TMI Blog2022 (5) TMI 1175X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER Assessee by: Sh. Sudhir Sehgal, Advocate Revenue by: Sh. Vivek Nangia, CIT DR And Smt. Priyanka Dhar, Sr. DR ORDER PER BENCH: The captioned appeals have been preferred by the Revenue/Assessee against the separate orders of Ld. Commissioner of Income Tax (Appeals)-5, Ludhiana [CIT (A)] as per the details given below:- S. No. ITA No. Appeal by CIT(A) order dated 1 248/Chd/ 2021 Revenue 27.07.2021 for Assessment Year 2017-18 2 217/Chd/2021 Assessee 27.07.2021 for Assessment Year 2016-17 3 218/Chd/ 2021 Assessee 27.07.2021 for Assessment Year 2017-18 4 219/Chd/2021 Assessee 27.07.2021 for Assessment Year 2018-19 2.0 Since common issues were involved in this batch of appeals, they were heard together and are being disposed off through this common o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h on the partnership concern and neither any Panchnama has been drawn and it was only a survey and, therefore, the assessment as framed by the Assessing Officer and confirmed by the CIT(A) deserves to be quashed as per the judgment of the Mumbai Tribunal in the case of Regency Mahavir Property in ITA No. 682 683/Mum/2016. 2. Notwithstanding, the above said ground of appeal, the assessment as framed by the Assessing Officer after obtaining the mandatory approval u/s 153D from the 'Addl. Commissioner of Income Tax', is void-ab-initio, since the Ld. Addl. Commissioner has only accorded 'mechanical approval' of the draft assessment order sent by AO, without any application of mind and which issues is covered by the judgment of the Jurisdictional bench of the ITAT Chandigarh in the case of M/s. Inder International, Ludhiana in ITA No. 1573/Chd/2018 and many other cases of different Benches of the Hon'ble ITAT. 3. (a) That the Ld. CIT(A) has erred in confirming the addition of Rs. 23,37,618/- against the addition of Rs. 39,88,288/- on account of unrecorded payments to the employees which is against the facts circumstances of the case. (b) That th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of alleged undisclosed investment for earning the alleged concealed net profit (iv) Rs. 2,82,190/- on account of alleged unexplained investment u/s 69 in construction of property Kothi Tehal Singh. (v) Rs. 8,67,550/- on account of purchases outside the books of account. 4.1 Aggrieved, the assessee carried the issues before the Ld First Authority challenging the assumption of jurisdiction u/s 153A of the Act on legal ground and also challenged the various additions and disallowances on merits. The Ld.CIT (A) dismissed the assessee s challenge to the validity of assumption of jurisdiction u/s 153A of the Act. Apart from this, the Ld.CIT(A) also deleted the addition with respect to alleged investment in property Kothi Tehal Singh amounting to Rs.2,82,190/-. With respect to the addition pertaining to alleged unrecorded payments to the employees to the tune of Rs.42,04,640/-, the Ld. CIT(A) restricted the addition to Rs.28,37,506/-. Similarly, the addition of alleged concealed net profit to the tune of Rs.66,91,933/- was restricted by the Ld.CIT (A) to Rs.25,03,905/-. The addition of Rs.12,46,878/- on account of alleged capital investment was deleted by the Ld.CIT(A). With re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) Notwithstanding, the above said grounds of appeal, no addition on account of the above issue of unrecorded payments to employees could be made, since sufficient funds were available out of the sale of the accounted for stocks,, outside the books of accounts as per submissions made before the CIT(A), which have been ignored without assigning into any proper reason. 4. (a) The Ld. CIT(A) has erred in confirming the addition of Rs. 25,03,905/- against the total addition of Rs. 1,24,68,780/- on account of alleged concealed profit. (b) That the Ld. CIT(A) has failed to appreciate that the assessee is engaged in the business of trading in retail trade of readymade garments and, as such, the 'net concealed profit' as calculated to the tune of Rs. 25,03,905/- is against the facts circumstances of the case. 5. That the Ld. CIT(A) has erred in confirming the addition of Rs. 7,94,550/- against the addition of Rs. 8,67,550/- on account of alleged unaccounted purchases. 6. That the Ld. CIT(A) has erred in confirming the additions which have been made on conjectures, surmises and suspicion and such type of addition cannot be made as per binding judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22,26,999/-. The Ld. CIT (A) deleted the addition of Rs.7,47,003/- made on account of undisclosed investment for earning concealed profit. The Ld. CIT (A) upheld the addition of Rs.7,82,320/- made on account of gross profit earned on unaccounted sales. 