P.K. BANSAL, A.M. This appeal by assessee is directed against order passed by Commissioner of Income-tax (Appeals)-IV, Surat ["CIT(A)" for short] dt. 10th Nov., 2006 for asst. yr. 2003-04. effective grounds raised by assessee read as under : "(I)Addition of Rs. 93,09,210 in valuation of closing stock : (1) learned CIT(A) erred in confirming addition of Rs. 93,09,210 being increase made by AO in value of closing stock of polished diamonds. (2) appellant submits that learned CIT(A) having agreed with appellant about price of diamond being dependent upon number of factors pointed out by him he has wrongly rejected method of valuation on ground that it would depend upon appellant s work only. (3) appellant submits that assortment being made on scientific and mathematical basis there was no question of rejecting method followed by assessee over years and accepted by AO. (4) On facts and circumstances of case, addition made has to be rejected. (II)Average value of diamond per carat wrongly taken : (1) Without prejudice to above learned CIT(A) erred in accepting average value by misconstruing sales value as affecting average cost. (2) On facts and circumstances of case, addition on this ground is required to be deleted. (III)Miscellaneous : (1) learned CIT(A) erred in confirming charge of interest under s. 234B of Act. (2) learned CIT(A) erred in confirming charge of interest under s. 234C of Act." 2. learned Authorised Representative did not press ground No. (II) at time of hearing and therefore, same is dismissed, as not pressed. 3. As regards ground No. (I) facts of case as noted by AO are as under : "On perusal of basis and working of valuation of closing stock of polished diamonds, assessee has estimated average price per carat of polished diamond at Rs. 5,459.9. Assessee claimed that he had taken basis of net realizable value for purpose of determination of value of closing stock of polished diamonds. working of closing stock of polished diamonds as on 31st March, 2003 submitted by assessee is as under : Particulars Carats Value (Rs.) 1. Surat 3,334.09 Opening stock Mumbai 5,498.90 8,832.99 3,96,16,000 2. Local Surat purchase during purchase 2,828.44 year Mumbai purchase 2687.70 5,516.14 4,64,57,077 3. Quantity mfg. 9,279.92 5,91,86,730 during year 23,629.05 14,52,59,807 4.Less :Export sale 10,088.38 7,13,27,749 during year Polished closing stock as 13,540.67 7,39,32,058" on 31-3-2003 Assessee is not maintaining any quality-wise details of polished diamond which is manufactured as well as locally purchased polished diamonds. market value of polished diamond is dependent on various quality parameters such as clarity, cut, etc. In order to determine market value of polished diamond essentially assessee must have details of all of above factors. Here, assessee is not maintaining any such details and valued closing stock of polished diamond at estimated net realizable value. What is more important point to note is that market value of polished diamond is less than actual average cost. Therefore, assessee was given detailed show- cause notice requiring to show cause why actual average cost should not be considered for purpose of valuation of closing stock of polished diamond by rejecting estimated basis adopted by assessee in absence of evidence that it represents net realizable value. Relevant portion of show-cause notice is reproduced as under : "On perusal of basis and working of valuation of closing stock of polished diamonds, you shown average price per carat of polished diamond at Rs. 5459.9. working of closing stock of polished diamonds as on 31st March, 2003 submitted by you is as under : Particulars Carats Value (Rs.) 1. Surat 3,334.09 Opening stock Mumbai 5,498.90 8,832.99 3,96,16,000 2. Local Surat purchase during purchase 2,828.44 year Mumbai purchase 2687.70 5,516.14 4,64,57,077 3. Quantity mfg. 9,279.92 5,91,86,730 during year 23,629.05 14,52,59,807 4.Less :Export sale 10,088.38 7,13,27,749 during year Polished closing stock as 13,540.67 7,39,32,058 on 31-3-2003 On verification of basis and working of closing stock of polished diamonds furnished by you, following inconsistencies found : (1) You have reduced quantity and sale value of export made during year from total quantity and total value of polished diamonds available during year. (2) There appears no basis for reducing total value of export from total value of stock available during year. Rather, it represents distorted picture of valuation closing stock of polished diamonds. (3) You have furnished no basis for valuing closing stock of polished diamonds at Rs. 5,459.9 per carat which is lower than average price of polished diamond during year. (4) As per Note F of Sch. M method adopted for valuation of closing stock of polished diamonds is net realizable value. If same is to be believed, then there must exist quality-wise details of closing stock of polished diamond. (5) No quality-wise and lot-wise details of closing stock of polished diamond are furnished by you. (6) Net realizable value of closing stock of polished diamonds shown by you is less