TaxTMI 
TaxTMI 
2016 (4) TMI 994
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....al [Before the Hon'ble ITAT, Ahmedabad] 1. In the facts and the circumstances of the case and in law, the learned A.O. erred in adding Rs. 45,08,042/- by disallowing genuine manufacturing loss claimed in the process of manufacturing of high class diamond studded gold jewellery by overlooking the wastage norms stipulated for Gems and Jewellery Industry as per Foreign Trade Policy 2004-2009, cited before him & also overlooking the typical nature of the Appellant' s business and thereby adopting arbitrary percentage of 0.5 to 1 % without citing any comparable instance and without rejecting book result and without pointing out any defects in the books of accounts. 2. In the facts and the circumstances of the case and in law, the learned Commissioner of Income Tax(A) also erred in confirming manufacturing loss of Rs. 45,08,042/-. 3. The AO also erred in levying interest u/s 234C. 3. Briefly stated facts as culled out from the assessment records are that assessee is a partnership firm engaged in the business of manufacturing diamonds studded jewellery. E-return for asst. year 2007-08 was filed on 29.10.2007 declaring total income at Rs. 11,01,717/- accompanied by Tax Audi....
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....ng as under :- 6.3 DECISION : I have carefully considered the submissions made by the Id. AR and the findings of the AO. I have also perused the facts of the case. There is no doubt that the high end gold and diamond jewellery are manufactured by highly skilled labourers with high quality machine tools. From the.chart the working loss shown by the appellant for Gold (i8Kt) 10.59%, Diamond Jewellery 0.10% and for chain making 0.06%. Although the chain making process is relatively simple compared to the high end gold jewellery, but the making loss recorded is abnormal. The jewellery is manufactured on conditions environments such as outside interference of air, moisture, dust, light, noise etc. are well controlled. The accumulated gold dusts are condensed and retrieved. The superior tools used allows bare minimum wastage during the making. The workers are never allowed wastage % in excess of accepted norms. Enquiry from the trade circles (both big and small) unanimously stated that the rate of making loss accepted cannot be more than 0.50%. The appellant heavily relied on the proposition set out in the Exim Policy to drive home about the issue. I am not convinced with such argument....
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....stained by ld. CIT(A). 9. During the course of assessment proceedings all quantitative details, relating to purchase, sale, stock in hand, in relation to raw material and finished goods were produced before the assessing authority and no error has been pointed out in the audited quantitative records which have been regularly maintained by the assessee since last many years and the only reason generated in the mind of Assessing Officer that in the normal course of manufacturing process relating to gold ornaments, shortage loss as per his experience is around 1% whereas assessee has claimed 10.59% of shortage loss. Apart from this observation there is no other finding placed on record. 10. We also find that in the Handbook of Procedures (Vol.I) 1st September 2004 - 31st March, 2009 issued by Ministry of Commerce and Industry, Department of Commerce, Government of India wherein wastage norms have been given in column 4A-2 which reads "- the wastage or manufacturing loss on gold/silver/platinum jewellery articles thereof is normally around 9%." From going through the manufacturing process submitted by the assessee we find that it is also involved in the manufacturing of gold studded ....
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....ties have responded by giving confirmations that the have made sales to the assessee as shown in the purchase order as placed on record. No discrepancy whatsoever has been pointed out in the books of account or purchase or sale vouchers. Payments have been made through proper banking channels. It is not the case of the Department that the assessee is showing purchase on higher rates and selling the same on lesser rate to reduce the profit. There are heavy losses suffered by the assessee in earlier year. The losses have been shown on account of valuation of closing stock on the basis of market price or purchase price. Therefore, it cannot be said that the assessee had shown loss mala fidely. It is further seen -that the closing stock prepared by the assessee for immediately preceding year has been accepted by the AC without commenting an\ defects. The books ol account were maintained in the regular course ot business and they have been accepted by the AO. It was further stated that even in subsequent assessment year i.e., 2004-05 the opening stock which was of the closing stock of the year under consideration has been accepted by the Department, therefore, for this reason, rejection....
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....otices. There may be changes of address also. The assessee has discharged its burden for filing the details of purchase from those parties and has given their complete addresses available with the assessee. If by any reason, the two parties from whom similar purchases were made could not appear before the AO, the assessee cannot be held faulty and no inference should have been dawn against the assessee. Therefore, keeping in view of these facts and circumstances and keeping in view of voluminous details required by the AO filed before him, we find that the AO and the GIT (A) were not justified in rejecting the claim of the assessee. The AO as well as CIT(A) have rejected the loss claimed by the assessee at 16.70 per cent. The entire loss has been disallowed without assigning any reason and thereafter, 1 per cent gross profit on the total turnover has been adopted again without assigning any reason, therefore, as stated above, both the authorities were not justified in rejecting the books of account and not allowing claim of loss of the assessee. Accordingly, we set aside the orders of the authorities below and the AO is directed to allow the claim of the assessee as claimed. 7. I....
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.... and applying the same value of closing stock was re-worked and addition of Rs. 35,61,135/- was made on account of suppression of closing stock. 16. Revenue is now in appeal before the Tribunal. 17. Ld. DR relied on the order of Assessing Officer whereas ld. AR relied on the decision of ld. CIT(A) and reiterated the submissions made before lower authorities and also relied on the decision of coordinate bench in the case of DCIT vs. Shri Chimanlal H. Soni in ITA No.1663/Ahd/2009 vide order dated 31.5.2012. 18. We have heard rival contentions and perused the material on record. The issue in this appeal raised by Revenue in the first ground is on account of deletion of addition of suppression of valuation of closing stock of Rs. 35,61,135/- and deletion of addition of Rs. 50,000/- on account of disallowance of various expenses. 19. First we take up suppression of valuation of closing stock at Rs. 35,61,135/-. From going through the assessment order we find that Assessing Officer has arrived at the weighted average cost method by taking the cost of purchases made in February and March, 2007. Whereas assessee has calculated the weighted average on the basis of purchases of 12 months....
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.... FIFO basis by adopting the value of purchases during February/March 2007 is inappropriate because the appellant has been consistently following the Weighted Average Cost method. Unless there is inconsistency in the method adopted by the assessee, the AO cannot thrust on the appellant which method should he follow. Moreover, comparative working of valuation of stock, as desired by the AO, on FIFO basis and Weighted Average cost basis was given to the AO during the assessment proceeding and the result was (-) Rs. 62,86i/~ thereby the appellant had not derived undue advantage by adopting Weighted Average cost method. The Id.AR also supported his argument with relevant case laws. In this circumstances, in my view, the AO is not correct to thrust upon the appellant the FIFO method- of valuation of stock without bringing any materials evidence showing that the appellant has derived benefit by adopting Weighted Average method for valuation of Stock. The AO ought not to have rejected the plea of the appellant that FIFO method has to be followed for both Opening Stock and the Closing Stock as well. Therefore, the AO is directed to delete the addition made in this ground. The appeal in this....
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....ngs. Nevertheless, whatever the settled law is applicable in respect of valuation of closing stock but the pecularity of this case is that the A.O. has started to value the stock at close intervals of each month but finally that was not made the basis of addition. The A.O. has left that observation/calculation without drawing a conclusion however finalized the valuation on an add-hoc basis. Because of this peculiar situation we are not inclined to approve the said approach of assessment of the A.O. In view of the foregoing facts and in the circumstances of the case we are of the considered view that CIT (A) has rightly deleted the addition of Rs. 2,60,63,437/- made to closing stock. We accordingly upheld the action of CIT (A) and dismiss this ground of Revenue. 9. In the result, the appeal of Revenue is dismissed. 22. We find that the facts of the case dealt in this appeal are similar to the facts adjudicated in the decision of the co-ordinate bench, Ahmedabad in the case of DCIT vs. Shri Chimanlal H. Soni (supra) and also looking to the fact that assessee has been maintaining method of accounting consistently and no change has been made in the opening stock by the Assessing Offi....
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....lant is supported by the various judicial decisions cited by him. In this circumstances, the AO is directed to delete the additions made in this ground. The appeal in this ground is allowed., 24. We are of the view that ld. CIT(A) has rightly deleted the addition because such kind of ad hoc disallowance are normally uncalled for in the case of assessees who are regularly maintaining books of account which are audited u/s 44AB of the Act and all the documents relating to expenses incurred are verified by the auditors and also looking to the magnitude of the turnover of the assessee which in this year is Rs. 17.36 crores, expenses incurred on account of office expenses, office maintenance, miscellaneous expenditure, printing & stationery expenditure aggregating to Rs. 4,59,911/-, cannot be said as unreasonable. Therefore, ld. CIT(A) has rightly deleted the ad hoc addition of Rs. 50,000/- as no specific defect and discrepancy has been pointed out by the Assessing Officer. Accordingly, this ground of appeal is dismissed. 25. Other grounds are general in nature which needs no adjudication. 26. In the result, appeal of Revenue is dismissed. 27. Now we take up assessee's appeal in ITA....