2014 (1) TMI 1890 - AT - Income Tax

Unexplained stock - survey u/s 133(A) - addition is solely based on admission made by the Director Shri Hem Raj Jain, recorded on oath during survey proceedings - HELD THAT - As gone through the relevant portion of this statement also any statement recorded during survey proceedings conducted u/s 133A of the Act has no evidentiary value is found to be a correct position of law. This Bench has clearly spelt out this issue in favour of the assessee in the case of M/s. Unique Art Age 2014 (1) TMI 1075 - ITAT JAIPUR - thus we exclude the admission made in the statement for supporting the impugned addition. Whether de hors this statement can any addition in this item be made or sustained - We are of the considered opinion that difference in stock is not real. The survey party has quantified the stock of around 2,48,000 kg of butter and ghee on the same day which is humanly impossible on same day. The AO has assumed and presumed that difference in quantity of raw material i.e. Butter and Milk cream of 20,974 kg on account of maximum quantity could be storage of 94,000 kg and physically stock quantified by the survey team at 1,14,974 kg was due to the fact that quantity of butter was in process. This fact has been ignored by the authorities below because when the AO himself quantified the butter in process at 4,930 kg then how the same could be at 20,974 kg . Further, we are satisfied that inventory sheet prepared during the course of survey was not provided to the assessee despite repeated requests made by it. AO has accepted the declared results and has not invoked the provision of Section 145(3) of the Act. The AO has not found any material defect in the books of account. Accordingly, the impugned addition on merits is also not sustainable and the same is deleted. Thus Ground Nos. 1 and 1.1 of the assessee are allowed. Bogus purchases - purchases made from unregistered dealers - HELD THAT - Purchases made from villages cannot be doubted as they are not found to be related to the director of the assessee company. AO has not made any direct enquiry and has failed to bring any corroborative material on record to support his conclusion and has based the addition solely on the statement of the director recorded during survey - No reason to uphold the findings of the ld. CIT(A) who has treated some part of these purchases as bogus. The assessee has discharge its burden by establishing the identity of the suppliers and there is no evidence to suggest that there is inflation in purchase price. Therefore, we cannot ignore the purchase price recorded in the purchase vouchers found during the course of survey which are duly recorded in the stock inventory and the consumption and production have not been doubted with the help of any evidence on record - Addition is uncalled for - Decided in favour of assessee. Unexplained investment in the construction of office - as during the course of survey a surrender of ₹ 4.00 lacs was made on account of renovation of office premises - HELD THAT - Both the authorities below have ignored the fact that this addition is also based on simply the surrender made by the director of the assessee company which stands disproved with the help of existing evidence. The assessee has filed all the necessary details of the expenditure incurred alongwith copy of ledger account of repairs and maintenance and copy of ledger account of fixed assets. These papers are also enclosed in the assessee's paper book filed before us. The AO has not pointed out any defect in the same. Therefore, without bringing any contrary material to substantiate the admissions made by the director of the assessee company and that too during the course of survey, cannot be upheld. The expenditure incurred on computer etc. related to Office also stands supported by the evidence on record. Therefore, we order to delete the impugned addition - Decided in favour of assessee. Disallowance on account of telephone expenses - AO made a lumpsum disallowance @ 20% of the total expenses mainly on account of personal user by the director of the assessee company - HELD THAT - In the case of a company, the usage of telephone etc. on account of non-business purposes cannot be added in the hands of the company, particularly because the company has a separate legal entity and its entire business is conducted through the directors. In case any benefit is drawn by the director, the director has to suffer the Fringe Benefit Tax at the prescribe rates which it has already suffered. Accordingly, we order to delete the entire expenditure. - Decided in favour of assessee. Disallowance of employees contribution to PF and ESI on the reasoning that these payments were delayed - disallowance has been confirmed by the ld. CIT(A) on the ground that the provisions of Section 43(b) are applicable in respect of employer s contribution to PF or ESI and not to employees contribution - HELD THAT - This issue now stands covered to the effect that employees/ employer s contribution to PF or ESI are deposited or paid before filing of return. These are allowable. The Hon'ble Apex Court in the case of CIT vs. Vinay Cements 2007 (3) TMI 346 - SC ORDER has replied to various queries raised in this regard by different decisions/ orders. This issue has been further churned with reference to Hon'ble Supreme Court decision reported in the case of CIT vs. Vinay Cement (supra) by Hon'ble Gauhati High Court while deciding the case of CIT vs. George Williamsons Ltd. 2006 (6) TMI 71 - GAUHATI HIGH COURT . Accordingly, we order to delete this addition from the hands of the assessee and allow the Ground of the assessee. Unaccounted receipt of share capital - unaccounted income of the assessee company - HELD THAT - The law on this subject is settled to this extent if the identity of the share applicants is established. There is no further need to prove anything by the assessee company even the creditworthiness of the applicants. In this regard, the decision of Hon'ble Jurisdictional High Court in the case of Barkha Synthetics Ltd. 2005 (8) TMI 67 - RAJASTHAN HIGH COURT is relevant. The other main decision of Hon'ble High Court which support our above findings is that of Arawali Trading Co. 2007 (1) TMI 567 - RAJASTHAN HIGH COURT , inter alia. Therefore, we find no infirmity in the order of the ld. CIT(A) Accordingly, this addition has been correctly deleted from the hands of the assessee company. - Decided against revenue.

