2022 (1) TMI 1092 - AT - Income Tax

Addition u/s 68 - additional income declared by the appellant in the course of survey action u/s. 133A - disallowing the sum of 6 crores debited to the profit and loss account under the head WIP declared u/s. 133A survey - Assessee submitted that addition has been made on estimated basis without 1st rejecting the books and assessee has actually declared as additional income, the sum of ₹ 6 crores declared during survey. He submitted that the additional amount of ₹ 6 corers, which has been debited to the profit and loss account as a stock declared in survey is duly reflected in the closing work in progress - HELD THAT - We are inclined to agree with the submission of assessee that the veracity of the factual submissions made by him may be examined at the level of AO to resolve the issues in this case. Firstly, we note that as regards, the finding of the authorities that the profit declared is less than ₹ 6 crores will not be correct if the assessee submissions that before the debit of partners remunerations and interest on partners capital account the profit is more than ₹ 6 crore. Secondly, Ld. CIT(A) has rejected the assessee's claim that the increased figure of ₹ 6 crore reflected as declaration in survey by debit to stock in the profit and loss account is reflected in corresponding closing work in progress. CIT(A) has rejected the submission of assessee for having included the aforesaid sum of ₹ 6 crores in the closing work in progress on the basis of certification of the audited account, which did not show that the closing stock includes this increased figure. We find that this aspect can be verified by the AO. The components of closing work in progress are to be examined by him to arrive at the veracity of assessee's factual submission that closing work in progress includes this as a corresponding effect of stock of ₹ 6 core to declared in survey debited to profit and loss. As assessee submission regarding wrong application of section 68 is concerned, we are of the considered opinion that the said issue will arise only, if the above submissions of the Ld. Counsel of the assessee are not found to be correct by the AO. In any case, it is settled law that quoting a wrong section is not fatal to the assessment, if the addition is justified and warranted on the facts and circumstances of the case - Accordingly, we remit the issue to the file of AO.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act, 1961.
2. Disallowance of ?6,00,00,000 debited to the profit and loss account under the head "WIP declared u/s. 133A survey".
3. Application of proviso to Section 69C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act, 1961:
The assessee, a partnership firm engaged in the business of builder and developer, filed its return of income for AY 2014-15 declaring a total income of ?3,54,73,890. During a survey conducted under Section 133A on 08.11.2013, the assessee declared an additional income of ?6 Crores to cover up differences in sales rates. The AO observed that the assessee credited ?6 Crores under "Income declared u/s. 133A" and made a corresponding debit entry of ?6 Crores under "WIP declared u/s. 133A". The AO added ?2,45,26,110 to the income of the assessee under Section 68 read with Section 115BBE, treating it as deemed income since the amount was not explained satisfactorily. The AO noted that the declaration was made over and above the normal income and was not attributable to specific customers or entered in the books on the date of the survey.

2. Disallowance of ?6,00,00,000 Debited to the Profit and Loss Account:
The CIT(A) confirmed the AO's action and further enhanced the assessment by ?3,54,73,890, resulting in a total addition of ?6,00,00,000. The CIT(A) rejected the assessee's claim that the ?6 Crores declared during the survey was included in the closing work-in-progress (WIP). The CIT(A) observed that neither the assessee nor the auditors stated that the increased sum was reflected in the closing WIP. The CIT(A) concluded that the assessee had not adhered to the disclosure made during the survey and disallowed the ?6 Crores debited to the profit and loss account as "WIP declared u/s. 133A survey".

3. Application of Proviso to Section 69C of the Income Tax Act, 1961:
The CIT(A) noted that the AO correctly pointed out the effect of wrong entries made by the assessee but did not fully grasp the adjustments made in the accounts. The CIT(A) held that the assessee effectively reduced the taxable income by debiting ?6 Crores to the profit and loss account without including it in the closing WIP. Consequently, the CIT(A) enhanced the income by ?3,54,73,890, resulting in a total assessed income of ?9,54,73,863.

Remand to AO:
The Tribunal agreed with the assessee's counsel that the factual submissions regarding the inclusion of ?6 Crores in the closing WIP and the correct profit declaration should be verified by the AO. The Tribunal remitted the issue to the AO for factual verification of the submissions regarding debits and entries in the profit and loss account. The Tribunal noted that the question of wrong application of Section 68 would arise only if the AO found the assessee's submissions incorrect. The AO was directed to grant the assessee adequate opportunity of being heard.

Conclusion:
The Tribunal remitted the matter to the AO for verification of the factual submissions made by the assessee regarding the inclusion of the additional income declared during the survey in the closing WIP and the correct profit declaration. The AO was instructed to examine the accounts and grant the assessee an adequate opportunity of being heard.