2024 (9) TMI 359 - AT - Income Tax

Unexplained Investment in Immovable property u/s 69 - Addition on the basis of audio recording - as per assessee AO made the same addition in the hands of the vendor also towards suppressed consideration - CIT(A) allowed the appeal stating that there is no conclusive evidence brought on record by the AO that the vendor has received on-money in the alleged transaction, and the addition made is merely based upon the assumption and presumption - HELD THAT - CIT(A) while passing the order in vendor s case, relied on the cross-examination wherein the parties to the transaction have denied the exchange of on-money. Since, the matter is concurrent to that extent and the learned D.R. failed to demolish the binding precedent of the finality in case of seller, we find no compelling reason to differ from the decision taken in the case of the vendor, who is a party of the alleged transaction. Consequently, addition made by the AO and confirmed by the learned CIT(A) deleted - Decided in favour of assessee. Estimation of profit @ 8% based on seized material - CIT(A) reduced the profit rate to 5% - HELD THAT - It is well-settled that in the case of sales, the Revenue has to make an honest and fair estimate of the income by applying the profit rate declared in the preceding years. Considering that the assessee is engaged in the business of trading in Kirana items, we are of the opinion that the profit at the rate of 4% shall meet justice. Therefore, we reduce the net profit rate to 4%. Whether the additional income declared by the assessee of ₹ 75 lakh covers the addition based on 4% net profit estimated on the turnover? - HELD THAT -We find that the learned CIT(A) has recorded that the assessee offered ₹ 75 lakh as additional income, which duly covers the profit @ 4% on the total turnover and hence needs to be telescoped. Hence no separate addition is warranted and the entire addition of net profit as modified is deleted. In effect, the returned income is directed to be modified in the light of the above discussions.

Issues Involved:
1. Legality of the order framed under Section 250 by the CIT(A).
2. Addition of Rs. 33,00,000/- for unexplained investment under Section 69.
3. Estimation of Net Profit (NP) ratio at 5% instead of 3%.
4. Consideration of additional income of Rs. 75,00,000/- declared by the assessee.

Detailed Analysis:

1. Legality of the Order Framed under Section 250 by the CIT(A):
This ground was considered general in nature and thus did not require separate adjudication.

2. Addition of Rs. 33,00,000/- for Unexplained Investment under Section 69:
The assessee challenged the addition of Rs. 33,00,000/- made by the Assessing Officer (AO) on the grounds of lack of legal evidence and failure to provide cross-examination. The AO had based this addition on an audio recording suggesting that the assessee paid on-money for purchasing an immovable property. The CIT(A) confirmed this addition, citing substantial evidence in the form of a recorded video conversation.

However, the Tribunal found that the same addition was made in the hands of the vendor, which was later deleted by the CIT(A) during the appellate proceedings. The Tribunal noted that the audio recording was taken at the back of the assessee and was never provided to him, violating principles of natural justice and Section 65B of the Indian Evidence Act, 1872. Consequently, the Tribunal deleted the addition of Rs. 33,00,000/- made by the AO and confirmed by the CIT(A), aligning with the decision in the vendor's case.

3. Estimation of Net Profit (NP) Ratio at 5% Instead of 3%:
The AO estimated the profit at 8%, which the CIT(A) reduced to 5%. The assessee argued that the profit ratio in the trading business should not exceed 3%, based on historical data. The Tribunal agreed that the profit should be estimated based on comparable profits declared in preceding years and reduced the NP ratio to 4%, considering the nature of the assessee's business in trading Kirana items.

4. Consideration of Additional Income of Rs. 75,00,000/- Declared by the Assessee:
The issue was whether the additional income of Rs. 75,00,000/- declared by the assessee covered the addition based on the 4% NP estimated on the turnover. The CIT(A) recorded that this additional income, declared under the head Business and Profession, covered the profit at 4% on the total turnover. The Tribunal agreed, stating that the additional income needs to be telescoped, and no separate addition is warranted. The returned income was directed to be modified accordingly.

Conclusion:
The appeal filed by the assessee was allowed. The Tribunal deleted the addition of Rs. 33,00,000/- and reduced the NP ratio to 4%, while also considering the additional income of Rs. 75,00,000/- declared by the assessee. The order was pronounced in the open Court on 02/09/2024.

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