SEBCO PROPERTY PRIVATE LIMITED,TRICHY vs. DCIT CENTRAL CIRCLE 2, TRICHY

1.3 The grounds taken by the Revenue read as under: -

1. 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.

2. The Ld.CIT(A) erred in rejecting the books of account of the assessee and directing to estimate 18.75% of Net profit on total sales (both accounted and unaccounted and other income), while adjudicating the assessee's ground against the addition towards undisclosed income of Rs.48,97,13,161/- arrived on the basis of Net profit worked out as per the entries found in parallel account maintained in "Z" server which contained unaccounted transactions and adoption of value of stock as appearing excel sheets maintained in pen drive seized. 2.1. The Ld.CIT(A) failed to appreciate that the assessee's cash receipts and cash payments towards sale/purchase of land and the same had been entered in "Z" server. The above cash receipts and payments were further supported by scanned vouchers (signed) found uploaded in "Z" server. Similarly the assessee had made entries in respect of both accounted and unaccounted expenses in "Z" server. The AO has correctly arrived undisclosed income on the basis of entries in "Z" server after giving credit to income returned. The CIT(A)'s action of rejecting books of accounts without considering the evidence collected in the form of seized materials is erroneous. 2.2 The Ld. CIT(A) erred in rejecting the books of accounts by invoking provisions of Sec.145(3) of the Act, without appreciating that the assessing officer did not find fault with the method of accounting but additions were made in the order u/s.143(3) r.w.s.153A on the basis of incriminating seized materials evidencing unaccounted transactions and claim of bogus expenses. 2.3 The Ld.CIT(A) failed to appreciate that the value of opening & closing stock was adopted based on excel sheets viz. "STOCK 16-17.xlsx", "STOCK 17-18.xlsx" & "STOCK 18-19.xlsx" maintained by the assessee's Finance Manager Smt.R. Deepa (seized vide annexure ANN/SB/SPPL/ED/S-3) wherein the amount appearing in purchases, sales were matching with the assessee's accounted financials and the value of stock includes the unaccounted portion of the transactions made by the assessee company.

3. The CIT(A) erred in directing to delete bogus expenses of Rs.3,20,40,973/- in the books of accounts maintained in "Y" server which contained accounted transactions for the purpose of filing return of income.

3.1 The Ld.CIT(A) failed to appreciate that the assessee involved in booking of bogus expenses as payment made to contractors and then receiving back the same in cash. It was seen from "Y" server which contained accounted transactions, the assessee company is making payments through banking channel to certain contractors which are claimed as expenses in the Profit and Loss account. However, in "Z" server which contained unaccounted transactions, there were entries proving that the amount have been received back in cash. In support of the above findings, scanned vouchers for payments and receipts were found uploaded in "Z" server. 3.2 The Ld.CIT(A) failed to appreciate that in the office premises of M/s.SEBCO Property Pvt Ltd and in the residence of Smt.Deepa, Finance Manager of assessee company, various cheque books in the name of different contractors were found and seized. She admitted in her sworn statement that the amounts have been received back in cash and utilized for unaccounted cash expenses.

4. The Ld.CIT(A) erred in deleting the addition of Rs.11,33,98,384/- made towards disallowance made u/s.37(1) and 40A(3) in respect of expenses recorded in the "Z" server. 4.1 The Ld.CIT(A) failed to appreciate that the AO has arrived taxable income on the basis of accounts maintained in "Z" server, hence applied the provisions of Sec.37(1) and 40A(3) in respect of expenses recorded in "Z" server in the computation of total income. 4.2 The Ld.CIT(A) failed to appreciate that certain expenses recorded in "Z" server are related to personal expenses of promoters of the company and certain other expenses are prohibited by law which attracted disallowance u/s.37. Further, the "Z" server contained unaccounted cash transactions, hence the AO invoked the provisions of Sec.40A(3) in respect of cash expenses debited in the account maintained in "Z" server. Thus the CIT(A) erred in rejecting the books of accounts of the assessee and directing to estimate 18.75% Net profit without considering that additions have been made in the search assessment on the basis of seized materials unearthed during search.

