2022 (4) TMI 537 - AT - Income Tax

Unexplained cash deposits - Deposits in regular bank account of the assessee, during demonetization period - difference in the cash sales - AO observed that the books of accounts of the assessee were not correct and complete and did not depict the real statement of affairs - Assessee s business was a going regular partnership concern caring on the jewellery business for the past 70 years - as during the course of search at the residential premises of one Shri Naveen Goyal (who was engaged as a part time Accountant with the assessee) entries relating to the assessee were found in his computer as well as pen drive. However when the entries in computer were compared with that of pen drive there was difference in the sales figures of October 2016 - HELD THAT - In the present case the Department has not brought any material on record to substantiate that the amount received by the assessee by selling the jewellery / goods out of the opening stock and the purchases was utilized elsewhere and not for depositing in the Bank Account. In the instant case the opening stock, purchases and the closing stock has not been doubted, no inflated purchases were found or suppressed sales were noticed during the course of search held on 12/04/2017 i.e; just after the closing year relevant to the assessment year under consideration. It is also not a case that the assessee was not selling the stock/jewellery through exhibition which is clear from the figures given in para 18 of the impugned order which revealed that the percentage increase in sales in the month of exhibition as compared to the preceding month was 114.99% and 118.26% in the month of March 2014 and July 2015 respectively while in the year under consideration the percentage increase was only 62.88% in the month of October 2016. The assessee explained before the Ld. CIT(A) and furnished the chart for various assessment years which had been reproduced at page no. 65 to 67 of the impugned order, in the said chart it has been shown that the cash sales in the month of October 2016 i.e; period under consideration was 92% while in the preceding year it was 95% in April 2014, 93% in May 2015, 94% in June 2015, 93% in July 2015, 92% in July 2016. So it is not a case that in the month of October 2016 only the cash sales were more. It is also noticed that the GP rate shown by the assessee for the year under consideration was 12.21% which was comparable with the preceding year 2016-17 at 12.72% which shows that there was a small decline in the GP rate for the year under consideration in comparison to the earlier year, however in the assessment year 2014-15 and 2015-16 the G.P. rate was at 16.62% and 13.47% respectively which shows that there was a consistent declining trend in the G.P. rate which occurred due to increase in the sales which were at ₹ 3.04 crores, ₹ 9.46 crores, ₹ 10.68 crores and ₹ 12.83 crores for the A.Y. 2014-15, 2015-16, 2016-17 and 2017-18 respectively which also shows that due to increase in turnover the G.P rate declined, so, it cannot be said that the cash sales made by the assessee during the pre demonetization period i.e; October 2016 resulted in extraordinary fall in the G.P. rate. In the instant case the assessee maintained the proper books of account in regular course of business which were duly audited by the independent Chartered Accountant under section 44AB of the Act, all the sales purchases and stocks were recorded in the books of account which had not been doubted by the AO. The sales shown by the assessee had been accepted by VAT/ Sales Tax Department, the book result shown by the assesee were in the same line as had been accepted by the Department in the preceding years, the cash sales made by the assessee had been credited in the books of account and reduction in the stock has not been doubted, even during the course of search just after the closing of the year under consideration, neither excess nor shortage of stock was found in the stock register maintained by the assessee, the identity of the purchasers to whom cash sales had been made was disclosed in the sale bills where the name, address and PAN was mentioned. It is also not a case that there was sudden spurt in the sale only in the month of October 2016 as the chart furnished by the assessee before the Ld. CIT(A) clearly revealed that the cash sales were on higher side in another months of different preceding years. AO made the addition on the basis of difference in the cash sales from 01/10/2016 to 29/10/2016, only on this basis that the said difference was there in the computer and the pen-drive found from the residential premises of the part time accountant of the assessee but no opportunity to cross examine the said accountant was given to the assessee and moreover, no specific defect was pointed out in the proper books of account maintained by the assessee in the regular course of business and nothing is brought on record to substantiate that the sales from 01/10/2016 to 29/10/2016 were not made, out of the existing stock available with the assessee. In the present case the assessee explained that the exhibitions were held in every year and the sales were normally higher in certain month and that in the month of October 2016 the cash sales was on the higher side as lots of festivals like Diwali, Dhanteras, Bhaiya Duj and Karwa Chauth etc. fell in that period. The said explanation cannot be brushed aside considering the trend of the society in India wherein people make the purchases of jewellery during the festive season. Thus the assessee was maintaining complete stock tally, the sales were recorded in the regular books of accounts and the amount was deposited in the bank account out of the sale proceeds, therefore, the addition made by the AO and sustained by the Ld. CIT(A) was not justified. Sales made by the assessee to cover the cash deposited in the bank post demonetization, was sufficient source of the cash deposited i.e; the sales from the existing stock available with the assessee and was well explained, therefore, the addition made by the AO and sustained by the Ld. CIT(A) was not justified. - Decided in favour of assessee. Addition made on account of unexplained investment in the construction of the showroom - difference in the cost of construction as estimated by the departmental valuer and as shown by the assessee in the books of account - HELD THAT - In the present case the assessee asked for the benefit of 10 to 15% on account of self supervision but the valuation officer had given a benefit of only 3.75% and even the valuation officer applied the CPWD rates instead of local PWD rates. The CPWD rates were higher than the PWD rates. As regard to the application of the rates while valuing the property the Hon ble Apex Court in the case of Smt. Sunita Mansingha 2017 (4) TMI 303 - SUPREME COURT Valuation Officer ought to have applied the local PWD rates instead of CPWD rates which were on the higher side. In the present case it is also noticed that the total investment in the building was to the tune of ₹ 1,12,33,334/- which is evident from Sub Para 2 of para B at page no. 11 of the assessment order dt. 27/03/2019 and the DVO estimated the total cost of construction of showroom at ₹ 1,32,24,900/-. Finally the AO came to the conclusion that overall difference in the A.Y. 2017-18 and 2018-19 was at ₹ 18,71,975/-. The DVO while working out the valuation of the showroom had given benefits of self supervision @ 3.75% which the assessee claimed at 10% and if the PWD rates are applied instead of CPWD rates and the benefit @10% is given for self supervision the difference in the valuation as worked out by the DVO and shown by the assessee in the books of account would be less than 10%. In those circumstances no addition should have been made since valuation is a matter of opinion / estimation. On the similar issue, various Benches of the ITAT has taken a consistent view that when the difference in valuation shown by the assessee and estimated by the DVO is less than 10% then the AO was not justified in substantiating the valuation determined by the DVO for the cost shown by the assessee. Thus mpugned addition made by the AO and sustained by the Ld. CIT(A) on account of difference in valuation of the showroom owned by the assessee alongwith another co-owner M/s Kalaneedhi Jeweller LLP, is deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ?2,04,85,395/- on account of alleged unexplained cash deposits.
2. Addition of ?7,96,905/- on account of unexplained investment in the construction of a showroom.