than average cost price of polished diamonds. Net realizable value of polished diamonds can only be arrived at when there is quality-wise details of closing stock of polished diamond is available But, no such primary record is produced before undersigned so far. (7) No documentary evidences in support of basis and working of valuation of closing stock of polished diamonds was furnished by you. You have worked out value of closing stock on notional basis. which is not scientific and objective. It is seen from working of value of closing stock of polished diamonds that total quantity of 23,629.05 carats of polished diamonds was available with you. This included opening stock, local purchases and manufactured polished diamonds. average price per carat of polished diamonds works out to be Rs. 6,147.50 per carat. Therefore, you are requested t o show cause why amount of Rs. 6,147.5 per carat of polished diamond should not be taken instead of Rs. 5,459.9 per carat taken for purpose of valuation of closing stock of polished diamonds." assessee replied as under : "Hardly any difference between two prices. Even in respect of small difference let me draw your kind attention to one important peculiar attribute of diamonds. Like two human beings no two diamonds are ever alike and each diamond is separate and has different characteristics. Diamond is form of carbon and natural product and is mined. Valuation of each diamond varies based on various characteristics like carat, colour, cut, purity, table inclusions, matt, open surface, fluorescence, colour hue, etc. Any combination could significantly vary value of diamond and it is combination of these properties that constitute value of diamond. In fact, as far as valuation is concerned, many times even internationally reputed laboratories fail in grading diamonds precisely because there is element of subjectiveness due to peculiar features mentioned. It may also be borne in mind that valuation of one carat diamond could be as low as Rs. 20,000 and could be as high as Rs. 10 lacs, but much depends on properties. As far as assessee is concerned, it deals with small diamonds or low value diamonds where valuation is based on broad assortments at year end. Kindly appreciate that during year, these assortments interchange based on requirement, market conditions. Therefore, it may not be appropriate to adopt approach of averaging out cost. Closing stock has been worked out by actual valuation by assorters and valuation has been kept accordingly. Further, 10,088.39 carats valued at Rs. valuation has been kept accordingly. Further, 10,088.39 carats valued at Rs. 7,13,27,749 has generated very good profits because comparatively superior quality of diamonds were exported. Therefore, some difference is bound to remain and, therefore, no addition on this ground may be made." reply to show-cause notice was considered by AO. AO did not accept submission of assessee as same was not backed by any material evidence to support valuation of closing stock of polished diamonds at net realizable value, which is less than actual average costs of closing stock of polished diamonds. AO further observed that if basis of valuation is to be accepted, then assessee must have produced quality-wise inventory of stock before undersigned. In absence of any evidence on record, undersigned has no option than to adopt basis of valuation which is rational and scientific. Therefore, basis of valuation of closing stock of polished diamonds of assessee is rejected by rejecting books of account of assessee to limited extent of valuation of closing stock of polished diamonds for incompleteness and incorrectness. amount of undervaluation of closing stock is determined as under : Rs. Actual average cost : 6,147.50 per carats 13540.67 Closing stock of polished diamonds : carats Value of closing stock of polished Rs. : diamonds 8,32,41,268 Less : Value of closing stock of polished diamonds as valued by Rs. : assessee 7,39,32,058 Rs. Difference : 93,09,210 4 . CIT(A) confirmed addition made by AO by observing as under : "I have considered submissions and gone through details filed by t h e appellant. There is no doubt about fact that appellant has not maintained any quality-wise details of production and closing stock of polished diamonds. That would mean that closing stock has been valued by appellant as per his convenience. Although I am inclined to agree with appellant that price of diamond would depend upon number of factors which have been enumerated by learned Authorised Representative in his submissions, but this method of valuation is not acceptable since it will depend upon appellant s words only and would have no scientific or mathematical basis behind it. appellant would very well value piece of diamond which has cost price of Rs. 1 lakh at Rs. 10,000 pointing out number of factors but that would not be its price as such. In order to arrive at correct picture of closing stock, only method available would be average cost price which has been rightly adopted by AO. It is further seen that figure of export sales