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2016 (5) TMI 526 - ITAT AHMEDABAD

2016 (5) TMI 526 - ITAT AHMEDABAD - TMI - Addition on unaccounted profit - Held that:- Assessing Officer has relied on the provisional P&L A/c. for a part of the year to make such large addition. He has not brought any materials on record to prove that why the contention of the assessee was not acceptable. He has accepted the year ending P&L a/c and not doubted any expenditures whatsoever claimed by the assessee, but made such huge addition. It does not appeal to the common sense about such huge .....

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as on 13.09.2008. Considering these facts and circumstances of the case, CIT(A) has rightly deleted the addition in question - Decided against revenue

Unexplained investment in land - Held that:- CIT(A) observed that the land was acquired by a different entity other than the assessee-firm. Also the statement of the Partner was not categorical that the assessee-firm had paid on behalf of the purchaser from unaccounted source; however, the statement recorded under section 131(1) of the .....

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that the addition made in the A.Y.2009-10 was not the relevant year considering the transactions which pertained to the A.Y. 2006- 07. It was found possible such overlapping in case where the Managing Partners manages affairs of various entities and in such eases the Assessing Officer was duty bound to take appropriate action so that such unexplained transactions do not escape the rigor of taxation. The CIT(A) in the concluding lines rightly observed that the Assessing Officer may take correctiv .....

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ce thereof, it was not done by him. It is also pertinent to note that the care has not taken by the Assessing Officer regarding the assessment year, i.e., in which year such unaccounted money should be added. The so called transactions related to A.Y. 2007-08 and the addition made in the A.Y. 2009-10. Under these facts and circumstances, the CIT(A) rightly held that there were no documentary evidence on the basis of which the addition can sustain. Considering these peculiar facts of the case, we .....

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ere available, the right thing was to consider the figures as per audited records instead of impounded materials. However, as per the reconciliation of stock statement, the stock difference arrived at ₹ 63,597/- which was admitted by ld. Authorized Representative on behalf of the assessee. Hence, the CIT(A) has rightly directed the Assessing Officer to restrict the addition to the extent of differential amount, i.e., ₹ 63,597/- and rest was deleted. These reasoned and factual finding .....

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he assessee would pay salary & wages from outside the books of account. The Assessing Officer obviously has not rightly appreciated the submissions made by the assessee in this regard. As rightly observed by the CIT(A), the Assessing Officer completely ignored the basic records and audited books of accounts of the assessee submitted before him. His reliance on the statement has been the sole basis for such addition. In this circumstances, the Assessing Officer was not justified in making such ad .....

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n the manual system, in a computerized environment, if it is appearing in the tally accounting package in trial balance, invariably it will appear in the ledger accounts also. The assessee established that such credits are supported by deducting and paying tax at source on those credits/payments. The ledger account placed on record also substantiated the assessee’s stand. The assessee also furnished a list of parties in whose case the credit balances were written off at ₹ 36,56,109/- which .....

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, JUDICIAL MEMBER: This appeal by the Revenue is directed against the order of the Commissioner of Income-Tax (Appeals), Valsad dated 30.03.2012 for Assessment Year 2009-10. 2. In this appeal, the Revenue has raised following grounds of appeal:- 1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of ₹ 2,72,78,269/- made by the A.O. in respect of unaccounted profit. 2. On the facts and circumstances of the case and in law, the ld. CIT( .....

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in stock. 5. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of ₹ 72,00,000/- made by the A.O. on account of unaccounted expenditure of salary and wages. 6. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of ₹ 9,05,074/- made by the A.O. on account of unaccounted expenditure. 3. The first issue is with regard to the addition of ₹ 2,72,78,269/- made by the Assessing .....

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d amounting to ₹ 15.42,417/-. This is clear cut concealing the income of net profit of the firm to the extent of ₹ 2,72,78,269/- for a period of 5 months of the financial year. This paper clearly shows that the actual profit earned by the assessee firm was ₹ 288,320,686/- but the net profit reduced to ₹ 15,42,417/-, which has resulted into unaccounted income earned by the assessee firm and not accounted in the books of the firm to the extent of ₹ 2,72,78,269/-. On t .....

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f ₹ 2,72,78,269/- which is unaccounted income for which evidences are gathered during the course of survey and remained unaccounted/unexplained to the satisfaction of the undersigned for the same reason, it is treated undisclosed income of the assessee firm over and above the income shown in the return of income of the assessee. 3.1 Matter was carried before the First Appellate Authority wherein various contentions were raised on behalf of the assessee and having considered the same, the C .....

