2013 (9) TMI 599 - AT - Income Tax

Addition on account of unaccounted profit earned from the undisclosed purchases and sales Assessment u/s 153A - Held that - Reliance has been placed upon the assessee s own case for the A/Ys 2001-02 to 2004-05 On account of undisclosed purchases, Commissioner(A) has held that evidence found at the premises of Mr. Prem Kumar Arora cannot be taken as any basis to hold that the assessee made unaccounted purchases - Seized paper does not contain any name of the appellant - Neither in the statement, Mr. Prem Kumar Arora has alleged that such transactions pertained to the appellant - It is well settled position of law that document found from the third person cannot be applied against the appellant and the burden lays upon the Department to show that same reflects transactions of the appellant company. Reliance is placed on the judgment in the case of Sukhdayal Rambilas v. CIT reported in 1982 (1) TMI 49 - BOMBAY High Court wherein it has been held that what is apparent is not real, the burden to establish this is on the person who alleges this - Since the issue in the assessment years 2005-06, 2006-07 and 2007-08 is identical to that of the earlier assessment years, respectfully following the decision of the Income-tax Appellate Tribunal, additions made by the Assessing Officer are deleted. Addition on the ground of undisclosed speculation business income Held that - During the course of search, no evidence was found to the effect that the assessee-company was engaged in speculative trading in agricultural commodities - On birthday of Mahashaya Dharam Pal Gulati, gold chains are distributed to the dealers, who achieve certain targets. For this purpose the assessee had purchased gold and alloy and got them converted from the jeweller, namely, Vijay Kumar Jewellers. The assessee had regular account with him for manufacturing of gold chains - The expenditure incurred by way of making charges as well as purchase of gold is reflected in the books of account This transaction can not be treated as speculation transaction - The assessee is not engaged in purchase and sale of gold on the basis of which it could be presumed that the asses- see was engaged in speculative business No evidence was brought on record Decided in favor of Assessee. Disallowance of 20% of advertisement expenses - The Assessing Officer disallowed the expenditure on the ground that an attempt has been made by the company to promote Shri Dharam Pal Gulati and not the product Held that - Had the assessee engaged a big celebrity for promotion of its products, the assessee would have incurred huge expenditure and that would have been allowed in full by the Assessing Officer. The expenditure has been incurred on promotion of the product - Merely because Mr. Dharam Pal Gulati name comes to prominence, it cannot be said that the expenditure was not incurred for the purpose of business Decided in favor of Assessee. Addition because of inflation of purchase price of raw-materials Held that - No such evidence during the course of search was found from the possession of the assessee indicating that actual beneficiary of over invoicing was the assessee - Since the addition has been made in the hands of Shri Sushil Kumar, no disallowance to that extent could be made in the hands of the assessee No addition need to be made Decided in favor of Assessee. Addition on account of arm s length price Addition made at average rate in the absence of comparables in the public domain Held that - Arm s length price cannot be determined without proper comparables - Nearly similar types of spices, condiments and their mixtures are sold by other brands like, Everest Masala, Ramdeo Masala, Ashok Masala and other manufacturers, therefore, there is no absence of comparables - In 2012, public domain comparables should be abundantly available - Set aside the transfer pricing adjustments to the file of the Assessing Officer to undertake the same afresh in accordance with law Decided in favor of Assessee for statistical purpose.

Issues Involved:

1. Addition of undisclosed profit.
2. Addition of undisclosed speculation business income.
3. Disallowance of advertisement and publicity expenses.
4. Addition for alleged inflation in purchase price of raw spices.
5. Additions based on unproved transactions from seized material.
6. Addition for unexplained investment by way of donations for construction of school building.
7. Addition for unexplained investment in construction of school building based on DVO report.
8. Addition related to arm's length pricing.
9. Validity of the Dispute Resolution Panel's directive order.
10. Assessment framed without allowing cross-examination of evidence.

Issue-wise Detailed Analysis:

1. Addition of Undisclosed Profit:
The Assessing Officer (AO) made additions based on discrepancies found between the declared sales turnover and the figures in the "All India Sales Report." The Tribunal found that these discrepancies were due to the inclusion of trade discounts and sales tax in the sales figures recorded in the books, which were not reflected in the MIS report. The Tribunal deleted the additions, following its earlier decision in the assessee's own case for previous years.

2. Addition of Undisclosed Speculation Business Income:
The AO added income based on statements from the directors admitting to speculative trading in commodities. The Tribunal found no evidence of such speculative trading during the search. The Tribunal upheld its earlier decision, which had deleted similar additions for previous years, noting that the surrender of income by the directors had been retracted and was not supported by any evidence.

3. Disallowance of Advertisement and Publicity Expenses:
The AO disallowed 20% of the advertisement expenses, claiming they promoted the director rather than the product. The Tribunal found the expenses genuine and necessary for business promotion, following its earlier decision that had deleted similar disallowances for previous years.

4. Addition for Alleged Inflation in Purchase Price of Raw Spices:
The AO made additions based on seized documents indicating over-invoicing of purchases. The Tribunal noted that the income from over-invoicing had already been declared by Shri Sushil Kumar Trehan, from whose possession the documents were seized. Following its earlier decision, the Tribunal deleted the additions, holding that the same income could not be taxed twice.

5. Additions Based on Unproved Transactions from Seized Material:
The AO made additions based on documents seized from a third party. The Tribunal found that the income from these transactions had already been declared by Shri Sushil Kumar Trehan. Following its earlier decision, the Tribunal deleted the additions, holding that the documents did not pertain to the assessee.

6. Addition for Unexplained Investment by Way of Donations for Construction of School Building:
The AO made additions based on seized documents indicating donations made from the MDH account. The Tribunal found that these donations were made by Shri Sushil Kumar Trehan from his undisclosed income. Following its earlier decision, the Tribunal deleted the additions, holding that the documents did not pertain to the assessee.

7. Addition for Unexplained Investment in Construction of School Building Based on DVO Report:
The AO made additions based on a DVO report valuing the school building higher than the declared value. The Tribunal found that the school building belonged to a charitable trust and any addition should be made in the hands of the trust, not the assessee. The Tribunal deleted the additions.

8. Addition Related to Arm's Length Pricing:
The Tribunal found that the Transfer Pricing Officer (TPO) had determined the arm's length price by computing the average rate of cartons, ignoring the different values and packing of items within the cartons. The Tribunal set aside the transfer pricing adjustments and directed the AO to undertake a fresh transfer pricing study with proper comparables.

9. Validity of the Dispute Resolution Panel's Directive Order:
The Tribunal noted that the Dispute Resolution Panel (DRP) had rejected the objections raised by the assessee without considering them. The Tribunal found that the DRP's directive order was not justified and set aside the additions based on the DRP's order.

10. Assessment Framed Without Allowing Cross-Examination of Evidence:
The Tribunal found that the AO had made additions based on statements and documents without allowing the assessee to cross-examine the evidence. The Tribunal deleted the additions, holding that the assessee could not be condemned without being heard.

Conclusion:
The Tribunal deleted most of the additions made by the AO, following its earlier decisions in the assessee's own case for previous years. The Tribunal directed the AO to undertake a fresh transfer pricing study for determining the arm's length price. The Tribunal emphasized the need for proper evidence and cross-examination in making additions.

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