Cit v. Lunar Diamonds Ltd

i. a)- -Q,: IN THE IIIGH COURT OF DELHI AT NEW DELHI DECIDED ON: 31.10.20t2 rTA l049t20rr CIT ..... Appellant Through: Ms. Rashmi Chopra, Sr. Standing Counsel. Versus LUNAR DIAMONDS LTD Through: None. CORAM: MR. JUSTICE S. RAVINDRA BHAT MR. JUSTICE R.V. EASWAR ..... Respondent MR. JUSTICE S.RAVINDRA BHAT (OPEN COURN

¶1In this appeal by the Revenue, an order of the ITAT dated

11.02.2011 in ITA No.t595iDev2009 has been challenged. The question of law urged is whether the Tribunal was justified in upholding the Appellate commissioner's order deleting the sum of T.8,73,040/-.

¶2The assessee was engaged in diamond cutting and processing business and had filed its return on 3l.l2.lgg9 declaring NIL income. It claimed deduction under Section-gtilA. The Ao rejected the deduction sought on the ground that the assessee was ineligible in view of the decision of the Supreme tTA-r049/20t1 Page 1 Certify that the digital and physical file have been compared and the digital data is as per the physical file and no page is missing. s court in cIT v. Gem India Manufacturing co.,24g rrR307. The assessee appealed to the commissioner who set aside the assessment order in that regard and after considering the submissions as well as remand report accepted the assessee,s claim in the following terms: - "Rival contentions have carefuily been considered. After considering the rival submissions I have come to the conclwion that since the Assessing officer has not repudiated the facts _brought to my notice iy tne H. A.R. of the appellant that the asiessee company is engaged in the buslness of manufactuying of the jiweriery on'a io, cutting and polishing of the diamonds, I-acrcnowiedle them as the genuinefacts. !h9 decision of Hon'bre supre"me court in the case of Gem India Manufocturing company is appricabre only in the case of cutting and pztishirs "i row-diamonds and not in the .case of ianufacturingZ| ir.rttrry which includes severar process sucrt as, cutting and potishing of diamonds, studding them in the ornaments of various shapes using the precious metars like, gord, sirver and pratiium elc... Therefore, the deduction unier section B0IA cannot be denied to the qssessee company. Appeilants succeed on this ground of appeal elso.,' 'G. 3' The Tribunal upon being approached by the Revenue, af;Frrmed the commissioner's order, observing as follows: - "5. we have considered the rivar submissions and have go-ne-through the orders of authorities berow. We find that the claim of the oirrrr* for deduction tu/s 80IA was rejected by the A.o. on the basrs that as per the judgment of Hon,ble Apex Court rendered in the iorc of Gem India Marurfucturing co. 249 ITR 307 (s.c.i it was herd that cutting and porishing of row diamonds does not make the assessee company entitred to craim deduction u/s tTA-7049/2017 Page2 n 801 of the I.T. Act. on the basis, the A.o. rejected the claim of the assessee regarding deduction tt/s g0IA. h has been noted by the Ld. CIf @) that as per the submission of the assessee, the assessee is en[aged in the business of manufacturing of ieweilery aid-not is the business of cutting and polishing of diamonds and, therefore, the judgment of Hon'ble Apex Court rendered in the case of Gem India Maru.tfacturing co. (supra) is not applicabre in the present case. Even before us, nothing has been brought on record by the revenue to show that the business of the assessee is merely cutting and porishing of diamonds and the assessee ,s not engaged in the business of manufacturing of iewellery. (Jnder these facts, ,, io notfind any reason to interfere in the ordir of Ld. cIT

(A) on this issue Ground No.3 of the reventte ,s rejected. "

¶4The assessee in this case was subjected to winding up proceedings before the Allahabad High court; accordingly the court had directed the Revenue to serve the official Liquidator. Fresh notice was also issued on 09.0g.2012. The office report for two dates states that the respondents were served through offrcial Liquidator. However, no one has appeared on behalf of the respondent to represent it.

¶5This court has considered the records and the submissions appearing from it. The Revenue's contentions consistently - before the commissioner as well as the ITAT - were that even though the assessee claimed that it was engaged in diamond processing and studding activities -which are covered under Section 80[A, there was no merit in such a plea. The assessee had filed a letter on 10.11.2004 putting forward its claim that it was ITA-L049/20LL Page 3 engaging itself in diamond processing and studding. It is pointed out on behalf of the Revenue that this claim has not been backed with any material and that on the contrary the closing stock for the relevant year was to the extent of r.1,54,3g,324/- (comprising of diamonds valued at T.1,00,81,836r-and precious stones and gems valued at t.53,56,488/-);the value of gold was shown to be NIL. It was contended that this evidence had to be seen in the backdrop of the assessee's letter which did not furnish any particulars as to the process it undertook in the diamond processing and studding industry that it claimed.

¶6This court is of the opinion that there is considerable merit in the contention of the Revenue. The closing stock in the order under consideration nowhere showed that the assessee held any stock of gold; at any rate it was not shown in the valuation. In the absence of any other supporting material such as expenses incurred towards machinery, salaries or wages paid to artisans etc., the Appellate commissioner and later the Tribunal could not have blindly accepted the assessee's claim that it was engaging in an activity that was not covered by the decision in Gem India Maru'facturing co. (supra). There is no dispute that the Supreme court held that mere cutting and polishing of diamonds does not amount to industry under Section-gtilA. The findings of the cIT

(A) and the Tribunal; therefore, are clearly unjustified and not supported by law.

¶7As a result of the above discussion, the appeal has to succeed. It is accordingly allowed. The impugned order, as well tTA-L049/20L7 Page 4 ,j I t\lv as the order of the cIT (A) are hereby set aside and the disallowance made by the AO stands restored.

¶8The Appeal is allowed in the above terms. S. RAVINDRA BHAT (JUDGE) lqr,*... R.V. EASWAR (JUDGE) ocToBER 31, 2012 /vks/ -.-/' t tTA-1049/2071 Page 5