2015 (3) TMI 492 - AT - Income Tax

Subsidy receipt - whether capital or revenue receipt? - Held that - In this case subsidy was provided for setting up of industry in the backward area but in our opinion, that is not important because if the Government of Punjab decided to encourage the industry and particularly small scale industry in the whole State then nature of such subsidy would not change. In case before us, the subsidy was given in the category of small scale industry and under further sub- head export oriented units. The subsidy is directly related to plant and machinery. Therefore in our opinion, in this background the subsidy is clearly of capital nature and accordingly we set aside the order of the learned Commissioner of Income-tax (Appeals) and hold that subsidy received by the assessee from the Government of Punjab is in the nature of a capital receipt. - Decided in favour of assessee. Inflation of salary and wages - Addition on account of various workers employed by the assessee - CIT(A) deleted part addition - Held that - Assessing Officer has clearly accepted the position in respect of duplication of attendance cards in respect of 35 workers but still he did not mention that this was a mistake. Similarly even after having records in respect of payment to contractor no comments were offered. However, the learned Commissioner of Income- tax (Appeals) mentioned that 26 persons have left job in the month of August and 14 in the month of September and this was verified by the AO but the same does not explain the discrepancy. We fail to understand if the workers have left and that fact has been verified then how it can be said that the assessee has failed to explain the discrepancy. Finally the assessee has produced wages and salary register for verification and for which no comments were given and even the CIT (Appeals) has not given any findings. In our opinion, the assessee has successfully explained the existence of extra attendance cards in respect of the number of the cards found during the survey but however, at the same time if we consider the case of 26 persons who had left the job in the month of August and September 2008 full explanation is not available. Therefore inflation of salary and wages cannot be ruled out totally. Ends of justice would meet if a disallowance of ₹ 8 lakhs is made in respect of inflation of salary and wages in this case - Decided partly in favour of assessee. Valuation of the closing stock - undisclosed sales - CIT(A) deleted addition - Held that - Assessing Officer suspected that the assessee has indulged in unaccounted sales, are not there. The first ingredient in this regard is impounding of list of C-Form which was matched by the assessee with the actual sales conducted in the earlier years. Secondly there was no proper application of the rates for which proper evidence was furnished and proper objections were filed before the Assessing Officer which was simply rejected because same were numerous. Thirdly some stock was lying in Madhya Pradesh for which proper evidence has been filed. One more aspect was considered for determining of undisclosed sales and it was that the assessee had employed more workers then actually shown in the books of account and for which addition of ₹ 86,57,239 was made on that account which was reduced to ₹ 43,69,886 by the learned Commissioner of Income-tax (Appeals) because he accepted the contention regarding duplication of workers and contractor workers. However, we have already adjudicated this ground in abovenoted paragraphs and addition has been reduced to only ₹ 8 lakhs which was made only on estimated basis by us. Therefore this factor is also not available for the conclusion that the assessee had undisclosed sales. We also find force in the submission that during survey proceedings or otherwise the Revenue has not brought any material on record in the form of any sales bills or diary notings that some sales have been conducted outside the books of account. Therefore in our opinion, this addition is totally uncalled for and accordingly we delete the same. - Decided in favour of assessee.

Issues Involved:
1. Reasonable Opportunity During Assessment Proceedings
2. Nature of Capital Subsidy
3. Addition Under Section 36(1)(iii)
4. Addition on Account of Salary and Wages Outside Books
5. Addition on Account of Alleged Sales Outside Books
6. Estimation of Sales and Unaccounted Income

Detailed Analysis:

1. Reasonable Opportunity During Assessment Proceedings:
The appellant argued that the Commissioner of Income-tax (Appeals) erred in holding that reasonable opportunity was provided during the assessment proceedings. The Tribunal noted that the main grievance was the late examination of documents found during the survey. However, it was admitted that sufficient opportunity was given during the assessment proceedings. The Tribunal emphasized that the Revenue should have started the investigation earlier, but concluded that this ground was of academic nature and did not require further comment.

2. Nature of Capital Subsidy:
The appellant received a subsidy of Rs. 17,75,000, which was treated as capital subsidy under the Industrial Policy 1996 of the Punjab Government. The Assessing Officer considered it as revenue receipt, relying on various judicial decisions. The Commissioner of Income-tax (Appeals) agreed with the Assessing Officer. However, the Tribunal found that the subsidy was for setting up new industries and was directly related to plant and machinery, making it a capital receipt. The Tribunal relied on the Supreme Court decision in CIT v. Ponni Sugars and Chemicals Ltd. and the Punjab and Haryana High Court decision in CIT v. Siya Ram Garg (HUF), setting aside the order of the Commissioner of Income-tax (Appeals) and holding the subsidy as a capital receipt.

3. Addition Under Section 36(1)(iii):
This issue was not specifically detailed in the summary provided.

4. Addition on Account of Salary and Wages Outside Books:
The Assessing Officer made an addition of Rs. 86,57,239, later reduced to Rs. 43,69,886 by the Commissioner of Income-tax (Appeals). The Tribunal noted various reconciliations and verifications, including duplication of attendance cards, workers paid through contractors, and workers who left the job. The Tribunal concluded that there was some inflation of salary and wages but reduced the addition to Rs. 8 lakhs, which was accepted by both parties.

5. Addition on Account of Alleged Sales Outside Books:
The Assessing Officer identified unaccounted sales based on discrepancies in C-Forms and undervaluation of closing stock, leading to an addition of Rs. 4,23,09,315. The Commissioner of Income-tax (Appeals) reduced this to Rs. 2,13,48,943. The Tribunal found that the C-Forms matched the sales effected, and the valuation discrepancies were supported by purchase bills. The Tribunal also accepted the explanation regarding stock lying in Madhya Pradesh. It concluded that there was no evidence of sales outside the books and deleted the addition.

6. Estimation of Sales and Unaccounted Income:
The Assessing Officer estimated unaccounted sales and income based on the ratio of salary and wages to sales. The Commissioner of Income-tax (Appeals) revised this based on the recomputed salary and wages. The Tribunal, however, found no basis for the estimation of unaccounted sales, considering the reconciliations and explanations provided. It deleted the addition, allowing the assessee's appeal and dismissing the Revenue's appeal.

Conclusion:
The Tribunal provided a comprehensive analysis of each issue, emphasizing the need for proper verification and evidence. It allowed the assessee's appeal partly, reducing the addition on salary and wages to Rs. 8 lakhs, and deleted the addition on account of alleged sales outside the books. The Revenue's appeal was dismissed.

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