As is evident, the impugned issues arise out of a search conducted by the department in the case of assessee group. 1.4 The Ld. AR advanced arguments and supported the case of the assessee with various case laws and documents containing workings / computations etc. The Ld. CIT-DR supported the findings rendered by Ld. AO and likewise, relied on various case laws. The case was put up or clarification which was duly been responded to by both the sides. Having heard rival submissions and upon perusal of case records, our adjudication would be as under.

1.5 The assessee being resident corporate entity is stated to be engaged in real estate property development and construction activities. The assessee was subjected to search action u/s 132 on 22-03-2021 on the basis of which impugned assessments have been framed. The search was carried out at the office premises of the assessee and also at the residence of its Managing Director (MD) Shri Leyronne Morais as well as at the residence of Deepa, Finance Manager and Personal Secretary to MD. In addition to certain material, cash of Rs.919.50 Lacs was seized. During the course of search, unaccounted cash and incriminating books and documents were found and seized. Subsequently, a notice u/s 153A was issued to the assessee on 08-11- 2021 and in response thereof, the assessee admitted income of Rs.134.15 Lacs on 06-12-2021. 1.6 During search, it transpired that the assessee maintained accounts in Tally in two separate servers i.e., ‘Y-server’ and ‘Z-server’. The ‘Y- server’ was used for recording and maintaining regular business transactions whereas ‘Z-server’ contained unaccounted transactions. Both the servers were seized and analyzed. Several scanned vouchers were also found stored in digital format which endorsed the transactions recorded in Tally. These vouchers had information which corroborated the cash transactions as recorded in ‘Z-server’ as maintained by the assessee. Certain documents and materials were also seized which contained sale deeds, details of payments received through banking channels as well as in cash. During search, sworn statements were recorded from MD and Smt. Deepa. On the basis of all this material, various issues were identified by Ld. AO during the course of assessment proceedings.

Assessment Proceedings 2.1 The Ld. AO noted that the assessee made payments to contractors for development work and allied works on lands under the assessee’s control. However, the said payment was received back in cash from the payees. Accordingly, it was found that the assessee booked bogus expenses in its regular books of accounts. 2.2 The Ld. AO also identified that ‘Y-server’ contained guideline value of the properties as sold by the assessee whereas ‘Z-server’ contained cash component as received from customers on these sales transactions. Similar entries for cash purchases as well as cash expenditure were also noted in ‘Z-server’. The Ld. AO also found discrepancies in the opening and closing stock which was on the basis of certain excel sheet found during the course of search. 2.3 On these facts, it was concluded by Ld. AO that the business of the assessee was partly accounted and partly unaccounted. By combining the data of two servers, Ld. AO made an attempt to re-work the profit of the assessee-company. For this year, the Ld. AO re-worked additional profit of Rs.48.97 Crores and proposed addition thereof in the hands of the assessee. The same has been worked out in Para 7.1.1 of the assessment order. 2.4 The Ld. AO elaborated the facts of each addition under each head and proposed addition of bogus expenses to contractor for Rs.320.40 Lacs. The expenses as found in ‘Z-server’ which were personal in nature or incurred for the purposes prohibited by law were quantified at Rs.205.95 Lacs. As per ‘Z-server’, the assessee incurred cash expenditure as well as interest and chit expenses which was proposed to be disallowed u/s 40A(3). The opening and closing stocks values were substituted by the values reflected in the excel sheet. 2.5 The profit as re-worked by Ld. AO as well as final income as determined by Ld. AO was as under: - Particulars Amount Particulars Amount Y Opening Stock 25,46,72,181 Sales 22,14,42,459 Purchases 4,49,63,050 Closing Stock 22,94,96,311 Direct Expenses 9,28,77,748 Indirect Income - Indirect Expenses 4,51,41,362 Nett Profit 1,32,84,429 Total 45,09,38,770 45,09,38,770