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lance and P&L A/c for the period 01.04.2008 to 31.03.2009, wherein the net profit was shown as ₹ 2,88,20,686/-. It was also noticed that in the said paper the assessee had done correction/modification of figures and arrived net profits at ₹ 15,42,417/-, therefore, the Assessing Officer held that the assessee has manipulated the net profit by concealing income to the extent of ₹ 2,72,78,269/- (Rs.2,88,20,686 - ₹ 15,42,417/-. From the findings in the assessment order, a .....

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2008 (two days after the date of survey; thus, the pencil working in the paper was for the corresponding period of the earlier year. The CIT(A) has also perused the comparative statement of gross profit ratio supplied by the assessee for the current year and previous year and the substantive portion of the submissions made by the assessee is reproduced below for the sake of clarity:- i) The appellant worked out Advance tax Liability three days earlier to the date of survey. That Balance sheet re .....

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has been explained to the learned Assessing Officer which he conveniently disregarded and wrongly held that profit as ₹ 272.78 lacs against a sales of ₹ 582.68 lacs which shows a Net Profit Ratio of 46.34 % to sales. ii) Looking to the ground realities that (i) there cannot be such a high Net Profit Ratio in any engineering based industries; (ii) the expenses cannot be completely booked as updated on day to day basis when the businessman operates in different sites located in differe .....

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sales were recorded upto 13th September, 2008 were recorded whereas the purchases / expenses were pending for booking when the accounts were drawn from tally system. iv) The said P&L A/c relied for the purpose of reckoning income for the year under scrutiny does not bear any signature of the authorized persons / partners of the firm. The audited figures were not yet replaced in the opening stock for the current year in that statement which implies that the account were drawn only to consider .....

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bad in law. vi) Further, the ld. AR contended that the partner whose statement was recorded u/s 133A of the Act was unaware of how these figure arrived at and hence he stated that he would give explanation the next day. However, no such explanation was sought by the Department on the next day which could be explained later only during the course of scrutiny proceedings which the Learned Assessing Officer failed to appreciate. vii) In addition, we are also providing the GP ratio for the past two .....

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cepted for whole period 01.04.2008 to 31.03.2009 engulfing the above referred period, it amounts to double taxation and hence otherwise also requires lo be disregarded. All the records, produced before the Learned Assessing Officer arc accepted and verified and hence, the accounts for the period 01.04.2008 to 31.03.2009 relevant to Assessment Year 2009-10 gets accepted and thus P&L relied for the intermediary period needs to be disregarded. As a principle of natural justice, to avoid any dup .....

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assessee, but made such huge addition. It does not appeal to the common sense about such huge net profit at 46.43%, especially for the type of assessee s business. The Assessing Officer should have drawn the P&L a/c as on the survey date after considering all income and expenditures. In this case no such attempt was made by the Assessing Officer before making such addition. Therefore, looking to the nature of the business of the assessee, which is spread over different geographical area, it .....

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Assessing Officer on account of investment in plot of land through a proprietary concern of the Managing Partner of the assessee-firm. The Assessing Officer made this addition with the following observations in his order:- Regarding 30% of ₹ 70 lakhs i.e. ₹ 21 lakhs paid in cash out of the income of the assessee-firm, the partner of the firm was specifically asked vide question No.19 the answer given by the partner of the firm is very pure and absolute while explaining the question t .....

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e hooks for the purchase of plot of land. As there is no satisfactory reply/explanation offered on this issue, the confession of the partner of the assessee in the answer of question No.19 of the statement dated 16/9/2008 has become final, as there is no dispute, by the assessee firm as described above, the unaccounted cash payment of ₹ 21 lakh is unaccounted income of the assessee firm which is paid for the purchase of plot of land and the same is not shown in the books of the assessee fi .....

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urse of hearing. 8.2 It may please be noted that the statement recorded under section 133 of the Act, was not supplied to the appellant. Since the appellant had no idea as to what was recorded by the Survey team, he could not retract immediately and hence retraction statement was made only after the partner got the statement on 28.11.2010 within reasonable time thereafter rebutting the contents of the statement. Even otherwise statement has no evidentiary value as supported by various judgements .....

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, transfer fee as enclosed for your kind reference. This statement contains the figures as alleged by the Learned Assessing Officer relying on the statement made during survey action. Hence, the reliance placed on such statement without any corroborative evidence needs to disregarded and no addition is called for on this count in any of the entities. Without prejudice to the submissions made above, if at all any possible addition is required to be made, it should be in the hands of the other ent .....