5.2 Aggrieved, the assessee has now approached this Tribunal challenging the action of the Ld. CIT (A) and following grounds have been raised in this regard: (a) That the Ld. C!T(A) has erred in confirming the addition of Rs. 22,47,034/- against the addition of Rs. 29,66,795/- which is against the facts a circumstances of the case. (b) That the Ld. CIT(A) has failed to give the credit of the salary paid as per the books of accounts two sister concerns of the assessee group namely M/s. Shergill Foods Beverages to the tune of Rs. 5,36,885/- and M/s. M S. Corp. to the tune of a Rs. 7,84,760/- and has failed to appreciate that the said concerns were being controlled from the office of the assessee only by the family, since there were common partners having substantial shareholding in the above two concerns. (c) Notwithstanding the above said grounds of appeal, no addition on account of the above could be made, since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly heard or disposed-off. 6.0 The Ld. AR submitted that the assessee was challenging the validity of assessment proceedings u/s 153A of the Act and the mechanical approval accorded u/s 153D of the Act in Assessment Years 2016-17 and 2017-18. It was submitted that though the Assessing Officer (AO) had framed the assessment u/s 153A/143(3) of the Act, there was no search at the business premises of the assessee and only survey u/s 133A of the Act was carried out. He supported his contention by relying upon the impounding order u/s 133A of the Act as passed during survey, the statements recorded during such survey and the various other questionnaires issued during post survey and during assessment proceedings, to substantiate that no search was carried out at the business premises of the assessee. He invited the attention of the Bench to the provisions of section 153A of the Act and argued that it is only on the basis of search u/s 132(1) of the Act that the Assessing Officer gets the jurisdiction to issue the notice u/s 153A. It was vehemently argued by the Ld. AR that the assessment, as framed by the Assessing Officer u/s 153A /143(3) of the Act, was bad in law and being a juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erring to the assessment order and the order of the Ld. First Appellate Authority for the assessment year 2016-17, the Ld. AR submitted that during the course of search, on the basis of certain seized documents, as per Table-A drawn by the AO, the AO tabulated unrecorded payments made to the employees of the assessee which amounted to Rs.39,88,288/- in assessment year 2016-17, Rs.42,04,640/- in assessment year 2017-18 and Rs.29,66,795/- in assessment year 201819. It was submitted that this addition had been made in terms of section 69C of the Act for all the three assessment years. It was submitted that besides the assessee firm, the group also has two other family concerns, namely M/s M.S. Corp. and M/s Shergil Food Beverage and the assessee had contended before the Ld. First Appellate Authority that the addition on account of unrecorded payments to employees was not proper because the assessee had to be given the benefit of salary pertaining to M/s M.S.Corp. and M/s Shergil Food Beverage for the reason that all the three concerns were being looked after by the Head of the Family Shri Satpal Sachdeva who had been maintaining consolidated account for all the concerns. He drew o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. has grossly erred in making the addition of Rs. 39,88,288/-. xii). Even, it is submitted, this addition of Rs. 11,82,418/- is not liable to be made, since, the assessee had sufficient funds, out of shortage in stock. It is being submitted that on the date of survey 01.11.2017, there were shortage of stock to the tune of Rs. 65,62,914/- which have been determined by the department and this shortage in stock, though, arrived on 01.11.2017, but this had been existing from the earlier years as well i.e. for the past few years, because this much of shortage in stock to the tune of Rs. 65,62,914/- cannot be there in seven months, out of stock of Rs. 3.5 crores to Rs. 4.5 crores on an average, which is always available as per books and verifiable from the trading a/c of each year. Out of such amount realized over the years out of the sales of accounted for stocks not recorded in books, such payment of salary, if any, was being paid and, therefore, no such addition of salary paid outside the books of Rs. 11,82,418/- is liable to be made. Even otherwise, during the course of search proceedings, search team didn t find any unexplained cash, jewellery, immovable property or any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments Net Profit as per audited balance sheet and P L account Concealed net profit in the ratio of salary debited in P L account viz-a-viz salary as per seized document 5=3/2*4) 1 2 3 4 5 2016-17 15,02,960 39,88,288 31,25,244 82,93,216 2017-18 12,52,214 42,04,640 37,13,417 1,24,68,780 2017-18 17,38,196 29,66,795 43,76,571 74,70,037 8.1 The Ld. AR submitted that the entire basis for making this addition by the AO and its part confirmation by the Ld. First Appellate Authority was not in order because the assessee is a trading concern and not a manufacturing concern wherein all the sales and purchases have been fully recorded and vouched and there is no evidence of purchases or sales having been made outside the books of account. It was submitted that