to the purchases of diamonds from certain tainted dealers, thus the facts of both the cases referred by Ld. DR are not identical to the facts of the present case, hence for no avail to the department.
In view of aforesaid discussion we hold that the learned CIT(A) has failed to appreciate the facts in the light of relevant law. Aforesaid both the issues are thus decided is positive in favor of the appellant/assessee and against the revenue department.
Order pronounced in the open court on 13.05.2024.