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ner of the banner of one assessment year. It seems the learned Assessing Officer wrongly understood the provisions of Income tax to cover all income of all the persons for all the years to assess in one breath. The learned Assessing Officer failed to peacefully go through the documents in his possession and in a fit of urgency made all and sundry additions in sweeping effect. He did not find it suitable to analyse the statements / weapons in his hands as to its relevance to the assessee or to th .....

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nts mentioned therein which will be logically explained as and when called for, we wish to furnish that the learned Assessing Officer failed to appreciate that the plot of land is belonging to other assessee other than whom scrutiny assessment he is doing and falls in other assessment year other than which he is assessing. In a fit of urgency, he swept every figure into income of the appellant and of the year of assessment just to arrive at a figure probably a target figure which was in his mind .....

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the extent of assessing income not pertaining to the year which is being assessed by him. The learned Assessing Officer has, without any corroborative evidence, in his possession, which he claimed in the Assessment Order, made an adhoc addition which is bad in taw and the same needs to be struck off. The learned Assessing Officer ought to have considered the submissions made by the appellant during the course of scrutiny hearing reiterating alt the facts mentioned above. 8.6 The appellant placed .....

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ions were raised on behalf of the assessee and having considered the same, the CIT(A) granted relief to the assessee which has been opposed on behalf of the Revenue inter alia submitting that the CIT(A) has erred in deleting the addition of ₹ 21,00,000/- made by the Assessing Officer in respect of unexplained investment in land. On the other hand, ld. Authorized Representative supported the order of the CIT(A). 4.2 We have heard the rival contentions and perused the material on record. The .....

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categorical that the assessee-firm had paid on behalf of the purchaser from unaccounted source; however, the statement recorded under section 131(1) of the Act referred to a figure of ₹ 70 lacs as affirmed by the Partner of the assessee-firm as the consideration and the books of account recorded a sum of ₹ 60.62 lacs. This was the basis for addition to the differential amount in the appropriate hand. Thus, CIT(A) observed that, considering the factum of the case, the addition made i .....

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ate action so that such unexplained transactions do not escape the rigor of taxation. The CIT(A) in the concluding lines rightly observed that the Assessing Officer may take corrective measures legally to assess the admitted amount of ₹ 21 lacs paid from outside the books of account in the appropriate hand and in the relevant assessment year. These reasoned and factual findings of the CIT(A) need no interference from our side. We uphold the same. Accordingly, Ground No.2 of the Revenue s a .....

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ategorically that there was total payment of ₹ 45,00,000/- for purchasing two second hand cranes. These two cranes were purchased in the F.Y. 2005-06 for ₹ 45,00,000/- and payment to the extent of 40% to be paid in cash i.e. ₹ 18,00,000/- without entering into the books of accounts as stated by the partner. While answering/explaining to Q.No.18, the partner of the assessee firm has tried to take plea in respect of the language of the statement i.e. English which is not much con .....

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ng but disowning of responsibility regarding unaccounted transaction of the firm which are put before the partner during the course of survey. There is a mention of having not purchased such cranes in F.Y. 2005-06 is also not believable because when transactions are taking place in cash and out of the books of the firm no credible evidence is either with the assessee or with any other person which can rebut the confession made on oath by the partner of the assessee firm. In this way, an amount o .....

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ssessee which has been opposed on behalf of the Revenue inter alia submitting that the CIT(A) has erred in deleting the addition of ₹ 18,00,000/- on account of unaccounted investment in purchase of cranes. On the other hand, ld. Authorized Representative supported the order of the CIT(A). 5.2 After going through the rival contentions and material on record, we find that the assessee placed on record the audited accounts of Pragati Crane Centre for FY 2005-06 and 2006-07 alongwith summary o .....

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tities. Further the records revealed that there was no addition to cranes in the assessee-firm for the AY 2009-10. In this background, CIT(A) examined the basis of addition made by the Assessing Officer and on perusal of records, he found that there were no purchases of crane in the assessee s firm during the FY 2005-06. The question asked by the CIT(A) during appellate proceedings in this regard and its reply thereto was recorded, which reads as under:- Q 18: How many cranes have been purchased .....

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he figure of ₹ 1,09,52,313/- which was in variance with the statement recorded which was considered by the Assessing Officer for addition. The Assessing Officer ought to have reconciled the purchase of cranes by various entities and sources of fund for such purchases before coming to the conclusion that there was payment outside the books by the assessee. In this case, the addition made was purely on the basis of the statement recorded during the survey action. Although the Assessing Offic .....

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h the addition can sustain. Considering these peculiar facts of the case, we are also of the opinion that this addition cannot sustain as there was no addition of cranes in the hands of the assessee during the relevant assessment year. In view of these facts, the CIT(A) is justified in deleting the addition in question made by Assessing Officer on account of cash payment made for purchase of second-hand cranes. Thus, the order of the CIT(A) in this regard is upheld and Ground No.3 raised by the .....

