TMI Blog2014 (5) TMI 1078X X X X Extracts X X X X X X X X Extracts X X X X ..... case, we are of the opinion that ends of justice would meet if a disallowance of ₹ 8 lakhs is made in respect of inflation of salary and wages in this case. This proposal was accepted by the Ld. Counsel for the assessee as well as the Managing Director of the company who was present in the Court, therefore we set aside the order of the Ld. CIT(A) and confirm the disallowance of ₹ 8 lakhs on account of salary and wages on account of inflation of expenses - Decided partly in favour of assessee Addition on shortage of stock - Held that:- 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 simply brushed aside. Even before us, the Revenue could not point out any error in the valuation and the differences given by the assessee at page 323 to 329 of the paper book which were filed before the Assessing officer during assessment proceedings.Therefore in our opinion, these differences amounting to ₹ 12736887/- should have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 17,75,000/- as received by the appellant is a revenue receipt, though, the Worthy CIT(A) has agreed that as per the sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45 (iii) that the appellant 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 ₹ 8,74,24,010/- by applying the G.P. rate of 24.42% and working out the alleged unaccounted income of ₹ 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 ₹ 8652339/- to ₹ 4369886/- made by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions carefully and find that the main grievance of the assessee is that the documents found 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 ₹ 17,75,000/- which was treated as capital subsidy. The assessee was asked to justify this cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is not relevant. 10 The Ld. CIT(A) examined the submissions and agreed with the findings of the Assessing 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidy and other procedural matters. Para 6 of the scheme starts as incentives to small scale industry units and then para 6.1 starts investment 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 ₹ 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 ₹ 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ab. Further the Hon'ble Punjab and Haryana High Court in case of CIT Vs. Siya Ram Garg (HUF) where the subsidy was received for setting up of Agro Industry in the backward 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 thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y submitted that certain attendance cards were there which were confronted to the assessee on 29.12.2011 without giving any copies, therefore it was not possible to give any reply. Still the assessee has given following reply on 13.12.2011 which is as under: ii) Now, we have received the Photostat copies on 16.03.2012 and after perusing the attendance cards, out of 141 cards, we have tried to match the same as per books of accounts and it has been a difficult task, because in some 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 jo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e workers worked. No further comment was offered by the Assessing officer. (iii) Workers whom no wages were paid It was explained before the Assessing officer that in 11 cases actually no payments have been paid because those workers worked for only 2-3 days and left the job. The Assessing officer after verification commented that after verification of these cases it was found that attendance of the workers have been marked for only few days and no wages appears to have been paid in case of these 10 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see submitted that this issue was confronted to the assessee for first time on 29.12.2001 though the assessee gave reply on 30.12.2011 it was not taken by the Assessing officer and sent by the Speed Post. Further details were submitted before the Ld. CIT(A) who asked for remand report. It was vehemently argued that reading of the contents of the remand report which has been produced by the LD. CIT(A) would show that the Assessing officer accepted the contentions but still the LD. CIT(A) accepted the contention only in respect of 58 workers. The observation of first appellate authority that the assessee has no explanation for 83 workers is not correct. The Ld. Counsel for the assessee referred to the various contentions made before the Assessing officer and particularly with reference to workers who had left the 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 thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts containing details of C-form were impounded during survey which was marked as Annexure A-II. According to the Assessing officer pursuant to the enquiries of entries of annexure A-11 of C-forms which did not match with the entries in the ledger. The details of C-Form have been incorporated by the Assessing officer at page 19 to 21 of the assessment order. Therefore the Assessing officer concluded that the sales amounting to ₹ 18632561/- were unaccounted sales. Further valuation of closing stock taken during survey on 24.9.2008 was done on the basis of rate list prepared with the support of the Accountant of the assessee and from purchase bills. The detail of valuation has been incorporated at page 27 to 52. According to the Assessing officer the total closing stock as per this valuation was ₹ 49312586/- whereas as per trading account furnished by the assessee on the date of survey, closing stock should be ₹ 79682674/-. This means there was a shortage of closing stock to the tune of ₹ 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. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. it was pointed out that factory of the assessee was spread over in 7000 sqyd and turn over was about 21.50 crores and therefore it is practically impossible to count more than 2000 parts of different sizes and specifications scattered over the area during the course of survey. The Assessing officer has wrongly linked the issue of unaccounted sales with the attendance cards found during survey which has already been reconciled. Various other discrepancies were pointed out. Finally it was contended that the assessee has participated in a tender with the Government of Madhya Pradesh and ultimately a contract was signed with Madhya Pradesh Laghu Udyog Nigam Ltd. Central procurement agency of Madhya Pradesh Government. The Government of Madhya Pradesh through various departments announced scheme of distribution of bicycles for school girl students as a welfare measures and this order was placed on the 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in by the assessee are numerous and of different sizes. As such, it is very difficult to reach at correct price of the items. Stock lying at Madhya Pardesh : In written submissions at the appellant stage, the assessee stated that the assessee had participated in a tender with Govt. of Madhya Pardesh for supply of Bicycles. The assessee further contended that due to reduction in the purchase order placed by the M.P. Govt., the bicycles sent to the Madhya Pardesh were not lifted by the M.P. Govt. Since the assessee was hoping to get further orders from M.P.Govt., the assessee did not lift the material / bicycles and stocked the same at Madhya Pardesh. In support of the above contention, the assessee has filed photocopies of the initial orders placed by the M.P. Govt., various amendments reducing orders, next year rate contract issued with M.P. Govt. agreement signed with Agent cum distributor and stock audit report from Chartered 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussed by the Assessing Officer in the remand report and no adverse view has been drawn in respect of the contention of the assessee. The cost price of the Bicycles comes to ₹ 1,75,00,000/- out of sales of Rs. ₹ 2,24,71,842/- by reducing G.P. of 22%. ii) Thus, the difference of ₹ 3,03,70,088/- stands reduced by ₹ 1,75,00,000/- and the balance difference remain to the tune of ₹ 1,28,00,000/- and for the balance difference, we have submitted that the valuation of stock in respect of 248 items out of 1202 items of stock had not been done correctly and for which, it has been observed by the Assessing Officer that we have filed the Photostat copies of all the purchase and sale bills and they are contained from pages 323 to 414 of the paper book submitted before your goodself also. iii) The official of the department had verified such rates during the course of remand proceedings and nothing adverse has been stated in the remand report. Therefore, from the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce ultimately unaccounted sales have been worked out on the basis of salary and wages but the total salary an wages have been revised by him therefore he correspondingly reduced the sales. Ultimately the addition on account of profit was also reduced in following para: Now coming to the issue of computation of sales outside the books of accounts. In this regard the Assessing officer has computed the total sales at ₹ 389193945/- on the basis of the salary worked out in para 9.0 of the order at ₹ 19440257/-. As discussed in para 8 above, this salary/wages have been computed at ₹ 15152904/-. Based on this re-computation of salary and applying the formula applied by Assessing officer, the total sales works out at ₹ 30,33,61,138/-. The unaccounted sales accordingly work out to ₹ 87424010/- (Rs. 30,33,61,138/- minus ₹ 21,59,37,128/-). Applying the Gross profit rate of 24.42% the unaccounted income works out to ₹ 21348943/-. This amount is held to be unaccounted income of the appellant from unaccounted sales. This ground of appeal is accordingly partly allowed. The assessee has raised ground No. 5, 6 7 regarding addition confirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the assessment proceedings, the Accountant was asked to give rates of various items without specifying the size and the quality of the items and stock has been valued on the basis of such rates. It was pointed out that there can be a difference in rates of various items depending on specification size and stage of production. For example a frame of raw condition may cost ₹ 200/- and with phosphate coating the same would cost ₹ 250/- and after painting and finishing operation this will cost ₹ 400/-. Therefore even if the item remain same i.e. frame prices can be different. When ultimately list was confronted to the assessee, it was pointed out that atleast in cases of 248 items out of total 1202 items, the rates have not been applied correctly. In this regard copies of the bills for the rates applied by the Department for actual cost filed before the Assessing officer during assessment proceedings at page 323 to 414 of paper book. The Assessing officer has not given any adverse comments on this and simply observed that it is difficult to reach at a correct price. He contended that when copies of the bills for a particular rate were also field then how it was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely application of Gross profit rate. While concluding his argument on this issue he emphasized that this addition has been made purely on conjectures and surmises and no evidence was found during survey or sales outside the books of accounts. 