ARUMUGAM KAMATCHI,PULIAMPATTI vs. ACIT, CENTRAL CIRCLE-2,, COIMBATORE

For A.Y 2017-18:

“1. The order of the learned CIT(A) is bad and erroneous in law and against the principles of natural justice. 2. The learned CIT(A) has erred in not considering the Grounds of Appeal and Written Submissions filed by the appellant in proper perspective.

3. The learned CIT(A) erred in adopting the N.P. ratio without considering the appellant nature of business and past history. More particularly the rate of N.P. ratio adopted by the CIT (A) at 25.71% is very high perverse and not supported by any comparable data.

, 1373, 1660, 1366, 1367,1659, 1376, 1377, 1739, 1368, 1369, 1370, 1371,1374 & 1375/Chny/2025 CO NOs.56, 58, 57/Chny/2025 SA Nos.61 to 66/Chny/2025 :- 6 -: And for other reasons that may be adduced at the time of hearing, your appellant prays that the appeal be admitted, considered and justice be rendered.”

For A.Y 2018-19:

1. The order of the learned CIT(A) is bad and erroneous in law and against the principles of natural justice.

2. The learned CIT(A) has erred in not considering the Grounds of Appeal

and Written Submissions filed by the appellant in proper perspective.

3. The learned CIT(A) erred in adopting the N.P. ratio without considering the appellant nature of business and past history. More particularly the rate of N.P. ratio adopted by the CIT (A) at 20.90% is very high perverse and not supported by any comparable data. And for other reasons that may be adduced at the time of hearing, your appellant prays that the appeal be admitted, considered and justice be rendered.

A Survey u/s. 133A of the Act was conducted on 22.01.2018 in the case of Sri Thenu Group of concerns, P. Puliampatti of Erode District. This group consists of the following entities: i) M/s. Thenu Silks, Puliampatti (PAN: ABAFS2142Q) (Partners - Shri. R. Dharuman, Shri. R. Moorthy and Shri. R. Murugesan) ii) M/s. Thenu Sarees, Puliampatti (Prop: Shri. R. Moorthy, PAN: AGSPM7875R) iii) M/s. Thenu Silks, Avinashi (Prop: Smt. D Vanisuganya, PAN: ALUPV3096J)

, 1373, 1660, 1366, 1367,1659, 1376, 1377, 1739, 1368, 1369, 1370, 1371,1374 & 1375/Chny/2025 CO NOs.56, 58, 57/Chny/2025 SA Nos.61 to 66/Chny/2025 :- 7 -: iv) M/s. Thenu Textiles, Thiruppur (Prop: Shri. R. Dharuman, PAN: AFSPD5712P) v) M/s. Vinayaga Advar Adayagam, Puliampatti (Prop: Shri. R.Murugesan, PAN:AKKPM7054J) vi) M/s. Suba Garments (Prop: Smt. A. Kamatchi, PAN: BDOPK1329Q)

The above concerns are mainly involved in the business of retail trading of textiles goods. The assessee, M/s. Sri Thenu Silks, had filed its return of income for AY 2017-18 on 29.10.2017 admitting a total income of Rs.10,86,281/-. The Return of Income filed by the assessee was selected for the compulsory scrutiny and assessment was completed u/s.143(3) of the Act on 30.12.2019, accepting the income returned. Thereafter, an order u/s.263 of the Act dated 04.03.2022 was passed by the ld. PCIT, Central-2, Chennai in this case wherein the ld.

PCIT had directed the AO to redo the assessment after verifying documents/evidence submitted by the assessee and keeping in mind the findings of survey. On the basis of the findings of the survey, the AO had adopted the same Trading and Profit and Loss account worked out by the survey team on the basis of Tally data recorded in the said pen drive and arrived at net profit percentage of 26.58% and 24.80% for the F.Y.2016-17 and 2017-18 respectively for the above , 1373, 1660, 1366, 1367,1659, 1376, 1377, 1739, 1368, 1369, 1370, 1371,1374 & 1375/Chny/2025 CO NOs.56, 58, 57/Chny/2025 SA Nos.61 to 66/Chny/2025 :- 8 -: concerns of the group. Thereafter, the AO had reallocated the net profit on the basis of share of their sales proportionate to the total sales of the group and worked out the suppressed net profit for each entity by reducing the income already admitted by them in their ROI and taxed the same as unaccounted business income u/s.28 of the Act for A.Y.2017-18 and 2018-19. In addition, the AO had also worked out the excess stock for the A.Y.2018-19 and reallocated on the same basis for the above six concerns and added u/s.69 of the Act as a separate addition for the A.Y.2018-19. In addition to the above, the AO had also disallowed the delayed remittances of EPF/ESI payments u/s.36(1)(va) of the Act.

