2009 (7) TMI 52 - HC - Income Tax

Court upholds Tribunal decision on wages addition for assessment year 2005-06

Commissioner of Income Tax, Jalandhar-I, Jalandhar Versus M/s. Atam Valves (P) Ltd.

The High Court of Punjab and Haryana dismissed the revenue's appeal against the Income Tax Appellate Tribunal's decision for the assessment year 2005-06. ... Estimated Sales – Loose Slips collected during survey u/s 133A – held that AO is not justified in estimating the sales on the basis of loose slips without substantiating that the assessee has actually made the sales to that extent of estimation made by the AO and having no iota of evidence in the form of sale bills or bank account or movable and immovable property which represent earning of unaccounted income by the assessee - No doubt, a false explanation of assessee may be a circumstance to be taken into account for recording a finding of undisclosed income and some degree of guess work is also permissible in such a situation, as held by the Supreme Court in Kachwala Gems Vs. Joint Commissioner of Income Tax [2008 -TMI - 3365 - SUPREME COURT[ it depends upon facts and circumstances of each case as to what is to be fair estimate of undisclosed income. In this judgment from the High Court of Punjab and Haryana, the revenue has filed an appeal against an order of the Income Tax Appellate Tribunal for the assessment year 2005-06. The key issues proposed to be raised in the appeal include questions about the correctness of the Tribunal's decision regarding the addition of wages recorded in loose slips, the limitation of addition under section 69 of the Income Tax Act, and the estimation of unaccounted income by the Assessing Officer.The background of the case involves a survey conducted by the Department, which found incriminating documents including slips containing payment of wages to various persons. The Assessing Officer made an addition based on these slips, but the CIT(A) and the Tribunal partly set it aside. They concluded that the loose slips alone were not sufficient evidence for making the addition, as the Assessing Officer failed to substantiate that the sales were actually made to the extent estimated.The revenue argued that the addition should have been upheld once the assessee's explanation was found to be unacceptable. However, the Court rejected this argument, citing the need for a fair estimate of undisclosed income based on the specific facts and circumstances of each case. The CIT(A) and the Tribunal's decision to partly set aside the addition was considered justified in this context.Ultimately, the Court found that no substantial question of law arose for consideration and dismissed the appeal. This judgment highlights the importance of establishing a reasonable basis for estimating income additions in tax assessments.