2014 (8) TMI 1013 - AT - Income Tax

Assessment u/s 153A - unexplained expenditure under the head wages - Held that - The conclusion of the authorities below was that the assessee had not booked the complete expenditure on wages in its books of account as the numbers of the workers found during the course of survey were more than the list of workers available in the books of account. First of all the said survey was conducted at the premises of the assessee on 9.9.2004 when the said list was prepared. The conclusion of the said survey could not be applied while completing the assessment pursuant to search carried out at the premises of the assessee under section 132 of the Act. Secondly there was no merit in the said addition being made in the hands of the assessee as the explanation of the assessee that the workers of the two concerns were totally considered in the list of workers prepared by the survey team for the assessee firm cannot be ignored. The said list of 59 workers was prepared on 9.9.2004 and the plea of the assessee was that the said 59 workers as on the date of survey belonged to the assessee and its sister concern. The requisite list of workers employed with either of the concerns were filed on record. Merely because the said statement was confronted to one of the partners who had signed the list does not establish that the workers belonged to the firm in which he was a partner i.e. the assessee firm before us. In the absence of any concrete evidence found we find no merit in the orders of the authorities below and no addition is warranted in the hands of the assessee on the basis of said list prepared by the survey team where the assessee had clearly explained its case that the said total number of workers belonged to two concerns and not to the assessee itself. In any case the additions in the hands of the assessee for the years under consideration have been made on pure estimation as no evidence of excess workers was found in the years under appeal. - Decided in favour of assessee. Sales made outside the books of account - Held that - Addition is based on the documents seized from the residence of the partners of the assessee. The said documents reflected the quantity of goods sold and the persons to whom sold date-wise and the assessee had admitted having made kabari sales of waste material. In view thereof the we uphold the addition of Rs. 4, 55, 185/- on account of seized documents. - Decided against assessee Estimated profit of short stock found on the date of search - Held that - As the addition on account of sale depicted in the seized documents being outside the books of account and on account of the explanation given by the assessee already upheld that the discrepancy stands reconciled on account of the GP rate to be applied and other discrepancies explained by the assessee there is no merit in any further addition. Another aspect to be kept in mind is that the information gathered by the Income Tax Department during the search proceedings were forwarded to the Excise Department who in turn visited the premises of the assessee and found no discrepancy in the stock. In the totality of the facts and circumstances we find no merit in the addition made on account of estimated profit of short stock found on the date of search. - Decided in favour of assessee

Summary

Issues Involved:
1. Addition on account of unexplained expenditure under the head "wages."
2. Addition on account of income of Meena Garg being treated as income of the assessee on a substantive basis.
3. Addition on account of difference in valuation of the building based on the report of the Valuation Officer.
4. Addition on account of estimated profit on short stock found during the search.
5. Addition on account of unaccounted sales calculated on the basis of material seized during the search.

Detailed Analysis:

1. Addition on Account of Unexplained Expenditure Under the Head "Wages":
The assessee challenged the addition of Rs. 2,67,443/- made by the Assessing Officer (AO) for the assessment year 2001-02 on account of unexplained expenditure under the head "wages." The AO had computed the total wages based on a list of workers prepared during a survey and found a discrepancy with the wages booked in the books of account. The assessee argued that the list included workers from two sister concerns, M/s Punjab Plywood Industries and M/s Aggarwal Wood Industries, and that the AO made the addition without rejecting the books of accounts. The Tribunal found merit in the assessee's plea, noting that the list included workers from both concerns and that no concrete evidence supported the AO's findings. Consequently, the Tribunal directed the AO to delete the addition.

2. Addition on Account of Income of Meena Garg Being Treated as Income of the Assessee on a Substantive Basis:
The assessee contested the addition of Rs. 1,44,210/- for the assessment year 2002-03, arguing that the income from M/s Punjab Timber Trading Company, a sole proprietary concern of Meena Garg, should not be assessed in the assessee's hands. The Tribunal noted that the income from the said concern had already been assessed in Meena Garg's hands and directed the AO to delete the addition.

3. Addition on Account of Difference in Valuation of the Building Based on the Report of the Valuation Officer:
The AO made an addition of Rs. 70,33,524/- based on the Valuation Officer's report, which valued the building higher than the cost shown by the assessee. The Tribunal, referring to the Supreme Court's decision in Sargam Cinema Vs. CIT, held that no addition could be made without rejecting the books of account. Consequently, the Tribunal directed the AO to delete the addition.

4. Addition on Account of Estimated Profit on Short Stock Found During the Search:
The AO added Rs. 10,98,211/- as estimated profit on short stock found during the search. The assessee argued that the stock inventory was not properly prepared and that the discrepancy was due to the GP rate applied. The Tribunal found merit in the assessee's plea, noting that the GP rate declared by the assessee had been accepted by the AO and that the discrepancy in stock was reconciled. The Tribunal directed the AO to delete the addition.

5. Addition on Account of Unaccounted Sales Calculated on the Basis of Material Seized During the Search:
The AO added Rs. 39,90,000/- based on seized documents indicating unaccounted sales. The CIT (Appeals) deleted the addition, noting that the assessee had provided a reconciliation statement and that the AO had not rebutted the documents. The Tribunal upheld the CIT (Appeals)'s decision, finding no infirmity in the deletion of the addition.

Conclusion:
The Tribunal allowed the appeals of the assessee concerning the additions on account of unexplained expenditure under the head "wages," income of Meena Garg, difference in valuation of the building, and estimated profit on short stock. The Tribunal also upheld the deletion of the addition on account of unaccounted sales. The appeal of the Revenue was dismissed.