2018 (10) TMI 358 - AT - Income Tax

Assessment u/s 153A - Addition on account of unaccounted income from scrap sales - Held that - When we examine document A-2/B-3 scrap sale pertaining to AY 2003-04 is of ₹ 15,58,435/-. When it is not in dispute that incriminating material A-2/B-3 containing detail of scrap sale was seized during search and seizure operation, the AO was not permitted to resort to estimating to make addition on account of sale of scrap @ 1% of the total raw material consumed, particularly when the assessment is being made u/s 153A of the Act. So, we are of the considered view that in AY 2003-04, ld. CIT (A) has rightly deleted the addition by confirming the remaining addition of ₹ 15,58,435/-. So, ground no.1 in AY 2003-04 is determined against the Revenue. Addition on payment on account of speed money - Held that - When it is not in dispute that the assessee has been making payment on account of speed money varying from 0.8% to 2.58% of the project value/contract value, the AO has rightly assessed the amount of ₹ 30,85,500/- @ 0.75% of ₹ 41.14 crores for AY 2003-04 and ₹ 43,37,000/- @ 0.75% of ₹ 61.83 crores for AY 2004-05 by treating the same to have been paid out of unaccounted income generated from scrap of sale. Since the assessee has failed to explain the availability of funds with him to explain the entries made in the seized material pertaining to the speed money so as to work out as to which of the amount pertains to a particular assessee in group cases on account of speed money, the benefit of telescoping cannot be given to it. So, in these circumstances, ld. CIT (A) has erred in reversing the order of the AO in assessing the speed money at ₹ 30,85,500/- & ₹ 43,37,000/- for AYs 2003-04 & 2004-05 respectively. So, the findings returned by the ld. CIT (A) on this ground are hereby reversed and findings of AO are restored. - Decided in favour of the Revenue. Transformer oil as returned by the customers not taken in the figure of sales in FY 2002-03 as per audit report - Held that - Assessee has not produced stock register showing returned quantity of transformer oil and the said sale made because of the fact that due to search and seizure operation their record was scattered. Merely because of the fact that assessment for the year under consideration as completed u/s 153A / 143 (3), particularly when incriminating material was seized on the basis of which different additions were made and the fact that the assessee has itself admitted the sale and then alleged return of the transformer oil in question, the ld. CIT (A) could not have arrived at the decision to delete the addition made by the AO. This issue is required to be remanded back to the AO to decide afresh. Addition on account of business expenses - Held that - CIT (A) has restricted the addition to ₹ 1,00,000/- by taking into account the facts highlighted by AO during framing of assessment of the assessee u/s 143 (3) on 29.12.2006, the addition of ₹ 3,00,000/- was made on the admission of the assessee, and confirmed the remaining addition of ₹ 1,00,000/-. Keeping in view the fact that when, as per findings returned by the AO, addition of ₹ 3,00,000/- made in the assessment u/s 143 (3) was confirmed vide impugned order only remaining addition of ₹ 1,00,000/- was to be explained by the assessee who has not preferred to produce the account books supported with bills and vouchers to explain the genuineness of the expenses. So, we are of the considered view that this issue also requires to be sent back to the AO to decide afresh - decided in favour of the Revenue for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition on account of unaccounted income from scrap sales.
2. Deletion of addition on account of estimated speed money expenses.
3. Deletion of addition on account of value of transformer oil returned by customers and not shown as closing stock.
4. Deletion of addition on account of unvouched business expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unaccounted Income from Scrap Sales:

For AY 2003-04, the Assessing Officer (AO) added ?32,71,000 to the income of the assessee based on an estimation of scrap sales. The CIT (A) deleted ?17,12,565 of this addition, confirming only ?15,58,435. The Tribunal upheld the CIT (A)'s decision, stating that the AO was not permitted to estimate the addition based on the total raw material consumed, especially when the assessment was under section 153A of the Act. The Tribunal emphasized that additions should be based on incriminating material, not estimations.

For AY 2004-05, the AO estimated the scrap sale at ?62,94,000, which was deleted by the CIT (A) due to the absence of incriminating material. The Tribunal supported this view, citing the Hon’ble jurisdictional High Court's decision in CIT vs. Kabul Chawla, which mandates that additions in assessments under section 153A should be based on seized incriminating material.

2. Deletion of Addition on Account of Estimated Speed Money Expenses:

The AO estimated speed money expenses at ?30,85,500 for AY 2003-04 and ?46,37,000 for AY 2004-05, based on seized material showing payments ranging from 0.8% to 2.58% of the project value. The CIT (A) deleted these additions by providing the benefit of telescoping. However, the Tribunal reversed the CIT (A)'s decision, restoring the AO's findings. The Tribunal noted that the assessee failed to provide details of speed money payments and could not explain the availability of funds for these payments, thus disallowing the benefit of telescoping.

3. Deletion of Addition on Account of Value of Transformer Oil Returned by Customers and Not Shown as Closing Stock:

The AO added ?42,34,562 for AY 2003-04, noting that transformer oil worth this amount was returned by customers but not shown in the sales figures. The CIT (A) deleted this addition, but the Tribunal remanded the issue back to the AO for fresh consideration. The Tribunal instructed the AO to verify the claim based on the stock register and other necessary records, as the assessee had not produced these documents during the initial assessment.

4. Deletion of Addition on Account of Unvouched Business Expenses:

For AY 2003-04, the AO disallowed ?3,00,000 for unvouched business expenses due to the non-production of books of accounts and vouchers. The CIT (A) deleted this addition, but the Tribunal remanded the issue back to the AO for fresh consideration, instructing the AO to verify the expenses based on the account books and vouchers.

For AY 2004-05, the AO disallowed ?4,00,000 for similar reasons, but the CIT (A) restricted the addition to ?1,00,000. The Tribunal, noting the absence of complete details and supporting documents, remanded this issue back to the AO for fresh verification.

Conclusion:
The appeals filed by the Revenue for AYs 2003-04 and 2004-05 were partly allowed for statistical purposes, with certain issues remanded back to the AO for fresh consideration and verification.