2014 (11) TMI 516 - HC - Income Tax

Sum advanced to sister concern by cheques drawn Unexplained investment or not - Held that - The Tribunal rightly was of the view that the payment of ₹ 17,00,000/- to Austro Beer by the appellant came to light only from Dena Bank s Account of Austro Beer (I) P. Ltd. - The corresponding entries in the accounts of the assessee are also looked into in the paragraph - the assessee did not show Austro Beer as a debtor in the balance sheet as on 31.03.1997 and in subsequent balance sheets - The investment account of Austro Beer reflected opening debit balance of ₹ 7,50,000/- as on 01.04.1996 - Appellant was given opportunity to explain this position - Explanation furnished was that the financing banker did not approve the diversion of borrowed funds, & hence payments to Austro Beer could not be shown as advances and hence, it was included under the head of sundry debtors - Section 69-B of the Act is on treatment to be accorded to amount of investments, etc., not fully disclosed in books of account assessee could not give details of sundry debtors & support it by primary books of accounts - assessee could not show that amount of ₹ 17 Lakh was reflected in the balance sheet dated 31.3.1997 - it was not shown that amounts were not shown as repaid by M/s Astro Beer during relevant previous year - it has been rightly treated as unexplained investment in terms of Section 69B of the Income Tax Act - Finding that this payment & its nature was learnt due to search is also not perverse - No arguments have been advanced to show why or how these findings are erroneous or then Section 69B does not get attracted the order of the Tribunal is upheld Decided against the assessee. Inclusion of income of new industrial unit - Whether the Tribunal was right in concluding that the income of the new industrial until, the receipts of which were found recorded in books could be included in the income taxable in block assessment in the light of the provisions of Section 158BB(1)(d) which excludes from the scope of block assessment such income assessable for assessment year for which the time for filing the return of income has not expired as on the date of search Held that - Section 158-BB is about the computation of undisclosed income of the block period - the bar prescribed is not absolute - no clarification was given as to whether the deductions under Section 80 IA was claimed in that return or not - The accounts officer has noted that the computerized books of account were produced before the DDIT only - the addition was made on the basis of the documents obtained during search and during post search enquiry Decided against assessee. Status of the employees working with the assessee - Whether the Tribunal was right in holding that the new industrial unit cannot claim to have employed the required number of workers viz. 10 workers by including peons, clerk and head clerk employed by the undertaking the only business of the undertaking being job printing Held that - The assessee states that Peons, Head-clerk and Clerk-typist need to be included in the number of employees to find out the eligibility in terms of Section 80 IA(2)(v) - industrial undertaking may have more than 10 or several employees, but, clause (v) warrants that 10/20 or more of such employees/ workers in the industrial undertaking must be employed in the manufacturing process - manufacturing process is obviously a narrower concept. Industrial undertaking therefore, may have various departments like accounts, audit, personnel, marketing etc. - The workers working in these other departments will not be participating in manufacturing process though employed in such industrial undertaking or establishment - skilled and unskilled workers who work on machine or otherwise actually participate in manufacturing process, need to be counted to find out the number of 10 or more, envisaged by the Parliament in Clause (v) - Hence, they need to be excluded for the purpose of finding out whether said clause (v) is attracted or not - the appellant does not employ 10 workers in actual manufacturing process thus, the order of the Tribunal is upheld Decided against assessee.

Summary

Issues Involved:

1. Whether the sum of Rs. 17,00,000/- advanced by the appellant to their sister concern was an unexplained investment.
2. Whether the income of the new industrial unit could be included in the income taxable in block assessment.
3. Whether the new industrial unit employed the required number of workers to claim exemption under Section 80 IA.

Detailed Analysis:

Issue 1: Rs. 17,00,000/- as Unexplained Investment

The appellant challenged the addition of Rs. 17,00,000/- as unexplained investment, arguing that the amount was advanced to their sister concern, Austro Beer Pvt. Ltd., and was duly recorded in their bank account and cash book. However, the Income Tax Appellate Tribunal (I.T.A.T.) found that this amount was not separately mentioned in the balance sheet and came to light only during the search operations. The I.T.A.T. noted inconsistencies in the appellant's explanations and upheld the addition under Section 69-B of the Income Tax Act, which deals with investments not fully disclosed in books of account. The court found no substantial question of law in this regard and maintained the I.T.A.T.'s order.

Issue 2: Inclusion of Income in Block Assessment

The appellant contended that the income from their new industrial unit should not be included in the block assessment as the time for filing the return had not expired by the date of the search. They argued that the income was disclosed in the regular return filed on 30.11.1999, which was within the permissible time. However, the I.T.A.T. found no evidence that the deductions under Section 80 IA were claimed in that return. The court noted that the appellant failed to demonstrate that the income was disclosed in the books before the date of the raid and upheld the I.T.A.T.'s decision to include the income in the block assessment.

Issue 3: Employment of Required Number of Workers

The appellant argued that they employed more than 10 workers, including clerks, typists, and peons, and should be eligible for exemption under Section 80 IA. However, the I.T.A.T. found that these employees were not involved in the manufacturing process, which is a requirement under Section 80 IA (2)(v). The court emphasized that only workers directly participating in the manufacturing process should be counted to meet the threshold of 10 workers. As the appellant did not employ the required number of workers in the manufacturing process, the court upheld the I.T.A.T.'s finding and denied the exemption.

Conclusion:

The court dismissed the appeal, affirming the I.T.A.T.'s findings on all three issues. The sum of Rs. 17,00,000/- was rightly treated as unexplained investment, the income of the new industrial unit was correctly included in the block assessment, and the appellant did not meet the worker requirement for exemption under Section 80 IA.