it is also a case in point that no incriminating materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,67,550/- made by the AO in respect of alleged unaccounted purchases and the Ld.CIT(A) had restricted this addition of Rs.7,94,550/-. It was submitted that again this addition was based on mere estimate and no such material, as alleged by the lower authorities, had been purchased. Referring to the document at page 29, it was argued that this was only a rough estimate which was evident from the notings of the said document itself. He also drew our attention to the said document wherein it has been mentioned that certain goods had been sent on approval basis. The Ld. AR further submitted that since the assessee firm is in the business of retail sale of ladies dress material, certain goods are regularly sent on approval and are also received on approval without actual sale or purchase transactions having taken place and, therefore, addition based on a document which itself specifies that it was an estimate, could not have been made. It was submitted that there was no evidence of delivery of any goods and neither was any enquiry conducted before making the said addition. 10.0 Coming to the assessee s appeal for assessment year 2018-19, the Ld. AR submitted that ground No.1 challenge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, reliance was being placed heavily on the findings recorded by the AO as well as the Ld. CIT (A).The Ld. AR submitted that the assessments had been correctly framed based on loose sheets found at the premises of the assessee and the assessee had not submitted any documentary evidences before the AO and, therefore, the onus on the assessee had not been discharged. The Ld. DR submitted that Annexure A-3, A-4 and A-5 had been seized from House No.362, Bank Colony, Khanna which contained employee-wise cash payments made during various financial years and the same had been reproduced by the AO in the assessment order. Our attention was drawn to the table drawn by the AO in this regard wherein he had tabulated the unrecorded salary for the three years under appeal which were computed from the seized annexures. It was submitted that before the AO, the assessee did not give any proper response to refute the contents of the seized annexures and, therefore, what was now been argued was more of an after-thought and the same deserved to be dismissed. 12.1 Similarly, with respect to additions made on account of concealed net profit, the Ld. DR submitted that since the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that it is an undisputed fact that capital is required for any business and it cannot be negated that the assessee would have employed some amount of investment for its parallel turnover from which he had earned the undisclosed profits. It was submitted that the AO had rightly applied a rate of 10% of the net profit so concealed in order to make out of book sales. The Ld. DR argued that the Ld. CIT (A) had ignored this observation of the AO and had deleted the addition on this account without any cogent reason. 13.3 With respect to the action of the Ld. CIT (A) in deleting the addition pertaining to investment in property Kothi Tehal Singh , the Ld. DR submitted that no opportunity had been given to the AO by the Ld. CIT (A) before holding that this property did not belong to the firm but to several owners in their personal names. It was submitted that the partners and firm cannot be treated as separate entities if a particular property has been acquired from the money routed through the firm. The Ld. DR prayed that the Ld.CIT (A) s order should be set aside and that the order of the AO be restored. 14.0 We have heard rival submissions and have also perused the material av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Sachdeva, he had made a consolidated entry of the salaries paid to the employees of all the three family concerns. The assessee sought benefit of the salaries as debited in the regular books of account of all the three concerns as per the Chart submitted by the assessee and worked out the differences in the three years at Rs.11,82,418/- for assessment year 2016-17, Rs.10,71,106/- for assessment year 2017-18 and Rs.9,73,447/- for assessment year 2018-19. It was further submitted before the Ld. CIT (A) that this undisclosed expenditure was met out from the negative stock which had been determined to be to the tune of Rs.65,62,914/-as on 01.11.2017. It was submitted before the Ld .CIT (A) that the negative stock of this much quantum could not have been there in a span of seven months i.e. from 01.04.2017 to 31.10.2017. Thus, the main thrust of the arguments in this regard, both before the Ld. CIT (A) and also before us, has been that the benefit of shortage of stock found should be set off against the excess salary paid to employees after giving benefit of the salaries recorded in the books of account of all the three family concerns. 