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lue of the stock was calculated in the presence of partner of the firm and which is duly acknowledged by the partner on the date of survey. It was also noticed that there was a stock of ₹ 754,972/- as per books of accounts as on the date of survey, the same facts are recorded in the statement taken on oath. The excess stock of ₹ 14,83,798/- was noticed and while recording the statement the same issue was asked to explained. The partner of the assessee could not explain the excess sto .....

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r of the assessee firm in a position that the excess stock cannot be explained by him is correct. A very big assessee firm having business at large scale, involving the stock of so many items in value does not keep any record for maintenance of stock and value thereof. As replied by the assessee only on the last day of the financial year stock is taken and it is being incorporated in the books of accounts. So there is no dispute about excess stock found on the day of the survey as recorded in th .....

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14,83,798/- is made to the total income treating the same as investment made out of undisclosed income of the assessee firm u/s 69 of the I.T. Act. 6.1 Matter was carried before the First Appellate Authority wherein various contentions were raised on behalf of the assessee and having considered the same, the CIT(A) granted partial relief to the assessee by restricting the addition to the extent of ₹ 63,597 as against the total addition of ₹ 14,88,789/-. The order of the CIT(A) was ch .....

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e basis of one of the copies of the profit and loss account found in the impounded documents. The assessee placed on record the last audited balance sheet showing the closing balance at ₹ 11,71,729/-. It was found that between the date of survey and the commencement of the financial year, there exists transactions of purchases, consumption and sale of the stock items which need to be taken into record while working out the stock level as on the date of survey. The Assessing Officer was not .....

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d Representative on behalf of the assessee. Hence, the CIT(A) has rightly directed the Assessing Officer to restrict the addition to the extent of differential amount, i.e., ₹ 63,597/- and rest was deleted. These reasoned and factual findings of the ld. CIT(A) do not require any interference from our side which is upheld. Accordingly, this ground of the Revenue is also dismissed. 7. Next issue is with regard to the deletion of addition of ₹ 72,00,000/- as unexplained salary and wages .....

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ence is paid out of the books. This issue was also specifically asked to explain vide para No.5.6 of final show cause that ₹ 600,000/- per month cash payment made by the assessee firm every month and not recorded in the books should not be treated as unaccounted expenditure of the firm. The reply of the assessee dated 12/12/2011 is stating this issue may be decided in view of decision of CIT[A] in this case for the A.Y. 2008-09 i.e. previous year to the assessment year may be taken. It is .....

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ary of ₹ 600,000/- per month (average) totaling to ₹ 72,00,000/- for 12 months period. In this way, the facts of A.Y. 2009-10 are different and the plea of the assessee is not acceptable for this reason. The assessee has not furnished any explanation evidence even while production of books which shows the inclusion of cash payment of the salary and wages paid and included in the books of accounts. In view of this, an addition of ₹ 72,00,000/- is made to the total income treatin .....

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e of salary and wages. On the other hand, ld. Authorized Representative supported the order of the CIT(A). 7.2 We have heard the rival contentions and perused the material on record. In this case, the Assessing Officer observed that, as per the authorized officer for conducting the survey, the assessee had been paying salary and wages of ₹ 6.00 lakhs every month outside the books of account. This fact was accepted by the partner in his statement recorded during the survey. On that basis th .....

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the salary and wages paid were fair and reasonable. The stand of the assessee has been that although the impounded materials were available with the Assessing Officer but Assessing Officer had not specified which portion of those documents corroborates the finding of the Assessing Officer in this regard. The assessee further contended that it is too illogical to assume that anybody would spend money and not record in his books while the reverse is possible with a view to evade tax. When a perso .....

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that the assessment order would not speak of which impounded documents/material showed that the appellant was paying salary & wages from outside the regular books of account. It does not make any sense that what benefits the assessee derived by paying salary & wages from outside the books of account when such amounts are legally permissible. Theoretically, the assessee can derive benefit when the corresponding sales are suppressed. The Assessing Officer has not indicated anywhere in the .....

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ds and audited books of accounts of the assessee submitted before him. His reliance on the statement has been the sole basis for such addition. In this circumstances, the Assessing Officer was not justified in making such addition and the same has been rightly deleted by the CIT(A). Therefore, the order of the CIT(A) in this regard does not require any interference from our side. We uphold the same. 8. Next issue is with regard to the deletion of addition of ₹ 9,05,074/- as unexplained exp .....

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