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Income Tax Appellate Tribunal, “ F” BENCH, MUMBAI
CO No.99/M/14 आदेश / O R D E R Per Bench:
The appeal filed by the revenue and the cross-objection filed by the assessee are directed against the order dated 12.7.2012 passed by the ld. CIT(A)-25, Mumbai and it relates to the assessment year 2009-10.
The revenue is aggrieved by the decision of ld.CIT(A) in reducing the addition made to the gross profit from 0.5 percent to 0.1 per cent. In the Cross-objection, the assessee has challenged the decision of ld. CIT(A) in confirming the gross profit addition to the extent of 0.1%.
We heard the parties and perused the record. The assessee is the Proprietor of M/s Luminous Diamonds engaged in the business of Trading in Diamonds. During the course of assessment proceedings, the AO noticed that the gross profit and net profit declared by the assessee was lower than that declared in the earlier years. Hence, he called the assessee to furnish the quantitative details of diamonds purchased and sold. From the details furnished by the assessee, the AO noticed that the assessee did not maintain stock register quality wise. The AO further noticed that the rate of diamonds of same size was varying from Rs.14,000/- per carat to Rs.1,22,677/- per carat. Accordingly, the AO took the view that non-maintenance of stock register quality-wise was not correct and hence the stock register maintained by the assessee was not reliable. The AO further compared the rate of profit declared by two other diamonds traders. The assessee submitted before the AO that he had incurred loss to the tune of Rs.2.29 crores on account of foreign exchange fluctuations and accordingly submitted that the rate of net profit and gross profit has come down due to the above said loss. However, considering
CO No.99/M/14 the deficiency in the maintenance of stock register, the AO made the addition to the gross profit computed at the rate of 0.5% of turnover to the gross profit of the assessee. The ld. CIT(A) reduced the said addition to 0.1 percent.
The ld. CIT(A) noticed that the gross profit and net profit has come down due to foreign exchange fluctuation. However, he noticed that the turnover of the assessee has increased substantially from Rs.2.27 cr.to Rs.51.17 cr. The ld. CIT(A) further noticed that the AO did not point out any instance of non-genuineness of purchases, inflated purchases, non- genuineness of the expenses or inflated expenses etc. Accordingly, the ld. CIT(A) took the view that there is no case for rejection of books of account and making huge addition of Rs.25.58 lakhs on low GP @ 0.5 of the turnover. However, having regard to the overall circumstances, the AO sustained the addition to the extent of 0.1% of the turnover.
The ld. DR placed strong reliance on the order passed by the AO.
The ld. AR, on the contrary, submitted that the ld.CIT(A) was not justified in confirming the addition to the extent of 0.1 %. He has placed reliance on the following case laws and submitted that non-maintenance of stock register cannot be a ground for rejection of books of account: a) CIT vs. BINDALS APPARELS (2011) 332 ITR 410 (Del) b) CIT V/s JAS JACK ELEGANCE EXPORTS(2010) 324 ITR 95 (Del) c) CIT vs. Paradise Holidays (Del.) (HC) [2010], 325 ITR 13 (Del.), d) Income-Tax Officer vs Rajni Kant Dave (1996) 58 ITD 510 All.
We notice that all the case laws relied upon by the assessee are not related to the diamond trade. It is a known fact that the price of the CO No.99/M/14 diamond would depend upon various criteria, of which size and quality are more relevant. No transaction could take place in the diamonds trade without considering these criteria. Hence, non maintenance of quality- wise stock register was certainly a deficiency on the part of the assessee. Accordingly, in our view the ld. CIT(A) was justified in sustaining the addition to 0.1% of the turnover, considering the fact that the GP of the assessee has come down mainly due to foreign exchange loss. Accordingly, we do not find any infirmity in the order of ld. CIT(A) and confirm the same.
In the result, the appeal filed by the revenue as well as cross- objection of the assessee are dismissed.