PRABHU KANIMOZHI,,ERODE vs. ACIT, CIRCLE-2, , ERODE

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)

, however, Ld. AR submitted that legal grounds are not being 2 - pressed. The only ground pressed is ground Nos.3,4,5 wherein the assessee is contesting few additions on merits. These additions are addition of suppression of sales, difference in cost of construction and estimation of income @8%.

2. Having heard rival submissions and after going through relevant material on record including the orders of lower authorities, our adjudication would be as under. 3.1 The assessee being resident individual is stated to be trading in Gold & Silver Jewellery. The assessee was subjected to survey action u/s 133A on 05.03.2014. The assessee decaled income of Rs.20.46 Lacs in the return of income which was picked up for scrutiny. A statement was also recorded from the assessee during survey action, the copy of which is on record. 3.2 It transpired that the actual inventory of physical gold was 27013.625 grams whereas the stock as per books was 28752.320 grams of gold. In other words, book stock was more by 1738.695 grams which was valued at Rs.46.66 Lacs and Ld. AO added the same to the income of the assessee as suppressed sales. 3.3 It also transpired that the assessee was constructing a commercial building at SF No.98, Ward 23, Sathyamangalam Town. The assessee admitted cost of construction as Rs.220 Lacs and voluntarily offered a sum of Rs.59 Lacs as unexplained income utilized for construction of the commercial building. During the course of assessment proceedings, the assessee filed valuation report wherein the cost of construction was estimated at Rs.225 Lacs. The matter of valuation was referred by Ld. AO to valuation officer to ascertain the correct value of property constructed by the assessee. The same was valued by valuation officer 3 - at Rs.218.65 Lacs. Thus, there was difference of Rs.6.34 Lacs in two valuation report. The Ld. AO adopted the valuation of assessee and taking Rs.225 as cost of construction, further added a sum of Rs.5 Lacs to the income of the assessee. The admission of Rs.59 Lacs as made by the assessee was separately added as unexplained investment. 3.4 In the return of income, the assessee estimated the income @4% (before depreciation) on total turnover of Rs.1524.57 Lacs. The profits were computed as Rs.60.98 Lacs and after claiming depreciation of Rs.39.18 Lacs, the assessee offered income of Rs.21.79 Lacs. However, the provisions of Sec.44AA and 44AB were found applicable and the estimation made by the assessee was not acceptable to Ld. AO. Though the assessee submitted that the assessee generally earned net profit of 4%, however, Ld. AO proceeded to estimate the income @8%.It was found that the books were audited for AY 2013-14 wherein the assessee declared profit rate of 4.67% on turnover of Rs.222.65 Lacs. However, the profit rates for AYs 2011-12 and 2012-13 were not known since the turnover for these years was not furnished by the assessee. Accordingly, Ld. AO estimated the income @8% and added the differential income of Rs.60.98 Lacs to the income of the assessee. The depreciation of Rs.39.18 Lacs as claimed by the assessee was further added to its income.

4. During appellate proceedings, the assessee pointed out computational errors while arriving at shortage of gold. The assessee also argued that gold could not be made without copper. However, Ld. CIT(A) rejected the same by observing that the shortage in quantity was confirmed by the assessee herself and the Ld. AO had adopted the same method for valuation which the assessee had adopted on year-to- 4 - year basis. Since physical stock was less, the shortage was to be brought to tax in the absence of valid explanation by the assessee.Therefore, the addition made by Ld. AO was upheld. The addition of Rs.5 Lacs based on assessee’s valuation report was deleted since the assessee had admitted cost of construction during survey at Rs.220 Lacs and therefore the same was to be honored. In other word, the addition of Rs.59 lacs was confirmed since the same was undisclosed income of the assessee. The addition of Rs.46.66 Lacs on account of shortage of stock was also confirmed.

5. Regarding estimation of business income @8%, it was observed that the assessee did not maintain books of account and did not carry out Tax Audit as required under law. Therefore, the estimation of 8% on the lines of Sec.44AD was justified. Against the same, depreciation would be deemed to have been allowed and therefore, no further deduction was to be given for depreciation. In other words, the action of Ld. AO in adopting profit rate of 8% as well as disallowance of depreciation was confirmed. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 6. Upon careful consideration of factual matrix, it could be observed that the assessee has declared turnover of Rs.1524.57 Lacs and estimated the profit @4%. Against the estimated profits, the assessee has separately claimed depreciation of Rs.39.18 Lacs and offered income of Rs.21.79 Lacs. We find that that as per statutory mandate, the assessee was required to maintain the books of accounts as well as to get the account audited as per the requirement of Sec.44AB. However, the same was not done and the lower authorities were left with no option 5 - but to estimate the income of the assessee on the basis of available facts. The said estimation has finally been made @8% net and the additional depreciation claimed by the assessee has been disallowed. In other words, the additions have been made at much higher rate of 8%. So far as the action of lower authorities in estimating the income is concerned, we find that it was the only option left and hence, perfectly justified. Having said so, it is also trite law that only real income was to be assessed and estimation should not be arbitrary or unrealistic. The assessee reflected margin of 4.67% in immediately preceding year on turnover of Rs.222.65 Lacs. This year the turnover is close to 7 times and therefore, expecting the assessee to earn higher margin on sale of this magnitude could not be held to be justified. Generally, higher the turnover, lower would be the profit. From the computation of income, it could be seen that in this year the assessee has estimated profit of 4% before depreciation which comes to be 1.43% after depreciation. On the given facts and circumstances of the case, we direct Ld. AO to adopt profit rate of 2% (net after depreciation) on sale turnover of Rs.15,24,57,968/- instead of 1.43% as offered by the assessee. The same comes to Rs.30,49,160/-. The separate claim of depreciation would not be admissible since estimation has been made on net basis. In other words, the addition as sustained in the hands of the assessee would be differential of Rs.30,49,160 (business income estimated by us) and Rs.21,79,806/- (business income offered by the assessee). The same translate into addition of Rs.8,69,354/-. The depreciation of Rs.39.18 Lacs as separately disallowed would not be added back to the income of the assessee since the same subsume in profit estimation made by us. Since the income has been estimated by us in the aforesaid 6 - manner on sales turnover, the separate addition of Rs.46.66 Lacs on account of shortage of stock would stand deleted. This ground thus raised stands partly allowed.

7. So far as the addition on account of unexplained investment is concerned, we find that the sole basis of addition in the hands of the assessee is statement taken from her during survey proceedings. However, the statements are not backed by any corroborative material on record that the assessee has made unaccounted investments as alleged by Ld. AO. It is trite law that no addition could be made merely on the basis of suspicion, conjectures or surmises. Further, the statements made during survey proceedings would not hold much evidentiary value. The assessee has placed on record ledger of construction account wherein the investment made up-to 31.03.2013 is shown as Rs.45 Lacs whereas the investments as on 31.03.2014 are shown to be Rs.245.25 Lacs which is more than the valuation report submitted by the assessee as well as valuation made by the departmental valuation officer. The said facts could not be controverted by the revenue. Therefore, on the given facts and circumstances of the case, this addition has no legs to stand. By deleting the same, we allow the grounds raised

by the assessee.

8. The appeal stands partly allowed in terms of our above order. Order pronounced on 14th February, 2022.