2022 (12) TMI 1403 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on job work receipts, allows rectification.

Betex India Ltd. Versus Dy. Commissioner of Income Tax, Central Circle-2, Surat.

The Tribunal dismissed all appeals by both the assessee and the Revenue, upholding the CIT(A)'s decision to restrict the addition to 5% of the unaccounted ... Unaccounted job work received - CIT(A) restricting the addition made by the AO by estimating the profit @ 20% to 5% as net profit of the suppressed job work charges as income for the year under consideration - HELD THAT:- We find that the Ld. CIT(A) while restricting the addition to the extent of 5% of alleged unaccounted job work receipt followed by the decision of President Industries [1999 (4) TMI 8 - GUJARAT HIGH COURT] wherein it was held that “on the issue of suppression of said consideration only the addition to the extent of profit element may be made”. We are also of the view that wherein there is no fool proof of evidence of unaccounted sales or independent material to substantiate such allegation, only profit element to avoid the possibility of revenue leakage is sufficient to meet the ends of justice and not the substantial part of the disputed transaction. Therefore, we are not inclined to enhance the disallowance of alleged unaccounted job work receipt by assessee. Hence, ground No.1 to 4 raised by Revenue are dismissed. Disallowance in rectification order u/s 154 passed by Ld. CIT(A) in granting credit of additional income declared by assessee while filing return of income - CIT(A) on filing application under section 154 of the Act by assessee on account of additional business income, granted credit of such additional income. The ld CIT(A) thus, granted set of income, which was voluntarily offered by the assessee in response to notice under section 153A, to which the assessee is legally eligible. Thus, we do find any reasons for interference in the order passed by Ld. CIT(A). Hence, ground No.5 & 6 of Revenue’s appeal is dismissed. Issues Involved:1. Condonation of delay in filing appeals.2. Addition on account of unaccounted job work receipts.3. Estimation of profit rate on unaccounted job work receipts.4. Rectification under Section 154 of the Income Tax Act.5. Consistency in similar cases within the same group.Detailed Analysis:1. Condonation of Delay in Filing Appeals:The Tribunal condoned the delay of seven days in filing the appeals by the assessee, citing the Supreme Court's order in Suo Motu Writ Petition (C) No. 3 of 2020, which extended the time limit for filing appeals due to the COVID-19 pandemic. The Revenue did not object to this condonation.2. Addition on Account of Unaccounted Job Work Receipts:A search action under Section 132 of the Income Tax Act was conducted on the Sumeet Industries Ltd. group, including the assessee. Incriminating documents were found, leading to the issuance of a notice under Section 153A. The Assessing Officer (AO) noted discrepancies between the job work receipts recorded in the books and those found in the 'purchi software,' leading to an addition of Rs. 15.04 crores on account of unaccounted job work receipts. The AO rejected the assessee's explanation that the data in the 'purchi software' related to reprocessing work, and made an addition of Rs. 3.00 crores by estimating a 20% profit rate on the unaccounted receipts.3. Estimation of Profit Rate on Unaccounted Job Work Receipts:The CIT(A) restricted the addition to 5% of the unaccounted job work receipts, considering the average net profit rate of 3.77% over the years and judicial precedents like CIT Vs President Industries and CIT Vs Samir Synthetics Mill. The Tribunal upheld this decision, noting that only the profit element embedded in the unaccounted receipts should be taxed, not the entire receipt itself. The Tribunal also dismissed the Revenue's appeal to restore the AO's addition of 20%, emphasizing that the CIT(A)'s decision was consistent with judicial precedents and the facts of the case.4. Rectification under Section 154 of the Income Tax Act:The CIT(A) rectified his order under Section 154, allowing a set-off of Rs. 31 lakhs, which the assessee had declared in response to the notice under Section 153A. The Revenue argued that the CIT(A) exceeded his jurisdiction, but the Tribunal upheld the rectification, noting that the assessee was legally eligible for the set-off as it was a voluntary disclosure of undisclosed business income.5. Consistency in Similar Cases within the Same Group:The Tribunal emphasized the principle of consistency, noting that a similar issue in the case of Sitaram Prints Private Limited, another group company, was resolved by restricting the addition to 5% of the unaccounted job work receipts. The Tribunal applied the same principle to the present case, dismissing both the assessee's and the Revenue's appeals.Conclusion:The Tribunal dismissed all appeals by both the assessee and the Revenue, upholding the CIT(A)'s decision to restrict the addition to 5% of the unaccounted job work receipts and allowing the rectification under Section 154. The Tribunal emphasized the principle of consistency and judicial precedents in arriving at its decision.