The assessment was completed u/s.143(3) r.w.s. 263 of the Act on 29.03.2023 at an assessed income of Rs.1,73,09,547/- as under:

Returned income Rs. 10,86,281/- Undisclosed additional business profit u/s 28 Rs. 1,72,79,484/- of the Act Add: Disallowance on account of late Rs.30,063/- remittance of EPF & ESI payment u/s. 36(1)(va) of the Act Assessed income Rs. 1,73,09,547/-

Similar additions were made in the assessment orders passed for A.Y.2017-18 u/s.143(3) r.w.s. 263 of the Act on 29.03.2023 in other five group concerns also as listed in para 4 above.

, 1373, 1660, 1366, 1367,1659, 1376, 1377, 1739, 1368, 1369, 1370, 1371,1374 & 1375/Chny/2025 CO NOs.56, 58, 57/Chny/2025 SA Nos.61 to 66/Chny/2025 :- 9 -:

Being aggrieved with the above assessment order(s), the assessee(s) have filed this appeal. On appeal, the ld.CIT(A) agreed to delete the opening stock, closing stock, purchases and sales and bank deposits, as per the detailed findings in para 7.3.3 to 7.10 and recast the Profit & Loss account, as is shown in page 19 of the impugned order. Further, the Ld.CIT(A) after perusal of the records and after due consideration of the submissions of the assessee’s was that the sales of Rs.11,51,58,705/-, mentioned above, is only for the period from 19/11/2016 to 31/03/2017 and that this sale has already been disclosed by all the assessees and he went on to hold that the total turnover of all the assessees of Rs.34,93,24,869/- is alone to be considered. Furthermore, the ld.CIT(A) worked out profit at 25.71 percent on total sales of Rs.34,93,24,869/-, allocated among all the assessees in the proportion of their gross receipts from business, as found in page 22 of the order and partly allowed the appeal.

Now assessees are in further appeal before us.

Our adjudication for AY 2017–18: 7. We have heard the rival submissions and perused the orders of the authorities below and submissions made by both the parties. It is an undisputed fact that the books of account of the assessees have been audited u/s.44AB of the Act, and neither the AO nor the ld.CIT(A) has explicitly rejected the books u/s.145(3) of the Act. The Hon’ble jurisdictional High Court in CIT v. K.Ravindranathan Nair 396 ITR 580 (Madras) has held that without rejection of books, estimation of income is not tenable. Further, we note that the ld.CIT(A)’s reliance on the Profit & Loss account extracted from the pen drive, which pertains to only a part of the financial year (from 19/11/2016 to 31/03/2017), leads to a distorted and inflated gross profit / net profit ratio. We also observe that no cogent reasoning was provided for extrapolating this short-period data to the entire year. The ld.CIT(A) has already acknowledged and corrected the error in including the sales figure of , 1373, 1660, 1366, 1367,1659, 1376, 1377, 1739, 1368, 1369, 1370, 1371,1374 & 1375/Chny/2025 CO NOs.56, 58, 57/Chny/2025 SA Nos.61 to 66/Chny/2025 :- 12 -: Rs.11.51 crore, indicating that the AO’s base for profit estimation was flawed. No material discrepancy has been brought on record to suggest that the audited figures of the assessees were unreliable.

Therefore, we set aside the estimation of net profit at 25.71% made by the AO. Since the books of accounts are audited and not rejected by the authorities, and the sales figure of Rs.11.51 crore is already considered by the assessee, which has been accepted and made as a basis for making an estimation of profit and hence no estimation is warranted. Therefore, the additions made on this account are deleted.

However, disallowances made under EPF and ESI, which were not contested, are sustained.

Aggrieved, the assessees carried the matter to the ld.CIT(A).

