2019 (1) TMI 467 - AT - Income Tax

Eligibility for deduction u/s. 80IC on additional income - speed money/bribe paid by the assessee out of sale of scrap - 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. 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 Unvouched expenses 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 after providing an opportunity of being heard to the assessee. Disallowance of deduction u/s. 80IC of ₹ 1,55,96,115/- made by the Assessing Officer, we observe from the records that AO while calculating the disallowable profit of eligible units, has computed the claim u/s. 80IC on the basis of turnover of eligible units and non-eligible units. AO has not made any examination in depth as to the veracity of expenditure declared by the assessee to have been incurred on eligible and non-eligible units, particularly when the assessee could not be able to produce the books of accounts as well as bills and vouchers before the Assessing Officer so as to deduce correct profits eligible for deduction u/s. 80IC. We observe that for want of supporting documentary evidence or books of account, the doubt of the AO that the profit of non-eligible units was diverted to the eligible units with objective to claim deduction u/s. 80IC, cannot be said to be completely wrong. CIT(A) has only analysed the details furnished by the assessee and did not make any verification or examination thereof on the anvil of basic accounts or bills or vouchers so as to belie the contention of the Assessing Officer regarding diversion of profit of non-eligible units to the eligible units. CIT(A) has thus wrongly allowed the claim of assessee only on the basis of submissions made by it and the financial documents furnished by it without verifying the expenditure etc. from the books of account. We deem it expedient in the interest of justice to remit the matter back to the file of Assessing Officer for deciding the issue afresh Additional deduction bogus sales of scrap and bogus purchases admitted by the assessee itself - Held that - The assessee is maintaining both eligible and non-eligible units. Had the above said purchases and sales been proved to be made for his eligible units and accounted for in its profit and loss account, then the above said disallowance would have been eligible for deduction u/s. 80IC as it would have increased the eligible profit. But no such situation is existing in the instant case. The assessee has neither recorded the amounts of bogus purchases and bogus sales into its books of account, and it was only when the search took place, the assessee admitted them to be bogus. Thus, their disallowance cannot be used to increase such profit which is eligible for deduction u/s. 80IC of the Act. In view of this, the conclusion reached by the CIT(A) while considering the above disallowances for the purpose of deduction u/s. 80IC cannot be supported. Income of the appellant as included twice in the income - Held that - No justification to interfere with these findings of the ld. ACIT(A) as no litigant can be taxed twice on the same amount. On perusal of the financial statements and notes on accounts, we find that the amount of ₹ 1.75 crores had already been considered as income in the original return of income. However, the said amount was again included in the revised computation given during the assessment proceedings by mistake. We, therefore, do not find any mistake in the conclusions reached by the CIT(A) as above. Bogus purchases - rectification application - Held that - CIT(A) while deleting the addition has considered the rectification order u/s. 154 made by the Assessing Officer and the details of total purchases made by assessee and has rightly considered the actual bogus purchases at ₹ 78,82,615/- during the year. He, therefore, rightly directed the Assessing Officer to allow relief of remaining amount of ₹ 65,83,385/- by restricting the addition on account of bogus purchase of ₹ 78,82,615/- instead of ₹ 1,44,66,000/- considered by the Assessing Officer. Finding no infirmity in the impugned order, we uphold the same - Appeals of the Revenue partly allowed.