14.1.1 We have carefully considered this sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the survey on 01.11.2017 and on which the AO had made an addition of Rs.7,82,230/-. This amount, although disputed and challenged in ground of appeal No.3 in ITA No.219/Chd/2021 for assessment year 2018-19, has not been pressed and has been dismissed as such. The negative stock of Rs.65,62,914/- would imply that the assessee had sold stock worth this amount out of the books of account and thus, there were funds available at least to the tune of this amount with the assessee. However, the plea of the Ld. AR that the assessee s undisclosed payments to employees was met out from the proceeds from shortage of stock and that the assessee should be given the benefit of offset against such shortage, does not find favour with us for the simple reason that the shortage of stock was discovered on 01.11.2017 i.e. the date of survey and there is no evidence to establish that such shortage was being brought forward from earlier assessment years. Therefore, for Assessment Year 2016-17 and Assessment Year 2017-18, the addition on account of undisclosed payments to employees would continue to be at Rs. 11,82,418/- and Rs 10,71,106/- respectively as has been directed by us in preceding paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 201617, Rs.25,03,905/- for assessment year 2017-18 and Rs.22,26,999/- for assessment year 2018-19. The Ld. CIT (A) accepted this contention of the assessee and restricted the additions on account of concealed profits to the extent as indicated in the chart submitted by the assessee. 14.2.1 However, before us, the Ld. AR has vehemently argued that the assessee firm carries on retail business of trading in ladies and gents dress material and also that it does not carry on any manufacturing activity and, therefore, this kind of concealed net profit has been computed in a very incorrect manner because the salaries of the employees will not have a direct relation with the profit earned in a trading concern. It has also been argued that no incriminating material regarding earning of unrecorded profit was found. It has also been argued that in fact, there were no suppression of sales figures and, therefore, the question of earning any concealed profits does not arise. 14.2.2 We have given thoughtful consideration to the entire factual matrix on the issue and we agree with the contention of the Ld. AR that the quantum of salary paid to employees in a trading concern cannot be direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Department stands dismissed. 15.2 Ground No.3 of the Department s appeal challenges the action of the Ld. CIT (A) in deleting the addition of Rs.12,46,878/- being estimated undisclosed investment for earning the concealed net profit. This figure had been arrived at by applying a rate of 10% on the figure of alleged concealed net profit as computed by the AO. 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. 15.3 The last ground raised by the Department challenges the action of the Ld. CIT (A) in deleting the addition of Rs.2,82,190/- made by the AO on account of undisclosed investment in the property Kothi Tehal Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, not purchases but were only goods received on approval. However, on perusal of the impugned order, 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. The detailed findings of the Ld. CIT (A) on this issue (as contained in pages 32 and 33 of the impugned order) are being reproduced herein under for a ready reference: The facts of the case, basis of addition made by the AO and the arguments of the AR during the course of appellate proceedings have been considered. The AR has submitted that a look at the document could reveal that these are rough estimates only which has clearly been mentioned at the top of the document and at page No. 30, it is clearly mentioned as on approval samples only and argued that it is neither a purchase nor a sale bill. As per the AR, in the line of the business of the assessee, a lots of bargaining has to be made on purchases and in items are delivered on approval basis and it is only when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant gets relief of the balance amount. Accordingly, this ground of appeal is partly allowed. 17.1 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. 18.0 Coming to the legal grounds raised by the assessee wherein the assessee has challenged the assumption of jurisdiction on the ground that the assessments u/s 153A of the Act were bad in law since there was no search on the partnership firm and neither any Panchnama had been drawn and only a survey had been conducted, we at this juncture, are not inclined to adjudicate this ground for the reason that we have already adjudicated the assessee s appeals on merits. For identical reason, we also are not inclined to comment/adjudicate on the issue of alleged mechanical approval obtained u/s 153D of the Act. We dismiss these two grounds as having become only of academic importance in view of our adjudication on the merits of the appeals. 19.0 In the final result, all the three ..... X X X X Extracts X X X X X X X X Extracts X X X X
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