TaxTMI 
TaxTMI 
2011 (2) TMI 1445
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....h is sold after processing/polishing in the national and international market; that as per the method of accounting consistently followed by the assessee it valued closing stock at "cost or market value whichever is less"; that on the last date of every year, the assessee takes detailed physical quality-wise stock of diamonds and then the market value of such stock is worked out. The assessee has taken the market value where the market value is lesser than the cost and in the case of remaining diamonds it has taken the cost. The complete quality wise inventory of the closing stock of diamond is at page nos.30 and 31 of the paper book; that to support the assessee's contention that market value of the part of the stock of the diamond was less than the cost, the assessee has given sale value of such diamond in the subsequent year. Complete details of sale of each and every diamond are given at page no.36 and 37 of the assessee's paper book. He therefore submitted that valuation made by the assessee is duly supported by the documentary evidences in the form of sale bill of such diamonds in the immediately subsequently year; that the AO adopted the average cost for determining the valu....
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.... of the sale at page no.36 & 37, not a single item tallies with the each other. Therefore, the contention of the assessee that the market value of the closing stock was less than the cost has not been established; that the value of diamond depends upon the quality of the diamond. Lower quality of the diamond is purchased at the lower rate and therefore the same is sold at a lower rate after processing. The assessee has sold various lots of diamonds for much higher rate than the cost price. The details of which is given at page no.11 and 12 of the assessment order which proves that various pieces of the diamonds were sold by the assessee at as high as ₹ 36941/- per carrat as against the average cost of ₹ 9,943/- per carrat; that in fact the assessee selected certain sale instances where the diamond was of inferior quality and the same was sold at lower rate and attached those sale bills to claim that the market value of the diamond was lower than the cost; that the assessee has not given item-wise cost and market value of each lot. Moreover, the assessee has not given the market value of entire closing stock. He further submitted that burden is upon the assessee to estab....
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.... 4 D/Cut Tilc-6.5 Vs 1 110.11 5 F Cut White Vs 1 20.29 6 F Cut White Vs 1 20.55 7 F Cut White Vs 1 20.28 8 Cut & Polished Diamond 277.56 9 Cut & Polished Diamond 923.63 10 Cut & Polished Diamond 660.33 11 Cut & Polished Diamond 259.12 12 Cut & Polished Diamond 452.21 13 Cut & Polished Diamond 401.51 14 Cut & Polished Diamond 49.20 15 Cut & Polished Diamond 102.06 16 Cut & Polished Diamond 74.22 17 White D/C ND PK2 52.35 18 White D/C ND PK3 11.52 19 White Prince PK1 33.05 20 F/C White VS1 48.60 21 F/C White S11 20.44 22 F/C White VS1 113.04 23 F/C White S11 35.71 24 Cut & Polished Diamond 1072.85 25 White Tappers S1 100.00 26 White Tappers PK 4 78.00 27 White Buggets PK 4 116.00 28 White BuggetsS1 3 48.00 29 Cut & Polished Diamond 187.36 30 Cut & Polished Diamond 45.89 31 Cut & Polished Diamond 250.15 32 White BGTS PK 2 (PL) 185.55 33 White BGTS PK 2 (PL) 11.96 34 D/C TLB NTS SI 1 (PL) 2.03 35 D/C TLB NTS PK 1 0.54 36 Cut & Polished Diamond 231.32 37 Cut & Polished Diamond 505.35 38 WH Bug I 3 0.14 39 WH TAP BUG 1 3 132.88 40 D/Cut TTLB PK 1,2 42.97 41 D/Cut TTLB VS 1....
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.... WHITE BGTS PK -2 (PL) 8 9,029.05 185.55 1,675,340 12 WHITE BGTS PK - 2 (PL) 8 9,029.05 11.96 107,987 13 D/C TL8 NTS SI- I (PL) 8 9,119.00 2.03 18,512 14 D/C TLB NTS PK- 1 (PL) 8 8,704.05 0.54 4,700 15 CUT & POLISHED DIAMONDS 23 9,900.00 505.35 5,002,965 16 CUT & POLISHED DIAMONDS 3 8,729.43 231.32 2,019,292 17 WH BUG 1-3 12 7,150.80 0.14 1,001 18 Ml TAP BUG 1- 3 12 6,270.08 132.88 833,168 19 D/CUT TTLB PK- 1 2 13 569,640.00 42.97 244,774 20 D/CUT TTLB VS - 1 2 13 8,362.80 47.38 396,229 21 TAP/BUG TTLB PK - 1 2 13 3,555.20 228.96 813,999 22 D/CUT TLB PK - 1 2 13 5,534.80 119.74 662,737 23 TAP/BUG TTLC SI - 1 2 13 8,201.20 50.00 410,060 24 White Buggets PK-2 (PL) 14 8,524.40 72.32 616,485 25 White Buggets PK -2 (PL) 14 8,524.40 5.78 49,271 26 D CUT TTLB SI - 1 2 15 8,484.00 37.52 318,320 27 S CUT TTLB SI - 2 3 15 1,212.00 21.47 26,022 28 S CUT TLB PK - 12 15 1,454.40 61.89 90,013 29 D CUT TTLC PK - 12 15 4,726.80 50.00 236,340 30 PRN TTLC SI - 1 2 15 8,080.00 106.34 859,227 31 D CUT TTLB PK - 12 15 5,938.80 177.33 1,053,127 32 TAP+BUG TTLB SI - 1 2 15 6,....
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....more than the cost, therefore, the assessee adopted cost price. He has also claimed that the assessee has a right of following "cost or market value whichever is lower" as its method of accounting for valuation of closing stock and such method is being consistently followed by the assessee since past several years and being accepted by the Revenue as such. 9. So far the legal argument is concerned that the assessee has right to follow "cost or market value whichever is lower" method for valuation of closing stock is concerned, we entirely agree with the assessee and hold that the assessee has the right to follow this method. However, the question is with regard to determination of cost as well as market value of the closing stock as on 31-3-2007. It is contended by the learned counsel that the assessee has taken the lot-wise stock inventory as on 31-3-2007 physically. The detail of which is given at page no.30 and 31 of the assessee's paper book and has also been reproduced by us above in para-6 for ready reference. From the perusal of the above details, we find that the assessee has bifurcated the closing stock of 13,345.87 carrat into 86 lots. However, he has not given either co....
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....335.04 10.08.07 33 15350.86 10.08.07 34 19069.25 17.08.07 35 20062.84 20.08.07 36 44076.14 20.08.07 37 10028.13 20.08.07 38 14150.09 10. If we consider the entire details, it is obvious that the assessee has taken the inventory of the closing stock lot-wise, however, neither the cost nor the market value of each lot is given by the assessee. In the next year, the assessee continued its business of purchasing rough diamond, its cutting and polishing and sale of polished diamond. Sale of diamond was at different rates varying from ₹ 1212/- per carat to ₹ 44,076/- per carat. The assessee has picked up the sale instances where the diamonds were sold at a price below the cost price and ignored the sale instances where the diamonds were sold at a price much higher than the cost price. As we have already mentioned, the value of diamond varies because of quality as well as size of the diamonds. This value varies in the case of rough diamonds as well as polished diamonds. The assessee has not given either the cost or market value of each lot of closing stock of diamond. If we peruse the sale given by the assessee, we find that the sale value of the diamond var....
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....lso contended that the GP/NP for the year under consideration is better than earlier years, therefore, the valuation of the closing stock should not be disturbed. We are unable to accept this contention of the learned counsel, if the assessee has not valued the closing stock correctly, the AO can certainly make the correct valuation of the closing stock. 11. The learned counsel has also made an alternate claim that if the AO changes the method of valuation of closing stock, the opening stock should also be valued in the identical manner as the closing stock. In support of this contention, he has relied upon the several decisions, which are reproduced by us in para-3 above. In our opinion, in this case, the AO has not modified the method of accounting for valuation of the closing stock. The method of assessee for valuing the closing stock at "cost or market value whichever is lower" is not disturbed by AO. What is disturbed by the AO is the working by the assessee with regard to the market value of the closing stock. As we have already mentioned, in support of lower market value of the closing stock, the assessee has only given a few sale instances in the subsequent year which did ....