furnished by appellant in his submission dt. 16th Sept., 2006 for working out average price at Rs. 5,766.44 per carat is not correct as per records. I have gone through assessment record and find that as per appellant s own submission, vide letter dt. 5th Aug., 2005, filed before AO actual FOB value of diamond exports is Rs. 7,12,26,619 and not Rs. 5,81,74,000 as claimed by appellant in his submissions before me. I do not see as to how this figure has been arrived at by appellant. Therefore, there is no justification in appellant s claim that average value of closing stock should be taken at Rs. 5,766.44 per carat. AO in his order has correctly adopted value of export on basis of which he has worked out average price of polished diamond at Rs. 6,147.50 per carat. Therefore, suppression of closing stock worked out by AO is correct and addition on this account is hereby confirmed." 5 . learned Authorised Representative before us contended that assessee has valued closing stock on basis of estimated net realizable value. It cannot be valued at average cost. Each of diamond has separate quality. No diamond can be of same quality. AS-2, item 14 recognizes cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects should be assigned by specific identification of their individual costs. assessee has also specifically identified individual costs. Referring to p. 31 of paper book which consists of submissions made before CIT(A), it was contended that AO has worked out average cost of opening stock purchase and manufacturing as basis for taking value of closing stock ignoring fact that such average stock cannot be worked out in case of diamonds. Each diamond has separate quality as no two diamonds are alike. At time of valuation of closing stock, assessee actually takes value of each diamond and puts its value. range between prices of various diamonds is very wide. Diamonds are natural product and like human face, no diamond can ever be alike. Though both diamonds look extremely similar, they could vary substantially in terms of valuation. For example, one carat (size measurement) diamond could cost Rs. 25,000 per carat to Rs. 10 lacs per carat. No two diamonds could be of same value and there is bound to be pricing difference in respect of each diamond, how so inconsequential it could be. Pricing of diamond is principally characterized by what are popularly known as 4 Cs viz., cut, carat, colour and clarity. These are basic factors that contribute towards pricing of diamond. Further, there are at least 12 grading attributes, viz., luster, colour, hue, Further, there are at least 12 grading attributes, viz., luster, colour, hue, fluorescence, fluorescence colour, polish, symmetry, table inclusion, black inclusion, open inclusion, inclusion pattern, internal graining and culet. All these attributes by permutation give trillions of combinations of diamonds and therefore valuation is bound to differ. It was also submitted that generally, broad assortments are made based on all these parameters based on subjective evaluation of diamonds on case to case basis and after considering market forces. For example, D to F colour may fetch diamond good price but if it is coupled with weak purity (clarity) like 12 or 13, then price would substantially vary. Similarly, one diamond may weigh 3 carats and other may weigh 1 carat, however, if purity of 3 carats diamond is say 12 and purity of 1 carat is say IF (internally flawless), then 1 carat diamond would fetch higher price than 3 carats diamond. Same would apply in respect of all above characteristics. Thus, it was vehemently submitted that diamond being natural product, every stone has to be individualized based on various grading attributes and combination of such near to stone would form assortment which gets priced. Further, market forces change identity of such assortments continuously and accordingly diamonds change packets continuously. Therefore, year end assortments made considering such grading attributes and market forces constitute valuation of assortments. If two identical diamonds are placed side by side and one is less brilliant and fiery than other, fault lies in cutting. Such stone cannot demand as high price as well cut diamond. Diamond s colour is one of most important factors in determining its value. nearest white diamond is to being absolutely colourless, more rare and valuable it is. graduations in colour are so subtle that intricate internal grading scales have been devised. Diamonds are graded into categories defines by letters. colour ranges from exceptional whites (categories D, E and F) to tinted colours (categories M to Z). When nitrogen combines with diamond crystals during formation stage it causes surplus electron in bonding. This surplus electron absorbs blue light, thus giving off yellow colour. Yellow diamonds also occur when aggregates of three nitrogen combines and cause surplus bond. vacancy in regular lattice of atoms within diamond results in green colouring. Carbon atoms being knocked out of their regular position by other particles cause