2013 (8) TMI 672 - AT - Income Tax

Surrender of Sale (income) - whether unaccounted sundry debtors are part of surrendered sale - Unaccounted sale and debtors - Search conducted u/s 132 of the Income Tax Act - Assessment u/s 153A of the Act - Held that - The total amount of surrender was included in the income of assessee in its computation of income - The amount of Rs. 84.20 lacs is on account of outstanding debtors not recorded in the books of accounts - During search proceedings, the assesssee had surrendered a particular amount representing various undisclosed assets including sundry debtors of Rs.84.20 lacs. When all other undisclosed assets has been accepted as income for A.Y 2007-08, the Assessing Officer was not justified in splitting this particular asset on the basis of seized material Also, Sh. Naveen Jindal had agreed that the amount of Rs.84.20 lacs was debtors out side the books of accounts on 15.01.2007 which was surrendered and was a part of total surrender of five crores Appeal allowed Decided in favor of Assessee. Disallowance of telephone, car expenses etc Held that - No incriminating material was found in respect of such expenses which could enable the Assessing Officer to disallow a part of it during proceedings u/s 153A Thus, relying upon the judgment in the case of Jai Steels India vs. CIT in 2013 (6) TMI 161 - RAJASTHAN HIGH COURT , it was held that in case of assessment u/s 153A, the completed assessment can be tinkered only on the basis of incriminating material found during search - Without any incriminating material Assessing Officer was not justified in making disallowance Decided in favor of Assessee.

Issues Involved:
1. Addition of Rs.31,10,000/- on account of unaccounted scrap sales.
2. Ad-hoc disallowance of Rs.3,16,300/- for telephone, car running and maintenance, and depreciation.
3. Charging of interest under sections 234A and 234B of the Income Tax Act, 1961.
4. Addition of Rs.88,140/- on account of unexplained cash sales.
5. Addition of Rs.3,89,579/- on account of unexplained petty cash sales.
6. Addition of Rs.5,72,167/- on account of alleged difference in stock.
7. Telescopic adjustment of additions against the disclosure of Rs.38,28,352/-.
8. Credit for cash seized amounting to Rs.1,01,50,000/- at the time of search.

Detailed Analysis:

1. Addition of Rs.31,10,000/- on account of unaccounted scrap sales:
The assessee argued that the figure of Rs.84.20 lacs was offered to tax for the assessment year 2007-08, and the Assessing Officer (AO) was not justified in splitting the same into two years. The AO inferred from seized documents that the sale of scrap outside the books for the financial year 2004-05 was Rs.31.10 lacs. The CIT (A) upheld the AO's decision, stating that the amount of Rs.31,10,000/- pertained to the scrap sold in the period relevant to the assessment year 2005-06. The Tribunal found that the amount of Rs.84.20 lacs represented the total outstanding debtors not recorded in the books of accounts as on 15.01.2007 and allowed the assessee's appeal, stating that the AO was not justified in splitting the surrender amount.

2. Ad-hoc disallowance of Rs.3,16,300/- for telephone, car running and maintenance, and depreciation:
The AO disallowed 1/8th of these expenses considering the element of personal use by partners. The CIT (A) upheld this disallowance. However, the Tribunal observed that no incriminating material was found in respect of such expenses during proceedings under section 153A, and therefore, the AO was not justified in making the disallowance. The Tribunal allowed the assessee's appeal on this ground.

3. Charging of interest under sections 234A and 234B of the Income Tax Act, 1961:
This issue was deemed consequential and did not require adjudication by the Tribunal.

4. Addition of Rs.88,140/- on account of unexplained cash sales:
The AO made this addition based on a document showing cheque and cash payments received by the assessee. The CIT (A) directed the AO to allow telescopic adjustment of this addition against the total disclosure of Rs.38,28,352/-. The Tribunal found that the AO was not justified in making further additions as the amount under the head "Others" was surrendered to cover any discrepancies found during the search.

5. Addition of Rs.3,89,579/- on account of unexplained petty cash sales:
Similar to the previous issue, the AO made this addition based on another document. The CIT (A) directed the AO to allow telescopic adjustment of this addition against the total disclosure of Rs.38,28,352/-. The Tribunal upheld this decision, stating that the AO was not justified in making further additions.

6. Addition of Rs.5,72,167/- on account of alleged difference in stock:
The AO made this addition based on the difference in stock as per books of accounts and as per valuation done at the time of search. The CIT (A) directed the AO to allow telescopic adjustment of this addition against the total disclosure of Rs.38,28,352/-. The Tribunal upheld this decision, stating that the AO was not justified in making further additions.

7. Telescopic adjustment of additions against the disclosure of Rs.38,28,352/-:
The CIT (A) directed the AO to allow telescopic adjustment of the additions against the total disclosure of Rs.38,28,352/-. The Tribunal upheld this decision, stating that the AO did not point out anything which had covered the amount of Rs.38,28,352/- as additions.

8. Credit for cash seized amounting to Rs.1,01,50,000/- at the time of search:
The assessee requested the Department to adjust the cash seized during the search against the tax liability. The CIT (A) rejected this contention on the ground that the request was made after the dates for payment of advance tax had expired. The Tribunal upheld this decision, stating that the CIT (A) rightly rejected the ground of appeal.

Conclusion:
The Tribunal allowed the appeal of the assessee for the assessment year 2005-06 partly, while the appeals of both the assessee and the Revenue for the assessment year 2007-08 were dismissed. The Tribunal upheld the CIT (A)'s directions for telescopic adjustments and found that the AO was not justified in making further additions.

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