Valuation is a matter of opinion / estimation: No addition should be made for reasonable difference between the expenditure actually incurred vis a vis valuation done by DVO
ITAT Chandigarh has recently held that Valuation is a matter of opinion / estimation: No addition should be made for reasonable difference between the expenditure actually incurred vis a vis valuation done by DVO. Another issue in this case was with regard to the addition towards the cash deposit in the bank account during demonetization period. The ITAT held that if Sales made by the assessee to cover the cash deposited in the bank post demonetization was sufficient source of the cash deposited then addition made by the AO is not justified.
The case detail is as under:
ITAT CHANDIGARH
SMT CHARU AGGARWAL, M/S KALANEEDHI JEWELLERS LLP VERSUS THE DCIT CENTRAL CIRCLE PATIALA-147001, PUNJAB
ITA No. 310/Chd/2021 And ITA No. 311/Chd/2021
Let us have a short overview of the case.
The issue was with regard to the addition of some amount as Unexplained cash deposits.
Deposits in the regular bank account of the assessee was done by assessee during demonetization period.
There was a certain difference in the cash sales and 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 regular partnership concerning 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 the computer were compared with that of pen drive there was a difference in the sales figures of October 2016.
With above facts of the case, ITAT has held as under:
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 a higher side in other 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.
With this, the issue was decided in favour of the assessor.
The next issue was with regard to the 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 was added.
ITAT observed as under:
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 the 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 impugned 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 along with another co-owner M/s Kalaneedhi Jeweller LLP, is deleted.
With this, the issue was decided in favour of the assessee.