vacancies. depth of colour usually extends about 2mm below diamond s surface. At extremely high temperatures vacancies can become mobile and can combine with nitrogen to form other colours such as mauve, orange, blue or gold. It has been suggested that dislocations in regular lattice of atoms, caused by severe forces deep in earth, may be responsible for brown colouring of champagne and cognac diamonds. dislocated bonds may affect light wavelength, thus producing diamond which is coloured, but which contains no impurities. During formation of diamond it is possible for minute particles of non-crystallized carbon or non-diamond crystals to be caught within diamond. These imperfections are called inclusions and provide each individual diamond with unique characteristics. Inclusions may not always be visible to naked eye, however, they do interfere with passage of light through diamond. Therefore, fewer inclusions diamond has, more valuable it is. Like colour, clarity is also categorized using international grading scales. categories of clarity are based upon number, size and position of inclusions within diamond grading range from flawless, through very small and small inclusions, to imperfect. Diamonds are usually weighed prior to setting for more accurate measurements. Diamonds are priced per carat, according to their size and quality. Although carat weight of diamond is indicative of its size, it is not necessarily indicative of diamond s quality. Therefore, where two diamonds have same carat weight, value of each diamond may differ. Thus, it was submitted that one has to work out qualitative statement of diamond, each diamond is quality by itself and one would have to keep record of each diamond separately. Thus, it was vehemently contended that AO has not appreciated above important aspects of diamond business. rejection of method on ground that qualitative accounts are not kept is not correct. Complete quantitative information as certified by chartered accountants under s. 44AB was given during course of assessment proceedings. Neither auditors have passed any adverse remarks in their report under s. 44AB nor AO has found any defects in details furnished to him. In normal commodities qualities and sub-qualities can get identified in groups because most of them are standardized. These criteria would not apply to diamonds because both rough and polished diamonds have their own inherent individualistic characteristics in each case. Diamonds are, therefore, assorted and graded on basis of various attributes. Each attribute has further sub-grades and price of each diamond would depend upon impact of various factors as also combination of various factors. Even these prices are not constant. Because of market conditions they also vary and because of constant change in weightage of each attribute. That is why it is mentioned that no two diamonds are alike unlike other commodities and, therefore, question of quality-wise records of diamonds is impossible. Thus, it was submitted that valuation of diamonds cannot be worked out on average costs basis. Thus, it was pointed out that diamond has been valued as per estimate of net realizable value and by assigning individual cost in accordance with AS-2. He further invited our attention towards letter dt. 26th July, 2007 addressed to Tribunal and contended that assessee has maintained complete quantity of record of diamonds and valuation has been examined by partners in respect of each and every diamond. On account of vast qualities of diamonds, it is impossible to show diamond valuation piece-wise and broad assortments are made of diamonds which are similar to certain extent and then valuation put. Our attention was also invited along with this letter towards details of closing stock of polished diamonds in respect of stock at Surat and Mumbai. Copies of details were filed before us showing value of polished diamonds at Surat at Rs. 3,84,56,835 and at Mumbai Rs. 3,54,49,902. On query from Bench, learned Authorised Representative was fair enough to concede that details were not submitted before AO. It was contended that stock has been valued on basis of method as adopted in earlier year and there is no change in method of valuation of diamond stock on estimated realizable value. Otherwise also it was pointed out that no addition can be made in closing stock as GP during year has increased to 13.81 per cent as compared to 9.51 per cent in earlier year. For this our attention w s drawn towards pp. 23 and 25 of paper book. It was also further submitted that GP accepted during asst. yr. 2001-02 was 13.69 per cent. In asst. yr. 2002-03 it was 9.51 per cent and in impugned year i.e. year under consideration it was 13.81 per cent and therefore no question arises as r e g r d s undervaluation of closing stock. learned Authorised Representative was immediately countered by Bench that net realizable value of closing stock in that case should be more than 13.81 per cent higher than average cost. On this learned Authorised Representative contended that assessee has claimed deduction under s. 