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TMI Blog2014 (5) TMI 1078X X X X Extracts X X X X X X X X Extracts X X X X ..... iling requisite details from time to time and photo copies of the impounded documents (excluding the list of the stock drawn at the time of survey and the attendance cards of the workers) were given on 19.12.2011 and the verification started thereafter, on some dates and for which the due compliance was made. (c) That the Worthy CIT(A) has ignored the fact that show cause notice had been issued on 29.11.2011 and the delay in issuing the show cause notice was not attributable to the assessee, since the process of verification of impounded documents could have been started by the Ld. Assessing Officer earlier as well and, thus, under such circumstances, the finding of the Worthy CIT(A) in para 3.4 is totally unjustified. (d) That the finding of the Worthy CIT(A) in para 3.4 is unjustified also for the reason that neither any case of non-compliance of any statutory notice has been made out by the Ld. Assessing Officer nor any penalty u/s 271(1)(b) has been initiated / levied by the Ld. Assessing Officer. 2. That the Worthy CIT(A) has erred in holding that the capital subsidy of Rs. 17,75,000/- as received by the appellant is a revenue receipt, though, the Worthy CIT(A) has agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had deployed the labour not accounted for in the books of accounts, which is contrary to the finding given by the Ld. Assessing Officer in the remand report. (d) The finding of the Worthy CIT(A) that no stock of Cycles was lying in the Godown in Madhya Pradesh and the agreement between the appellant and its agent is a sham arrangement, is against the facts and circumstances of the case as well as the observation made in the remand report by the Ld. Assessing Officer. 6. That the confirmation of addition by estimating the sales at Rs. 8,74,24,010/- by applying the G.P. rate of 24.42% and working out the alleged unaccounted income of Rs. 2,13,48,943/- is against the facts and circumstances of the case. 7. That the Worthy CIT(A) has failed to consider the observation and finding of the Assessing Officer in the remand report on the issue of verification of C-Form, Attendance cards and stocks." ITA No. 474/Chd/2013 - Revenue Appeal 3 In this appeal the assessee has raised the following grounds: "i) That the Ld. CIT(A) has erred in law in restricting the addition from Rs. 8652339/- to Rs. 4369886/- made by the Assessing officer u/s 69C Income -tax Act, 1961. ii) That the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound during search were examined only after 15.12.2011 i.e. at fag end of the assessment and the main issue on which substantial addition has been made in respect of value of closing stock leading to the addition on account of undisclosed sales, was only confronted to the assessee very late. However, the Ld. Counsel for the assessee admitted during the hearing that sufficient opportunity was given during assessment proceedings. In view of this fact, in our opinion, this ground is only of academic nature and nothing turns on and therefore it may not be appropriate for us to comment on any finding on this issue. However, we will take this opportunity to emphasize that Revenue had conducted a survey on 24.9.2008 and hearing of the case also started from 26.8.2010 then Revenue should have taken caution of starting investigation from that date itself. 8 Ground No. 2 - After hearing both the parties we find that during assessment proceedings it was noticed that assessee had received a subsidy of Rs. 17,75,000/- which was treated as capital subsidy. The assessee was asked to justify this claim. In response it was mainly stated that subsidy was received by the assessee-company from Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing officer that the subsidy was applicable in post production. It was computed on the basis of investment but that does not mean it relate to the investment etc. The Ld. CIT(A) also relied on various decisions including Sahney Steel and Press Works Ltd Vs. CIT (supra), CIT Vs. Rajaram Maize Products, 251 ITR 427 (S.C) and CIT Vs. Abhishek Industries, 286 ITR 1. In this background he dismissed this ground. 11 Before us, the Ld. Counsel for the assessee pointed out that subsidy was sanctioned in 1999 but was received during the year. He then referred to various documents including Industrial Policy and pointed out that assessee was registered as a small scale industry on 12.11.1998. The assessee had made an investment of Rs. 70.60 lakhs in plant & Machinery against which subsidy was allowed. He further pointed out that decision relied on by the Ld. CIT(A) are distinguishable in view of the decision of Hon'ble Supreme Court in case of CIT Vs. Ponni Sugars and Chemicals Ltd, (supra). Further Hon'ble Punjab and Haryana High Court in a recent decision in case of CIT Vs. Siya Ram Garg, 49 DTR Page 126 (PH) wherein it has been held that subsidy received by the assessee for settin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment incentives (capital subsidy). This itself shows that subsidy was for termed in the nature of capital nature. In the eligibility criteria it has been provided to include the value of land, building, Plant & Machinery and other items and various conditions have been laid down under the head "quantum of entitlement" it is mentioned that in the A category area 30% of fixed capital investment subject to Rs. 50 lakhs and in case B category area 20% of the fixed capital investment subject to 30% was eligible. In para 13 which