Opening Stock 36,42,36,999 Closing Stock 83,11,23,753 (-) OS as per RoI -25,46,72,181 (-) CS as per ROI -22,94,96,311 Exp. for business 10,49,84,073 Sale Receipts 24,74,04,661 Purchases 12,28,02,259 Chit Receipt 1040000 Z&ED Interest Payments 2,95,16,891 2,77,66,859 Other Income Chit Payment 6,62,525 Non business exp. 2,05,95,235 Revised Profit 50,29,97,590 As per RoI 1,32,84,429 Undisclosed income 48,97,13,161 Computation of Assessed Income For AY 2017-18 Particulars Amt Rs. (1) Total income as per Return filed 1,34,15,910 u/s.139 (1a) Additional income offered as per Nil Return filed u/s.153A (2) Total income as per Return filed 1,34,15,910 u/s.153A Add: additions as discussed above (3) Undisclosed income (as per para 7.1) 48,97,13,161 (4) Disallowance of expenses u/s 37 & 5,26,36,208 40A(3) (as per para 7.29 and 7.3.8) (5) Disallowance of expenses u/s.40A(3) 9,28,03,149 (as per para 7.7.7.) (6) (4) + (5) 14,54,39,357 (7) (3) + (6) Total additions proposed 63,51,52,518 (8) Total income assessed (2) + (7) 64,85,68,428 2.6 Similar assessments were framed for all the subsequent years. The income as determined by Ld. AO for various years was as under: -

ASSESSMENT YEARS PARTICULARS 2017-18 2018-19 2019-20 2020-21 2021-22 Undisclosed Income 48,97,13,161 4,39,34,522 11,95,79,723 26,44,89,686 8,11,73,513 Contractors Payments disallowed u/s.37(1)of the Act 3,20,40,973 2,11,99,751 2,18,29,313 7,63,43,737 10,23,44,700 Expenses not for the purpose of business disallowed u/s.37(1) and 40A(3) of the Act 2,05,95,235 3,68,53,301 -- -- 5,20,93,563 Purchases and expenses disallowed u/s.40A(3)of the Act 9,28,03,149 21,46,49,523 26,12,00,605 36,71,63,736 37,81,88,877 Unexplained Money - Cash Seized during search added -- -- -- -- 9,19,50,000 u/s.69Aof the Act Less: Additional Income Offered -- 7,66,89,580 5,69,61,770 13,55,57,540 -- Total additions 63,51,52,518 23,99,47,517 34,56,47,871 57,24,39,619 70,57,50,653 Aggrieved, the assessee assailed the assessment made by Ld. AO before Ld. CIT(A).

