Shri Vallabhbhai Bhagwanbhai Borda, Surat v. The ACIT.,Circle-9,, Surat

ITA 1158/AHD/2008 | 2004-2005
Pronouncement Date: 21-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 115820514 RSA 2008
Assessee PAN ACNPB6767C
Bench Ahmedabad
Appeal Number ITA 1158/AHD/2008
Duration Of Justice 2 year(s) 1 month(s) 19 day(s)
Appellant Shri Vallabhbhai Bhagwanbhai Borda, Surat
Respondent The ACIT.,Circle-9,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 21-05-2010
Date Of Final Hearing 17-05-2010
Next Hearing Date 17-05-2010
Assessment Year 2004-2005
Appeal Filed On 02-04-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AT SURAT CAMP AHMEDABAD BEFORE SHRI T.K. SHARMA JUDICIAL MEMBER AND SHRI D. C. AGRAWAL ACCOUNTANT MEMBER ITA NO.1158/AHD/2008 ASSESSMENT YEAR: 2004-05 DATE OF HEARING:17.5.10 DRAFTED:17.5.10 VALLABHBHAI BHAGWANBHAI BORDA PROP. OF V.B. & SONS 35 VALLABHNGAR VARACHHA ROAD SURAT PAN NO.ACNPB6767C V/S . ASSISTANT COMMISSIONER OF INCOME-TAX TAX CIRCLE-9 AAYAKAR BHAVWAN MAJURA GATE SURAT (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI B.D. KHENGAR AR RESPONDENT BY:- SMT. JYOTI LAXAMI SR-DR O R D E R PER D.C.AGRAWAL ACCOUNTANT MEMBER:- THIS IS AN APPEAL BY THE ASSESSEE ARISING OUT FOLL OWING GROUNDS:- 1. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN UPHOLDING THE ASSESSING OFFICERS ACTION OF REJECTI NG BOOKS OF ACCOUNT U/S.145(3) OF THE I.T. ACT AND ENHANCING THE INCOM E-TAX ACCORDINGLY WITHOUT GIVING DUE CONSIDERATION TO THE SUBMISSIONS MADE AND CASE LAWS REFERRED TO IN THE SUBMISSIONS MADE BEFORE HIM. 2) WITHOUT PREJUDICE TO THE ABOVE THE LEARNED LOWE R AUTHORITIES ARE NOT JUSTIFIED IN REJECTING THE BOOKS U/S.143(3) AND ENH ANCING THE INCOME-TAX ITA NO.1158/AHD/2008 A.Y. 2004-05 VALLABHBHAI B BORDA V. ACIT CIR-9 SURAT PAGE 2 ON THE BASIS OF ESTIMATING GROSS PROFIT RATIO AND N ET PROFIT RATIO RESPECTIVELY. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) IS NOT JUSTIFI ED IN ESTIMATING THE NET PROFIT @ 12.39% WHICH IS THE AVERAGE NET PROFIT RATIO OF F.Y. 2001-02 TO 2004-05 WITHOUT TAKING INTO ACCOUNT THE FACTORS AFFECTING THE NET PROFIT. 4) WITHOUT PREJUDICE TO THE ABOVE THE LEARNED COMM ISSIONER OF INCOME- TAX(APPEALS) OUGHT TO HAVE DELETED THE DISALLOWANC E OF 1/5 TH I.E. RS.81458/- MADE BY THE AO OUT OF FOREIGN TRAVEL EXP ENSES. 2. ASSESSEE IS A PROPRIETOR OF M/S. V.B. & SONS ENG AGED IN THE BUSINESS OF DIAMONDS. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS ASSESSING OFFICER NOTICED THAT ASSESSEE IS IMPORTED DIAMONDS IN LOTS THE PRICES OF DIAMONDS VARY FROM LOT-TO-LOT DEPENDING UPON THE QUALITY OF DIAMO NDS CONTAINED IN LOTS. THESE DIAMONDS WERE SEGREGATED FOR THE PURPOSE OF POLISHI NG AND THERE ARE A LARGE NUMBER OF DIAMONDS WHICH CANNOT BE POLISHED AT ALL. THESE WHICH RE CAN BE OF IN POLISHING ARE FURTHER SEGREGATED INTO DIFFERENT CATEGORIES DEPENDING UPON THEIR SIZE AND QUALITY. THEY ARE GIVEN TO LABOURERS FOR PROCESSING/POLISHING. THE ASSESSEE WAS EXPECTED TO KEEP RECORD OF EACH AND EV ERY DIAMOND INDIVIDUAL OR IN LOT THE LABOURERS/CONTRACTORS AFTER CLEANING AN D POLISHING RETAINED THE POLISH DIAMONDS ALONG WITH THE JHANGAD TO THE ASSESSEE BOT H IN TERMS OF WEIGHT AND PIECES LOOK INTO IN ORDER TO THE QUALITY WEIGHT C UT AND COLOUR OR CLARITY AND THE PRICES ARE FIXED WHICH VARIED FROM RS.1 000/- TO RS .1 LAKH. ACCORDINGLY ASSESSING OFFICER REQUIRED THE ASSESSEE TO SUBMIT Q UALITY-WISE DETAILS OR DIAMONDS PURCHASED POLISHED AND EXPORTED BUT SUCH D ETAILS WERE NOT PRODUCED AND HE ACCORDINGLY REJECTED THE BOOKS OF ACCOUNT AN D ESTIMATED PROFITS. HE NOTICED THAT THERE WAS A FALL IN GROSS PROFIT OF 3. 49% AS COMPARED TO EARLIER YEAR. HE ACCORDINGLY ANNOUNCED THE GP RATE BY 3% ON TOTA L TURNOVER OF RS.3 33 86 844/- RESULTING IN ADDITION OF RS.10 01 604/-. LD. CIT(APPEALS) ITA NO.1158/AHD/2008 A.Y. 2004-05 VALLABHBHAI B BORDA V. ACIT CIR-9 SURAT PAGE 3 CONFIRMED THE REJECTION OF BOOKS OF ACCOUNT AS VERI FICATION OF PRODUCTION CORRESPONDING SALE STOCK VALUATION AND MARGIN OF PR OFITS CANNOT BE ASCERTAINED ON ACCOUNT OF LARGE VARIETY OF DIAMONDS DEPENDING U PON THEIR CUT CLARITY CARAT AND COLOUR. LD. CIT(APPEALS) HOWEVER CONSIDERED TH E NET PROFIT EARNED BY ASSESSEE AS AGAINST GP AND PRECEDED TO DETERMINE TA XABILITY INCOME-TAX ACCORDINGLY. LD. CIT(APPEALS) RELIED ON THE FOLLOW ING TABLE OF NET PROFIT RATIO IN FOUR FINANCIAL YEAR:- FINANCIAL YEAR GROSS TURNOVER NET PROFIT NET PROFIT RATIO 2001-02 13151835 2337380 17.77% 2002-03 56390267 754376 13.38% 2003-04 33386844 3678079 11.00% 2004-05 31843226 2306752 7.41% HE WORKED OUT THE AVERAGE NET PROFIT RATE OF LAST T HREE YEARS WOULD BE 14.4% AND THAT OF LAST FOUR YEARS WOULD BE 12.39% WHICH WOULD BE STILL HIGHER NET PROFIT OF 11% DECLARED THIS YEAR. ACCORDINGLY LD. CIT(APPEALS) APPLIED THE AVERAGE RATE OF PROFIT OF 12.39% WHICH IS RESULTED IN ADDITION OF RS.4 58 550/-. THUS THE APPEAL BY ASSESSEE IS PARTLY ALLOWED BY L D. CIT(APPEALS). 