deals with incentives to export oriented unit it is provided inter-alia as under: "Incentives to Export Oriented Unit i) Eligibility Export oriented units as defined under rule 2.22 shall be entitled to the incentives mentioned below: ii) Incentives a) Investment incentive @ 30% of fixed capital investment subject to maximum of Rs. 50 lakhs in case of Export oriented units in small scale sector, which would be sanctioned as prescribed under rule 6.1. However, in case of Export oriented units in Large & Medium Sector the quantum of investment incentive shall be as per rule 6.1(b)." Further the assessee is admittedly a registered small scale indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward area was held to be of capital nature after considering various decisions including the decision of Abhishek Industries (supra) and Sahney Steel and Press Works Ltd Vs. CIT (supra) of Hon'ble Supreme Court. Only distinguishing feature from this decision is that in this case subsidy was provided for setting up of industry in the backward area but in our opinion, that is not important because if the Government of Punjab decided to encourage the industry and particularly small scale industry in the whole State then nature of such subsidy would not change. In case before us, the subsidy was given in the category of small scale industry and under further sub head export oriented units. The subsidy is directly related to plant & Machinery. Therefore in our opinion, in this background the subsidy is clearly of capital nature and accordingly we set aside the order of the Ld. CIT(A) and hold that subsidy received by the assessee from Government of Punjab is in nature of capital receipt. 16 Next issue raised through ground No. 4 pertains to addition on account of various workers employed by the assessee. The Assessing officer had made addition of Rs. 86,57,239/- which has been redu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of attendance cards, no year has been mentioned. Therefore, the possibilities of attendance cards for the earlier years cannot be ruled out. However, assuming that to be the attendance cards for the financial year 2008-09, we have been able to reconcile the same and for that a separate chart is being filed herewith explaining the nature each and every card. Copy enclosed. iii) It is being clarified in the chart which is being filed herewith that most of the cards relate to the month of August, 2008 and even some of the attendance cards have been repeated and even by a look at the conditions of the cards, some of the cards appear to be for the earlier year. Even otherwise, for getting certain job work, we have engaged contractors as and when required for the purpose of business, who would supply the labour to us and their attendance cards were also found along with attendance cards relating to our business and, such payments to the contractors have been made from the books of accounts after deducting the TDS, wherever, applicable, detail of such payment to the contractors for deployment of the labour is being filed herewith for the financial year 2008-09. iv) Therefore, the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perons. (iv) Workers who left job in August and Sept - It was explained that out of 141 absent workers 12 persons had left the job in the month of August and Sept 2008. To prove these the assessee filed the copies of the salary and wages registered for August & Sept 2008. The Assessing officer observed that verification of these registers show that payments have been made to these workers for number of days these workers have worked as per attendance cards. (v) Lastly it was contended that salary wages were paid as per register and for this assessee filed copies of the salary and wages register. On this issue also no further comments have been made. This report was given to the assessee for comments. The assessee furnished following comments: (a) Duplicate (35 workers) - It was submitted that the Assessing officer has accepted this position because no comments have been given in this regard. (b) Workers working under the contractor - It was submitted that all the evidences in this regard were furnished before the Assessing officer and the Assessing officer has simply noted the submissions and has not offered any comments. Therefore this plea should be accepted. (c) Works to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... job and production of salary and wages register would show that there was no wages or salary paid outside the register. Ld. CIT(A) without rejecting the record in the form of salary and wages register, has confirmed the disallowance partly on the basis of assumption which is no justified in the eyes of law. 21 On the other hand, the Ld. D.R. for the Revenue carried us through the contents of the assessment order and strongly relied on the same. 22 We have gone through the rival submissions carefully and find that the Assessing officer has clearly accepted the position in respect of duplication of attendance cards in respect of 35 workers but still he did not mention that this was a mistake. Similarly even after having records in respect of payment to contractor no comments were offered. Same is the case with reference to other points raised by the assessee. Though the Ld. CIT(A) has accepted the duplicity of attendance cards in respect of 35 persons, the payment through contractor in cases of 13 workers and no payments in case of paltry attendance 10 out of 11 cases reported by the assessee. However, the Ld. CIT(A) mentioned that 26 persons have left job in the month of August ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account furnished by the assessee on the date of survey, closing stock should be Rs. 79682674/-. This means there was a shortage of closing stock to the tune of Rs. 30370088/-. According to the Assessing officer this clearly proves that the assessee has indulged in unaccounted sales which is not recorded in the books of accounts. According to the Assessing officer this was further proved because assessee had employed certain workers outside the books of accounts because of availability of extra attendance cards. Therefore unaccounted sales were determined at which Gross profit rate of 24.12% foray 2009-10 was applied. Calculation in this regards is as under: "The sales as per profit and loss account is Rs. 21,59,37,128/- and the total salary and wages expenses is Rs. 1,07,83,018/-. This means that for every one rupee of salary / wages there is sales of Rs. 20.02/- as per books. Since actual salary as discussed in para 9 above is Rs. 1,94,40,257/-, then actual sales by applying the same ratio is Rs. 38,91,93,945/-. Hence sales of Rs. 17,32,56,817/- (i.e 389193945 - 215937128) is to be treated as unaccounted. The assessee has shown Gross Profit of 24.42% for the A.Y. 2009-10 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for that purpose. Later on because of changed circumstances the orders were revised by various schools which were numbering nearly 2000 in 48 districts of Madhya Pradesh. Since bicycles were sold through different bills and copies of the same were enclosed showing that same have been accounted for in the books of accounts. Ultimately stock amounting to Rs. 22471842/- was not lifted by the Madhya Pradesh Government and sales to this extent was reversed during the year in the sales account. Since the assessee had entered into contract for supply of cycles in the next years, therefore this stock was kept in Madhya Pradesh only and that stock was valued at Rs. 1,75,00,000/- after reducing Gross profit rate of 22% then total stock would be Rs. 66812586/-. Balance of the difference was explained by way of difference in valuation. 26 The Ld. CIT(A) sent these submissions to the Assessing officer for his remand report. The Assessing officer in turn furnished his comments on 22.1.2013. Relevant portion is as under: "To prove the contention that all the sales which have been treated as unverified by the A.O., the assessee has filed copies of the ledgers accounts appearing in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artered accountants deputed by the assessee's bankers. The assessee has also filed photocopies of the sale bills raised. In this regard, the main contention of the assessee is that due to reduction of supply orders from M.P. Govt., 12683 bicycles valuing Rs. 2,24,71,842/-. remained unsold and the same were lying with the Agent at Madhya Pardesh. In support of this contention, the assessee has filed a copy of the Settlement reached between M/s Safari Bikes Limited, Ludhiana & the agent M/s Vishwa Karma Industries, Khandwa through its prop. Shri Ashok Kumar Malviya. This settlement is dated 18.09.2010. As per this settlement signed by both the parties, 12683 Nos. of bicycles were kept in godown in perfect condition valuing Rs. 2,24,71,842/-. The assessee has also filed a complete reconciliation chart showing the total orders received from the M.P. Govt., Cycles supplied, cycles not lifted by the M.P. Govt. & balance quantity lying at Madhya Pardesh. The assessee has also filed relevant documents through which orders were placed by M.P. Govt. and sales bills through which cycles were supplied to M.P. Govt. The assessee has also filed voucher / evidence through which the sales retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above said submission of the assessee, it is clear that the addition as made by the Assessing Officer is unjustified & same may, please be deleted. iv) Lastly, it may be submitted that the Assessing Officer, had based to addition on the basis of alleged sales outside the books of accounts, inferred from the C-Forms register coupled with the alleged shortage in stock and alleged excess workers on the basis of 141 attendance cards and for which the assessee was confronted by virtue of the show cause notice served on 29th of December, 2011 for which the time was allowed only upto 30th of December, 2011 and, thus, allowing the assessee only few hours to reply to the detailed and which was totally unjustified. v) Though, we had tried to furnish the reply on 30th of December, 2011 afternoon, but that reply was not accepted by the Assessing Officer and the order containing 53 pages was served upon the assessee on 30th of December, 2011 itself and, thus, it is proved that the Assessing Officer was pre determined to make the addition, because that order could not have been prepared within a span of time of few hours and, now, since in the remand proceedings, after detailed examination o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und of appeal is accordingly partly allowed." The assessee has raised ground No. 5, 6 & 7 regarding addition confirmed by the Ld. CIT(A) in respect of undisclosed sales and Revenue has raised ground no. 2 against part of addition deleted by the Ld. CIT(A). 