2022 (5) TMI 1175 - AT - Income Tax

Assessment u/s 153A - unrecorded payments to the employees - HELD THAT - As quantum of salary paid to employees in a trading concern cannot be directly proportional to the profits earned. There cannot be a proportionate and direct co-relation between the salary paid and the profits earned in the case of a trading concern. We also note that during the course of survey, the Department could not unearth any incriminating material which would point out towards any out of book profits having been earned by the assessee firm. Therefore, it is our considered view that even if there had to be an addition on account of some concealed profit, the AO would have to lead evidence to establish earning of such concealed profit and this kind of addition cannot be made on mere surmises - AO has not adopted a correct approach in tabulating such alleged concealed profit and such approach cannot be approved by us - no case for addition on account of concealed net profit is made out and we are not inclined to agree with the findings recorded by the Ld. CIT (A) on this issue and, therefore, we set aside the order of the CIT (A) on the issue of concealed net profits and direct the AO to delete the same. The grounds of appeals on this issue under all the three captioned years are, therefore, allowed. Addition in respect of concealed net profit - HELD THAT - As we have already deleted this addition on account of alleged concealed profits in all the three years and have decided the issue in favour of the assessee in preceding paragraph 14.2.2 of this order and in view of our such adjudication in favour of the assessee, the ground raised by the Department stands dismissed. Estimated undisclosed investment for earning the concealed net profit - HELD THAT - In this regard, it is seen that the Ld. CIT (A) had deleted this addition by noting that the assessee had sufficient closing stock which ran into crores of rupees and, therefore, no additional investment was required by the assessee to have been made for undertaking any concealed turnover. Anyway, since we have completely deleted the addition pertaining to alleged concealed net profit in preceding paragraph 14.2.2 of this order, therefore, this addition does not have any feet to stand on. Accordingly, while upholding the order of the Ld. CIT (A) on the issue we dismiss the ground raised by the Revenue. Undisclosed investment in the property Kothi Tehal Singh - HELD THAT - It would also be worth-mentioning that this issue had also arisen before us in Department s appeal for assessment year 2012-13 wherein this Bench had dismissed the Department s challenge to the deletion made by the Ld.CIT(A) in respect of the property Kothi Tehal Singh by observing that categorical finding given by the Ld. CIT (A) on the issue make it amply clear that the impugned investment had been made by different co-owners in their individual names, beyond the block period and there was no link or connection with the investment made by the partnership concern i.e. the assessee . This Bench also noted that there is no dispute about the fact that the impugned investment related to the property purchased by individuals acting in their individual capacity and that the assessee firm had no connection with the same. Therefore, we find ourselves in agreement with the findings of the Ld. CIT (A) as reproduced above, that no addition could be made in the hands of the assessee firm u/s 69 of the Act as unaccounted investment during assessment year under consideration . Therefore, on the same logic and reasoning, we deem it appropriate to dismiss this ground of appeal of the Department Unaccounted purchases - Assessee arguments have been that the alleged unrecorded purchases were recorded on a paper which carried the title Estimate and were, therefore, not purchases but were only goods received on approval - HELD THAT - As it is seen that the Ld. CIT (A) has negated this contention of the assessee by noting that this contention of the assessee cannot be accepted as a perusal of the account shows that the account of the party has been credited by the bills amount, meaning thereby that it was the purchase by the assessee - We find the above conclusion arrived at by the Ld. CIT (A) to be correct on the factual matrix of the issue. The arguments of the Ld. AR on the issue do not have feet to stand on in the face of the categorical finding recorded by the Ld. CIT (A) and we uphold the same. The ground stands dismissed.

Summary

Issues Involved:
1. Validity of assessment proceedings under Section 153A of the Income Tax Act.
2. Mechanical approval under Section 153D of the Income Tax Act.
3. Addition on account of unexplained expenditure on salary under Section 69C.
4. Addition on account of alleged concealed net profit.
5. Addition on account of alleged undisclosed investment for earning the alleged concealed net profit.
6. Addition on account of alleged unexplained investment under Section 69 in construction of property.
7. Addition on account of purchases outside the books of account.

Detailed Analysis:

1. Validity of Assessment Proceedings under Section 153A:
The assessee challenged the legality of the assessment proceedings under Section 153A, arguing that there was no search on the partnership concern and only a survey was conducted. The Tribunal noted that the Assessing Officer (AO) framed the assessment under Section 153A/143(3) based on a survey conducted under Section 133A. The Tribunal referred to the case of Regency Mahavir Property, where it was held that if no Panchanama was drawn, the condition for assumption of jurisdiction under Section 153A is not satisfied. However, the Tribunal did not adjudicate this ground due to the comprehensive adjudication on merits.

2. Mechanical Approval under Section 153D:
The assessee argued that the mandatory approval under Section 153D was mechanical and lacked application of mind. The Tribunal noted that the Additional Commissioner accorded approval mechanically without proper scrutiny. However, this ground was also not adjudicated due to the comprehensive adjudication on merits.

3. Addition on Account of Unexplained Expenditure on Salary under Section 69C:
The AO made additions for unexplained expenditure on salary based on seized documents, which indicated unrecorded payments to employees. The Tribunal accepted the assessee's contention that the seized documents contained consolidated figures for multiple family concerns and allowed the benefit of salaries debited in the books of all three concerns. The Tribunal restricted the addition to Rs. 11,82,418/- for AY 2016-17, Rs. 10,71,106/- for AY 2017-18, and Rs. 1,91,127/- for AY 2018-19 after considering the negative stock found during the survey.

4. Addition on Account of Alleged Concealed Net Profit:
The AO made additions for alleged concealed net profit based on the ratio of salary debited in the books to the salary as per seized documents. The Tribunal held that in a trading concern, the salary paid to employees does not have a direct correlation with profits earned. The Tribunal found that no incriminating material was found to support the concealed profit and deleted the additions entirely.

5. Addition on Account of Alleged Undisclosed Investment for Earning the Alleged Concealed Net Profit:
The AO made an addition for undisclosed investment by applying a rate of 10% on the alleged concealed net profit. Since the Tribunal deleted the addition for concealed net profit, this addition was also deleted.

6. Addition on Account of Alleged Unexplained Investment under Section 69 in Construction of Property:
The AO made an addition for unexplained investment in the property 'Kothi Tehal Singh'. The Tribunal upheld the CIT(A)'s finding that the property was co-owned by the partners and not purchased during the relevant assessment years. The addition was deleted.

7. Addition on Account of Purchases Outside the Books of Account:
The AO made an addition for unaccounted purchases based on a document titled "Estimate". The Tribunal upheld the CIT(A)'s finding that the document indicated actual purchases and not just estimates. The addition was confirmed to the extent of Rs. 7,94,550/-.

Conclusion:
The Tribunal partly allowed the assessee's appeals and dismissed the Department's appeal. The additions on account of unexplained expenditure on salary were restricted, and the additions for concealed net profit and undisclosed investment were deleted. The Tribunal upheld the addition for unaccounted purchases. The legal grounds regarding the validity of assessment proceedings under Section 153A and mechanical approval under Section 153D were not adjudicated due to the comprehensive adjudication on merits.