2015 (12) TMI 970 - HC - Income Tax

High Court upholds Tribunal decision on tax additions, dismisses revenue appeals for lack of legal questions.

The High Court upheld the Tribunal's decision to delete additions made by the Assessing Officer, including unexplained labor expenditure, income of a ... Unexplained expenditure under head 'wages' - ITAT deleted the addition - conclusion of the authorities below was that the assessee had not booked the complete expenditure on wages in its books of account as the number of the workers found during the course of survey were more than the list of workers available in the books of account - Held that:- First of all the said survey was conducted at the premises of the assessee on 9.9.2004 when the said list was prepared. The conclusion of the said survey could not be applied while completing the assessment pursuant to search carried out at the premises of the assessee under section 132 of the Act. Secondly, there was no merit in the said addition being made in the hands of the assessee as the explanation of the assessee that the workers of the two concerns were totally considered in the list of workers prepared by the survey team for the assessee firm cannot be ignored. The said list of 59 workers was prepared on 9.9.2004 and the plea of the assessee was that the said 59 workers as on the date of survey belonged to the assessee and its sister concern. The requisite list of workers employed with either of the concerns were filed on record. Merely because the said statement was confronted to one of the partners who had signed the list does not establish that the workers belonged to the firm in which he was a partner i.e. the assessee firm before us. In the absence of any concrete evidence found, we find no merit in the orders of the authorities below and no addition is warranted in the hands of the assessee on the basis of said list prepared by the survey team where the assessee had clearly explained its case that the said total number of workers belonged to two concerns and not to the assessee itself. In any case, the additions in the hands of the assessee for the years under consideration have been made on pure estimation as no evidence of excess workers was found in the years under appeal. - Decided against revenue Addition on account of income of Smt.Meena Garg, Prop. of M/s Punjab Timber Trading Company being treated as income of the assessee on substantive basis - ITAT deleted the addition - Held that:- The Tribunal in the case of Smt.Meena Garg relating to assessment years 2002-03 to 2007-08 have held that the income arising from M/s Punjab Timber Trading Company was the sole proprietary concern of Smt. Meena Garg, consequent to which the income arising from the said concern was to be assessed in the hands of Smt.Meena Garg. In view of the income arising to M/s Punjab Timber Trading Company being assessed on substantive basis in the hands of Smt.Meena Garg, after holding that the assessee is the sole proprietary of the business being run under the name and style of M/s Punjab Timber Trading Co, there is no merit in making any addition in the hands of the assessee in this regard. Accordingly, we direct the Assessing Officer to delete the addition - Decided against revenue Addition on account of difference in valuation of building - basis of report of the valuation officer - ITAT deleted the addition - Held that:- The ratio laid down by the Hon'ble Apex Court in Sargam Cinema (2009 (10) TMI 569 - Supreme Court of India ) is squarely applicable to the facts of the present case where the books of account were not rejected by the Assessing Officer. On the other hand, the Assessing Officer had referred valuation of the building to the Valuation Officer who had reported the value of the building at ₹ 78,15.026/- as against the cost of the building shown by the assessee at ₹ 70,33,524/-. In view of the ratio laid down by the Hon'ble Supreme Court, no addition on this account can be made in the hands of the assessee where the books of account had not been rejected. - Decided against revenue Addition on account of estimated profit on short stock found - ITAT deleted the addition - Held that:- During the year under consideration, the assessee had shown fall in GP rate and the explanation of the assessee was that due to huge increase in the turnover there was marginal fall in GP rate, which undoubtedly has been accepted by the Assessing Officer in toto. In view of the totality of the facts and circumstances where we have already upheld the addition on account of sale depicted in the seized documents being outside the books of account and on account of the explanation given by the assessee that the discrepancy stands reconciled on account of the GP rate to be applied and other discrepancies explained by the assessee, there is no merit in any further addition. Another aspect to be kept in mind is that the information gathered by the Income tax Department during the search proceedings were forwarded to the excise department who in turn visited the premises of the assessee and found no discrepancy in the stock. Thus no merit in the addition made on account of estimated profit of short stock found on the date of search.- Decided against revenue Issues Involved:1. Deletion of addition on account of unexplained expenditure under 'wages'.2. Deletion of addition on account of income of a benami concern.3. Deletion of addition on account of difference in valuation of building.4. Deletion of addition on account of estimated profit on short stock found during the search.5. Sustainability and maintainability of the impugned order passed by ITAT.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Unexplained Expenditure Under 'Wages':The Tribunal deleted the addition of Rs. 23,63,243/- on account of unexplained expenditure on labor. The basis for this addition was a survey conducted on 9.9.2004, which reported a higher number of workers than recorded in the books. The assessee argued that the list included workers from both M/s Punjab Plywood Industries and its sister concern M/s Aggarwal Wood Industries. The Tribunal found that the facts and circumstances were identical to those of the assessment year 2001-02, where a similar addition was deleted. The Tribunal concluded that the survey findings from 2004 could not be used to make additions for the year 2007-08, especially when the explanation provided by the assessee about the workers was plausible and no concrete evidence was found to contradict this.2. Deletion of Addition on Account of Income of a Benami Concern:The Tribunal deleted the addition of Rs. 3,35,405/- which was added to the income of the assessee firm on the grounds that the business of M/s Punjab Timber Trading Co., a proprietary concern of Smt. Meena Garg, was actually being conducted by the assessee firm for tax avoidance. The Tribunal followed the reasoning from the assessment year 2002-03, where it was held that the income from M/s Punjab Timber Trading Co. should be assessed in the hands of Smt. Meena Garg, as she was the sole proprietor. The Tribunal found no merit in the addition made by the Assessing Officer and directed its deletion.3. Deletion of Addition on Account of Difference in Valuation of Building:The Tribunal deleted the addition of Rs. 70,33,524/- based on the difference in the valuation of the factory building. The Assessing Officer had referred the matter to the Valuation Officer, who reported a higher value than what was declared by the assessee. The Tribunal held that since the books of account were not rejected, no addition could be made based on the valuation report alone, following the Supreme Court judgment in Sargam Cinema vs. CIT (2010) 328 ITR 513. The Tribunal found that the Assessing Officer's approach was not justified and directed the deletion of the addition.4. Deletion of Addition on Account of Estimated Profit on Short Stock Found During the Search:The Tribunal deleted the addition of Rs. 10,98,211/- made on account of the estimated profit on short stock found during the search. The physical verification of the stock showed a discrepancy, but the assessee argued that the verification was not proper and that the excise department had found the stock tallying with the books of account later. The Tribunal accepted the assessee's explanation and noted that the gross profit rate declared by the assessee was accepted by the Assessing Officer. The Tribunal found no merit in further addition and directed its deletion.5. Sustainability and Maintainability of the Impugned Order Passed by ITAT:The Tribunal's order was challenged on the grounds of being unsustainable and perverse. However, the High Court found that the Tribunal's approach was not erroneous and that its findings were not based on any misreading or misapplication of evidence or material on record. The High Court concluded that no substantial question of law arose from the Tribunal's order, and thus, all the appeals by the revenue were dismissed.Conclusion:The High Court upheld the Tribunal's decision to delete the additions made by the Assessing Officer and confirmed by the CIT(A). The Tribunal's findings were based on consistent reasoning and proper application of legal principles, leading to the dismissal of the revenue's appeals.