TaxTMI 
TaxTMI 
2012 (11) TMI 795
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.... to have been accepted. (II) Addition to valuation of closing stock of rough diamonds:- (1) The learned Commissioner of Income-tax (Appeals) erred in sustaining addition of Rs.52,32,680/- to the valuation of closing stock of rough diamonds when the appellant had valued the closing stock according to the accepted Accounting Principles and as per the method of valuation consistently adopted and accepted by the department made in the past. (2) The learned Commissioner of Income-tax (Appeals) failed to appreciate that the huge addition made gave a distorted version of the income earned by the appellant and, therefore, the addition ought to have been deleted. (3) The learned Commissioner of Income-tax (Appeals) has erred in sustaining addition on the ground of appellant not having maintained qualitative accounts of diamonds when as held by the Income-tax Appellate Tribunal, Ahmedabad, in case of B. Suresh Kumar & Co. that it was not possible to maintain qualitative details of diamonds. (4) The appellant further submits that the learned Commissioner of Income-tax (Appeals) has not been able to appreciate the difference between the valuation of rough diamonds and valuation ....
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....e was issued to the assessee which finds place in page 3 and 4 of the assessment order. The same is reproduced for sake of clarity. "Please refer to assessment proceedings going in your case as well as various submissions made by you. Various issues have been discussed on different dates of hearings. Your Ld. counsel has appeared with books of accounts and bills of safes and purchases as well as details of valuation of closing stock have been furnished. It has been observed that quality wise details of diamonds have not been maintained by you. Such details of quality of diamond have not been maintained either for or for opening/closing stock. You have shown closing stock of rough diamonds of 20802.21 carats which is valued by you at Rs.99,69,305/-. Thus per carat rate of closing stock of rough diamond comes to Rs.479.24/-. You were required to show quality wise details and basis of valuation of closing stock. However, you have failed to submit any such details. Nothing in this regard could be found from your books of account. An analysis of movement of diamonds was prepared on the basis of opening stock details, purchase bills, sale bills and closing stock details provided by....
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.... stock at average of the purchase prices with value of opening stock and adopted as per prescribed standard of system. It was argued that since the method has been consistently adopted and the same has been accepted by the department no interference is called for. The assessee again submitted that only rough and polished diamonds have been considered and rejected diamonds have been ignored. According to the assessee, from the lots purchased, there are certain diamonds which are rejected having nil or meager value affecting the value of the closing stock. The relevant extract of the submission is reproduced for sake of clarity. "In this regard we have to state that our assessee has adopted the system of valuing stock at the average rate and accordingly same have been valued from the inception of the business and stock statement is all ready been submitted. It is further submitted that your goodself have considered only rough and polished diamond but not considered the rejection goods. From the lot purchase there are certain quality which is rejected goods which has either NIL VALUE OR VERY' MIGRE VALUE which effect the value of our stock-(Though the quantity is inclusive in closi....
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....assessee is required to keep stock movement register, lot to lot details, issue and dispatch register and accordingly has to prepare detailed inventory of closing stock. According to him assessee failed to file any documentary evidences regarding rejected goods and quality wise details of goods that remained in closing stock. From the sale and purchase bills submitted the assessing officer carried out an analysis to arrive at ttie value of closing stock. The same is reproduced as under:- 3.6 From the sale and purchase bills submitted by the assessee for the F.Y. 2003-04 and 2004-05, an analysis was carried out. The assessee has made following purchases of rough diamond: S.No. Date Quantity Price per at in Rs. 1. 4-Feb-05 2094.26 1764 2a. 6-Sep-04 1005.51 374 3. 27-Aug-04 1067.66 2.226 4. 20-Jan-04 94.71 1493 5. 20-Jan-04 2017.22 1532 6. 17-Dec-03 912.71 2277 7. 17-Dec-03 163.66 2365 3.7 On perusal of the above table it is noticed that average purchase price of rough diamond for the F.Y. 2003-04 as well as for F.Y. 2004- 05 was very high. This clearly indicates that the assessee has not valued the dosing stock as descried ....
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....-08. (iii further, every year in Annexure II of Audit report u/s 44AB being item No. 28 of form 3CD, the appellant has been showing rough diamonds including rejection diamonds which has been accepted by Department. (iv) The detailed statement of such rejected rough diamonds is enclosed along with sale bill (page 1-5). These statements show the particulars as under:- Rejected Rough Diamonds Cts. Opening stock 31.03.2004 12,431.34 Further addition during 31.03.2005 2,110.00 Rejected rough diamonds on 31.03.2005 14,541.34 Further addition during 31.03.2006 2,500.00 Rejected rough diamonds on 31.03.2006 17,041.34 Sold during 31.03.2007 14,541.34 (v) the appellant encloses a daily quantitative register of rough diamonds (page.6) alongwith the value as also a consolidated statement of particulars of rough and rejected diamonds (page.7) for the year ending 31.03.2006 to show that in the total rough diamonds shown in the closing stock 20,294.02 cts, the rough rejection quantity was 17,041.34 cts and quantity of makeable rough was only 3,252.68 cts. which takes the average value of rough at Rsw. 1488. A separate statement for the earlier year of m....
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..... According to the appellant the opening stock as on 31.03.2005 includes -ejected rough diamonds of 14,541.34 carats which has very low value. It is 2rtant to mention that this quantitative figure was not submitted before the assessing officer. From the details filed and books produced in assessment, information regarding quantitative details of rejected diamonds are neither available nor ascertainable. The main thrust of the argument is that the stocks, both opening and closing, contain rejected diamonds, as a result of which their value has gone down. This argument is not convincing. The rough diamonds inclusive of rejected diamonds have been valued at average rates, both in the opening as well as closing stock. The average rate takes into account the quantity of rough as well as rejected diamonds. The opening stock has been valued by the assessee at the rate of Rs.551.03 per carat which is not disputed by the assessing officer. Therefore, the composition of opening stock is immaterial when the same has been valued at a particular rate by the assessee and accepted by the assessing officer. As regards purchases, their rates are available in purchase bills. The assessing officer....