3. Appellate Proceedings 3.1 The assessee assailed the action of Ld. AO by way of elaborate written submissions which have already been extracted in the impugned order. The assessee, inter-alia, submitted that valuation of closing stock was on the basis of uncorroborated excel sheet calculations as found in the computer system and the excel sheet was prepared merely for attracting potential investors and customers. The rate adopted in the excel sheet was not at cost and therefore, this rate could not be adopted by Ld. AO. It was also submitted that the cash sales as taken by the AO while reworking the Profit & Loss Account includes advance component for which sale deeds were never executed in the respective assessment years. The sales could be recognized only in the year in which sale deeds were executed and advance receipts could not be assessed as sales. The assessee also submitted that the additional income as offered by the assessee consequent to search was adequate enough to take care of the shortfall in income, if any. The assessee assailed the various computations / additions made by Ld. AO. 3.2 The adjudication of Ld. CIT(A) is contained in para 6.4.6 onwards. The Ld. CIT(A) rendered factual finding that Ld. AO reworked the profit from unaccounted portion on the basis of accounting entries made in ‘Z- server’. However, the assessee had furnished a copy of its Balance Sheet as on 31.08.2018 to 31.03.2021 from the “Z-server’ which was also made available before Ld. AO during the course of assessment proceedings. Upon perusal, it was noticed that in all the years, there was difference in opening balances as under: - No As on Difference in opening balance (Rs.) 1 31.03.2018 7,07,45,819 2 31.03.2019 16,82,66,487 3 31.03.2020 11,60,94,084 4 31.03.2021 77,72,267 The assessee failed to reconcile the above differences at any point of time. It was also noted that the ‘Current Liabilities’ were reflected on Assets side and ‘Current Assets’ were reflected on Liabilities side of the Balance Sheet. All these factors would prove that the accounts as maintained in ‘Z-server’ were incomplete and the same could not be relied upon to assess the income of the assessee. In view of so many defects, there exists every possibility that receipts which are not in the form of income would have been credited to the Profit & Loss Account. At the same time, receipts which are income would have been taken to ‘Current Liabilities’. It was further noted that the assessee did not maintain any stock register / stock records. 3.3 In para 6.4.13, it was noted that if the working of Ld. AO was to be accepted, the same would yield abnormal Net profit (NP) Rates as follows: - No AY NP Rate (%) 1 2017-18 107.28 2 2018-19 13.21 3 2019-20 34.62 4 2020-21 54.93 5 2021-22 24.13 The average NP rate would be 46.85% which would be abnormally high in this line of business. The same was indicative of the fact that the accounts relied upon by Ld. AO were not reflecting true state of affairs of assessee-company. Further, high profit rate in one year and low profit rate in another year indicate the probability of income of one year being accounted in another year. The same was also evident from the ratio of assessed income to total turnover as follows: - No AY Ratio of Assessed Income to Total Turnover (%) 1 2017-18 138.33 2 2018-19 76.03 3 2019-20 107.61 4 2020-21 141.79 5 2021-22 88.03 Thus, the assessed income for all the AY(s) put together was much more than the accounted and unaccounted turnover as considered by AO. The same was wholly justified and it was to be concluded that the reworking of Profit in the manner as done by Ld. AO could not be relied upon. 3.4 On the issue of valuation of stock, it was submitted that the stock has to be valued at lower of Cost or the Market Price. Another submission was that substantial amount of cash receipts entered in ‘Z- Server’ represent advance in respect of which sale deeds were not registered in the respective Assessment Years. If these two items were excluded, there would not be any positive income. To bolster its claim, the assessee enumerated certain workings and computations. 3.5 The Ld. CIT(A) concurred with the argument of the assessee and arrived at a conclusion that the valuation of stock as arrived at by Ld. AO was unreliable. However, in the absence of stock records / stock registers and cost sheets, it was not possible to arrive at the correct cost. Since there were deficiencies in the books of accounts as maintained by the assessee in ‘Y-server’ as well as in ‘Z-server’, the computations could not be made on the basis of such deficient books of accounts. The books were inaccurate unreliable, incomplete and incapable of reflecting the true and correct picture of assessee’s financial affairs. The same could, therefore, be not relied upon to determine the income of the assessee. The assessee failed to reconcile the errors in its books of account. Under these circumstances, the books were to be rejected u/s 145(3) as held by Hon’ble Allahabad High Court in Shri Venkteshwar Sugar Mills (341 ITR 588) upholding the decision of Tribunal in rejecting the books of accounts since the same were not properly maintained. Similarly, Hon’ble Punjab & Haryana High Court in Mahavir Rice Mills v.

CIT (153 Taxmann.com 686) upheld the estimation made by rejecting the books of account of the assessee in the absence of details of stock. Similar was the decision of Hon’ble Calcutta High Court in Amiya Kumar Roy & Bros. vs. CIT (206 ITR 306) holding that non-maintenance of stock would have substantial effect justifying an inference that the accounts were maintained in a manner from which the true and correct profits were not deductible. On similar facts, similar was the decision of Chennai Tribunal in the case of M/s Beach Minerals Company (ITA No.366/Chny/2023 dated 09-08-2023). 3.6 By placing reliance on all these decisions, Ld. CIT(A) rejected the books of accounts and proceeded to estimate the income of the assessee in all these years. The Turnover and Net profit as reflected by the assessee as per audited financials was tabulated as under: - (Rs in Crores) AY 2017-18 2018-19 2019-20 2020-21 2021-22 Turnover 22.14 23.71 11.98 15.51 26.00 Net Profit 1.32 1.34 1.48 1.60 15.46 NP Rate (%) 6% 5.65% 12.35% 10.31% 59.46% The average Net Profit worked out to be 18.75% which could be applied to estimate the income of the assessee. This ratio was arrived at after including the other income credited to the Profit & Loss Account. The estimated income for the years under consideration was thus worked out as under: -