31 On the other hand, the Ld. D.R. for the Revenue submitted that the assessee was specifically asked during survey that whether any stock was lying anywhere other than the factory premises and the assessee has clearly stated that there was no other stock except for whatever was lying in the factory premises. He also referred to various observations of the Assessing officer and the Ld. CIT(A) and strongly supported the orders of Assessing officer and the Ld. CIT(A) in this regard. 32 In the rejoinder the Ld. Counsel for the assessee submitted that firstly when the assessee is awake for whole of the night during survey proceedings and is tremendously under pressure, he may remember certain facts and may be under wrong impression of actual position regarding stock lying at Madhya Pradesh. In any case the question was whether there is any godown and since the assessee had no other godown in Ludhiana and therefore it was stated that no stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of whom sales have been treated as unverified. In these ledger accounts, the assessee has shown the details of issue of particular sale bills, amount involved and payments received in respect of the same. These ledger accounts have been examined which shows the details of bills raised and payments received. The assessee has also filed photocopies of the relevant C-forms which matches with the sales effected. From the highlighted portion it becomes clear that from the details filed by the assessee, C-forms list match with the sales effected by the assessee. Despite this remand report, the Ld. CIT(A) made following observations in this regard: i) The comparison of C-form Register impounded during the course of survey and the ledger produced by the appellant during the course of assessment proceedings revealed that there was a discrepancy in the sales recorded in the books of accounts in as much as sales amounting to ₹ 18632561/- shown in the C-form was not recorded in the ledger. We fail to understand how the Ld. CIT(A) can make this observation despite having received remand report which states that C-forms list matches with the sales effected by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are the copies of supply order amendment . For example at page 258 there is supply order amendment which shows that original order for bicycles of ladies 18 was 3054 units which was amended to 2841 units. The original order was indent no. 1683 darted 17.7.2007. Thus it becomes clear that from original order some quantity was reduced. Since the assessee was assured of further supply and fresh agreement was entered (copy of which is placed at page 306 to 310 which is dated 2.6.2008). Therefore obviously the assessee may not have preferred to bring back all the bicycles which were earlier reduced from the original orders. These unsold bicycles were located at various places and therefore they had to be collected at one place for which the assessee entered into an agreement with its agent Vishwakarama Industries (copy of this agreement is placed at page 302 to 304 of paper book). The agent was responsible for removal of bicycles through this settlement it is stated that certain bicycles became surplus on amendment/reduction of the orders. Out of total 22643 surplus bicycles 9557 bicycles required refurnishing due to mishandling during transportation and the same were returned to L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then actually shown in the books of accounts and for which addition of ₹ 86,57,239/- was made on that account which was reduced to ₹ 43,69,886/- by the Ld. CIT(A) because he accepted the contention regarding duplication of workers and contractor workers. However, we have already adjudicated this ground in above noted paras and addition has been reduced to only ₹ 8 Lakhs which was made only on estimated basis by us. Therefore this factor is also not available for the conclusion that the assessee had undisclosed sales. We also find force in the submission that during survey proceedings or otherwise the Revenue has not brought any material on record in form of any sales bill or diary notings that some sales have been conducted outside the books of accounts. Therefore in our opinion, this addition is totally uncalled for and accordingly we delete the same. Therefore this ground of assessee is allowed and the ground raised by the Revenue is dismissed. 38 In the result, appeal of the assessee in ITA No. 253/Chd/2013 is partly allowed and appeal of the Revenue in ITA No. 474/Chd/2013 is dismissed. Order pronounced in the open court on 29.5.2014. - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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