2012 (11) TMI 946 - AT - Income Tax

Revenue appeal partly allowed on scrutiny selection. CIT(A) error in guidelines application. Deletion upheld for wages, bogus purchases.

The Revenue's appeal was partly allowed concerning the compulsory scrutiny selection issue, as the Tribunal found the CIT(A) erred in applying selection ... Selection of case for scrutiny - held that:- procedure for selection of cases for scrutiny for noncorporate assessees is for the cases for taking into scrutiny during the financial year 2005-06 and selection in the financial year 2005-06 can only be taken for the preceding years to financial year 2005-06. Therefore, the Ld. CIT(A) is not justified in deciding the issue following the said procedure which is not available during the impugned financial year 2005-06 relevant to the assessment year 2006-07. - Decided in favor of assessee. Disallowance of Salary and Wages – genuineness of wages - Held that:- AO has treated the wages of one month as genuine and others as ingenuine. - In the absence of any explanation by the assessee, the authorities have to make best judgment assessment which should be honest and fair. - This view is fortified by the decision of the Hon’ble Supreme Court, in the case of Brij Bhushan Lal Praduman Kumar vs. CIT [1978 (10) TMI 2 - SUPREME COURT] Though arbitrariness cannot be avoided in such estimate, the same must not be capricious but should have a reasonable nexus to the available material and circumstances of the case - If the additions, as made by the AO are compared with the turnover of the assessee, the income of the assessee comes at 40.32% which is almost 4 to 5 times of the income shown in the past and also in the case of other contractors. Therefore, the assessment made by the AO is not based on the facts but an arbitrary assessment. - Deletion of addition by CIT(A) confirmed - Decided in favor of assessee. Addition made on account of bogus purchases of materiaL – Held that:- the AO was not justified in making specific addition without giving any opportunity to the assessee - no infirmity in the order of CIT(A) in this regard - C.O. of the assessee, the same is supportive in nature and therefore, did not require any adjudication and the same is dismissed accordingly - In the result, the appeal of the Revenue is partly allowed and C.O. of the assessee is dismissed. Issues Involved:1. Compulsory scrutiny selection.2. Deletion of additions on account of wages and salary payable.3. Representation by the Assessing Officer on behalf of the Revenue.4. Addition on account of bogus purchases of material.Issue-wise Detailed Analysis:1. Compulsory Scrutiny Selection:The Revenue contested the CIT(A)'s decision to quash the assessment order, arguing that the case was rightly selected for compulsory scrutiny per CBDT guidelines. The Tribunal found that the CIT(A) erred in applying the selection procedure for the financial year 2005-06 to the assessment year 2006-07. The ITAT clarified that the selection guidelines for scrutiny cases during the financial year 2005-06 pertained to preceding years, not the year in dispute. Consequently, the Tribunal reversed the CIT(A)'s decision on this point, allowing the Revenue's ground.2. Deletion of Additions on Account of Wages and Salary Payable:The Revenue challenged the deletion of Rs.1,43,33,248/- for wages payable and Rs.68,000/- for salary payable. The CIT(A) had accepted the assessee's explanation regarding the employment of Kashmiri laborers and their payment patterns. The Tribunal noted that the assessee failed to produce muster rolls and attendance registers. However, it found that the AO's addition was arbitrary, as it did not consider the past history and turnover ratios. The Tribunal upheld the CIT(A)'s deletion of the additions, noting that the AO's assessment lacked a reasonable nexus to the available material and was not based on facts.3. Representation by the Assessing Officer on Behalf of the Revenue:The Tribunal did not specifically address this issue in the detailed analysis, suggesting it was not a point of contention requiring separate adjudication.4. Addition on Account of Bogus Purchases of Material:The Revenue argued that the CIT(A) erred by not adjudicating the addition on account of unverifiable bogus purchases. The Tribunal concurred with the CIT(A) that the AO made the addition without giving the assessee an opportunity to respond. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the deletion of the addition.Conclusion:The appeal of the Revenue was partly allowed, specifically on the issue of compulsory scrutiny selection, while the other grounds raised by the Revenue were dismissed. The assessee's cross-objection was dismissed as it was supportive in nature and did not require adjudication.