2012 (7) TMI 484 - AT - Income Tax

Unaccounted contract receipts - CIT(A)deleted additions made by AO - CIT(A) held that the additions made by AO are covered in the surrender of Rs.5 lacs made by the assessee during the course of assessment proceedings - Held that - If this amount has been received in subsequent year and has been offered for tax this submission can be explained very well by furnishing the relevant abstract of books of accounts of contract receipts in the year under consideration and for the subsequent year. The assessee instead of furnishing such reasonable documents, tried to further explain which is just contrary to the earlier explanation that the amount was payable on account of E.D. royalty and others etc and also not supported by the relevant abstract of books of account which is very well in the possession of the assessee and the burden is on the assessee to furnish such information and details of documents to ascertain the correct fact - the CIT(A) has wrongly deleted the addition simply relying on assessee s submissions without verifying the relevant facts - The set off allowed by the CIT(A) against surrender of Rs.5,00,000/- is not correct it was for deficiencies in vouchers etc - in favour of Revenue. Suppression of closing stock as it is shown in the balance sheet and not shown in the trading account - CIT(A)deleted additions made by AO - Held that - Considering the assessee s submission that he has followed a system of accounting in respect of purchases to take net amount of repair & maintenance, part tyre tube, bitumen, diesel and material expenses verifiable from the copies of the ledger account of financial statement. Thus when purchases expenses have been debited to P/L account by net amount, naturally the stock in hand in this account remains in the respective individual account which can be said to be individual trading account. The corresponding effect of the accounting entries are shown by the assessee in the Balance Sheet - Additions made by AO deleted on above ground and not CIT s stand to set off from surrender amount - Against Revenue. Non incurring of any expense regarding the provision for legal and consultancy charges - CIT(A)deleted additions made by AO - Held that - No infirmity in the order of CIT(A) as the assessee has surrendered Rs.5,00,000/- on account of non-producing the relevant bills and vouchers. Therefore, the separate addition is not warranted - in favour of assessee. Additions made on account of bogus liabilities - CIT(A)deleted additions made by AO - Held that - Assessee filed a comparative chart of the result of computation of position of labour and material expenses but that does not help as the case of the A.O. was that these were outstanding liabilities for which the assessee has failed to prove that these liabilities were in fact outstanding. Further, the assessee failed to prove genuineness of these liabilities. - CIT(A) deleted the said addition without verifications - in favour of Revenue. Non Inclusion of contract receipt in work in progress - CIT(A)deleted additions made by AO - Held that - The assessee has failed to furnish the details of closing stock as called for in the proforma the contention of the assessee that contract receipt for Rs.7,08,444/- is included in the WIP amounting to Rs.2638639/- is not acceptable because the assessee has failed to explain as how this amount is included in WIP - if this amount was included by the assessee in closing stock this amount should be appearing in the debit side of Balance-sheet but there is no entry appearing in the debit side of Balance-sheet - CIT(A)deleted the additions without finding the genuineness - in favour of revenue.

Summary

Issues Involved:
1. Deletion of addition of Rs.17,74,861/- for unaccounted contract receipts.
2. Deletion of addition of Rs.6,11,586/- for suppressed closing stock.
3. Deletion of disallowance of Rs.20,000/- for provision of legal and consultancy charges.
4. Deletion of additions made on account of bogus liabilities.
5. Deletion of addition of Rs.7,08,444/- for work in progress.

Detailed Analysis:

Issue 1: Deletion of Addition of Rs.17,74,861/- for Unaccounted Contract Receipts
The Revenue challenged the deletion of Rs.17,74,861/- added by the Assessing Officer (A.O.) for unaccounted contract receipts. The A.O. added this amount based on information from G.M., M.P.R.R.D.A., Raisen, which indicated that this sum was payable to the assessee as of 31.03.2005. The assessee argued that this amount pertained to the next accounting year and was included in the receipts for the subsequent year after accounting for it. The CIT(A) deleted the addition, accepting the assessee's contention and noting that the A.O. had already accepted a surrender of Rs.5,00,000/- by the assessee for potential income leakage due to missing bills and vouchers. However, the Tribunal found that the CIT(A) had wrongly deleted the addition without verifying the relevant facts and restored the A.O.'s order, noting that the surrender of Rs.5,00,000/- was for deficiencies in vouchers and not related to the addition of Rs.17,74,861/-.

Issue 2: Deletion of Addition of Rs.6,11,586/- for Suppressed Closing Stock
The A.O. added Rs.6,11,586/- to the assessee's income, noting that this amount was shown in the balance sheet but not in the trading account. The assessee explained that it followed an accounting system where the stock of purchases was reduced in the respective purchase account, and the closing stock was shown in the balance sheet. The CIT(A) deleted the addition, accepting the assessee's explanation that the purchases were debited to the Profit & Loss account by net amount, and the stock in hand remained in individual accounts. The Tribunal upheld this deletion, agreeing that the addition was not warranted based on the assessee's accounting method.

Issue 3: Deletion of Disallowance of Rs.20,000/- for Provision of Legal and Consultancy Charges
The A.O. disallowed Rs.20,000/- for legal and consultancy charges, as the assessee failed to provide supporting evidence. The CIT(A) deleted this disallowance, noting that the assessee had surrendered Rs.5,00,000/- for deficiencies in bills and vouchers, which included this amount. The Tribunal found no infirmity in the CIT(A)'s order, agreeing that the surrendered amount covered this deficiency.

Issue 4: Deletion of Additions Made on Account of Bogus Liabilities
The Revenue challenged the deletion of several additions made by the A.O. on account of bogus liabilities, including Rs.39,08,700/- for wages, Rs.22,57,700/- for gitty, Rs.12,22,500/- for goods, and Rs.18,74,711/- for material expenses. The A.O. noted that the assessee failed to furnish necessary confirmations for these outstanding liabilities and questioned the capacity of the parties to have such balances. The CIT(A) deleted these additions, relying on past practices and supporting documents like the labour payment register. However, the Tribunal found that the CIT(A) was not correct in deleting the additions without verifying the facts and restored the A.O.'s order, noting that the assessee failed to provide satisfactory explanations for the outstanding balances.

Issue 5: Deletion of Addition of Rs.7,08,444/- for Work in Progress
The A.O. added Rs.7,08,444/- for work in progress, noting that the assessee failed to furnish detailed closing stock information as requested. The CIT(A) deleted this addition, accepting the assessee's contention that this amount was included in the work in progress of Rs.26,38,639/-. However, the Tribunal found that the CIT(A) deleted the addition without verifying the facts and restored the A.O.'s order, noting that the assessee failed to provide evidence to support its contention.

Conclusion:
The Tribunal partly allowed the Revenue's appeal for A.Y. 2005-06 and fully allowed the appeal for A.Y. 2006-07, restoring the A.O.'s additions for unaccounted contract receipts, bogus liabilities, and work in progress while upholding the deletions made by the CIT(A) for suppressed closing stock and provision for legal and consultancy charges.