Amt. (Rs.) AY 2017-18 2018-19 2019-20 2020-21 2021-22 Sales as per the 22,14,42,459 23,71,64,001 11,98,27,904 15,51,20,090 26,00,30,391 Profit & Loss Account Cash Sales as 24,74,04,661 19,71,33,410 26,83,67,882 35,56,40,793 71,73,11,357 taken by the AO on the basis of Z Server Other Income 2,77,66,859 5,54,360 95,02,621 4,05,45,649 6,18,58,718 Chit Receipt 10,40,000 - - - 9,81,500 Gross Income 49,76,53,979 43,48,51,771 39,76,98,407 55,13,06,532 104,01,81,966 which is to be considered by the AO for estimation Net Profit Ratio to 18.75% 18.75% 18.75% 18.75% 18.75% be adopted by the AO for estimation Total Income 9,33,10,121 8,15,34,707 7,45,68,451 10,33,69,974 19,50,34,118 estimated Less: Income 1,34,15,908 9,02,69,338 7,21,23,497 15,17,76,920 15,46,79,340 Returned in response to the notice issued u/s.153A of the Act for the AY(s)2017- 18 to 2020-21 and for the AY 2021-22 u/s.139(1) of the Act Addition(s) 7,98,94,213 NIL 24,44,954 NIL 4,03,54,778 sustained 3.7 In view of the above, the addition made by the Assessing Officer towards undisclosed income and on account of difference in valuation of stock was deleted. Since the income of the assessee was estimated, the excess income admitted by the assessee u/s 153A over and above the estimated income for the AY(s) 2018-19 and 2020-21 were required to be ignored. The grounds were partly allowed. Aggrieved, the assessee as well as the revenue is in further appeal before us. 3.8 On the issue of proposed disallowances u/s 37(1) and 40A(3) as made by Ld. AO in all the years, Ld. CIT(A) held that once the income was estimated, no separate addition of expenses would be warranted. This was as per the ratio of decision of Hon’ble Madhya Pradesh High Court in CIT v. Purshottam Lal Tamrakar (270 ITR 314) holding that no separate disallowance u/s. 40A(3) is required when income is estimated by adopting Net Profit Rate. Similar ratio was laid down by Hon’ble Punjab & Haryana High Court in the case of CIT (Central) v. Gobind Ram (229 Taxman 491) as well as by Hon’ble Rajasthan High Court in PCIT v. Jadau Jewellers & Manufacturers (P.) Ltd. (409 ITR 85). 3.9 The Hon’ble High Court of Madras in CIT v. Amman Steel & Allied Industries (377 ITR 568) held as under: - “13. On the issue relating to disallowance under Section 40A (3) of the Act, the same was considered by the CIT (Appeals) by holding that income has been arrived at an estimate of turnover and computed applying the gross profit and, therefore, no expenditure shall be allowed, since the gross profit applied would take care of the amount incurred by purchases, etc. The CIT (Appeals), to justify the said stand, drew strength from the decision of this Court in S.Mohammad Dhurabudeen's case (supra), wherein this Court has held thus :- "The question for consideration is when no deduction was sought and allowed under S. 40A (3), was there any need togointoS.40A(3)and Rule 6DD(j).We see force in the view taken by the Tribunal that when the income of the assessee was computed applying the GP rate and when no deduction was allowed in regard to purchases of the assessee, there was no need to look into the provisions of Section 40A (3) and Rule 6DD (j). No disallowance could have been made in view of the provisions of S. 40A (3) read with Rule 6DD (j) as no deduction was allowed to and claimed by the assessee in respect of purchases. When the GP rate is applied, that would take care of everything and there was no need for the AO to make scrutiny of the amount incurred on the purchases by the assessee."

By placing reliance on all these decisions, it was conclude by Ld. CIT(A) that separate disallowance as made by Ld. AO u/s 37(1) and 40A(3) could not be sustained. Accordingly, the corresponding grounds raised by the assessee were allowed. Aggrieved, the revenue is in further appeal before us. 3.10 The Ld. AO had made addition of cash seized for Rs.919.50 Lacs u/s 69A for AY 2021-22. It was noted that cash of Rs.819.50 Lacs was seized from the residence of Smt. R. Deepa, Finance Manager whereas further cash of Rs.100 Lacs was seized from the office premises of the assessee-company. The assessee explained that the source thereof was additional income offered by the assessee for AYs 2020-21 and 2021-22. The Ld. AO rejected the submissions on the ground that no evidences were furnished by the assessee in this regard and accordingly, the same was separately added u/s 69A of the act. 3.11 The Ld. CIT(A) noted that during search, it was found that the assessee made unaccounted sales and payments. There was no finding either by the Investigation Team or by Ld. AO that the assessee was having any other source of income. Therefore, the physical cash would have been sourced only from the business of the assessee-company and therefore, the same could not be subjected to tax u/s.69A r.w.s 115BBE of the Act. It is a settled principle that when there is an unaccounted income on one side and unexplained cash or asset on the other side, the benefit of telescoping has to be given in respect of one against the other. The objective of telescoping is to bring real income to tax and to eliminate the double taxation of same income i.e., once at the time of receipt and again at the time of its application. The Hon’ble Apex Court in Kale Khan Mohammad Hanif (1963