80HHC as it was eligible for same @ 50 per cent during year under consideration. In succeeding year deduction under s. 80HHC was available @ 20 per cent. assessee is fully aware of whatever will be value of closing stock, same will be value of opening stock and deductible while computing profit for next year. If profit for impugned assessment year will be higher, assessee will be able to get more deduction under s. 80HHC and assessee will never value closing stock at lower figure. When Bench pointed out to learned Authorised Representative that in Annex. B to Form 3CB auditors have qualified audit report stating that method of valuation used is to that extent departure from that prescribed under AS-2 issued by ICAI and it has been clearly mentioned that finished goods are valued on estimated net realizable value as taken, valued and certified by partners. learned Authorised Representative pointed out that auditors could not understand AS-2, para 14 and as per this para cost of inventories of items that are not ordinarily interchangeable could be valued by assigning by s p e c i f i c identification of their individual cost. learned Authorised Representative also pointed out by drawing our attention towards three details in respect of export sales for period 1st April, 2003 to 30th Sept., 2003, 1st April, 2003 to 31st Dec., 2003 and 1st April, 2003 to 31st March, 2004 that average sale price per carat was during these periods was Rs. 6,137, Rs. 6,197 and Rs. 6,201 per carat. 6. learned Departmental Representative contended that assessee has valued closing stock at estimated net realizable value which is no basis has valued closing stock at estimated net realizable value which is no basis in eyes of law. Even no evidence has been filed by assessee to support net realizable value as has been estimated by him. net realizable value can not be less than average cost in instant case because assessee has shown GP @ 13.81 per cent. assessee has been given detailed show-cause notice by AO why actual average cost should not be adopted. assessee did not point out that it has maintained quality-wise details of polished diamonds as well as locally purchased diamonds. market value of polished diamonds would no doubt depend on various qualities, parameters such as colour, carat, clarity and cut, it cannot be believed that assessee will not be maintaining record of diamonds on basis of quality, size and carat. Each piece of diamond has different grading in colours to G in cutting VVS-1, VVS-2, VS-1 and VS-2. Even clarity in respect of each diamond is different. Therefore, onus is on assessee to prove value shown by it. assessee has not furnished any basis for valuing closing stock of polished diamonds @ Rs. 5,459.9 per carat lower than average cost of polished diamonds during year. assessee although in Note F of Sch. M of financial account mentions that valuation of closing stock of polished diamonds is based on net realizable value, therefore, there must be quality-wise details which were not furnished although same thing was pointed out to assessee by way of show-cause notice under para 4. assessee has submitted details for first time before this Tribunal vide letter dt. 26th July, 2007. In that letter also assessee has not valued stock on basis of AS-2, item No. 14 as claimed by learned Authorised Representative. He has categorically mentioned that it is impossible to show valuation of diamonds piece-wise and broad assortments are made of diamonds which are similar to certain extent. assessee has valued closing stock in lump sum merely by applying GP rate. He also pointed out that auditor has also qualified audit report issued under s. 44AB mentioning that method of valuation is departure from method prescribed under AS-2 by ICAI and finished goods are valued on estimated net realizable value, as taken value and certified by partners. AO has rightly rejected method of valuation of stock and valued it on basis of average cost in accordance with law settled by Hon ble Supreme Court in case ofCIT vs. British Paints India Ltd. (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC). 7 . We have carefully considered rival submissions along with orders of tax authorities. This is undisputed fact that auditor who carried out audit under s. 44AB has qualified audit report in respect of valuation of closing stock. audit report has been issued subject to following note : "In view of nature of variation in values of individual diamonds and differential in their processing costs, it is not practicable to compute cost of polished diamonds using either FIFO or weighted average cost. In view of numerous grades, it is not practicable to use specific costs. method of valuation used is to that extent departure from that prescribed AS-2 issued by ICAI. Finished goods are valued at estimated net realizable value. Closing stock is taken, valued and certified by partner. Though it is merely technical matter, we had relied upon it." learned Authorised Representative before us vehemently argued that stock has been valued in accordance with item No. 