TaxTMI 
TaxTMI 
2012 (11) TMI 657
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....any jurisdiction or legal base. Ground No.1 of Revenue's appeal 1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.1,00,68,404/- out of Rs.1,45,25,670/- made by A.O. on account of low G.P., vide assessment order u/s.143(3) of the I.T. Act dated 24.12.2007. 2.1. Facts in brief as emerged from the assessment order passed u/s.143(3) dated 24/12/2007 were that the assessee-firm is in the business of manufacturing, import and export of diamonds. At the outset, it was noted by the AO that during the year under consideration the gross profit was 7.37 % as against the gross profit at 7.79% in the last year. At this juncture, ld.AR Mr.S.N.Soparkar has intimated that a factual error was committed by the AO while mentioning the figures of the percentage of the last year. As per records, the correct figure of percentage of Gross Profit of the last year was 7.09%. The ld.AR has therefore objected at the outset that the very basis of initiation of enquiry was wrong on the part of the AO. It has also been mentioned that the assessee had imported rough diamonds from foreign countries specially from Belgium. &n....
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....ss, for the year under consideration, the assessee has vehemently pleaded that exhaustive books of accounts were maintained and a list was made by the CIT(A). Vide Page No.10, ld.CIT(A) has also found that the current year's profit was 7.37% and immediately preceding year the Gross Profit rate was 7.09% and that the AO had wrongly mentioned the percentage of gross profit at 7.79% of the last year. An another fact has also been noted by the ld.CIT(A) that the turnover had gone up from Rs.160.43 crores to Rs.193.79 crores of the year. The turnover had gone up by 20% in the year under consideration, however, the better gross profit was disclosed by the assessee. Considering those basic reasons a part relief was granted as follows:- "However, in the current year, agreeing with the submission of the appellant that the turnover of the business has increased considerably from around Rs.160.43 crore in assessment year 2004-05 to around Rs.193.79 crore in the current year and also keeping in mind the comparable rates submitte3d by the appellant in their written submissions, I hold that a net profit rate of 2.5% as against 3% estimated in the previous year will meet the ends of jus....
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....ult shown by the assessee compares favourably with the past accepted position in the case of the assessee itself. Therefore merely rejecting the book result on the ground that quality-wise details of diamonds has not been maintained will not empower the A.O. to add any income to the income shown by the assessee. We also observe that no material could be brought on record by the Revenue to show that the value of closing stock of diamonds shown by the assessee at Rs.16,25,60,000/- was incorrect or the method of valuation consistently adopted and followed by the assessee was incorrect. In the absence of any material to show that the actual value of closing stock possessed by the assessee as on 31.3.2004, was more than the value shown by the assessee, in our considered opinion, the A.O was not justified in making trading addition of Rs.53,07,218/-. Further, it is observed that none of the lower authorities have found that the various expenses claimed by the assessee in its P&L A/c were not supported by vouchers or not verifiable or were not genuine. In the above circumstances, the Ld. CIT(A) was not justified in rejecting various expenses disclosed by the assessee's day-to-day maint....
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..... of the revenue supported the assessment order whereas Ld. A.R. of the assessee supported the order of Ld. CIT(A). It is also submitted by him that in a recent judgment dated23.08.2011, rendered in the case of CIT Vs. Friends and Friends Shipping Pvt.Ltd. in tax appeal No.251 of 2010, it has been held by Hon'ble Gujarat High Court i.e. the Jurisdicitional High Court that when the assessee is not a dealer in foreign exchange and for the purpose of hedging the loss due to the fluctuation in foreign exchange rates while implementing the export contracts if the assessee entered into forward contract with the bank and if such contracts are required to be cancelled and the assessee is required to pay some charges to the bank, the same is allowable as expenditure of business and it cannot be considered as speculation loss as to cover under sub-section (5) of Section 43 of the income tax." 7. Under the totality of the circumstances of the case, once the Respected Co-ordinate Benches have already taken a view in favour of the assessee and granted relief, therefore we find no reason on the part of the Revenue Authorities, on these admitted facts, to interfere with the book results....
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....-. As per AO, therefore, powder of Rs.31,73,072/- was consumed by the assessee. As against that for A.Y. 2003-04 and 2002-03 powder consumed was only Rs.33,500/- and 39,500/-. Even for A.Y. 2004-05 the powder consumed was only Rs.10,71,321/- As per AO, no proof was given by the assessee for excessive consumption of the diamond powder for the year under consideration. Accordingly, the AO had proceeded to add the entire amount of Rs.31,73,072/- on account of excessive consumption of powder and further added 5% net profit of Rs.1,58,653/-, thus totalling to Rs.33,31,725/-, added in the total income of the assessee. The matter was carried before the first appellate authority and the ld.CIT(A) has retained 25% of consumption of powder at Rs.7,93,268/-. However, he had also made an observation that telescoping could be given against the net profit addition as computed by him. 10. Having heard the submissions of both the sides, we are of the view that the consumption of diamond powder was excessive and appeared to be unreasonable considering the overall circumstances of the case. The assessee has also failed to establish the reasons for abrupt enhancement in consumption of diamond powd....