3. BEFORE US LD AR FOR THE ASSESSEE SUBMITTED THAT ASSESSING OFFICER WAS INCORRECT TO HOLD THAT THEE IS A FOLLOWING GP RATE THIS YEAR BY 3.49% IT IS BECAUSE ACTUAL OF THE GP IN THE CURRENT YEAR WAS 13.4% AS A GAINST 15.28% TAKING BY THE AO IN THE ASSESSMENT ORDER. SIMILARLY THE GP RATE IN THE LAST YEAR WAS 15.19% AS AGAINST 18.77% TAKEN BY HIM. THUS THERE IS ONL Y FALL OF 1.8% APPROXIMATELY AND NOT 3.49%. FURTHER LD. CIT(APPEALS) HAS IN THE SUBSEQUENT YEAR FOLLOWED BOARDS INSTRUCTION NO.2 DATED 2 ND FEBRUARY 2008 WHEREIN IT HAS BEEN STIPULATED THAT WHERE ASSESSEE HAS SHOWN A MARGIN O F 6% OF TOTAL TURNOVER FROM ITA NO.1158/AHD/2008 A.Y. 2004-05 VALLABHBHAI B BORDA V. ACIT CIR-9 SURAT PAGE 4 THE BUSINESS OF DIAMOND MANUFACTURING AND NOT TRADI NG THEN SUCH PROFIT AND GAINS OF BUSINESS OF PROPOSITION FOR A PARTICULAR A SSESSMENT YEAR SHOULD BE ACCEPTED IF THE LD. CIT(APPEALS) HAS DELETED THE AD DITION IN THE ASSESSMENT YEAR 2005-06 AND BY FOLLOWING BOARDS CIRCULAR THEN THIS SHOULD BE FOLLOWED AY 2004-05 ALSO. 4. AGAINST THIS LD. DR SUBMITTED THAT BOARDS INSTR UCTION NO.2 DATED 2 ND FEBRUARY 2008 SHOULD BE APPLICABLE FOR ASSESSMENT MADE DURING THE FINANCIAL YEAR 2008-09 AND NOT TO ANY EARLIER ASSESSMENT YEAR . FURTHER IT WAS APPLICABLE ONLY FOR ONE PARTICULAR ASSESSMENT YEAR. LD. DR SUB MITTED THAT BOARDS INSTRUCTION AS SUCH ARE NOT BINDING ON THE COURTS OR ON THE TRIBUNAL. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW IF THE ASSESSEE HAS NOT MAINTAINED QUALITY-WISE RECORD OF VARIOUS TYPES OF DIAMONDS WHOSE PRICE VAR Y ACCORDING TO ITS QUALITY THEN IT CANNOT BE SAID THAT ASSESSEE MAINTAINS BOOK S OF ACCOUNT IN SUCH A MANNER THAT PROFIT CAN BE DEDUCED CORRECTLY. WHEN SEC.145 PROVIDES THE ACCEPTANCE OF BOOKS OF ACCOUNT BY THE AO THEN IT PRE-SUPPOSE THA T ACCOUNTS MAINTAINED ARE SUCH THAT WHICH WOULD HELP THE AO IN DEDUCING THE P ROFITS CORRECTLY. IT MEANS THAT THERE SHOULD BE A CLEAR AND DIRECT NEXUS BETWE EN INPUTS AND OUTPUT BETWEEN GOODS PURCHASED AND GOODS SOLD AND BETWEEN GOODS MA NUFACTURED AND GOODS SOLD. WHERE GOODS PURCHASED ARE OF DIFFERENT QUALI TY WHICH WOULD VARY UPON THEIR CLARITY AND WEIGHT AND GOODS MANUFACTURED ARE OF DIFFERENT VARIETIES WHICH WOULD VARY ON THEIR WEIGHT IN CARATS THEIR CUT INT O VARIOUS SHAPES THEIR CLARITY AND THEIR COLOUR OR COMBINATION OF ANY OF THESE FOU R INGREDIENTS THEN IT CANNOT BE SAID THAT INPUTS AND OUTPUTS ARE COO-RELATED. FU RTHER THERE IS UNDEFINED PERCENTAGE OF WASTE WHICH WOULD VARY UPON QUALITY O F INPUT QUALITY OF PROCESSING CARRIED OUT. IF THE ASSESSEE DOES NOT PR ODUCE THE BASIC RECORD ON THE ITA NO.1158/AHD/2008 A.Y. 2004-05 VALLABHBHAI B BORDA V. ACIT CIR-9 SURAT PAGE 5 GROUND THAT IT IS NOT