ORDER
PRADEEP PARIKH, A. M. :
This is an appeal by the assessee against the order of the learned CIT(A) dt. 20th Sept., 1991. The assessment year involved is 1986-87. Though the grounds are lengthy and argumentative, actually only three issues are involved. The first ground relates to the trading addition made to the total income amounting to Rs. 1,00,154 in the rough emeralds account.
2. The assessee is a registered firm engaged in the business of trading and manufacturing of precious and semi-precious stones. For the year under consideration, the assessee returned an income of Rs. 2,58,320 on 21st July, 1986. Subsequently the same was revised to Rs. 3,38,320 on 31st March, 1987, declaring additional income of Rs. 80,000 under Amnesty Scheme. The books of account of the assessee were seized in the course of search operations conducted at the business and residential premises of the assessee on 22nd Sept., 1987. However, photo copies of the relevant documents/vouchers etc. were given to the assessee in order to enable it to explain its position in the course of assessment proceedings.
3. In the rough emerald account the assessee had shown total sales of Rs. 38,64,311 as against Rs. 18,13,700 in the preceding year. The G. P. rate this year worked out to be 6.49% as against 8.8% in the preceding year. The Assessing Officer (AO) observed that though the assessee had maintained complete and proper books of account as the stock register, it had not maintained quality-wise details of rough emeralds. This was one of the grounds of drawing an adverse inference. Next, the AO asked the assessee to produce the three parties to whom rough emeralds were sold. In response to this, the assessee provided the addresses of these parties. The AO made inquiries at the addresses given but could not trace the parties, however, the AO got an opportunity to verify the bank accounts of the said parties. On verification of the bank account, he found that cash was deposited on the same day when cheques were drawn by these parties. The AO drew an adverse inference from this aspect of the bank account as well as on account of the non-production of the three parties before him. In the opinion of the AO, sales were also shown at a comparatively lower rate to these parties. On account of all these factors, the AO estimated the sales at Rs. 39,00,000 and the gross profit rate at 9% and accordingly made an addition of Rs. 1,00,154.
4. We have heard the parties and perused the material placed before us.
5. It is indeed very difficult for us to appreciate the contention of the Department that the absence of qualitywise details cast an aspersion on the trading results declared by the assessee, particularly when no discrepancy in the quantitative tally has been pointed out. A discrepancy in the quantitative tally maintained by the assessee in this case would have certainly entitled the AO to conclude that there is suppression of sales. In certain businesses, absence of quality-wise details may also lead us to the conclusion of suppressed sales, say, in the case of ball bearings where the sales value will depend on the make of the ball bearing. In case of precious stones also, the sales value will undoubtedly differ from quality to quality, but in such cases, each stone is of different quality and its value is so subjective that it may be valued differently by different valuers. Hence, in such cases, unless there are strong evidence to hold otherwise, the sales as shown have to be accepted when quantitatively there is no discrepancy.
6. As regards non-production of parties, in our opinion, it is not a sufficient ground to draw an adverse inference, particularly when the addresses given by the assessee tallied with those available with the bankers of those parties and with the sales-tax authorities. It would be too much to expect the assessee to do anything more in case of its customers.
7. With regard to AOs contention that sales to these three parties have been made at lower prices, it is a mere statement of opinion by the AO not supported by any direct or indirect evidence.
8. The AOs observations regarding the entries in the bank account of the three parties do give rise to curiosity and should prompt the AO to probe further. But if the probe leads to nowhere, the unsatiated curiosity merely remains as a suspicion which is no ground to make any addition.
9. In view of the above, we direct the deletion of Rs. 1,00,154 made to the trading addition.
10. A similar addition amounting to Rs. 66,748 was also made by the AO in case of ready goods. The additions in this case was made mainly on two grounds, viz., low yield and low gross profit. Low gross profit by itself cannot be a ground for addition. for low yield, the AO has given only one instance, but while doing so he has merely given facts as reflected by the records maintained by the assessee. He has not given any reason for making addition. He has not discussed as to what was the explanation of the assessee in this regard. In fact no basis has been given. Just as low gross profit cannot be a ground for addition, so also low yield by itself cannot be a ground for addition. For these reasons as also for the reasons given by us in case of rough diamonds, we direct for the deletion of the amount sustained by the learned CIT(A) who had directed to adopt the G. P. rate at 19% in place of 20% adopted by the AO.
11. The last ground pertains to the disallowance of Rs. 2,671 out of telephone expenses. In this regard the AO had disallowed Rs. 7,000 considering personal use as well as expenses on residential telephone. The learned CIT(A), however, restricted the disallowance only to those which pertained to the residential phone.
12. In this connection, the contention of the learned counsel was that the impugned expenses pertained to overseas calls made for business purposes. It was submitted that overseas calls were made from the residential telephone as the assessee had no such facility at the business place. The details of such calls are also placed on record.
13. Besides the absence of overseas call facility at the business place, it is quite common for exporters to make overseas calls at night from the residence on account of different time zones also. Hence, there appears to be no reason to disbelieve the version of the assessee. The ground of the assessee is accordingly upheld and it is directed that Rs. 2,671 be allowed as deduction.
14. In the result, the appeal is allowed.