2019 (12) TMI 1112 - AT - Income Tax

Estimation of turnover - CIT(A) resorting to the weighted average method - appellant has shown gross receipts from retail trading on the basis of turnover - counsel submitted that the assessee has shown income as per provisions of section 44AF - HELD THAT - Undisputedly, for the relevant assessment year, the appellant has disclosed total gross receipts of ₹ 28,98,562/- and shown net profit @ 10% to arrive at business income of ₹ 2,89,856/-, which is higher than the rate of 5% prescribed by the legislature for computing the profits and gains of retail business, who have turnover less than ₹ 40 lakhs during the relevant financial period. Therefore, as noted that the assessee herself has shown higher percentage of net profit of the turnover. Since there is no dispute regarding estimation of net profit, therefore, no further addition is required on this point. From the assessment as well first appellate order, unable to see any valid reason or show cause to the assessee by the authorities below before making any addition on account of closing stock found during the survey. It is well established principle of business of accounting that if the assessee s income of the assessee has been shown or estimated u/s.44AF then the assessee is not required to maintain any books of account and no further addition or disallowance is called for regarding his trading expenditure or any other account. Therefore, the addition made on the basis of closing stock found during the survey cannot be held as sustainable. I may point out that even if the authorities below want to tinker the point of closing stock found during the survey, then they are also required to consider the opening stock of the assessee at the beginning of the financial year i.e. on 1.4.2009 otherwise, addition on account of closing stock cannot be made in the hands of the assessee especially when the assessee herself is showing higher percentage of net profit on the turnover undertaken during the relevant financial period. Accordingly, Ground No.B is allowed. Unexplained investment - appellant could not produce any evidence before the CIT(A) to justified the source of such income - assessee is legal heir of parents and got all the movable and immovable property after their demise - HELD THAT - AO has made addition by invoking the provisions of section 69 of the Act without any specific provisions of the Act and the assessee has substantially established that she had sufficient source of funds in the form of her accumulated saving for the last 15 years, against sale of property and jewellery and other valuables received from her parents on their death. Therefore, unable to agree with the contention of the lower authorities for making the addition and confirming the same. - Decided in favour of assessee.

Summary

Issues:
1. Dispute over the method of estimating profits in a retail trading business.
2. Addition made on account of closing stock without considering opening stock or providing a show cause notice.
3. Addition of unexplained investment amount and justification of the source of income.

Analysis:
1. The first issue revolves around the dispute regarding the method of estimating profits in a retail trading business. The appellant argued against the weighted average method used by the authorities, stating that the turnover method was appropriate. The appellant's net profit was higher than the statutory minimum of 5%, and it was noted that no further addition was necessary as the appellant had already disclosed a higher percentage of net profit on the turnover, as required by section 44AF of the Income Tax Act. The Tribunal allowed this ground of appeal, emphasizing that no additional addition was warranted.

2. The second issue pertains to the addition made on account of closing stock without considering the opening stock or providing a show cause notice to the appellant. The Tribunal highlighted that under section 44AF of the Act, if the income is shown or estimated as per this provision, the appellant is not required to maintain any books of account. Therefore, any addition based on closing stock found during a survey was deemed unsustainable without considering the opening stock. The Tribunal directed the deletion of the addition related to closing stock, as no valid reason or show cause notice was provided to the appellant.

3. The final issue involves the addition of an unexplained investment amount. The appellant provided detailed explanations regarding the sources of the investment, including funds accumulated over 15 years, sale of property, and inheritance from parents. The Tribunal considered various undisputed facts, such as the appellant being the sole legal heir of her parents and the income shown in previous returns. The Tribunal concluded that the appellant had sufficient sources of funds for the investment and directed the Assessing Officer to delete the addition of the unexplained investment amount. The Tribunal allowed this ground of appeal, emphasizing the appellant's established sources of funds.

In conclusion, the Tribunal ruled in favor of the appellant on all three issues, directing the deletion of the additions made by the lower authorities. The judgment provided detailed analyses of each issue, emphasizing the statutory provisions and factual explanations presented by the appellant to support their case.