14 of AS-2 issued by ICAI. We have gone through item No. 14 of AS-2. This states as under : "The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects should be assigned by specific identification of their individual costs." This stipulates for specific projects. Specific identification of cost means that specific costs are attributed to identified items of inventories. When there are large numbers of inventories which was ordinarily interchangeable specific identification of cost is inventorised and this fact has been mentioned in item No. 15 of AS-2. assessee in fact has valued stock on basis of estimated net realizable value. submissions made by learned Authorised Representative are contrary to facts on record. Item No. 14 of AS-2 deals with determination of cost of inventory. assessee has not valued closing stock of polished diamonds at cost. Therefore, we do not agree with submissions of learned Authorised Representative that there is no departure of AS-2 in case of assessee and assessee s case is covered under item No. 14 of AS-2. Had assessee assigned cost to each piece of diamond, it could have been said that assessee has valued inventories in accordance with item No. 14 of AS-2. CBDT has notified two accounting standards vide Notification dt. 25th Jan., 1996 on basis of power entrusted under s. 145(2) of IT Act, AS-1 and AS-2. These accounting standards are mandatory to be followed in view of s. 145(3). We noted that cl. 4 on AS-1 lays down as under : "4. Accounting policies adopted by assessee should be such so as to represent true and fair view of state of affairs of business, profession or vocation in financial statements prepared and presented on basis of such accounting policies. For this purpose, major considerations governing selection and application of accounting policies are following, namely : (i)Prudence: Provisions should be made for all known liabilities and losses even though amount cannot be determined with certainty and represents only best estimate in light of available information; (ii)Substance over form: accounting treatment and presentation in financial statements of transactions and events should be governed by their substance and not merely by legal form; (iii)Materiality: Financial statements should disclose all material items, knowledge of which might influence decisions of user of financial statements." From above, it is apparent that AS-1 recognizes "prudence" to be one of major considerations for applying accounting policies. It requires that provision should be made for all known liabilities and losses even though amount cannot be determined with certainty and represents only best estimate in light of available information. In other way, it recognises that anticipate all losses but not provide for profit until and unless it is not realised. Valuing closing stock at cost or market value whichever is lower is well established method of accounting. This method is based on principle of prudency. Hon ble Supreme Court in case ofChainrup Sampatram vs. CIT (1953) 24 ITR 481 (SC)accepted this principle. We noted from this decision that Hon ble Court explained reasons for said practice at p. 485 which is reproduced as under : "It is wrong to assume that valuation of closing stock at market rate has, for its object, bringing into charge any appreciation in value of such stock. true purpose of crediting value of unsold stock is to balance cost of those goods entered on other side of account at time of their purchase, so that cancelling out of entries relating to same stock from both sides of account would leave only transactions on which there have been actual sales in course of year showing profit or loss actually realised on year s trading. As pointed out in para 8 of Report of Committee on Financial Risks Attaching to Holding of Trading Stocks, 1919. As entry for stock which appears in trading account is merely intended to cancel charge for goods purchased, which have not been sold, it should necessarily represent cost of goods. If it is more or less than cost, then effect is to state profit on goods which actually have been sold at incorrect figure.... From this rigid doctrine, one exception is very generally recognised on prudential grounds and is now fully sanctioned by custom, viz., adoption of market value at date of making up accounts, if that value is less, than cost. It is of course anticipation of loss that may be made on those goods in following year, and may even have effect, if prices rise again, of attributing to following year s results greater amount of profit than difference between actual sale price and actual cost price of goods in question (extracted in para 281 of Report of Committee on Taxation of Trading Profit presented to British Parliament in April, 1951). While anticipated loss is thus taken into account, anticipated profit in shape of appreciated value of closing stock is not brought into account, as no prudent trader would care to show increased profit before its actual realisation. This is theory underlying rule that closing stock is to be valued at