50. ITR 1) explained the issue of double taxation as propounded by the theory of telescoping as under: - "The question would seem to suggest that because the income from a disclosed source has been computed on the basis of an estimate and not on the basis of the return filed in respect of it, an income represented by a credit entry in the books of account of that source cannot be held to be income from another and undisclosed source. We do not see why it cannot be so held. It appears from the judgment of the High Court that the reason given in support of the suggestion was that if that income was held to be income of an undisclosed source, the result would be double taxation of the same income which the Income-tax Act does not contemplate. Apparently, it was said that there would be double taxation because it was assumed that the same income had once been earlier taxed on the basis of an estimate. This reason is obviously fallacious, for, if the income is treated as one from an undisclosed source which the question postulates, it is not treated as income of the disclosed source which had previously been assessed to tax and, therefore, there is in such a case no double taxation. It is not a case where the income sought to be taxed was held to be undisclosed income of a disclosed source, the income of which source had previously been taxed on the basis of an estimate. If it were so, the question of double taxation might have been legitimately raised. That, however, is clearly not the case here as the question as framed itself shows."

3.12 It was noted that the assessee filed return of income in response to notice issued u/s 153A and offered additional income of 26.92 Crores from AYs 2018-19 to 2020-21. As against this, the cash was found only to the extent of Rs.919.50 Lacs. Therefore, the assessee would be entitled for telescoping benefit of additional income. Since additional income as offered by the assessee was much more than the physical cash found, separate addition of physical cash as made by Ld. AO was deleted. Aggrieved, the revenue is in further appeal before us. Our findings and Adjudication 4. The basic facts are not in dispute. The assessee is engaged in real estate development and construction activities. Pursuant to search action on the assessee, it transpired that besides regular books of accounts as maintained on ‘Y-server’, the assessee maintained unaccounted transactions on ‘Z-server’. On the basis of transactions reflected in the ‘Z-server’, Ld. AO proposed impugned additions. During the course of search action, incriminating material was found and sworn statements were also recorded. The cash for Rs.919.50 Lacs was found and seized. The assessee filed return of income and offered additional income to make-up for all these shortcomings. However, Ld. AO has not accepted the computations / workings made by the assessee and proposed further additions / disallowances by invoking the provisions of Sec.37(1) and 40A(3). These disallowances include payments to contractor for development / allied work which were subsequently received back by the assessee. In other words, the assessee booked bogus expenses in its regular books of accounts. The unaccounted portion of sale consideration was found recorded in ‘Z-server’. Similar entries for cash purchases as well as cash expenditure were also found therein. Certain excel sheets were found on the basis of which discrepancies were found in the value of opening and closing stock. In the light of all these facts, Ld. AO reached a conclusion that the business of the assessee was partly accounted and partly unaccounted. By combing the data of two servers, Ld. AO made an attempt to re-work the profit of the company and alleged that there was additional profit to the extent of Rs.48.97 Crores in this year which has been computed as under: - Particulars Amount Particulars Amount Y Opening Stock 25,46,72,181 Sales 22,14,42,459 Purchases 4,49,63,050 Closing Stock 22,94,96,311 Direct Expenses 9,28,77,748 Indirect Income - Indirect Expenses 4,51,41,362 Nett Profit 1,32,84,429 Total 45,09,38,770 45,09,38,770