9. After due consideration of the submissions of the assessees, the Ld.CIT(A), in respect of additional profit, held that the adoption of uniform net profit rate of 24.80 percent for all the assessees is not correct. Further, he held that the inclusion of opening stock and closing stock of ‘Sri Thenu Sarees’ and ‘Sri Thenu Metal Stores’ (Nature of business is different) in the consolidated Trading and Profit & Loss account for the period ended 23.01.2018 is not correct. Further, he observes as under:

, 1373, 1660, 1366, 1367,1659, 1376, 1377, 1739, 1368, 1369, 1370, 1371,1374 & 1375/Chny/2025 CO NOs.56, 58, 57/Chny/2025 SA Nos.61 to 66/Chny/2025 :- 14 -: i. The Trading and Profit & Loss account was re-worked and the same is reproduced in para 7.3.11 (ii) of the order, wherein the sales was arrived at Rs.40,95,33,156/- and the net profit was at Rs.8,55,78,151/-, the rate of profit being 20.90 percent. ii. The extrapolation done by the Assessing Officer was found to be not correct, as the opening balance of Rs.11,51,58,705/- has been included in the total sales of Rs.53,38,62,801/- and what is to be reckoned as sales for the period from 01.04.2017 to 22.01.2018 is only Rs.40,95,33,156/-. iii. The Ld.CIT(A) worked out the estimated sales from 24.01.2018 to 31.03.2018 at Rs.9,20,76,246/- by extrapolation and worked out the total sales at Rs.50,16,09,402/-. iv. On such sales of Rs.50,16,09,402/-, profit rate at 20.90 is worked out at Rs.10,48,36,345/-, and the same was allocated proportionately.

Our adjudication for AY 2018–19: 13. We have heard the rival submissions and perused the orders of the authorities below and submissions made by both the parties. We , 1373, 1660, 1366, 1367,1659, 1376, 1377, 1739, 1368, 1369, 1370, 1371,1374 & 1375/Chny/2025 CO NOs.56, 58, 57/Chny/2025 SA Nos.61 to 66/Chny/2025 :- 16 -: find that there is similar Bookkeeping position as observed in AY 2017- 18 (supra).

It is admitted fact that the assessees’ books of accounts were audited u/s.44AB of the Act, and no defects were pointed out either by the AO or ld.CIT(A). There is no rejection of books of account u/s.145(3) of the Act has been made. Further, we find that estimation is based on Incomplete Period and books. The net profit ratio was derived based on data from 01.04.2017 to 23.01.2018 and extrapolated till 31.03.2018. This partial period does not represent the full year's operation and inherently includes distortions e.g., inclusion of opening balance Rs.11.51 crore, which may lead to overstatement of profits. The addition on account of stock difference was sustained by the ld.CIT(A), and the assessees have not contested this on appeal beyond reiterating their earlier submissions. Given the failure to reconcile or explain the stock discrepancy satisfactorily, the addition of Rs.5,76,26,387/- which has been accepted by the assessee is justified and sustained. We also find that a significant portion of the alleged excess profits is already embedded within the stock discrepancy addition. Therefore, any further estimation of profit becomes excessive and leads to double addition. Therefore, we hold that the estimation of , 1373, 1660, 1366, 1367,1659, 1376, 1377, 1739, 1368, 1369, 1370, 1371,1374 & 1375/Chny/2025 CO NOs.56, 58, 57/Chny/2025 SA Nos.61 to 66/Chny/2025 :- 17 -: net profit at 20.90% is not sustainable, particularly in the absence of rejection of books and given reliance on incomplete data. In the present facts and circumstances of the case the additions made on account of estimated net profit is not warranted and hence deleted. We also find that there is no violation of section 292C or Rule 46A of the Income Tax Rules, 1962.

S. Assessee AYs ITA Number/ C.O Number No.

ITA Nos.1372, 1373, 1660, 1366, 1367,1659, 1376, 1377, 1739, 1368, 1369, 1370, 1371,1374 & 1375/Chny/2025 CO NOs.56, 58, 57/Chny/2025 SA Nos.61 to 66/Chny/2025 :- 18 -: 5. DHARUMAN VANISUGANYA 2017-18 (Assessee) 6. DHARUMAN VANISUGANYA 2018-19 (Assessee) 7. DHARUMAN VANISUGANYA 2018-19 ITA No.1739/Chny/2025 (Revenue) 8. DHARUMAN VANISUGANYA 2018-19 CO. No.57/Chny/2025 (Assessee)

Order pronounced on 04th day of September, 2025 at Chennai.