Summary

Issues Involved:
1. Deletion of addition made by the Assessing Officer on account of speed money.
2. Deletion of addition made by the Assessing Officer on account of unvouched expenses.
3. Deletion of disallowance made by the Assessing Officer under section 80IC of the Income Tax Act.
4. Allowing additional deduction in respect of scrap sales and bogus purchases.
5. Restriction of addition made by the Assessing Officer on account of bogus purchases.
6. Deletion of addition made by the Assessing Officer on account of unaccounted income from scrap sales.
7. Deletion of addition made by the Assessing Officer for double inclusion of income.
8. Deletion of addition made by the Assessing Officer on account of excess purchases.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Speed Money:
The Tribunal observed that the issue of speed money was previously decided in favor of the assessee in earlier assessment years (AY 2003-04 and 2004-05). The Tribunal noted that the assessee had consistently made payments on account of speed money varying from 0.8% to 2.58% of the project value. Given the lack of explanation from the assessee regarding the availability of funds for these payments, the Tribunal upheld the Assessing Officer's addition of ?11,14,719/- for AY 2005-06 and similar additions for subsequent years. Thus, the relevant grounds for these years were allowed in favor of the Revenue.

2. Deletion of Addition on Account of Unvouched Expenses:
The Tribunal referred to its earlier decision in the assessee's case for AY 2003-04 and 2004-05, where the issue was remanded back to the Assessing Officer for fresh examination due to the assessee's failure to produce complete details like books of accounts, bills, and vouchers. Following this precedent, the Tribunal sent back the issue of unvouched expenses to the Assessing Officer for AY 2005-06, 2006-07, and 2007-08 to decide afresh after providing the assessee an opportunity to be heard.

3. Deletion of Disallowance under Section 80IC:
The Tribunal observed that the Assessing Officer had not thoroughly examined the veracity of the expenditure declared by the assessee for eligible and non-eligible units. The Tribunal noted the possibility of profit diversion from non-eligible to eligible units to claim higher deductions under section 80IC. The matter was remanded back to the Assessing Officer for a detailed examination of expenses and verification from books of accounts and supporting documents. The relevant grounds for AY 2005-06, 2006-07, and 2007-08 were allowed for statistical purposes.

4. Allowing Additional Deduction for Scrap Sales and Bogus Purchases:
The Tribunal held that since the amounts related to bogus purchases and sales were not recorded in the books of accounts and were only admitted during the search, they could not be used to increase profits eligible for deduction under section 80IC. The Tribunal found the CIT(A)'s decision to allow deductions on these amounts incorrect and allowed the Revenue's appeal on this ground for AY 2005-06, 2006-07, and 2007-08.

5. Restriction of Addition on Account of Bogus Purchases:
For AY 2006-07, the Tribunal upheld the CIT(A)'s decision to restrict the addition from ?1,23,49,264/- to ?1,01,71,831/- on account of bogus purchases. The CIT(A) had allowed credit for the additional income declared by the assessee under the head "Others," which was not linked to any specific seized document. The Tribunal found no contrary material to discard the CIT(A)'s conclusion and dismissed the Revenue's ground.

6. Deletion of Addition on Account of Unaccounted Income from Scrap Sales:
For AY 2007-08, the Tribunal noted that the issue of estimating scrap sales based on raw material consumption was previously decided against the Revenue in the assessee's case for AY 2003-04. The Tribunal reiterated that in search matters, additions must be based on incriminating material and not estimations. The Tribunal dismissed the Revenue's ground, following the earlier decision.

7. Deletion of Addition for Double Inclusion of Income:
The Tribunal upheld the CIT(A)'s decision to exclude ?1.75 crores from the income of the assessee for AY 2007-08. The Tribunal agreed that the amount was already included in the original return and was mistakenly included again in the revised return, resulting in double taxation. The Tribunal found no justification for taxing the same amount twice and dismissed the Revenue's ground.

8. Deletion of Addition on Account of Excess Purchases:
The Tribunal upheld the CIT(A)'s decision to restrict the addition on account of bogus purchases to ?78,82,615/- instead of ?1,44,66,000/- for AY 2007-08. The CIT(A) had considered the rectification order and the actual bogus purchases during the year. The Tribunal found no infirmity in the CIT(A)'s findings and dismissed the Revenue's ground.

Conclusion:
The appeals of the Revenue were partly allowed, with several issues remanded back to the Assessing Officer for fresh examination and others decided in favor of the Revenue or the assessee based on the merits of each case.