Opening Stock 36,42,36,999 Closing Stock 83,11,23,753 (-) OS as per RoI -25,46,72,181 (-) CS as per ROI -22,94,96,311 Exp. for business 10,49,84,073 Sale Receipts 24,74,04,661 Purchases 12,28,02,259 Chit Receipt 1040000 Z&ED Interest Payments 2,95,16,891 2,77,66,859 Other Income Chit Payment 6,62,525 Non business exp. 2,05,95,235 Revised Profit 50,29,97,590 As per RoI 1,32,84,429 Undisclosed income 48,97,13,161 Computation of Assessed Income For AY 2017-18 Particulars Amt Rs. (1) Total income as per Return filed 1,34,15,910 u/s.139 (1a) Additional income offered as per Nil Return filed u/s.153A (2) Total income as per Return filed 1,34,15,910 u/s.153A Add: additions as discussed above (3) Undisclosed income (as per para 7.1) 48,97,13,161 (4) Disallowance of expenses u/s 37 & 5,26,36,208 40A(3) (as per para 7.29 and 7.3.8) (5) Disallowance of expenses u/s.40A(3) 9,28,03,149 (as per para 7.7.7.) (6) (4) + (5) 14,54,39,357 (7) (3) + (6) Total additions proposed 63,51,52,518 (8) Total income assessed (2) + (7) 64,85,68,428 It could be seen that valuation of closing stock is at huge variance and substantial addition arises out of that. The remaining addition arises out of disallowance made by Ld. AO u/s 37(1) as well as u/s 40A(3). The variation in closing stock is on the basis of few excel sheets found during the course of search.

5. At the same time, Ld. CIT(A) has noted that the assessee has not maintained any stock details / stock records. Besides carrying out own business activities, the assessee also acted as a facilitator for others. However, the assessee was unable to reconcile the same. No stock details / stock records have been maintained by the assessee and except for excel sheet, nothing in that regard has been found by the department during the course of search. The assessee rebutted the allegation of Ld. AO and submitted that valuation of closing stock was on the basis of uncorroborated excel sheet calculations found in the computer system whereas these excel sheets were prepared merely for attracting potential investors and customers. The rate adopted in the excel sheet was not at cost and therefore, this rate could not be adopted by Ld. AO. As per accounting practices, the stock has to be valued at lower of cost price or market price. However, it was duly demonstrated by the assessee before Ld. CIT(A) that there was glaring discrepancies in the computations made in the excel sheet and the valuation of stock was not done therein as required under law. The computations were not on the basis of any cost sheets. In our considered opinion, the valuation of stock would have direct bearing on the profits of the assessee and it has to be determined on the basis of lower of cost price or market price. The same could not be done arbitrarily. However, the workings of stock in excel sheet is not done on this basis. Unless it was established by Ld. AO that the stock was valued scientifically in the excel sheets and the same was based on cost sheets, the same could not be adopted as such to work out the profit of the assessee. The Ld. CIT(A) has also rendered factual finding that the assessee had furnished a copy of its Balance Sheet as on 31.08.2018 to 31.03.2021 from the “Z-server’ which was also made available to Ld. AO during the course of assessment proceedings. Upon perusal, it was noticed that in all the years, there was substantial difference in opening balances of the Balance Sheets for various years as prepared on the basis of ‘Z-server’. Therefore, the valuation of stock on the basis of excel sheet has rightly been discarded by Ld. CIT(A). The valuation as reflected therein has no basis and therefore, the same are to be ignored completely.

No AY Ratio of Assessed Income to Total Turnover (%) 1 2017-18 138.33 2 2018-19 76.03 3 2019-20 107.61 4 2020-21 141.79 5 2021-22 88.03 Upon perusal of above tabulation, it could be seen that the profits / income has ultimately been determined at figures which are much more than even the gross sales turnover worked out by Ld. AO. It could never be possible that the assessee has earned income which is much more than its gross receipts. The assessed income for all the AY(s) put together was much more than the accounted and unaccounted turnover as considered by AO. Therefore, the working of Ld. AO is clearly illogical and without any rational basis and accordingly, the same has rightly been rejected by Ld. CIT(A).

Amt. (Rs.) AY 2017-18 2018-19 2019-20 2020-21 2021-22 Total Income 9,33,10,121 8,15,34,707 7,45,68,451 10,33,69,974 19,50,34,118 estimated