Detailed Analysis:

Issue 1: Addition of ?2,04,85,395/- on Account of Alleged Unexplained Cash Deposits

Background:
- A search operation under section 132 of the Income Tax Act, 1961 was conducted on 12/04/2017.
- The assessee filed its return of income declaring ?22,52,980/-. During assessment, it was noted that the assessee deposited ?2,90,20,000/- during the post-demonetization period.
- Two sets of books of accounts were found: one in the accountant's computer and another in a pen drive. Differences in sales figures for October 2016 were noted, with cash sales increased in one set.

Assessing Officer's Findings:
- The AO rejected the books of accounts under section 145(3) due to discrepancies and made an addition of ?2,19,85,395/- as unexplained money under section 69A, charging it to tax under section 115BBE.

Assessee's Arguments:
- The assessee maintained that the cash deposits were from accounted sales recorded in regular books.
- The sales were made from existing stock, and no defects in stock registers were found during the search.
- The statement of the accountant was recorded without cross-examination and should not be relied upon.
- The increase in sales was due to exhibitions and festive seasons.

CIT(A)'s Decision:
- The CIT(A) upheld the addition but provided relief of ?15,00,000/- considering the profit already declared on the sales.

ITAT's Findings:
- The ITAT noted that the assessee maintained proper books of accounts, and no defects were found in stock registers.
- The sales were recorded in regular books, and the cash deposited was from these sales.
- The ITAT emphasized that the AO did not provide an opportunity for cross-examination of the accountant.
- The addition was based on suspicion without disproving the sales with tangible evidence.
- The ITAT deleted the addition, noting that the cash sales were in line with previous years and the stock was accounted for.

Issue 2: Addition of ?7,96,905/- on Account of Unexplained Investment in Construction of Showroom

Background:
- The AO noted a discrepancy between the cost of construction shown by the assessee and the valuation by the Departmental Valuation Officer (DVO).
- The total investment shown by the assessee was ?1,12,33,334/- while the DVO estimated it at ?1,32,24,900/-.

Assessing Officer's Findings:
- The AO made an addition of ?7,96,905/- in the hands of the assessee, considering the difference in valuation.

Assessee's Arguments:
- The assessee argued that the difference was due to the application of CPWD rates instead of local PWD rates and a lower benefit of self-supervision.
- The assessee contended that the valuation is a matter of opinion and minor differences should be ignored.

CIT(A)'s Decision:
- The CIT(A) upheld the addition, noting that the AO rightly rejected the books of accounts due to discrepancies.

ITAT's Findings:
- The ITAT noted that the DVO applied CPWD rates, which are higher than local PWD rates, and allowed only 3.75% for self-supervision instead of 10%.
- The ITAT held that the difference in valuation was less than 10%, which is within permissible limits.
- The ITAT deleted the addition, emphasizing that valuation differences are a matter of opinion and should not lead to substantial additions.

Conclusion:
- The ITAT deleted the addition of ?2,04,85,395/- on account of alleged unexplained cash deposits, noting that the cash sales were accounted for and the addition was based on suspicion.
- The ITAT also deleted the addition of ?7,96,905/- on account of unexplained investment in the construction of the showroom, considering the minor difference in valuation and the application of higher CPWD rates.