Summary

Issues Involved:
1. Addition on account of alleged excess stock found during survey.
2. Addition on account of inflation in purchases.
3. Addition on account of unexplained investment in office renovation.
4. Disallowance of telephone expenses.
5. Disallowance of late deposit of PF and ESI.
6. Addition on account of bogus purchases.
7. Addition on account of share application money.

Detailed Analysis:

1. Addition on Account of Alleged Excess Stock Found During Survey:
The assessee contested the addition of Rs. 2,01,89,800/- made by the Assessing Officer (A.O.) for alleged excess stock found during a survey conducted under Section 133A of the Income Tax Act. The assessee argued that the stock inventory taken by the survey team was not physically possible to store in the available space and that the stock was not properly quantified. The Tribunal noted that the survey team quantified around 2,48,000 kg of butter and ghee in one day, which was humanly impossible. The Tribunal also acknowledged that the inventory sheet was not provided to the assessee, and the A.O. did not find any material defect in the books of accounts. The Tribunal, relying on the Supreme Court's decision in CIT vs. Khader Khan, held that statements recorded under Section 133A have no evidentiary value. Consequently, the addition was deleted.

2. Addition on Account of Inflation in Purchases:
The A.O. made an addition of Rs. 27,45,862/- on account of alleged inflation in purchases from unregistered dealers. The CIT(A) reduced this addition and gave telescoping effect, resulting in no separate addition. The Tribunal found that the assessee maintained day-to-day quantitative records and provided sufficient evidence to prove the genuineness of purchases. The Tribunal noted that the A.O. accepted the trading results and did not find any defects in the books of accounts. The Tribunal concluded that the sustained addition of Rs. 27,45,862/- was uncalled for and deleted it.

3. Addition on Account of Unexplained Investment in Office Renovation:
The A.O. made an addition of Rs. 4,00,000/- for unexplained investment in office renovation based on a surrender obtained during the survey. The assessee argued that the office was on rent, and only minor repairs were done, which were properly accounted for. The Tribunal found that the addition was solely based on the director's surrender during the survey, which was disproved by existing evidence. The Tribunal ordered the deletion of the addition.

4. Disallowance of Telephone Expenses:
The A.O. disallowed Rs. 66,439/- (20% of the claimed amount) for telephone expenses, assuming personal use by the directors. The Tribunal held that in the case of a company, non-business use of telephone expenses cannot be added to the company's income, particularly when Fringe Benefit Tax (FBT) has already been paid. The Tribunal deleted the entire disallowance.

5. Disallowance of Late Deposit of PF and ESI:
The A.O. disallowed Rs. 72,157/- for late deposit of PF and ESI. The Tribunal noted that if the payments are made before filing the return, they are allowable. Relying on the Supreme Court's decision in CIT vs. Vinay Cements, the Tribunal deleted the disallowance.

6. Addition on Account of Bogus Purchases:
The A.O. made an addition of Rs. 1,61,50,168/- for purchases from unregistered dealers, alleging them to be bogus. The CIT(A) reduced this addition to Rs. 27,45,862/-. The Tribunal found that the assessee provided sufficient evidence to prove the genuineness of the purchases, including names, addresses, and identity proofs of the suppliers. The Tribunal concluded that the purchases were genuine and deleted the sustained addition of Rs. 27,45,862/-.

7. Addition on Account of Share Application Money:
The A.O. added Rs. 25,00,000/- as unaccounted income, claiming that the share application money was arranged through relatives and represented the assessee's unaccounted income. The CIT(A) deleted this addition. The Tribunal noted that the assessee provided sufficient evidence to establish the identity of the share applicants. Relying on the jurisdictional High Court's decision in Barkha Synthetics Ltd. vs. ACIT, the Tribunal held that there was no need to prove the creditworthiness of the applicants once their identity was established. The Tribunal upheld the deletion of the addition.

Conclusion:
The Tribunal allowed the assessee's appeal, deleting the additions and disallowances made by the A.O., and dismissed the Revenue's appeal, upholding the CIT(A)'s relief granted to the assessee.