cost or market price whichever lower is, and it is now generally accepted as established rule of commercial practice and accountancy. As profits for income-tax purposes are to be computed in conformity with ordinary principles of commercial accounting, unless of course, such principles have been superseded or modified by legislative enactments, unrealised profits in shape of appreciated, value of goods remaining unsold at end of accounting year and carried over to following year s account in business that is continuing are not brought into charge as matter of practice, though, as already stated, loss due to fall in price below cost is allowed even if such loss has not been actually realised. As truly observed by one of learned Judges inWhimster & Co. vs. IRC (1926) 12 Tax Cases 813, 827 : "Under this law (Revenue law) profits are profits realised in course of year. What seems exception is recognised where trader purchased and still holds goods or stocks which have fallen in value. No loss has been realised. Loss may not occur. Nevertheless, at close of year he is permitted to treat these goods or stocks as of their market value ." No doubt, in view of prudence appropriate method of valuation is cost or market value whichever is less. No doubt where there is fall in value of goods and goods could not be sold even at cost, assessee is permitted to value goods at estimated realizable value. But, estimated net realizable value must be based on evidence and material on record. onus is on assessee to prove estimated realizable value to bebona fideone. It cannot bead hocvalue just worked out on basis of estimating GP at predetermined rate and then working out balancing value to be closing stock and in case AO wants to verify same, details of estimating net realizable value of each item be worked out so that total may match with value taken in P&L a/c as seems to have happened in case of assessee, otherwise assessee would have filed all details before AO during course of assessment proceeding so that its onus would have been discharged. ICAI in their AS-2 has recognized under para 5 cost or net realizable value, whichever is less, to be permissible method for valuing closing stock. Valuing closing stock at net realizable value method is therefore duly recognized by AS-2 issued by ICAI but onus in our opinion, is on assessee to prove that net realizable value whatever has been shown by him is correct net realizable value and is less than cost. assessee has to satisfy AO by adducing evidence that net realizable value is less than cost. In this case assessee has not submitted any evidence to support estimated net realizable value. Even assessee has not shown subsequent invoice to verify value actually realized by assessee. AO has given sufficient opportunity to assessee. assessee for first time has even filed details of valuation of polished diamonds before this Tribunal vide letter dt. 26th July, 2007, although accounts of assessee were duly audited under s. 44AB. learned Authorised Representative before us pointed out that GP of assessee during year was 13.81 per cent higher than one which was earned in earlier year. If assessee has earned GP @ 13.81 per cent, then average net value realized in case of assessee should be more than cost at least by 13.81 per cent if average cost method or net, realizable value is compared. learned Authorised Representative when asked for evidence to support net realizable value, expressed his inability and pointed out that net realizable value has been worked out on basis of valuation as examined by partner. We cannot believe that assessee was not keeping accounts of each piece of diamond. Cut and polished diamonds are sorted in different lots, sizes, qualities and these details are bound to be maintained according to 4 Cs (cut, carat, clarity and colour) by person who is dealing in diamonds. Whenever rough diamonds are issued, expected yield is noted on packets and these details are verified by assessee or its representative when cut and polished diamonds are received from labourers. In our opinion, assessee could not run its business without getting accounts of each and every piece of diamond. AO in this case has valued stock at average cost which in our opinion will be less than realizable value as assessee has shown GP @ 13.81 per cent and valuing stock at average cost, when it is less than realizable value is well recognized method of valuation of closing stock and duly recognized by AS-2 and prudency principles of accounting. Even Hon ble Supreme Court has also duly recognized this principle of valuation in case ofChainrup Sampatram(supra) as quoted earlier. assessee in this case since could not prove net realizable value, therefore, natural inference will be against assessee. We therefore in view of aforesaid discussion are of view that AO has rightly valued closing stock of polished diamonds at average cost by adopting per carat rate and accordingly confirm order of AO. 8. In result, appeal of assessee is dismissed. *** D. SUBHASHCHANDRA & CO. v. ASSISTANT COMMISSIONER OF INCOME TAX