28 Before us, the Ld. Counsel for the assessee reiterated the submissions made before the Ld. CIT(A). He further pointed out that unaccounted sales which were worked out on account of C forms list found during survey, was confronted to the assessee for the first time on 29.12.2011. The assessee sent reply on 30.12.2011 by speed post. Before the Ld. CIT(A) detailed reconciliation of actual sales conducted in the previous years with C-form was furnished. It was sent for the comments of the assessee. These details were verified by the Assessing officer and ultimately he accepted the sales matched with the C - forms. In this regard he particularly invited our attention to pg 40 of impugned order wherein this fact has been extracted from the remand report of Assessing officer. Despite these comments, the Ld. CIT(A) again recorded a finding that there was discrepancy with regard to sales in relation to C-forms during survey. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. He contended that when copies of the bills for a particular rate were also field then how it was not possible for the Assessing officer to value the stock, is not clear. He pointed out that on this account there is under valuation of closing stock amounting to Rs. 12776887/- for which detailed list is filed at page 323 to 329 of the paper book. 30 Second reason for lower stock was explained before the Ld. CIT(A) was because of the reason that same stock was lying at Madhya Pradesh with the agent, it was pointed out that the assessee has participated in tender for supply of bicycles by the Government of Madhya Pradesh and was awarded contact and bicycles were supplied. But because of various reasons out of total 269544 bicycles, the State Government of Madhya Pradesh reduced order for 22240 bicycles. Out of which 9557 bicycles were brought back to Ludhiana and balance was kept in Madhya Pradesh because Government of Madhya Pradesh had assured the assessee that fresh orders would be placed in the next year. It was pointed out that order was curtailed because of various reasons including assembly elections and the orders were revised in each of the District, details for which wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had no other godown in Ludhiana and therefore it was stated that no stock is in the godown. 33 We have gone through the rival submissions carefully and find force in the submissions of the Ld. Counsel for the assessee. First of all it has to be noted that survey was conducted in the premises of the assessee on 26.9.2008. The list of stock filed at page 925 to 952 clearly show that no rate has been mentioned which makes it clear that stock was not valued during the survey. Normally the stock should have been valued during the survey proceedings itself. The assessee has alleged that various documents found during survey were not looked into upto 14.12.2011. This fact becomes clear from the copy of the noting sheet dated 15.12.2011 (copy placed at page 812 to 819 of paper book). Proceedings of 15.12.2011 are given at page 817 which reads as under: "Present for the assessee : Rajesh Kumar In this case the books of accounts along with supporting documents were produced. The process of verification of impounded documents with books of accounts was started and remain incomplete. Adjourned to 19.12.2011." We fail to understand why the department could not value the stock and ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... states that C-forms list matches with the sales effected by the assessee. This clearly shows our earlier doubt as alleged by the assessee that the Revenue has made all efforts to make only high-pitched addition. 35 Thirdly with respect to objection of the assessee in respect of valuation of 248 items the Assessing officer has stated in the remand report which has been placed at para 9.6 is as under: "Further, out of 1202 items of stock, the assessee did not agree with the valuation of stock in respect of 248 items and worked out the difference of Rs. 1,27,76,887/- in valuation. In support of its contention, the assessee has filed photocopies of the purchase bills / sales bills. In this regard, it is submitted that items dealt in by the assessee are numerous and of different sizes. As such, it is very difficult to reach at correct price of the items." We are of the opinion that the Assessing officer has not given any adverse comments and simply brushed aside the objection of the assessee by stating that item dealt by the assessee are numerous and are of different sizes. This is totally high handed approach by the Revenue. Whatever evidence is being filed, is not examined and sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and the same were returned to Ludhiana to the assessee company. Balance 12683 bicycles valuing Rs. 22471842/- which were kept in the godown for safe custody of the agent at Madhya Pradesh. The Assessing officer or the LD. CIT(A) have not expressed any doubt in respect of this agreement. The assessee has obtained cash credit from bank and was required to furnish stock audit report and the copy of stock audit report is placed at page 317 to 332 of the paper book which clearly show that there were no discrepancies. In any case the assessee has already shown the sales return and passed the following entries on 31.3.2008: Date Journal Voucher No Particulars Amount 31.3.2008 105 11500 bicycles of 18" @ Rs. 1766/- per bicycle 20309000 31.3.2008 342 2585 bicycles of 20" @ 1786/- per bicycle and 6029 bicycles of 18" @ 1766/- per bicycle 15264024 31.3.2008 343 1364 bicycles of 18" @ 1766/- per bicycle and 721 bicycles of 20" @ 1786/- per bicycle and 41 bicycles of 22" @ 1950/- per bicycle totaling Rs. 3776480/- and 307 bicycles from Tribal welfare Commissioner Ranchi @ 2029 per bicycle @ Rs. 2029/- per bicycle Rs. 622393/- 4398873/- &n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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