POSSIBLE TO MAINTAIN THEM AND FAILS TO SHOW THAT PRECIOUS ITEM LIKE DIAMONDS WERE KEPT UNDER PROPER QUALITATI VE AND QUANTITATIVE CONTROL THEN RELIABILITY OF SUCH BOOKS OF ACCOUNTS CANNOT B E ACCEPTED. IT IS AN UNDISPUTED FACT THAT DIAMONDS ARE PRECIOUS ITEMS AND SMALLEST PIECE CARRY SUBSTANTIAL VALUE THEREFORE TO SAY THAT NO RECORD OF SUCH DIAMONDS ON THE BASIS OF QUALITY WAS KEPT IS UNACCEPTABLE. EACH AND EVERY QUALITY OF DIAMOND IS SUBJECTED TO INSPECTION. THEIR QUALITY IS CHECKED AND EVALUATION IS DONE AND ARE ACCORDINGLY RECORDED. THERE ARE STANDARDS SET BY GEARMOLOGY INSTITUTIONS ACCORDING TO WHICH EACH PIECE OF DIAMOND IS GRADED AND A RECORD THERE OF IS KEPT. ACCORDING TO SUCH GRADATION LOTS ARE SEGREGATED AND EVALUATED. THE AS SESSEE IS REQUIRED TO SHOW TO THE AO A RECORD OF QUALITY OF DIAMONDS PURCHASED AN D SOLD MINUS WASTAGE. IF IT IS NOT DONE IT CANNOT BE SAID THAT RECORD KEPT BY A SSESSEE ENABLED THE AO TO DEDUCE THE PROFIT CORRECTLY. WE ACCORDINGLY HOLD TH AT WHEREVER A DIAMOND MERCHANT DOES NOT PRODUCE QUALITATIVE RECORD TO THE AO AND WHICH WE BELIEVE IS NECESSARY TO BE KEPT AND WOULD BE CERTAINLY KEPT F OR EFFECTIVE MANAGEMENT OF PRECIOUS ITEM LIKE DIAMOND THEN BOOK RESULTS OF SUC H CASE CANNOT BE ACCEPTED. THE BOOK RESULTS ACCORDINGLY ARE LIABLE TO BE REJEC TED U/S.145 OF THE ACT. WE ACCORDINGLY UPHOLD THE REJECTION OF THE BOOKS IN TH IS CASE ALSO. 6. NEXT GROUND IS ABOUT DISALLOWANCE OUT OF FOREIGN TRAVEL EXPENSES. THE ASSESSING OFFICER HAS DISALLOWED 1/5 TH OF THE CLAIM AT RS.81 458/-. LD. AR SUBMITTED THAT AD HOC DISALLOWANCE OF THIS NATURE H AS NOT BEEN UPHELD BY THE TRIBUNAL. LD. DR ON THE OTHER HAND RELIED ON THE OR DER OF ASSESSING OFFICER. 7. AFTER CONSIDERING THE RIVAL SUBMISSION WE DELETE THE ADDITION BECAUSE IF 4/5 TH OF EXPENDITURE IS CONSIDERED AS FOR BUSINESS PURPO SED AND THERE IS NO REASON WHY 1/5 TH OF THE EXPENDITURE ON FOREIGN TRAVEL SHOULD ONLY T REATED AS FOR NON-BUSINESS PURPOSES. THERE IS NO SPECIFIC MENTIO N OF ANY PARTICULAR ITA NO.1158/AHD/2008 A.Y. 2004-05 VALLABHBHAI B BORDA V. ACIT CIR-9 SURAT PAGE 6 EXPENDITURE NOT INCURRED ON BUSINESS. ACCORDINGLY THIS ADDITION IS DELETED. IN THE RESULT APPEAL BY THE ASSESSEE PARTLY ALLOWED. 8. IN THE RESULT APPEAL BY THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN OPEN COURT ON 21/05/2010 SD/- SD/- (T.K.SHARMA) (D.C.AGRAWAL) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD DATED : 21/05/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-V SURAT 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD