TaxTMI 
TaxTMI 
1996 (1) TMI 142
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....y of IT Department consequent upon search 203.57 cts. (ii) Cut and polished diamonds with the assessee 1431.51 cts. 1635.08 cts. The assessee valued 203.57 cts. of cut and polished diamonds with the IT Department at the rate of Rs. 1,134.74 per ct. i.e at Rs. 23,100. There is no dispute about this valuation. However, the assessee valued cut and polished diamonds weighing 1,431.51 cts. at the rate of Rs. 270.81 per ct. i.e. at Rs. 3,87,670. The controversy raised before us by both the sides pertains to the valuation of this latter variety of diamonds. 2.1. The AO was of the opinion that the diamonds weighing 1,431.51 cts. were undervalued. He accordingly issued a show cause notice to the assessee to explain the basis of valuation. It was submitted before the AO that during the year under appeal the assessee had purchased the diamonds of inferior quality and the diamonds which remained at the end of the accounting year were without any size, shape and colour inferior in colour and were near to the level of rejection. It was also stated that the stock was valued at the market rate prevailing at the end of S.Y. 2043. The assessee also submitted copy of some sale bills of the suc....
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....rat and the first sale of immediately succeeding accounting year is of Rs. 3,010 per carat. The last sales of its accounting year effected are on 13th Oct., 1987 at the rate of $ 60 per carat and $ 40 per carat. The intention behind this sale in no way can be treated as bona fide. Even he could not adhere on this so called last market rate for valuing the closing stock and he further undervalued the stock and adopted a rate of Rs. 270 per carat. (3) Further, assessee's claim regarding the sale of his closing stock in succeeding year. On comparison of these bills with other sales bills of the assessee it is noticed that these sales have been effected to the local parties in Bombay, whereas majority of the sales are effected to foreign buyers. The most intriguing factors seen from these sales bills is that in other bills the size, shape and colour of the diamonds is mentioned, whereas in the so called sale bill of closing stock no such description is given. Only thing written on the sale bill is "one packet of diamond". Thus, the intention behind the preparation of such a bill is totally obvious and mala fide in nature. (4) Also it is seen from the books of the assessee that duri....
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.... 18.39% during the accounting year under consideration as against 35.43% in the immediately preceding year. It was further argued before the CIT(A) that the sales of finished diamonds of $ 200 and above per crt. stood at 33.49% as against 17.83% in the immediately preceding year. At the same time, sale of diamonds of $ 75 to 100 stood at 19.11% this year as against 9.80% of the immediately preceding year. This again indicated a change in the pattern that the higher quality and lower quality registered a substantial increase in percentage as compared to that of the immediately preceding year. After perusing the details furnished before him and after considering the submission made before him, the CIT(A) directed the AO to value the closing stock of cut and polished diamonds at the rate of Rs. 1000 per crt. observing as under: "5. I have carefully considered the detailed submissions of the authorised representative and also looked into the material evidences placed on record. I am of the view that the authorised representative's arguments carried a lot of force and contained considerable merit on facts and in law. The Asstt. CIT started looking at the results of the accounting year....
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....the fact that the CIT(A) has given only partial relief. 5. Shri N.B. Shah, the learned counsel for the assessee, reiterated the submissions made before the CIT(A). He submitted that in the assessment year under appeal the assessee imported rough diamonds but the pattern of import had undergone substantial change inasmuch as out of its total import in asst. yr. 1988-89 about 49.56% of the imports were from the value ranging from $ 2.67 to $ 10 per crt. as against 10.26% of the preceding year. Similarly, for the value ranging from $ 11 to $ 20 per crt. rough diamonds purchased were about 32.04% out of the total purchases as against 54.5% of preceding year and for value ranging from $ 21 and above out of the total purchases 18.39% purchases were in asst. yr. 1988-89 as against of 35.43% of the earlier year. Thus, there was a marked difference in the pattern of purchases which brought higher rejection ratio. After rejection whatever was left out was got cut and polished and were sold during the year; the sales had shown better trend. The learned CIT was explained the whole process of business but he failed to appreciate that the rough diamonds purchased at inferior price were bound t....
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....rchased and their judgment as to the rough diamonds available for their purchases are all important factors which govern the business of diamonds. Value of a diamond depends upon the size, shape and colour of the diamond and accordingly it cannot be uniform for all types of diamonds. It is noted that the assessee did not file list of closing stock before the authorities below giving size-wise, shape-wise and colour-wise details of the diamonds. The assessee chose to value the closing stock of cut and polished diamonds on the basis of some bills of sale at the end of the S.Y. 2043 and another bill of sale in the beginning of S.Y. 2044 but such bill does not give the details but only mentions "one packet of diamond". Under the circumstances the sale price as indicated by the assessee cannot be bona fide method of valuation of closing stock of cut and polished diamonds. There can not be a uniform purchase price for rough diamonds and correspondingly no uniform sale price of cut and polished diamonds. Neither the last purchase bill nor the last sale bill of the year under consideration nor the first sale bill of the succeeding accounting year can be the basis of valuation of a precious....